Document of The World Bank Report No: 26047 IMPLEMENTATION COMPLETION REPORT (IDA-25180; TF-23905; CPL-36240; SCL-3624A) ON A LOAN IN THE AMOUNT OF US$325 MILLION AND A CREDIT IN THE AMOUNT OF SDR118.9 MILLION TO THE PEOPLE'S REPUBLIC OF CHINA FOR A GRAIN DISTRIBUTION AND MARKETING PROJECT June 27, 2003 Rural Development and Natural Resources Sector Unit East Asia and Pacific Region CURRENCY EQUIVALENTS (Exchange Rate Effective May 2003) Currency Unit = Yuan Y1.0 = US$ 0.12 US$ 1.00 = Y8.3 FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS CAS Country Assistance Strategy CIECC China International Engineering Consulting Corporation CPMO Central Project Management Office DWT Deadweight tons FCMO Foreign Capital Management Office ICR Implementation Completion Report ID Intermediate Depot ICB International Competitive Bidding ITC International Tendering Company MDT Ministry of Domestic Trade MOC Ministry of Commerce MOF Ministry of Finance NCB National Competitive Bidding NEC Northeast Corridor PD Primary Depot PMO Project Management Office SAR Staff Appraisal Report TA Technical Assistance tph Tons per hour Vice President: Jemal-ud-din Kassum, EAPVP Country Manager/Director: Yukon Huang, EACCF Sector Manager/Director: Mark D. Wilson, EASRD Task Team Leader/Task Manager: Alan Piazza, EASRD CHINA GRAIN DISTRIBUTION AND MARKETING PROJECT CONTENTS Page No. 1. Project Data 1 2. Principal Performance Ratings 1 3. Assessment of Development Objective and Design, and of Quality at Entry 2 4. Achievement of Objective and Outputs 5 5. Major Factors Affecting Implementation and Outcome 10 6. Sustainability 12 7. Bank and Borrower Performance 13 8. Lessons Learned 15 9. Partner Comments 16 10. Additional Information 17 Annex 1. Key Performance Indicators/Log Frame Matrix 18 Annex 2. Project Costs and Financing 19 Annex 3. Economic Costs and Benefits 21 Annex 4. Bank Inputs 22 Annex 5. Ratings for Achievement of Objectives/Outputs of Components 24 Annex 6. Ratings of Bank and Borrower Performance 25 Annex 7. List of Supporting Documents 26 Annex 8. Implementing Agency's ICR Summary 27 Annex 9. Transition To Bulk Grain Handling 37 Maps IBRD 24607, 24608 and 24609 Project ID: P003627 Project Name: Grain Distribution and Marketing Project Team Leader: Alan L. Piazza TL Unit: EASRD ICR Type: Core ICR Report Date: June 26, 2003 1. Project Data Name: Grain Distribution and Marketing Project L/C/TF Number: IDA-25180; TF-23905; CPL-36240; SCL-3624A Country/Department: CHINA Region: East Asia and Pacific Region Sector/subsector: Ports, waterways and shipping (30%); Crops (30%); Agricultural marketing and trade (25%); General transportation sector (9%); Central government administration (6%) Theme: Administrative and civil service reform (P); Trade facilitation and market access (P); Rural markets (S); Regulation and competition policy (S) KEY DATES Original Revised/Actual PCD: 09/30/1991 Effective: 12/15/1993 12/15/1993 Appraisal: 11/16/1992 MTR: 07/14/1997 07/14/1997 Approval: 06/17/1993 Closing: 06/30/2000 12/31/2002 Borrower/Implementing Agency: PRC/MIN OF COMMERCE Other Partners: AIDAB (Australia), CIDA (Canada), FAO, France, Netherlands, UNDP STAFF Current At Appraisal Vice President: Jemal-ud-din Kassum Gautam S. Kaji Country Director: Yukon Huang Shahid Javed Burki - Department Director Sector Director: Mark D. Wilson Joseph R. Goldberg - Division Chief Team Leader at ICR: Alan Piazza Alan Piazza ICR Primary Author: Albert Nyberg; Alan Piazza 2. Principal Performance Ratings (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible) Outcome:S Sustainability:HL Institutional Development Impact:SU Bank Performance:S Borrower Performance:S QAG (if available) ICR Quality at Entry: S Project at Risk at Any Time: No 3. Assessment of Development Objective and Design, and of Quality at Entry 3.1 Original Objective: This was an extremely large scale project with highly ambitious policy reform, institutional development, and physical infrastructure objectives. The project comprised some 384 sites in thirteen provinces and municipalities with a total investment of about US$1 billion. As stated in the Staff Appraisal Report (SAR), the primary objectives of the project were to (a) support the Government's grain sector reforms aimed at improving the policy and institutional environment, (b) assist institutional and infrastructure development in physical and commodity markets, and (c) facilitate the expansion and greatly improve the efficiency of China's domestic and international grain trade through investments in critical infrastructure. The project objectives closely reflected the Borrower's strong interest in reform of the grain sector and improved efficiency in grain distribution and marketing. In particular, the Government wanted to reduce its mounting fiscal losses on supplying grain to urban consumers (prior to the project, urban retail grain prices were considerably less than rural procurement prices). The grain distribution and marketing system was dominated by inefficient bag handling which further increased costs and thereby added to government expenditure in the grain sector. Building upon the policy reform recommendations of the Bank's 1991 study "China: Options for Reform in the Grain Sector," the project's objectives were clearly stated, important, and consistent with the CAS objectives of supporting rural economic reform and development. 3.2 Revised Objective: The project objectives remained unchanged. 3.3 Original Components: The bulk of the project investments focused on the introduction of modern, high-speed, bulk handling technologies to improve grain marketing efficiency and increase capacity. The technologies involved were not well known to national engineers specializing in grain-handling, though they were well proven and widely utilized in the developed countries. Therefore, considerable efforts were made to ensure that international technical assistance consultants, knowledgeable in the current technology and modern logistical systems, were engaged as counterparts with national design engineers, construction supervisors, and project implementation managers. In addition, considerable training investments were made. The training was conducted primarily through domestic training institutes, but also involved international training financed through the project's training budget and through operational and maintenance training provided by international equipment suppliers. The project was organized and implemented on the basis of the following transportation "corridors", market services, and training and TA components: (1) Northeast Corridor - Dayao Bay and Bayuquan Ports (21.6% of total project cost at appraisal). A major and increasing proportion of China's feed grain (corn) and soybeans was produced in the northeastern provinces. However, at the time of project preparation, marketing flows were hampered by grain policies that promoted storage rather than trade, and by antiquated physical marketing facilities. The grain sector was being liberalized and it was becoming increasing apparent that grain handling and transportation facilities would increasingly constrain marketing and production. As has been the case in many other countries over the last century, this necessitated the modernization of marketing infrastructure and the improvement of grain logistics. Also, at the time of appraisal, wheat inflows were increasing through the Dalian ports which service the northeastern provinces. A key component of the project was to be the development of a Dayao Bay Terminal at the recently developed Dayao Bay Port (in Dalian in Liaoning province). The terminal would comprise a wheat unloading berth capable of accommodating 80,000 DWT vessels, two 30,000 DWT corn loading berths, two 1,200 tph ship unloaders and four 800 tph ship unloaders, 300,000 tons of vertical silo storage, high speed hopper rail wagon loading and - 2 - unloading facilities, and state-of-the-art conveying, weighing, ancillary facilities, and site infrastructure. In addition, the Bayuquan Grain Terminal was to be constructed in the new Bayuquan port area (in Yingkou in Liaoning province). The terminal would comprise a corn loading berth for vessels of 30,000 DWT vessels, two 800 tph ship loaders, 100,000 tons of vertical silo storage, high speed hopper rail wagon loading and unloading facilities, and appropriate ancillary equipment and infrastructure. These two terminals were designed to increase port grain outflow capacity by 10.1 million tons (including 7.1 million tons through the Dayao Bay Terminal and 3.0 million tons through the Bayuquan Grain Terminal) and inflow capacity by 3.0 million tons (through the Dayao Bay Terminal). (2) Northeast Corridor - Hinterland (54.6% of total project cost at appraisal). The project outflow of 10.1 million tons would be sourced from 59 intermediate grain depots (ID), strategically located along rail lines in high production counties (in the four northeastern provinces of Liaoning, Jilin, Heilongjiang, and Inner Mongolia) which, in turn, would be serviced by 279 country depots (primary depots ­ PD) and surrounding farms. The IDs would be provided bulk truck unloading and bulk rail wagon loading facilities, appropriate silo storage facilities, high-speed mechanized facilities for cleaning, drying, conveying and handling grain and other improved site infrastructure. The PDs would be provided equipment and facilities for drying and storing grain, bulk truck loading equipment, and other ancillary facilities. Some 840 bulk trucks (of 10 to 12 ton capacity each) would be supplied to supplement the existing trucking capacity to convey grain to the rail-side depots. These depots and the port terminals would be rail-linked and grain would be conveyed in 2,400 bulk rail wagons (of 60 ton capacity each) designed for rapid loading and unloading. (3) Yangtze River Corridor (12.2% of total project cost at appraisal). This project component was designed to improve and increase grain flows along the mid- and lower Yangtze River. The Yangtze River basin produces surplus rice ­ which flows to other regions of China or is exported from terminals near the river mouth ­ but is deficit in feed grain and wheat. The project facilities were designed to add about 2.4 million tons of grain inflow capacity and 1.0 million tons of rice outflow capacity. Infrastructure investments would be made for two river-mouth terminals (in Jiangsu) that could accommodate 30-35,000 DWT oceangoing vessels, four upstream river terminals (located in Anhui, Jiangxi, Hubei, and Hunan), and 10 bulk-barges to provide a shuttle service connecting the upriver and river-mouth terminals. Each terminal would be provided with vertical silos, bulk loading and unloading equipment, and high capacity conveying and handling equipment. Existing barge vessels were expected to meet most of the transportation needs, but a few bulk trucks and rail wagons were also to be provided. (4) Southwest Corridor (5.0% of total project cost at appraisal). This component was designed as a grain inflow corridor as this area was deficit in both food and feed grains. The project would establish an integrated bulk grain distribution system in the southwest by upgrading the grain terminal at Fangcheng Port (in Guangxi) enabling it to handle bulk inflows of 1.6 million tons. New terminal facilities would include an 800 tph continuous ship unloader, a dedicated grain berth capable of receiving vessels of 40,000 DWT, 50,000 tons of vertical silos, high capacity conveying equipment and ancillary facilities. Inland facilities consisted of improving facilities at three existing IDs (all in Guangxi) including high speed bulk rail wagon unloading facilities. Some 220 bulk rail wagons would be transferred to the region and 90 bulk trucks were to be procured to meet the transportation requirements. (5) Beijing Central Depot (2.5% of total project cost at appraisal). A state-of-the-art bulk grain transfer and storage facility would be constructed on the outskirts of Beijing to improve food and feed grain handling and storage, generate savings through reduced congestion, and facilitate bulk rail shipments. The new facility would improve the urban environment by replacing three urban depots and their antiquated pollution control equipment. Also, urban land would be released for alternative use. The new facility would - 3 - include 62,000 tons of silo storage, high-speed bulk rail wagon unloading equipment, and complete truck loading and ancillary facilities. (6) Market Services (0.7% of total project cost at appraisal). Continuing liberalization of the grain sector required the consolidation and linking of market information, development of a `national' market, and establishment of forward and futures markets for grain. The project would assist in market development by providing computer (hardware and software) and network systems to assemble, assess, analyze, and disseminate price and market information nationwide. In addition, the project would provide supplemental computer and computer networks for two grain futures markets (tentatively identified as the Shanghai and Zhengzhou Markets). Technical and legal advice was separately sought from the Chicago Board of Trade. (7) Training and TA (3.4% of total project cost at appraisal). A key feature of the project would be the introduction of bulk grain handling and storage technology. Since China had limited first hand experience with this technology, the project would include a large training and technical assistance component. Over 600 staff-months of internationally recruited technical assistance was to be provided, and a sizeable portion of this would serve as counterparts to national engineers. Most training was to be provided domestically through on-going and specially created training programs developed at local training colleges (including those in Nanjing and Zhengzhou, for which computer centers were to be established). In addition, much of the equipment procurement would include operation and maintenance training. Supplemented by special grant funding, an additional amount of international management training would be available. 3.4 Revised Components: With one very major exception, the project components remained substantially the same throughout the project with only modest changes in cost allocations. The major exception was the relocation and reformulation of the Northeast Corridor Port component. Irreconcilable differences in ownership composition, asset contribution, and management of the proposed Dayao Bay Terminal resulted in the eventual relocation and development of the Dalian Port Terminal to Xizui. Concurrent with this relocation, the management of the Bayuguan Terminal withdrew from the project. Consequently, operations of Dayao Bay and Bayuguan terminals were combined into a single nearby operation at Xizui. Since the Xizui Grain Terminal was an entirely new port, this switch in location facilitated the resolution of ownership and management control. However, the switch also involved increased costs of at least Y300 million (US$37 million) for a breakwater, dredging, railway access, and the resettlement of 83 farm and fishing village households. There were two other minor changes during project implementation. First, in the Yangtze River Corridor, the componsition and number of vessels changed. The originally planned 10 bulk barges were reduced to 4 self-propelled coastal vessels to increase transport flexibility. Second, in the Market Services component, the project only provided assistance to the Shanghai Grains and Oils Exchange. Following an internal review, the government proposed that no further Bank assistance was necessary for commodity exchanges. This decision was in part based on the proliferation (without external assistance) of commodity futures markets in the early 1990s. Unfortunately, the regulatory and control framework developed less rapidly than did the physical and financial aspects. Subsequently, trading anomalies were alleged and the Government discontinued trading in several commodities and various futures exchanges were consolidated. 3.5 Quality at Entry: Quality at Entry is rated satisfactory. The project concept was well developed and understood and the project incorporated lessons learned from other grain handling and storage projects. The Bank's safeguard - 4 - policies on resettlement and environmental impact were adequately addressed and incorporated into project design. However, at the time of entry, (a) depot and terminal designs were at a preliminary stage of preparation, and (b) ownership and management arrangements for the Dayao Bay port terminal had been agreed on paper but were in fact quite problematic and unresolved. Consequently, there was a substantial delay in initial project implementation while civil and mechanical design work was undertaken and the Dayao Bay port terminal management and ownership issue unfolded. The Bank and the Borrower should have done more to resolve these problems during preparation. 4. Achievement of Objective and Outputs 4.1 Outcome/achievement of objective: Project objectives were substantially achieved and the project outcome is rated satisfactory. The consensus of the project task team is that this was a good project, and might have been a great project considering the key role that it played in transitioning China from bag to bulk grain handling, but that it would have required a stronger project management system and more intensive supervision and implementation support from the World Bank (see Sections 5.2, 5.3 and 7.2 below) in order to reach its full potential. Grain sector reforms were substantial over the life of the project, and the project (and, in particular, the project preparation process) contributed to the design and implementation of these reforms. Project success was greatest in the introduction of bulk grain handling logistical networks and modern infrastructure. These improved networks and new infrastructure have been very successful and have greatly improved marketing efficiency. As discussed below in Section 4.2, this is particularly the case in the Northeast Corridor. Policy Reform. Significant grain sector reforms and liberalization occurred during project preparation and implementation. All of the major grain sector reforms of the 1990s are summarized in Annex 2 of the project SAR "Program for Grain Marketing Reform in China" (signed by Vice-Minister Bai Meiqing), and the large scale of the project provided important support for the realization of these reforms during the project preparation period. In particular, (a) grain prices at all levels have been deregulated and grain markets (including the export market) have been liberalized, and (b) government involvement and intervention in the grain sector has been reduced (primarily) to the operation of a grain reserve and establishing producer floor prices. Progress in the development of financial markets (forward trading and futures) was discontinuous and futures trading in several commodities (including grains) were suspended in the late 1990s. During this time, futures markets were consolidated and trading safeguards were strengthened, and trading in major commodities was subsequently revived. The project's support for policy reform was greatest during the preparation period, and two key factors constrained the project from becoming an important platform for grain policy dialogue and reform during implementation. First, the implementing agency was in a near continual state of restructuring during the entire period of implementation, and this hampered grain policy dialogue. The Central Project Management Office (CPMO, known as "FCMO" -- the Foreign Capital Management Office) was initially located within the Ministry of Commerce (MOC). In 1993, MOC was consolidated into the Ministry of Domestic Trade (MDT). In 1997, MDT was eliminated and the State Grain Reserve Administration subsequently became the parent of the CPMO. In 2000, the National Administration of Grain took charge of grain policy implementation, and the CPMO was essentially orphaned. (At that point, the Bank insisted that the CPMO at least be maintained in order to manage final project implementation and liaise with Bank supervision missions.) While much of this restructuring made sense for national grain policy implementation, it contributed to a steady dilution of the Bank's dialogue on grain policy reform through the project. Second, and more importantly, the Bank's supervision effort was overwhelmingly concentrated on keeping up with the enormous demands of the technology transformation embodied in the project. Bank supervision necessarily focused on the engineering and procurement requirements of this enormous project - 5 - and, due to budget constraints, relatively limited resources were directed toward grain policy reform dialogue. 4.2 Outputs by components: (1) Northeast Corridor - Dalian Port Terminals ($214.2 million SAR, $301.9 million actual including bulk rail wagons). The component is rated satisfactory. In addition to the completion delay caused by the switch from Dayao Bay to Xizui, two other factors further delayed completion. First, the ICB bidding for the main mechanical and electrical contract (worth about $70.7 million) failed on its first try and had to be rebid. Second, there were serious contract disputes with the major mechanical and electrical contractor. Though the contract disputes were eventually resolved through adjudication, the process left the terminal short of some of the anticipated amenities of a fully automated modern terminal at the time of project completion. However, all of the necessary elements for safe operation were eventually implemented. In addition, there was a fire and explosion at the Xizui Grain Terminal in late-2001 caused by unsafe welding practices. Ten workers suffered minor injuries and there was some modest damage to the facility. This experience dramatically confirmed that safety, dust control, and operational management procedures at the Xizui Grain Terminal were not adequate, and the Bank required the preparation and immediate execution of a special "Fire and Explosion Prevention Action Plan." Follow-up on this Action Plan has been very strong, and all of these difficulties have been largely overcome. The Xizui Grain Terminal is now the largest and most modern grain terminal in Northeast Asia. The State Grain Administration has added 600,000 tons of "squat silo" storage to utilize the other terminal infrastructure including transportation connections. (2) Northeast Corridor - Hinterland ($540.8 million SAR, $385.3 million actual). The component is rated satisfactory. All project sites, including 59 IDs and 279 PDs, were developed and all sites have become operational. In the implementation process a few useful items (including weighbridges, truck hoists, and other items) were not procured at some sites due to budget shortfalls or equipment price increases. Since becoming operational, some of these omissions have had efficiency impacts (particularly at full capacity operation) and supplementary financing is being obtained to procure these omitted items. As the IDs became operational, managers very quickly found bulk grain handling to be more efficient and preferable to bag shipment, and have fully utilized the 1,486 bulk rail wagons procured with project financing. (3) Yangtze River Corridor ($121.1 million SAR, $113.7 million actual). The component is rated satisfactory. All physical targets were completed early in the project period and the infrastructure has been in use for some time. However, the various terminals have had uneven success. The river mouth terminals have enjoyed considerable throughput and have further expanded their facilities. On the other hand, the upriver transfer wharves have not experienced the anticipated corn throughput, primarily because of changes in rail freight operations and rates that have made rail shipments from the northeast more flexible and financially preferable. (4) Southwest Corridor ($49.8 million SAR, $45.0 million actual). The component is rated satisfactory. Despite some early engineering difficulties, all of the terminals and IDs have become operational. However, corn throughput has suffered for the same reasons as in the Yangtze River Corridor and severe price competition for reduced wheat inflows has diverted imports to other Southwest ports. The terminal is trying to achieve profitability by diversifying to other dry-bulk products. The substitution of a "grab crane" for a continuous grain unloader has simplified their diversification efforts. (5) Beijing Central Depot ($25.0 million SAR, $18.8 million actual). The component is rated satisfactory and all planned facilities have been installed. This was the smallest of the "grain corridors" and - 6 - was the first to be completed. The depot is operational and, in addition, is the site of 150,000 tons of State Grain Administration strategic grain reserve storage which utilizes other project-financed infrastructure. (6) Market Services ($6.5 million SAR, $4.8 million actual). The component is rated satisfactory. Continued liberalization of the grain sector has resulted in privatization of the Grain Information Center. It still offers some public goods in terms of grain price information provided to the news media, but otherwise sells its services to private clients (including "special studies" on various grains and vegetable oils). The project anticipated investments in two grain futures markets, but as the markets developed, the government concluded that one grain futures market (the one in Shanghai) was sufficient. After some alleged trading aberrations, grain futures trading was suspended and futures trading generally was consolidated. (7) Training and TA ($33.9 million SAR, $52.1 million actual). This component is rated satisfactory. The smaller component activity of the two Training Centers was reasonably satisfactory. The two existing Training Centers were expanded and improved and provided with computer networks. The Centers developed and offered several technical grain engineering courses, as well as courses in finance and management. Several hundred participants have attended the technical courses. However, the other and much larger component activity of international Technical Assistance (TA) was extremely problematic. Supplemented by Australian, British, Canadian, Dutch, French and other Grants and Trust Funds, there was a total of more than 600 staff months of international TA. Particularly during the early stages of project implementation, there was tremendous resistance to this TA. For example, the TA provided to the Central PMO by FAO and a British firm to improve project management capability was poorly received and largely ineffective. Much of the international TA provided to the individual project corridors by international consulting engineering firms was also heavily resisted during the early years of the project. Most importantly, international technical assistance for corn driers, dust control and explosion proofing, design efficiency and flexibility, construction quality, operations management and safety requirements, and other key aspects was often ignored or actively resisted. There were several reasons for the initially poor uptake of the international TA. In addition to the considerable language barrier, it was also difficult for the national Design Institutes to accommodate the large gap between their knowledge base and standard practices and established international technologies. Handicapped by inadequate funding, the Central PMO may simply not have been able to absorb the TA offered by the FAO and British advisors. There may also have been the suspicion that foreign advisors were only interested in establishing new markets for foreign equipment. Conversely, in some instances it seems that inferior technologies were included in the project in order to direct contracts to national equipment manufacturers. Finally, the initial uncertainty over the ownership and management of the Dalian Port Terminal certainly resulted in a near complete roadblock to effective international TA. However, while there was considerable frustration and many delays along the way, resistance to the international TA gradually subsided over time and the capacity of national engineering experts strengthened. By the end, it was clear that the international TA did play a key role in a technology transfer of historic proportion. (8) Resettlement. At the time of appraisal a few small land purchases were expected at several sites to permit facility expansion. Only at one project site (namely, the Qingshan Terminal) in Wuhan was resettlement anticipated. However, when the location of the Dalian Terminal was switched from the already developed Dayao Bay Port to Xizui, resettlement of a fishing village and two farming villages became necessary. Resettlement at Wuhan was relatively simple as many of those relocated worked for the Terminal, and only 7 of the 40.6 mu acquired were cultivated. Resettlement was more complex at Xizui since (a) it was a new terminal with no existing employees, and (b) some of the land and sea areas acquired for terminal operations were either cultivated or aquatically farmed. Also, construction of the rail line and harbor road required the relocation of a few small enterprises. Site visits and the Resettlement Completion Reports confirmed that (a) per capita incomes in both areas (which were higher than the national average - 7 - prior to resettlement) increased much more rapidly than the national average following resettlement, (b) resettlement procedures and compensation observed standard Government procedures and satisfied World Bank procedures and policies, and (c) those resettled enjoyed superior infrastructure services (water, electricity, sewerage, etc.) and home living spaces increased. Some details are contained in the following table. Resettlement Conditions Xizui Wuhan Land Acquired 1123 mu 40.7 mu Households Relocated 83 56 Household members 239 245 Total Cost 84.2 million Yuan 10.3 million Yuan (Note: 1 hectare = 15 mu) (9) Procurement. Procurement during the project was an evolving process. Initially the project management team, responsible for procurement processing of NCB contracts, and the international tendering companies (ITCs), the quasi-independent procurement agencies charged with carrying out procurement processing of ICB contracts, were relatively inexperienced in World Bank procurement procedures. The large number of contracts associated with the project resulted in a steep learning curve for these agencies and necessitated close and detailed supervision by the Bank's project team. Delays inevitably occurred because of the lengthy and multiple reviews necessary to ensure acceptable documents. In addition, because of the inexperience of national engineers in the new technologies being introduced, specifications often had to be heavily edited and this required more time and international technical assistance. In order to strengthen basic construction and equipment quality, improve designs, and guarantee basic operational functionality and safety requirements, the Bank's consultant specialists played a significant role in providing this technical assistance. The publication, in 1997, of the suite of Chinese Model Bidding Documents, agreed between the Bank and MOF for use on ICB and NCB procurement, and the growing experience of the project management and ITCs in the Bank's procurement procedures, resulted in faster processing of documents and award decisions in the later phases of the project. In one major way, the project did suffer from the rigidities of the Bank's procurement procedures. Much of the specialized equipment needed for the outlying country grain depots was available from both national and international manufacturers. Although nominally meeting the specifications for the equipment, many of the national manufacturers produced equipment which was of poor quality and had a short lifespan, at a cost well below that of the more reliable manufacturers. Awarding to the lowest evaluated bidders sometimes resulted in the installation of equipment that was poor value for money and would have to be replaced in a short time. As a matter of public policy, the large number of individual civil works components­ ports, intermediate grain depots (IDs) and primary depots (PDs) - and the mechanical and electrical grain handling equipment needed to modernize them, were contracted on an individual basis to relatively small and inexperienced contractors and suppliers. This resulted in wide variations in quality, much of which was barely acceptable and some of which was unacceptable in terms of dust control and explosion proofing. While Bank supervision missions tried to correct as many of the faults as could be detected in the small sample of sites visited, the quality and safety of the remainder of the sites could not be verified. The implementing agency's supervision was also inadequate because (a) of funding constraints, and (b) many of the personnel - 8 - lacked the necessary experience in modern grain handling techniques. From a procurement point of view, as well as that of quality and safety, it would have been better and more efficient to have bundled these sites into relatively few, much larger contracts that would have been let to more experienced large contractors both national and international. This way it would have been easier to retain more control over quality. Although it might have been resisted by the many separate Provincial Grain Bureaus involved in project implementation, a considerable degree of bundling would have been possible in each of the project's main corridors. (10) Construction and Equipment Quality, and Operational Safety and Efficiency. Much of the Bank's supervision effort was focused on guaranteeing basic operational functionality and safety requirements, improving designs to achieve greater efficiency and flexibility, and strengthening basic construction and equipment quality. While there was initial resistance to much of this technology transfer (see Section 4.2 Item 7), the Bank team's persistent emphasis on basic technical adequacy, operational cost effectiveness and functionality, and safety standards contributed to a number of significant advances. The key technical areas where significant contributions were made include: l introduction of rational planning methods to optimize storage sizes, handling rates, drying capacity, and transportation l introduction of flat-bottomed, large diameter, concrete storage tanks, suitable for mechanical handling, and related layouts l development of mechanical and electrical technical specifications to suit modern grain handling methods and flow sheets l utilization of explosion proofing and dust control systems l improving construction, manufacturing, and installation quality l improving the quality of dryers and other specialized equipment l design of ports for operational flexibility and potential future growth l training programs and manuals for operations and maintenance 4.3 Net Present Value/Economic rate of return: The estimated economic rate of return for the Northeast Corridor is 12.2 percent. This is about one half of the appraisal estimate, and several factors explain the reduced rate of return. The following several factors reduced the estimated benefits accruing to the Northeast Corridor: (a) external investments at the Dayao Port (through the Singapore Port Authority Joint Venture) increased capacity and reduced ship waiting time (although the port remains congested, this somewhat reduced the benefits from the Northeast Corridor Port investments), (b) the assumption that, without the project, improvements would have been made in grain ship loading and unloading, thereby reducing ship servicing times and the amount of freed berth capacity, (c) actual benefits from reduced spillage losses are believed to be about one half of the rate anticipated at appraisal, (d) actual labor and handling savings are slightly lower than initially estimated, and (e) an increase in medium sized dry-bulk vessels in the Pacific region increased shipping competition and reduced differential ocean freight rates thereby reducing the international transport savings from using the larger vessels. Although the appraisal cost estimates (US$755.5 million) for the Northeast Corridor exceed the actual costs (US$691.2 million), the ICR rate of return analysis costs include the (a) the post-project investments in bulk rail wagons (since these investments were necessary to permit capacity corridor operations), and (b) Technical Assistance and Training costs. However, the ICR rate of return estimate should be considered to be conservative since some benefits typically included in port projects were excluded. These excluded benefits are the cargo time-savings (interest opportunity cost) for both the grain and other general cargoes. Furthermore, an exceptionally important benefit, and one of the project's central objectives, cannot be quantified. The large scale introduction of new technologies -- including the switch from bag to bulk grain handling -- is a national benefit achieved in large part through the extensive - 9 - use of internationally recruited technical assistance and training. These technologies have now been widely adopted by both individual grain enterprises and by the State Grain Reserve Administration in their expansion programs. Insufficient data precluded the calculation of economic rates of return for the other project corridors. The expected benefits in the upriver portion of the Yangtze River Corridor have not accrued, largely because reductions in rail costs from the Northeast has, contrary to other country experiences, made water transport as costly as rail. On the other hand, the river mouth terminals have enjoyed substantial benefits and are expanding their operations to service nearby areas. For the Southwest Corridor, the decline in wheat imports, inceased port competition, and the reduced rail costs for internal corn flows resulted in reduced levels of benefits. However, through the handling of alternative bulk materials, the Fangcheng Port Terminal appears to be breaking even on a financial basis. The Beijing Central Depot has done very well financially as the three former depot sites in the central city have been sold for upscale activities (including supermarkets and apartment buildings) and the Depot has become an important storage terminal for the State Grain Reserve Administration. Unfortunately, accounting data are not sufficient to allow the separation of project and non-project benefits for the Beijing Central Depot. 4.4 Financial rate of return: Financial rates of return were not calculated at appraisal, and none were they estimated for the ICR. Since most of the project costs and benefits are subject to market prices, the economic rate of return is believed to be a rough proxy of the financial rate of return. In addition, it has been noted that a number of the project's major Port Terminals and IDs are reporting that they have achieved profitability or are at least breaking even. 4.5 Institutional development impact: The institutional development impact is rated substantial. Government administrative reform, combined with grain sector reform and liberalization, has had significant impacts on project entities. The Ministry of Domestic Trade, which largely managed the grain sector at the time of project appraisal, no longer exists. Many of MDT's former tasks and functions have also been eliminated. Reform has meant that project entities, which formerly could rely on government for budgetary support, are now self-reliant and responsible for generating cash flows to pay debts and finance operations. Although there was sometimes strong resistance to modern bulk grain handling technologies during the first years of the project, this resistance was eventually overcome and the project's most important institutional development impact has been the transfer of bulk grain handling technology. The Domestic Design Institutes, now self-reliant, have been exposed to modern high-speed, bulk grain logistics and are now largely capable of incorporating these features into designs for new facilities. The technology transfer aspect of the project has been imminently successful as modern logistics techniques have been incorporated into all subsequent facilities constructed for the State Grain Administration. 5. Major Factors Affecting Implementation and Outcome 5.1 Factors outside the control of government or implementing agency: Factors outside the control of government and the implementing agency had relatively little impact on the project implementation and outcome. One significant such event was the allegation that the bidder awarded the mechanical ship unloader contract for the Xizui Grain Terminal had submitted falsified qualifications. Upon confirmation that the supplier's experience was misrepresented, the Bank suspended the contract, reviewed the circumstances, and determined that, since the remaining original bidders agreed to maintain their bid prices, the next lowest evaluated bidder could be awarded the contract. However, the process of review, confirmation of the allegation of misrepresentation, second Bid Evaluation Review, and subsequent contract award resulted in a construction delay of approximately one year. - 10 - 5.2 Factors generally subject to government control: With some significant exceptions, the influence of factors subject to government control was favorable. Most importantly, the government remained supportive of the project and was quite active in maintaining the original content of the project when it appeared some provinces might decline to continue project participation. In addition, the switch in the location of the Dalian port terminal from Dayao Bay to Xizui involved significant additional investments as an entirely new port had to be developed. The government played the key role in overcoming this critical roadblock to project implementation by authorizing the switch in location and providing the necessary incremental financing. However, some government actions may have had a negative impact on project implementation and outcome. First, the project Special Account was located under the auspices of the Ministry of Finance instead of under the control of the Central PMO. This almost certainly undermined the Central PMO's control of the project. In addition, while the processing of domestic payments and submission of withdrawal applications did not seriously impact project implementation, the process would likely have been more expeditious had the Special Account been under the control of the Central PMO. Second, the clearance process for engineering designs was unduly laborious, time consuming, and inefficient. Designs were submitted to the China International Engineering Consulting Corporation (CIECC) for clearance, and this process often required several weeks or longer to accomplish. Only after CIECC clearance could the designs be forwarded to the World Bank for its review and "no objection." While the government's review identified and corrected many design defects and omissions, many others problems were not discovered or corrected. Review by the Bank's engineering consultant frequently found design flaws or inconsistencies which should have been captured and corrected prior to submission. The Bank would then notify the project management office of revisions necessary before a "no objection" could be issued, and this would of course further extend the clearance process. As discussed in Section 5.3 below, it would have been more efficient to employ sufficient engineers in the Central PMO (who would be closely familiar with the project scope and the role, size, and requirements of each site) to review and clear designs. Third, while overall project financing was forthcoming, the release of funds locally was occasionally delayed and affected timely construction and implementation of project facilities. 5.3 Factors generally subject to implementing agency control: Factors subject to implementing agency control had very little effect on project implementation and outcome. The Central PMO was inadequately budgeted and staffed to manage a project of this magnitude, and this adversely affected project implementation and outcome. First, a much larger engineering staff should have been maintained, with adequate budget to (a) thoroughly review engineering designs, (b) regularly visit project sites to ensure standards were met, and (c) provide technical advice to local field engineers. Second, the implementation office lacked clear implementation authority. However, it is believed these two problems were not subject to the implementing agency's control. Instead, the Central PMO tried to do the best it could with the funding available and, lacking true authority, is to be complimented for its ability to implement the project primarily by persuasion. 5.4 Costs and financing: Actual project costs were US$921.6 million. This amount includes funds from the World Bank Loan and Credit, government counterpart funds, plus US$6.1 million for the Xizui breakwater (which was procured using Government guidelines). Government has also committed about US$30 million for the procurement of an additional 900 bulk rail wagons, but this amount is not included in the total actual costs figure. Actual costs were about US$70 million (or 7 percent) less than appraisal estimates. This cost underrun is explained primarily by the (a) devaluation of the Yuan during project implementation, and (b) forced reduction in expenditure on the Northeast Corridor Hinterland. These two cost underrun factors were - 11 - largely offset by the large cost overrun for the Northeast Corridor Ports component. As discussed in Section 4.2 above, some useful items in the Northeast Corridor Hinterland were not procured due to government budget constraints. Most significantly, about 1000 bulk grain trucks were not procured (since it was determined that sufficient trucks were commercially available for hire), and this reduced actual costs by about US$34 million. 6. Sustainability 6.1 Rationale for sustainability rating: Project sustainability in the Northeast Corridor (both the Port Terminal and the Hinterland) is rated highly likely. Many of the Northeast Hinterland IDs have reported profitability after only a few months of operating the new bulk facilities. In addition, although still operating substantially below capacity, the Xizui Port Terminal also reports profitability (though this may be due, in part, to storage operations for the State Grain Administration which were not covered under the project). Although the product inflows and outflows through Xizui are not exactly as anticipated at appraisal, the Terminal was designed to have considerable operational flexibility, and Terminal management has been aggressive in identifying and exploiting import and export opportunities. The rapid development of the livestock industry has resulted in soybean imports (in contrast to soybean exports anticipated at appraisal). These imports are mostly being handled by the Xizui Port Terminal due to its efficient bulk unloading capacity. Minor quantities of other dry-bulk commodities also have been imported through Xizui and small volumes of bagged top soil have been exported to Hong Kong. Similarly, sustainability of the Beijing Central Depot is rated highly likely. Although linked by rail shuttle with the Tianjin Port, its sustainability is not dependent on imported and exported grain. Instead, it's function is to service the Beijing area with food grains and to be a transshipment terminal for bulk feed grains regardless of whether imported or domestically produced. Sustainability of the river mouth terminals of the Yangtze River Corridor is also rated highly likely since port throughput has been greater than project appraisal estimates. However, the cost of shipping maize from the Northeast to the areas served by the upstream terminals is now similar for both rail and water, and a portion of this market has been assumed by rail traffic. Therefore, these terminals have diversified and now handle several bulk materials in addition to grain. Some of the upstream terminals now report profitability. However, upstream terminal sustainability will likely depend upon whether they can exploit diversification options and/or provide grain-handling logistics that are superior to rail services at similar unit costs. Sustainability of the Southwest Corridor facilities is uncertain. China's wheat imports have been substantially below levels anticipated at appraisal. However, following full WTO integration, wheat imports are expected to return to their levels of the mid- and late-1990s. To date, soybeans have comprised the principal grain handled at the Fangcheng Terminal. These soybeans are for local crushing (that is, they are not transported through the inland corridor), and commodity handling has been diversified to alternative dry-bulk commodities. The Terminal could be self-sustaining by handling other dry-bulk commodities, though this would not benefit the Southwest Corridor facilities. For the Southwest Corridor to be sustainable, the Fangcheng Port Terminal will need to offer more competitive rates and improve efficiency. The market services component sustainability varies by element. The Grain Information Center has proven its sustainability in the liberalized `free market' environment. The reintroduction of a corn futures market, as is under discussion, should be sustainable as the previous closure was due to alleged irregularities, not market volume. For the Technical Training Center at Zhengzhou, there has been reasonable demand for - 12 - their training services by the market-oriented grain agencies and the Center's leadership has been aggressive in searching out additional training opportunities. Lastly, it appears that the Management Training Center at Nanjing likely will not be self-sustaining and will probably be integrated into the Nanjing Institute of Economics. 6.2 Transition arrangement to regular operations: The Government has continued to liberalize the grain sector, and there are no expectations of reversal. During project implementation, project entities were advised that, consistent with the reform program, they would be financially independent and responsible for their own profits and losses. Nevertheless, consistent with arrangements made during implementation to encourage full provincial participation in the project, Government has assumed responsibility for repaying a portion of the project debt of the Intermediate Depots. 7. Bank and Borrower Performance Bank 7.1 Lending: Overall Bank performance is rated satisfactory, though there was weakness in some areas. Most importantly, building on the strong analytical base of preceding sector strategy research work, the project composition and design was consistent with the Government and the Bank's strategies to liberalize the grain sector and introduce modern logistical infrastructure into grain marketing. The project focused on grain flows and shipments instead of on storage. A review of previous Bank financed grain marketing projects had shown that an excessive focus on grain storage was a common weakness of previous such projects. Transportation was correctly identified as the primary constraint to corn marketing in the Northeast Corridor, and project investments were correctly focussed on this constraint. Second, the lack of national experience with bulk grain logistical systems resulted in strong Bank TA support in project preparation. Several of the world's best grain-handling engineers were engaged in project preparation, financed in large part by various Country Trust Funds. Third, the Bank's preappraisal and appraisal performance is also rated satisfactory. The Bank's preappraisal and appraisal team comprised 10 Bank staff and 21 technical consultants, which was consistent with the multicomponent nature and wide geographic dispersion of the project. There were also some weaknesses in the Bank's preparation effort. First, while a large amount of preparation work was undertaken prior to appraisal in terms of analyzing grain production, marketing flows, and equipment requirements and their costs, there was insufficient time to prepare and agree on preliminary engineering designs. It was decided to proceed with the project and complete the preliminary design work during the early implementation period. Unfortunately, the obstacles to completing acceptable preliminary designs were far more substantial than had been anticipated (see Section 4.2 Item 7 above). Second, in the case of the Dalian Port, it was thought that management and ownership arrangements had been adequately finalized. In fact, management and ownership arrangements were not clear, and this uncertainty severely affected initial project implementation. Third, it was the Task Team's view that project implementation would require eight years, not six years as indicated in the SAR. However, it was decided to retain the standard six year implementation period since a longer implementation period was considered unacceptable at that time, and the alternative of splitting the project into two periods was rejected due to fears that this would undermine Government support for the project. (Actual implementation did require the full eight years expected by the Task Team.) 7.2 Supervision: The Bank's supervision effort is rated satisfactory. However, it is believed that the Bank's supervision support should have been even more substantial given the exceptional size and complexity of the project, - 13 - the lack of national engineers' familiarity with the technologies to be introduced, and the failure to complete the preparation of preliminary designs prior to implementation. None of the Bank staff member responsible for project supervision had grain engineering expertise. Instead, all engineering aspects of the project were supervised by consultants. Fortunately, it was possible to recruit several excellent engineering consultants who supported Bank supervision work during the entire period of project implementation. Through extensive use of Grants and Consultant Trust Funds and the Bank's own supervision budget, it was possible to finance the necessary desk reviews of designs, field supervision of construction, and monitor the incorporation of adequate safety measures. Twenty-one supervision missions were conducted over the life of the project. The first six supervision missions were staffed by an average of six members, which was consistent with the large amount of preparation work which remained to be undertaken. Subsequent missions averaged only three members. Although there were a large number of supervision missions, it is believed that supervision frequency and staffing were insufficient, and most project sites were never visited by Bank missions. Nevertheless, supervision staff developed close professional relationships with project staff and contributed substantially to successful project implementation through interventions with Government, identification of several major safety and operational deficiencies (assurances were obtained these deficiencies would be corrected, but insufficient budgets prohibited adequate follow-up), explanations of and advice on new technologies, and field assistance in solving procurement and implementation problems. It is believed that project supervision would have been significantly more effective had the Task Team included one full-time engineer. Second, since the Bank supervision team had to focus most or all of its resources on the engineering and safety aspects, procurement issues, and management constraints of this massive infrastructure project, there was simply very little time left to support the project's policy reform objectives. While much of the policy reform agenda was achieved during the period of initial project implementation, it was unfortunate that the task team did not have the time or resources to support and follow-up on the evolution of the policy reforms. 7.3 Overall Bank performance: The overall Bank performance is rated satisfactory. The project met a strong need, particularly in the Northeast, and the Bank team played a vital role in assisting project preparation. However, the enormous scale of the project and its importance to the technical transformation and policy reform of China's grain sector should have merited a greater allocation of Bank supervision resources. In addition, it could be argued that the Bank did not adequately support the international technical assistance required for this large scale engineering project. However, it is certainly true that the Bank task team made heroic efforts to support the international technical assistance program in the face of strong resistance (particularly during the early years of project implementation; see Section 4.2 Item 7 above). On balance, the Bank did what was necessary to provide sufficient international technical assistance and, by the time of project completion, technical adequacy had been largely achieved. Borrower 7.4 Preparation: Considering that the project was introducing a new technology to China and that it was difficult for national design engineers to incorporate these unfamiliar technologies, borrower preparation is rated satisfactory. The project concept was sound and grain sector reform, necessary for project success, was well underway. The SAR (Annex 2) included a rough blueprint outlining continued sector reform. The Government committed considerable resources to preparation primarily involving staff of national Design Institutes who assisted in developing the corridor concept and would subsequently be responsible for developing the preliminary and detailed designs for the individual project sites. However, Government would have done well had it required that the preliminary designs be completed prior to Board Presentation (this would have saved it considerable sums in commitment fees and improved the project's rate of return). Further, Government incorrectly represented that the ownership and management structure for the Dalian - 14 - Port Terminal had been resolved. This error resulted in a lengthy delay in the start up and completion of the Northeast Corridor. 7.5 Government implementation performance: Government implementation performance is rated satisfactory. There were delays in implementation progress caused by the lack of timely budget releases and by inadequate design reviews. For example, the curtailment of budget releases in 2000 adversely affected smooth project implementation. Design reviews sometimes created delays without adding value, and were a bureaucratic hindrance to efficient implementation. The Government also undermined the authority and capability of the project's Central PMO by (a) locating the Special Account outside of the Central PMO, and (b) providing inadequate funding for the operations of the Central PMO. However, after factoring in these delays and other problems, implementation progress was acceptable. 7.6 Implementing Agency: Implementing Agency performance also is rated satisfactory. This rating is based primarily on the fact that, despite the aforementioned inadequate authority, budget and engineering staff (see Sections 5.2 and 5.3 above) to appropriately monitor and supervise project implementation at 348 sites scattered over thirteen provinces and municipalities, the Central PMO was able to guide implementation to a successful conclusion and outcome. 7.7 Overall Borrower performance: Overall borrower performance is rated satisfactory. The lack of prior design work and the relocation of the Dalian port terminal resulted in more time required for project implementation than was allocated in the Development Credit Agreement. The project closing date was extended twice. The first extension was for two years and was necessary in order to complete the engineering works at the relocated Dalian port terminal and finish all works within the Northeast Corridor Hinterland. A second extension of six months became necessary following an unresolved dispute between the owners of the Xizui Port Terminal and the primary contractor (this lengthy dispute was eventually resolved through adjudication). Despite these and other difficulties, the Borrower remained committed to the project concept, eventually overcame most of the significant problems, and played a key role in a successful project. 8. Lessons Learned l The project demonstrated the economic and technical feasibility of grain marketing investments when the objective is moving, not storing, grain. By comparison, previous Bank financed grain projects which have focused more on grain storage have had relatively poor returns. l There would have been significant advantages to having completed key portions of the preliminary design work prior to Board presentation. First, the project implementation period would have been substantially reduced had key preliminary design work been completed during the preparation phase. Second, the process of completing the preliminary design work would have highlighted the fact that management and ownership arrangements for the Dalian Terminal had not been adequately resolved. Third, all those involved in the project would have better understood the magnitude of the engineering challenge and depth of the technology transfer. l To ensure adequate supervision, projects approaching this magnitude (almost 400 sites and a total investment of about US$1 billion) and complexity require above average supervision resources. In addition to increased resources, the magnitude of the engineering challenge of this massive project required that the Bank task team include at least one full time engineer. With increased resources for supervision work, the Task Team would have been in a better position to both (a) meet the engineering - 15 - and operational challenges of the project, while (b) maintaining the grain sector policy reform dialogue. l The Central PMO should and must play a vital role in the implementation of complex national-level projects, and sufficient funding and authority should be provided to the Central PMO to allow it to undertake this key leadership function. In this case, the Central PMO was inadequately funded and did not have sufficient authority to undertake the project. Under these circumstances, it is remarkable that the Central PMO was able to do such an effective job of managing project implementation. l Although the final outcome was strongly favorable and the technology transfer was profound, the Bank's influence over this crucial engineering process was haphazard and uncertain. Most critically, such a massive engineering undertaking requires adequate international technical assistance. Although this TA was in fact budgeted in the SAR and did take place during implementation, there was considerable initial resistance in the early years of project implementation to (a) using project funds for this purpose, and (b) to the actual content of the TA. The Bank's ability to require adequate and competent engineering on a continuous basis was not sufficient, and quality control and operational effectiveness of the project facilities was compromised in the first years of project implementation. 9. Partner Comments (a) Borrower/implementing agency: The project directly benefits 900 million farmers and 300 million urban citizens in grain production and consumption respectively, as an infrastructure project, it is called by people "China's Food Project". The implementation pushed forward the market oriented reform of China's grain distribution and marketing system, triggered the modernization of grain handling technology, solving the problem of open air grain storage in the Northeast, and laid down a solid physical foundation for China's entry of the WTO and opening up of grain market. Before the project, 70% of the grain in the Northeast was stored in open air, 90% of grain was handled in bags manually. After the project, all Northeast grain are stored in proper storage and 70% of the grain is now handled in mechanized and automated manner. The project is implemented through the collaboration between Chinese and International technical expert hired by the government and the Bank, who have, on the basis of overall analysis of the current situation and project of China's grain distribution and marketing, scientifically planned and designed Northeast, Yangtze, Southwest and Beijing-Tianjin grain corridors. The 8 port terminals , 64 IDs, 161 PDs, 7 service components, and the transportation equipment of rail hopper wagons, vessels and trucks, have all been completed, the project has met its original objectives, forming 4.35 million tons of modernized storage and annual transfer capacity of 18 million tons, achieving a saving of 55.48 yuan per ton in handling cost, the benefits are significant. For example, the project grain terminal at Dalian has 1.3 million tons of bulk storage, 5 berths with varied sizes of 20,000 to 80,000DWT, capable of annual throughput of 12 million tons. Since the completion and trial operation, total throughput has reached 12.59 million tons, with the flow amounts increasing year by year, the flow from January to May 2003 has reached 3.736 million tons. 1883 wagons procured under the project could not meet the demand. This component will soon reach and excess its designed capacity. The major difficulties faced: some local government were reluctant to undertake the debt, causing suspension of project; Relocation of the Dalian grain terminal caused delays. These issues were overcome by the government preferential policies of providing addition 1 billion yuan free funds, repayment of 60% of Bank financing, subsidies on domestic loans and tax exemptions, and the coordination efforts of the Project Coordination Leading Group. - 16 - The experiences of the project: good advance planning; adoption of advanced technology; Support of the Bank and government; strictly following the Bank procurement guidelines; effective control of quality and supervision; full collaboration with international consultants. Major lessons learned: big project involving many different regions and sectors is hard implement; there are too many project sites, not convenient for management and control; the power of the implementation agency should not be undercut, it must have overall control over planning, financing, technology and management; the debt and repayment issues must be agreed upon beforehand; the various clearance procedures of the Bank should be greatly simplified. Problems to be solved after the project is over: (1) making complete facilities operate and generate profit; (2) further government investment to optimize the grain distribution network; (3) continuous management and technical training for the operators; (4) optimization of the project E-Business and information system; (5) the connection and merge of domestic and international grain markets. (b) Cofinanciers: None (c) Other partners (NGOs/private sector): None 10. Additional Information None - 17 - Annex 1. Key Performance Indicators/Log Frame Matrix Outcome / Impact Indicators: 1 Indicator/Matrix Projected in last PSR Actual/Latest Estimate Liberalization of grain procurement and Ration coupons were eliminated and retail Same as last PSR. Grain procurement and marketing shops commercialized. Farm level grain marketing liberalization is now very advanced. procurement and wholesaling initially The new (2003) Chinese Government is liberalized, but farm level procurement was actively considering national adoption of the subsequently re-monopolized (however, this next significant steps of reform of the grain is no longer enforced). sector. Subsidies initially declined, but pricing and marketing policy changes in 1998 resulted in increased government procurement, storage, and cost subsidies. Establishment of grain marketing training The Grain Marketing Training Centers were Same as last PSR. The project supported centers, national market information established, laboratories were equipped with only one grain futures market in Shanghai. network/center, and cash-forward (futures) computers for grain terminal and depot After some alleged trading aberrations in grain markets. operation simulation, and a regular program China during the 1990s, grain futures trading of courses is now offered. was suspended and futures trading was consolidated. The National Market Information Network was established and regularly collects, consolidates, and publishes grain information data. Output Indicators: 1 Indicator/Matrix Projected in last PSR Actual/Latest Estimate Provide high capacity, rapid throughput grain All inland rail depots and port and river Same as last PSR. A bulk grain handling port terminals and inland depots, and related terminals are completed and operational. system has been completed and comprises transportation infrastructure. the following: Four self-propelled barges have been delivered. 1483 new rail wagons have been >8 port terminals delivered. Also 164 bulk tipping trucks have >64 IDs been delivered. >161 PDs >1483 newly designed hopper wagons >4 bulk grain vessels >164 bulk grain trucks >138 sets of grain dryers >60 shunting locomotives >164 front end loaders >Shenyang Maintenance Center The Dalian Xizui Grain Terminal is believed to be the highest capacity bulk grain terminal in all of Asia. 1End of project - 18 - Annex 2. Project Costs and Financing Project Cost by Component (in US$ million equivalent) Appraisal Actual/Latest Percentage of Estimate Estimate Appraisal Component US$ million US$ million Northeast Corridor - Dalian Port Terminals 182.95 301.94 166 Northeast Corridor - Hinterland 461.86 385.29 84 Yangtze River Corridor 105.80 113.69 110 Southwest Corridor 37.08 44.95 191 Beijing Central Depot 19.79 18.84 102 Market Services 4.80 4.77 38 Training and TA 33.00 52.11 107 Total Baseline Cost 845.28 921.59 Physical Contingencies 62.70 Price Contingencies 83.40 Total Project Costs 991.38 921.59 Total Financing Required 991.38 921.59 Project Costs by Procurement Arrangements (Appraisal Estimate) (US$ million equivalent) 1 Procurement Method Expenditure Category ICB NCB 2 N.B.F. Total Cost Other 1. Works 312.00 251.10 60.00 0.00 623.10 (74.90) (60.30) (14.40) (0.00) (149.60) 2. Goods 296.60 15.30 11.00 0.00 322.90 (296.60) (12.20) (8.80) (0.00) (317.60) 3. Services 0.00 0.00 34.80 0.00 34.80 (0.00) (0.00) (22.80) (0.00) (22.80) 4. Land Acquisition 0.00 0.00 0.00 10.60 10.60 (0.00) (0.00) (0.00) (0.00) (0.00) 5. Miscellaneous 0.00 0.00 0.00 0.00 0.00 (0.00) (0.00) (0.00) (0.00) (0.00) Total 608.60 266.40 105.80 10.60 991.40 (371.50) (72.50) (46.00) (0.00) (490.00) - 19 - Project Costs by Procurement Arrangements (Actual/Latest Estimate) (US$ million equivalent) 1 Procurement Method Expenditure Category ICB NCB 2 N.B.F. Total Cost Other 1. Works 47.00 207.47 215.43 0.00 469.90 (11.28) (49.79) (13.43) (0.00) (74.50) 2. Goods 319.01 33.09 23.33 0.00 375.43 (319.01) (33.09) (11.66) (0.00) (363.76) 3. Services 0.00 0.00 52.11 0.00 52.11 (0.00) (0.00) (35.16) (0.38) (35.54) 4. Land Acquisition 0.00 0.00 0.00 24.16 24.16 (0.00) (0.00) (0.00) (0.00) (0.00) 5. Miscellaneous 0.00 0.00 0.00 0.00 0.00 (0.00) (0.00) (0.00) (0.00) (0.00) Total 366.01 240.56 290.87 24.16 921.60 (330.29) (82.88) (60.25) (0.38) (473.80) 1/Figures in parenthesis are the amounts to be financed by the Bank Loan. All costs include contingencies. 2/Includes civil works and goods to be procured through national shopping, consulting services, services of contracted staff of the project management office, training, technical assistance services, and incremental operating costs related to (i) managing the project, and (ii) re-lending project funds to local government units. Project Financing by Component (in US$ million equivalent) Percentage of Appraisal Component Appraisal Estimate Actual/Latest Estimate Bank Govt. CoF. Bank Govt. CoF. Bank Govt. CoF. NEC - Dalian Port 104.40 109.82 164.60 137.34 157.7 125.1 Terminals NEC - Hinterland 263.38 277.44 183.68 201.61 69.7 72.7 Yangtze River Corridor 54.86 66.24 53.20 60.49 97.0 91.3 Southwest Corridor 29.24 20.58 22.01 22.94 75.3 111.5 Beijing Central Depot 11.63 13.32 10.19 8.65 87.6 64.9 Market Services 6.14 0.40 4.57 0.20 74.4 50.0 Training and TA 20.34 13.56 35.16 16.95 172.9 125.0 - 20 - Annex 3. Economic Costs and Benefits Similar to most port projects, the major economic benefits of the Northeast Corridor component accrue in the form of reduced ship waiting time and increased berth availability. For the purpose of the economic rate of return analysis, it was assumed that the benefits from reduced ship waiting time, savings in international (trans-ocean) shipping through the use of larger vessels, the value of reduced ship servicing time, and dockage fee savings are shared equally between Chinese and non-Chinese agencies ­ this is a conservative allocation as all the benefits would accrue to Chinese entities whenever Chinese carriers are used. Other benefits, including increased berth availability, reduced spillage, and reduced ship loading and unloading costs are assumed to accrue solely to project and other Chinese entities. Incremental costs and benefits were generally estimated by comparing with and without project scenarios. However, the "without" scenario was not considered to be static and it was assumed that some grain throughput efficiencies would be generated over time even without the project. In addition, the project port area benefited substantially from non-Bank investments that altered the baseline for the "without" scenario. Costs were added for post-project years to reflect government's commitment to procure the additional bulk rail wagons necessary to enable capacity throughput. Portions of the project facilities became operational as early as 1998 and grain throughput has gradually increased. However, at project completion, throughput was only about one-third of rated capacity. It was assumed that capacity throughput would be achieved in 2005 for grain outflows and 2007 for grain inflows. Project efficiency gains (spillage reduction, labor saving, loading and unloading efficiency, etc.) were very conservatively estimated, using the efficiency levels generated in early operations for the entire project life. In actuality, further efficiencies should be generated as managers and staff become more familiar with the new technologies. By comparison, the Central PMO has reported greater efficiency gains than those used in the ICR's economic rate of return analysis. Using the Central PMO's current reported greater rate of savings from reduced grain spillage losses, for example, would increase the rate of return from the 12.2 reported in this ICR to about 14.9 percent. China's foreign trade patterns have changed substantially since project inception and the benefits have been adjusted to reflect the changed pattern. Wheat was formerly the most important grain import and project facilities were expected to handle 3.0 million tons of wheat imports when fully operational. However, by project closure there were only limited wheat imports, but soybean had become an important import. Consequently, the accrual of import benefits were estimated by assuming future imports would comprise 50 percent soybean imports from either US Gulf ports or Brazilian/Argentine ports and 50 percent wheat/barley imports from West Coast, North American ports. Detailed economic calculations were made that incorporated the increasing trend in larger vessel usage in trans-ocean freight, reduction in ships waiting time for berthing space, increased availability of berth space, reduced ship servicing time, improved handling efficiencies and reduced spillage. These models are provided in the project files. - 21 - Annex 4. Bank Inputs (a) Missions: Stage of Project Cycle No. of Persons and Specialty Performance Rating (e.g. 2 Economists, 1 FMS, etc.) Implementation Development Month/Year Count Specialty Progress Objective Identification/Preparation 10/06/1991 3 2E, EDC TRAINING MISSION (US) 11/14/1991 7 4E, 1FMS, 2GHE, PREPARATION MISSION 05/03/1992 8 1ETM, 2E, 5GHE TECHNICAL PREPARATION MISSION 07/26/1992 1 ETM, CENTRAL PMO STUDY TOUR (SEVERAL) (CANADA) 09/08/1992 26 1EDC, 1ETM, 2E, 2FMS, PREAPPRAISAL 15GHE, 1A, 1RS 11/29/1992 20 1EDC, 1ETM, 4E, 1FMS, APPRAISAL 11GHE, 1WRA, 1FA 02/20/1993 1 1ETM, CENTRAL PMO STUDY TOUR (SEVERAL) (AUSTRALIA) Supervision 09/26/1993 6 1ETM, 2GHE, 1IS, 1PS, 1MSM 1 2 09/26/1993 6 1ETM, 1GHE, 1IS, 1PS, 1MSM, 1 2 1GHE 02/09/1994 3 2GHE, 1ETM 1 2 05/16/1994 5 1SAC, 2GHE, 1ETM, 1SOP S U 10/09/1994 6 3GHE, 1IS, 1SOP, 1OP U U 04/30/1995 7 1SAE, 1E, 1GHE, 3PS,1PTS S U 11/04/1995 7 1SAE, 1E, 1GHE, 2PS, 1AQ, S S 1PTS 05/19/1996 4 1SAE, 2GHE, 1PS S U 10/23/1996 4 1SAE, 2GHE, 1PS S U 02/06/1997 3 1SE, 1PS, 1GHE U U 01/23/1998 6 1AE, 1E, 3GHE, 1PS U U 05/01/1998 4 1E, 1AE, 2ME U U 09/06/1998 2 1TE, 1ME S U 12/17/1998 2 1SAE, 1PS S U 05/21/1999 3 1TL, 1PS, 1EN S S 05/21/1999 2 1AE, 1GHE S S 05/09/2000 3 1E, 2EN S S 10/08/2000 3 1E, 2EN S S 10/08/2000 1 1E S S - 22 - 03/15/2002 2 2E S S 06/13/2002 2 1CO, 1TTL S S ICR 10/17/2002 4 1ETM, 1E, 1GHE, 1RS ICR MISSION A=Agriculturalist AE=Agriculturalist Economist AQ=Aquaculturalist C=Consultant E=Economist EDC=Economist Division Chief ENG=Engineer ETM=Economist Task Manager FA=Financial Analyst FMS=Furtures Market Specalist GHE=Grain Handling Engineer IF=Information Specialist IS=Information System MS=Market Specialist MSM=Marine Structure Management ME=Mechanical Engineer OP=Operations Officer PS=Procurement Specialist PTS=Port Specialist RS=Resettlement Specialist SAE=Senior Agriculture Economist SE=Senior Economist SOP=Senior Operations Officer TL=Team Leader TTL=Task Team Leader TE=Transport Engineer WRS=Water Resource Advisor (b) Staff: Stage of Project Cycle Actual/Latest Estimate No. Staff weeks US$ ('000) Identification/Preparation 718 Supervision 1,336 ICR Total 2,054 ICR costs incorporated in Supervision. - 23 - Annex 5. Ratings for Achievement of Objectives/Outputs of Components (H=High, SU=Substantial, M=Modest, N=Negligible, NA=Not Applicable) Rating Macro policies H SU M N NA Sector Policies H SU M N NA Physical H SU M N NA Financial H SU M N NA Institutional Development H SU M N NA Environmental H SU M N NA Social Poverty Reduction H SU M N NA Gender H SU M N NA Other (Please specify) H SU M N NA Private sector development H SU M N NA Public sector management H SU M N NA Other (Please specify) H SU M N NA - 24 - Annex 6. Ratings of Bank and Borrower Performance (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HU=Highly Unsatisfactory) 6.1 Bank performance Rating Lending HS S U HU Supervision HS S U HU Overall HS S U HU 6.2 Borrower performance Rating Preparation HS S U HU Government implementation performance HS S U HU Implementation agency performance HS S U HU Overall HS S U HU - 25 - Annex 7. List of Supporting Documents 1. Aide Memoires, Back-to-Office Reports, and Project Status Reports 2. Central PMO: Borrower's Evaluation Report 3. Staff Appraisal Report for China Grain Distribution Marketing Project dated May 17, 1993 (Report No. 11671-CHA) 4. Economic Analysis Calculations for Northeast Corridor (Tables) 5. Resettlement Completion Reports (a) Xizui Completion Report (b) Wuhan Completion Report 6. China: Options For Reform In The Grain Sector (World Bank, 1991) 7. Xizui Grain Terminal Action Plan (Dalian Beiliang Company, 2002) 8. Dalian Beiliang Company and the Xizui Grain Terminal (on DVD, and Company Brochure) - 26 - Additional Annex 8. Implementing Agency's ICR Summary Written by Foreign Capital Management Office, State Administration of Grain Reserve, The People's Republic of China - June 2003 1. PROJECT OBJECTIVES The major objectives of the grain distribution and marketing project (GDMP) are to push forward China's reform on the grain distribution and marketing system; expedite the development of grain distribution infrastructure and modernization of grain market; introduce international advanced technology of grain handling in bulk; improve handling efficiency; reduce distribution costs and grain losses; establish an advanced integrated grain logistic system featuring "transport from north to south" and "chain transport by rail and water"; promote domestic and international trade and meet the requirements of reform and opening up. 2. PROJECT BACKGROUND In August 1991, Premier Li Peng made a decision (No.154 Premier's Official Meeting) that the government should invest in the construction of 10 to 15 million tons of permanent modern grain storage and handling facilities along the major railway line to improve grain-handling efficiency. At that time, the transport to the south and export of grain from the major producing areas of the northeast was done by railway through some major bottlenecks such as Shanhaiguan. Therefore during the planning of the project, decisions were made to " link the rail flow with water flow" by building port grain terminals. The World Bank carried out a Policy Study in China in 1989 (China: Options for Reform in the Grain Sector, 1991) that identified grain market infrastructure and policies as constraints to efficient development of grain sector. Development of grain marketing capacity had not kept pace with grain production and marketable surplus. The Bank's previous investments had been limited to the grain production, and should now be expanded to cover the distribution and marketing of post harvest to improve efficiency and push forward the reform in grain distribution and marketing system. 3. PROJECT COMPONENTS 3.1 Domestic Project Preparation Since 1990, the Foreign Capital Management Office (FCMO) (the former World Bank Project Office) under the former Ministry of Commerce carried out grain distribution and marketing project feasibility study for about 2 years, and submitted a project proposal to State Planning Commission (SPC) in the 2nd half of 1991, which was approved by the State Council in September 1992. 3.2 World Bank Project Cycle l Phase 1: Project Identification: a mission headed by Mr. Joseph Goldberg, Chief of Agriculture Division, China & Mongolia Department of the World Bank visited China in August 1991 to identify the project. l Phase 2: Project Preparation: the Bank sent 3 missions to China in November 1991, February and - 27 - May 1992 respectively for project pre-preparation and preparation. l Phase 3: Project Appraisal: the Bank sent 2 appraisal missions to China for pre-appraisal and appraisal in September and November 1992 respectively. The Bank completed Appraisal Report in March 1993. l Phase 4: Project Negotiation: a Chinese delegation visited the World Bank in Washington D.C. in April 1993 for project negotiation and agreed with the Bank on the loan/credit agreement, which was approved by the Board of Directors of the Bank on 17 June 1993. The loan/credit agreement was signed on 25 August 1993, and became effective on 15 December 1993. 3.3 Project Description The project covers 15 provinces/regions/municipalities in the northeast, Yangtze River reaches, southwest and Beijing. The project provided financing to assistant in establishing a bulk grain handling logistical system in 4 grain transport corridors: (1) North East Corridor (NEC), comprising 60 intermediate depots (IDs) along the main railway line, 133 surrounding primary depots (PDs) and Dalian port terminal, for the annual outflow of some 9 million tons of maize, soybean and inflow of some 3 million tons of wheat; (2) Beijing/Tianjin Corridor, comprising Beijing Central Depot for the annual inflow of 0.7 million tons of maize and wheat from Tianjin and Qinhuangdao; (3)Yangtze River Corridor (YRC), comprising 6 port terminals along the middle and lower reaches of Yangtze River and 20 surrounding primary depots (PDs) for the outflow of rice and inflow of maize and wheat, totaling some 3.2 million tons annually; (4) South West Corridor (SWC), comprising Fangcheng port terminal, 3 intermediate depots (IDs) and 8 primary depots (PDs) for the inflow of some 2 million tons of maize and wheat annually. The designed annual throughput of the above four bulk handling grain corridors is 18 million tons. In addition, service components are built; they are two training centers, one information center, one maintenance center and two grain exchanges 3.4 Total Investment 3.4.1. The Planned Total Investment The planned total investment of the project is RMB 8,284,660,000 Yuan, of which World Bank Loan is US$490,000,000, equivalent to RMB 4,067,000,000 Yuan (USD:RMB=1:8.3). World Bank investment is composed of credit and loan. The credit is 118,900,000 Special Drawing Rights (SDR), loan is US$ 325,000,000 (SDR: USD=1:1.38772). Domestic counterpart investment is RMB 4,217,660,000 Yuan, which is financed by both central and local governments; the central government budget is RMB 1,200,000,000 Yuan, loan from Construction Bank and Development Bank is RMB 1,565,000,000 Yuan, and local counterpart fund is RMB 1,452,660,000 Yuan. 3.4.2 .The Adjusted Total Investment The total investment of the project after the mid term review and adjustment in 1998 is RMB 7,628,290,000 Yuan, of which World Bank Loan is US$ 473,417,000, equivalent to RMB 3,918,610,000 Yuan (USD: RBM=1:8.2773). The adjustment results from the change of the exchange rate of SDR to USD from 1:1.38772 in the year 1993 to 1: 1.35458 in Dec.31, 2002. Also, the World Bank loan has a balance of about US$12 million, at project closure. Domestic counterpart fund is adjusted to RMB 3,709,680,000 Yuan, in which central government grant is still RMB 1,200,000,000 Yuan with additional central government bond of RMB 1,000,000,000 Yuan, loan from Construction - 28 - Bank and Development Bank is decreased to RMB 558,330,000 Yuan, the actual local counterpart fund is RMB 951,350,000 Yuan. 4. CONDITONS OF CREDIT/LOAN The interest of on-lending term: Both Loan and Credit from the Ministry of Finance to the beneficiaries is 70% of the World Bank standard variable rate of loan per annum; commitment charge for both Loan and Credit is 0.75% per annum. 5. PROJECT OUTPUTS Since the design and construction of the project in 1993, a bulk grain handling logistic system has been completed with the following infrastructures of total storage capacity of 4,354,900 tons by the end of 2002: a) 64 intermediate depots (IDs); b) 8 port terminals1; c) 161 primary depots (PDs); d) 1483 newly designed hopper wagons; e) 4 bulk grain vessels; f) 164 bulk grain trucks; g) 138 sets of grain dryers; h) 60 shunting locomotives; i) 164 front end loaders; j) 2 training centers and 1 information center; k) 1 maintenance center; l) 2 grain exchanges. These facilities are mainly in the following 4 project areas: 5.1. North East Corridor (NEC) The North East Corridor: The total investment is RMB 5,948.78 million Yuan, which accounts for 78% of the total project investment. The storage capacity is 3,659,200 tons. 5.1.1. Dalian Port Terminal It is the largest grain port terminal in Asia with the ship loading capacity 4,000 t/h and ship-unloading capacity 2,000 ton/h. The designed annual throughput is 12million tons. 5.1.2. Intermediate Depots Along the Railway Lines and Primary Depots Along the main railway line, 60 intermediate depots with the storage capacity of 2.1 million tons and 133 surrounding primary depots with the storage capacity of 1.16 million tons. 5.1.3. Shenyang Maintenance Center The center provides equipment maintenance services for IDs with the investment of RMB 27.61 million Yuan. 5.2. Yangtze River Corridor (YRC) The total investment of the Yangtze River Corridor is RMB 854.6 million Yuan, which accounts for 11.2% of the total investment. Annual throughput is 3.7 million tons. Storage capacity is 502,700 tons. 5.2.1. Zhangjiagang Port Terminal in Jiangsu Province A 20,000 DWT dedicated grain transshipment berth, with loading and unloading facilities handling inflow and outflow grain in bulk and bag (rice and maize) at the Yangtze River mouth, for upstream river terminals by river and seagoing vessels is upgraded. New constructions are three 300 DWT inland - 29 - river berths for grain distribution to hinterland. Storage capacity is 70,000 ton. 5.2.2. Nantong port Terminal, Jiangsu Province A 20,000 DWT dedicated grain transshipment berth, with loading and unloading facilities handling inflow and outflow grain in bulk and bag (rice and maize) at the Yangtze River mouth, for upstream river terminals by river and seagoing vessels is constructed. Storage capacity is 50,000 ton. 5.2.3. Tujishan Port Terminal, Wuhu City, Anhui Province A 5,000 DWT dedicated grain berth for river vessels handling inflow and outflow grain in bulk and bag (rice and maize) with loading and unloading facilities is extended. Newly completed are 3 300-500 DWT inland river berths for grain distribution. Storage capacity is 18,000 ton. The storage capacity of 3 hinterland depots (PDs) is 41,700 ton. 5.2.4. Wushiji Port Terminal, Jiujiang City, Jiangxi Province A 3,000 DWT dedicated grain berth for river vessels handling inflow and outflow grain in bulk and bag (rice and maize) with loading and unloading facilities is constructed. The storage capacity of newly built silos is 20,000 ton. The storage capacity of the 11 (PDs) is 127,200 ton. 5.2.5. Qingshan Port Terminal, Wuhan City A 3,000 DWT dedicated grain berth for river vessels handling inflow and outflow grain in bulk and bag (rice and maize) with loading and unloading facilities is extended. The storage upgrade and newly built is 25,000 ton. 5.2.6. Chenglingji Port Terminal, Yueyang City, Hunan Province A 3,000 DWT dedicated grain berth for river vessels handling inflow and outflow grain in bulk and bag (rice and maize) with loading and unloading facilities is constructed. A 2,000 DWT floating berth is upgraded. The newly built storage capacity is 38,800 ton. The storage capacity of the 6 (PDs) is 112,000 ton. 5.3. South West Corridor (SWR) The investment of GDMP only covers Guangxi region. The investment of the corridor is RMB 406.39 million Yuan, which accounts for about 5.3% of the total investment. Newly built storage capacity is 131,000 ton. 5.3.1. Fangcheng Port Terminal A 30,000 DWT dedicated grain berth for seagoing vessels handling bulk inflow of grain (wheat and maize) with ship unloading and train loading facilities is constructed. Silos storage capacity is 50,000 tons. 5.3.2. Intermediate Depots and Primary Depots 50,000 tons storage facilities are newly built in Nanning, Liuzhou and Guilin intermediate depots. - 30 - 31,000 tons storage facilities in 8 interior primary depots are constructed. 5.4. Beijing Central Depot Beijing Central Depot is located at Machikou, Changping District in Beijing with 62,000 tons of silos capacities. The Investment is RMB 175.82 million Yuan. Annual designed throughput is 700,000 tons. 5.5. Bulk Grain Vessels Fleet A fleet comprising four 3,000 DWT bulk grain vessels and 800 containers are constructed. Total investment is RMB 149.5 million Yuan. 5.6. Service Components 5.6.1. Training centers A Grain Distribution and Research Training Center is set up in Zhengzhou Institute of Technology. A Grain Distribution and Management Training Center is set up in Nanjing Institute of Economics. The total investment is RMB16.68 million Yuan. 5.6.2. Information Center State Grains and oils Information Center is set up in Beijing. The investment is RMB19.93 million Yuan. 5.6.3. Grain Stocks The project provided financial support for software and hardware to commodity exchanges in Shanghai and Dalian. The total investment is RMB 8.66 million Yuan (However, Dalian used non-project funds for their investments). The total investment of the above service components is RMB 45.27 million Yuan. 6. PROCUREMENT The international competitive bidding (ICB) procurement agents of the project are International Tendering Company of China National Machinery Import & Export Corp (CMC) and International Tendering Company of China National Instruments Import & Export Corporation (IIEC). Most of the goods and some large civil works are procured using ICB procedures. Most of the small-scale civil works are procured using National Competitive Bidding (NCB) procedures 7. ACHIEVEMENT OF THE PROJECT OBJECTIVES AND OUTPUTS Upon completion, the projects have passed commissioning by authorities concerned. The objectives of improving handling efficiency; reducing distribution costs and grain losses; establishing an advanced integrated grain logistic system featuring "transport from north to south" and "chain transport by rail and water" has been achieved. The project gained good economic efficiency, playing an important role in grain trade both at home and abroad. - 31 - 8. FACTORS AFFECTING PROJECT IMPLEMENTATION 8.1 Favorable Factors 8.1.1 Competent Project Implementation Agency Foreign Capital Management Office (FCMO) in the then Ministry of Internal Trade and dedicated World Bank Project Offices of relevant provincial grain bureaus are set up to take the responsibility of daily work. The Coordination and Leading Group headed by SPC is responsible for resolving serious problems. 8.1.2 Additional budget allocation for Counter Part Fund In addition to RMB 1.2 billion Yuan of the planned budget allocation for the project by the state, RMB 1 billion of State Development Bank loan was shifted to government budget allocation funds, which enhanced the repayment capability of the project. 8.1.3 Preferential Policies of Repayment The State Council granted a special preferential policy to the project that 60% of the World Bank loan be repaid from the state budget funds to alleviate the debt burden of the grain marketing enterprises. 8.1.4 Other Preferential Policies Other preferential policies include: a) exemption of customs tariff and value added tax for imported equipment; b) exemption of operation tax for project engineering and installation and service; c) interest free during the construction period for the loan from China Construction Bank /State Development Bank. 8.1.5 Continuous Bumper Harvest Up to date, the total production and marketable surplus have reached the projected amount, providing necessary conditions for successful project operations. 8.1.6 China's Entry into WTO: Challenge and Opportunity Entering into WTO is not only a challenge but also an opportunity for local enterprises encouraging them to expedite system reform and transform traditional ideas to face the challenge and grow stronger in the new market economy. 8.2 Unfavorable Factors 8.2.1 Delay in Dalian Grain Terminal Due of Relocation The State Council approved relocation of Dalian Port Terminal from Dayao Bay to Xizui in Dalian Development Zone as well as approving a major design change, which delayed the completion. 8.2.2 Delay in NEC IDs - 32 - Some IDs suspended the project implementation because of the World Bank loan repayment problem. The construction restarted after the preferential policy of partial repayment of the World Bank loan by the central government but the implementation schedule was delayed. 8.2.3 Dropping in Grain Export Along with the entry into WTO, the government subsidy on grain export is eliminated. The export of maize dropped sharply due to high costs and low quality although there are continuous good harvests in NEC. These do not present a good prospect for some of the projects sites. 9. PROJECT SUSTAINABILITY The completion of GDMP reduced grain distribution costs by a big margin. But it should be noted, that this is only a preliminary advanced bulk grain logistic system for export and transport to the South, continuous upgrading and optimizing will be necessary to sustain the project. 10. PERFORMANCE OF BANK The performance of the World Bank has been remarkable in the implementation of the GDMP. 10.1 Project Management Bank staff closely cooperated with the Chinese counterpart to promptly resolve the problems and make mid-term adjustment during project implementation. Their efforts contributed to the successful completion of the project. 10.2 Technical Guidance The Bank actively supports the Chinese side to introduced advanced bulk grain handling technology and employ international consultants who were experts in grain engineering. The Bank contributed to the technology transfer to China. 10.3 Supervision From 1993 to 2000, the Bank sent 21 supervision missions to China to identify problems and resolve them on site. 11. PERFORMANCE OF BORROWER 11.1 Set up Project Implementation Agency Coordination Office was set up in SPC and the Foreign Capital Management Office was set up in the former Ministry of Internal Trade. The relevant provincial grain bureaus also set up World Bank Project Offices accordingly. 11.2 Counter Part Financing The government adjusted financing resources according to the actual situation of the project by shifting - 33 - the domestic loan to central budget fund. 11.3 Project Design FCMO, selecting from a short-list, assigned qualified engineering institutes to undertake project design work, which has been finished with good quality. 11.4 Project Preliminary Design Review FCMO and China International Engineering Consulting Corporation organized an expert group to carry out the on-site review of preliminary designs to make preparation for the start of construction. 11.5 Procurement FCMO strengthened the management and supervision of the procurement and undertook the task of ICB of some central procurement. The procurement strictly followed Bank's procurement guidelines and China's tendering law. 11.6 Withdrawal and Disbursement FCMO is in charge of the withdrawal and disbursement of the project. FCMO held many training courses for accountants from project provinces to ensure the quality and speed of the disbursement work. 11.7 Annual Final Financial Accounting FCMO submitted the annual final financial accounting of the project, which is audited by the National Audit Agency, to the Bank before June 30 every year. 11.8 Project Mid-Term adjustment The Government made mid-term adjustment according to the situation of the implementation in time to rationalize the use of the project funds. 11.9 Quality Control Effective supervision is carried out for the entire project engineering works and a lifelong responsibility system for the quality of the works is set up. 11.10 Technical and Management Training Since the project launch, FCMO organized over 20 training courses for several weeks length in 2 training centers built under the project. 11.11 Project Commission PCLG and FCMO drafted "GDMP Commission Guidelines" and undertook the commissioning of key projects. 11.12 Follow Up Works - 34 - SPC and National Grain Authority have arranged RMB 280 million Yuan to remedy the deficiencies and optimize the functions of the project facilities. 12. PROJECT RATING 12.1 Economic Efficiency The project shows good economic efficiency. A. The cost of the materials and manual handling is cut down by RMB 13.49 Yuan per ton. B. The costs of packing materials such as gunny bags etc., born by the grain traders are cut down by RMB 16.00 Yuan per ton. C. Grain spillage and losses during the marketing dropped from 5.8% down to 1% below with the cost cut down by RMB 3.60 Yuan per ton. D. Port handling costs are significantly reduced by RMB 22.39 Yuan per ton. Based on the above, the cost saving is RMB 55.48 Yuan per ton in total through the operation of new system built by the project. 12.2 Financial Efficiency The financial efficiencies of project enterprises varied with market environment, traffic condition, marketable surplus of grain and management performance. There are basically 3 types of enterprises: A. Enterprise with good financial efficiency and potential profit; B. Enterprise with merely fair financial efficiency, which could achieve the balance of profit and loss with efforts; C. Enterprises unable to reach design capacity with equipment idled and losses. 13. FUTURE OPERATION The State Council has approved a corporate entity "Hualiang Group Corporation Ltd.", to be established, which will be responsible for future operation and management of GDMP. SPC and MOF will prepare the administrative framework for the corporation. 14. EXPERIENCES AND LESSONS 14.1 Experiences A. Scientific planning is the premise of project success. B. Advanced technology is the basis of project success. C. Government Support at all levels is the guarantee of project success. D. Preferential policies are crucial in stimulating local government and project enterprises. E. Following Bank procurement procedures are the effective approach in costs saving and avoiding corruption. F. Quality Management is vital and lasting for project construction. G. Support and cooperation from the Bank and ICs are important conditions. - 35 - 14.2 Lessons A. An interregional and intersectional project is very complex and difficult requiring coordination and even State Council intervention in resolving some major issues. It should be more prudent to do such project in the future. B. Highly scattered financing is disadvantageous in concentrating on the key project. C. The project implementation agency should have integrated control of planning, technology, financing and management. D. Finalization of all debt and repayment arrangements is an important premise of project implementation. E. Bank's review procedure should be greatly simplified. For a package project with similar technology, the Bank needs only to review several typical subprojects, request proper filing for the rest of subprojects and make random checking. It will not only expedite implementation but also ensure the quality at the same time. F. The institutional arrangement for the project operation after completion should be set beforehand. APPENDIX: 1. Table of GDMP On-Lending Agreement /Actual Disbursement 2. Table of GDMP Total Financing 3. Table of GDMP Credit/Loan Disbursement by Year 4. Table of GDMP Central Budget/National Debt Fund Allocation by Year 5. Table of GDMP Interest/Exchange Rate during the Implementation 6. Table of GDMP Principal/Interest/Commitment Fees Dues by 1 Dec. 2002 7. Table of ICB Contracts 8. Table of GDMP Storage Capacity of IDs/PDs - 36 - Additional Annex 9. Transition To Bulk Grain Handling A. Bag and Traditional Handling Systems Jilin Province Intermediate Depot ­ Jilin Province Intermediate Depot ­ "Straw Mat" storages Bag Handling B. New Bulk Grain Handling Technologies Dalian Xizui Port Grain Terminal ­ Silo Dalian Xizui Port Grain Terminal ­ Loading complex and bulk conveyor system corn for shipment by sea Jin Province Intermediate Depot ­ Steel silos and wide diameter tanks - 37 - - 38 - - 39 -