The World Bank (P129401) REPORT NO.: RES34642 RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF GUIYANG RURAL ROADS PROJECT APPROVED ON MARCH 6, 2014 TO GUIYANG MUNICIPAL GOVERNMENT TRANSPORT EAST ASIA AND PACIFIC Regional Vice President: Victoria Kwakwa Country Director: Martin Raiser Senior Global Practice Director: Guangzhe Chen Practice Manager/Manager: Binyam Reja Task Team Leader: James A. Reichert, Xiaoke Zhai The World Bank (P129401) ABBREVIATIONS AND ACRONYMS GRRP Guiyang Rural Road Project IBRD International Bank of Reconstruction and Development PDO Project Development Objective PRC People’s Republic of China RMB Renminbi (Chinese currency) RRMIS Rural Roads Management Information System US$ United States Dollar Exchange rate US$ 1 = RMB 6.12 Fiscal Year January 1 – December 31 The World Bank (P129401) Note to Task Teams: The following sections are system generated and can only be edited online in the Portal. BASIC DATA Product Information Project ID Financing Instrument P129401 Investment Project Financing Original EA Category Current EA Category Partial Assessment (B) Partial Assessment (B) Approval Date Current Closing Date 06-Mar-2014 30-Jun-2019 Organizations Borrower Responsible Agency Guiyang Municipal Government Guiyang Municipal Government Project Leading Group Project Development Objective (PDO) Original PDO The development objective of the Project is to provide improved transport accessibility in selected areas of Guiyang in a sustainable manner. OPS_TABLE_PDO_CURRENTPDO Summary Status of Financing Net Ln/Cr/Tf Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed IBRD-83370 06-Mar-2014 04-Jun-2014 19-Aug-2014 30-Jun-2019 150.00 73.19 76.81 Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No The World Bank (P129401) I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING Project Status: The US$250 million Guiyang Rural Road Project (GRRP), which consists of a US$150 million IBRD Loan and US$100 million in counterpart funds, is upgrading and rehabilitating county and township roads in Guiyang, Guizhou Province. To date, more than 200 km of roads have been upgraded and/or rehabilitated, which has improved access and connectivity for 245,000 road users in project areas. Component A: Upgrading/Improving County and Township Roads (50.25% IBRD-financed and 49.75% PRC-financed). Improvements under this component consist of three batches of roads:  Batch 1 roads were completed in 2017 at a total cost of RMB 364.85 million (about US$59.62 million).  Batch 2 consists of a single 18.17km road that will be upgraded from a Class IV road to a Class II road at a total cost of RMB 426.50 million (around US$69.69 million). Civil works commenced in February 2017 and include the construction of a new bridge. Physical progress currently stands at nearly 60% and based on current progress, the road should be completed in early-2020.  All twelve contracts associated with Batch 3 roads were procured in January 2018 and signed in March 2018. As of April 2019, the physical progress of Batch 3 stood at 41 percent with completion estimated by mid-2020. Works are underway in multiple locations, and overall the collective physical progress of the three batches of roads stands at around 65%. Works cannot be completed within GRRP’s current closing date of June 30, 2019. Implementation of the second batch of roads was slowed by efforts to minimize the cost and disruption in terms of land acquisition and resettlement, which included altering the original alignments of some road sections to lessen impacts. In mid-2018, road works on four contracts slowed or were suspended due to variations in works and an inability by the Implementing Agency and the contractors to reach agreeable solutions. However, negotiations on three of the contracts were successfully concluded and works fully restarted in December 2018. The fourth contract remains bogged down and will be terminated and retendered as the delays encountered mean that the works cannot be completed even with an 18- month extension of the closing date. As a result, the Implementing Agency is prepared to finance the remainder of works associated with this contract. Component B: Rehabilitation of County and Township Roads (65.43% IBRD-financed and 34.57% PRC-financed). Under this component, substantial improvements to safety and upgrades to road drainage systems have been achieved on multiple roads throughout several counties and districts. The construction of the initial batch of roads was delayed for several months because three high priority highway and railway projects took precedence over project roads.1 The overall physical progress of road works stands at 60 percent. 1 The road and rail projects that took precedent were: (i) Yongwen-Wenquan in Kaiyang County; (ii) Tiantai-Xinglong in Xifeng County; and (iii) Weicheng-Maige in Qingzhen City. The World Bank (P129401) Component C: Rural Road Maintenance Pilot (100% IBRD-financed). Technical support on the design of a maintenance pilot program was completed in April 2018. Several recommendations to enhance rural road maintenance involving innovative approaches to engage the private sector in monitoring road conditions, increase financing for rural road maintenance, and control overloading were recommended. A core part of the pilot maintenance program was to enhance the Transport Bureau’s rural roads management information system (RRMIS), which had been planned for rollout in late- 2018. However, several shortcomings in terms of basic functionality were identified with the current RRMIS, including: (a) it does not support logging-in from external locations, which prevents county and district governments from submitting data through the system; (b) staff from the Transport Bureau are not able to enter new data without first sending it to the developer in Beijing as the system does not support importing data from its current database; (c) the system frequently crashes, requiring support from the developer; and (d) the modeling functions for prioritizing works were not fully completed. As a result, it is not possible to enhance the current RRMIS system or to devise a new RRMIS that could be tested and piloted, even with an 18-month extension of the current closing date, and the original concept will be dropped. Instead, Guiyang’s municipal information system will incorporate some key recommendations that were identified as part of this initiative to monitor road maintenance, including using independent monitors to gather data on road conditions and communicate it to the authorities, which will reduce the cost of data collection, simplify IT administration, and increase transparency. Component D: Technical Assistance (100% IBRD-financed). This component supports the implementation of technical assistance programs that contribute to the longer-term sustainability of the rural road program, primarily through: (i) the development of a rural road network plan; and (ii) training and study tours. Due to local regulations restricting the sharing of GIS mapping with third parties, which was not known at the time of project preparation, it was not possible to ensure a competitive procurement process to develop a rural road network plan. Counterparts felt that this would jeopardize both the quality and cost and asked that the funds be reallocated to Disbursement Category 1(c) where they would be more effectively spent to rehabilitate additional rural roads. Although the network planning initiative was not completed, several training activities and study tours have been conducted since project effectiveness. Many of the events, including those that have focused on road network planning and engineering, have been well attended and yielded some modest alternative approaches in planning and developing rural roads. In addition, several training events have focused on World Bank safeguards (environment and social) and fiduciary (procurement and financial management) requirements, processes and procedures. This has resulted in greater counterpart capacity to manage GRRP effectively and in accordance with World Bank requirements. However, due to the Reimbursement Standards for Study and Training published by Provincial Financial Department, only US$190,000 out of the original US$400,000 are expected to be utilized. Therefore, US$210,000 would be reduced and reallocated to Disbursement Category 1(c). Compliance with safeguards requirements as described in the Environmental Management Plan, Resettlement Policy Framework, and Resettlement Action Plan has been satisfactory, and to-date there have been no negative impacts in relation to works financed under GRRP. The World Bank (P129401) There are no outstanding or qualified audits for GRRP, and the project is in compliance with Bank procurement and financial management policies, and all legal covenants. Reallocation of funds among disbursement categories and increasing the portion of Bank-financing will not alter project risk ratings, trigger new safeguards requirements, or change the safeguards category. Rationale for Restructuring: The precedence given to the three high priority highway and railway projects over project roads had two significant impacts on GRRP in that it: (i) delayed implementation of Batch 1 roads by nearly two years; and (ii) substantially increased costs as heavy vehicles working on the priority road and rail projects were allowed to use Batch 1 roads and causing significant damage. Other reasons for the early delays in implementation include the need to acquire 460 mu of land (equivalent to 30.68 hectares) to improve an 18km one Class IV road to a Class II road that passes through several villages and took considerable effort to optimize the road alignment and design to reduce resettlement and conclude the land acquisition and compensation process. Similar efforts were made to minimize land acquisition and disruption of commercial activities on other road improvement projects, which required additional time. Some Batch 3 roads were delayed due to insufficient counterpart funds. The shortfall in counterpart funds was partly the result of the national government’s request (at the time) that local authorities reduce spending to control debt levels, and partly due to budget cycles and when funds become available. To make up for lost time, the Implementing Agency indicated its willingness to push contractors to work three, eight-hour shifts to meet GRRP’s current closing date, but this raises concerns about the quality of construction and the safety of workers. Given these delays, and the fact it would not be possible to complete all the project interventions and disburse the remaining balance of about US$76.81 million prior to the current closing date of June 30, 2019, an extension of 18 months from the current closing date has been requested. As part of the restructure, several aspects of GRRP involving sub-components, reallocation of proceeds among disbursement categories, and revisions to some PDO target indicators and intermediate results indicators to be more realistic, will be carried out to better meet current stakeholder needs and to ensure that the PDO can be fully achieved. More details can be found in Section II. Given the persistent delays in physical works and counterpart funds, the ratings for Progress towards achievement of the PDO and Overall Implementation Progress (IP) were downgraded to Moderately Unsatisfactory in June 2018. During the October 2018 mission, a time-bound plan of action containing key actions to turn around GRRP’s performance was agreed and by March 2019, those actions had largely been met. All outstanding counterpart funds have been transferred and are available, and the previous issues with three of the four contractors have been resolved and works on those roads recommenced in December 2018. However, the PDO and IP ratings will remain as Moderately Unsatisfactory until implementation and disbursements have improved. These hurdles have long served as a drag on implementation and need to be addressed to enable project execution to improve. The sustainability of rural roads that were improved under GRRP will be enhanced with additional time as nearly twice the number of km of roads (from 125km to 240km) can be included in the pilot program to enhance Guiyang’s municipal information system. Several actions to improve the municipal system were recommended as part of a GRRP-financed rural The World Bank (P129401) road maintenance study, many of which are being tested through the pilot program. The recommendations have already reduced costs and increased transparency. Including additional roads in the pilot program will provide a more vigorous assessment of the effectiveness of the recommendations, which, if successful, are expected to be rolled out to other rural roads in the province. On May 20, 2019, the Borrower (Ministry of Finance) submitted a formal request to the World Bank asking that GRRP be restructured to accommodate several changes, including an extension of the Loan Agreement by 18 months. Finally, counterparts have provided assurances that GRRP can be fully implemented within the new closing date. II. DESCRIPTION OF PROPOSED CHANGES Results Framework. The project has four project development indicators and three intermediate results indicators. As part of the mid-term review mission, it was discovered that PDO Indicator 1 measuring the number of people with access to an all-season road had been misstated due to a translation error in the Project Appraisal Document’s results indicator methodology section. Currently, the figures only consider those beneficiaries that benefit from upgraded roads and do not consider beneficiaries of roads that are rehabilitated. As a result, the end target for people with access to an all-season road will increase from 126,874 to 778,027. PDO Indicator 3 measuring travel time savings on rehabilitated roads exceeded its end target in 2017 but decreased in years 2017 and 2018 because traffic volumes increased as drivers chose to divert to the improved roads. PDO Indicator 4 measuring the road length impacted by the maintenance pilot activity will increase from 125km to 240km because a maintenance center that had been planned for construction will no longer be established, and road maintenance equipment will not be acquired. Instead, the recommended maintenance pilot will monitor the condition of more roads using the grid system. Intermediate Results Indicator 1 measuring the km of roads rehabilitated will decrease due to substantial increases in the cost of road works. Heavy vehicles working on other priority road and rail projects during the first two years of GRRP’s implementation caused significant damage to Batch 1 roads. As a result, 67.5km of roads had to be reconstructed, rather than rehabilitated, which is significantly costlier to do. In addition, there have been numerous variations to works contracts over the last five years due to differences in the design and actual conditions of the roads, and this had major impacts on road costs. For Batch 2 and 3 roads, some counties wanted to modify road alignments through their jurisdictions to provide better connections and accessibility for villagers. In addition, tighter environment management policies increased the costs for materials, including aggregate, cement and steel. To a lesser extent, the cost of land acquisition also contributed to higher costs. Because the rural road maintenance pilot will not be fully implemented, an alternative indicator to measure sustainability is needed. For this purpose, Intermediate Results Indicator 2 will be replaced with the percent of feedback from independent monitors that is addressed. This is defined as the percentage of responses to requests for The World Bank (P129401) routine maintenance improvements from independent monitors using the grid monitoring system that are addressed within ten business days. Components and Costs. The following changes will be made to the project components. Component Name Current Cost Action Proposed Cost (US$) (US$) A: Upgrading/Improving County and Township Roads 147,355,000 Change 167,760,202 B: Rehabilitation of County and Township Roads 77,230,000 Change 118,502,998 C: Rural Road Maintenance Pilot 12,000,000 Change 900,000 D: Technical Assistance 1,000,000 Change 290,000 Total Project Costs: 237,585 ,000 287,453,200 Interest during Construction: 12,000,000 Change 9,000,000 Front-End Fee: 375,000 No Change 375,000 Total Financing: 250,000,000 296,828,200 The proposed amount after the changes reflects an increase in counterpart funds equivalent to US$46,828,200. These additional funds are needed because of the need to reconstruct, rather than rehabilitate 67.5km of project roads. During construction of the high priority projects, heavy vehicles were permitted to use several project roads to transport equipment and materials and this caused substantial damage to project roads. As a result, those project roads had to be reconstructed, which included works on the sub-base structure. In turn, this necessitated additional design work, all of which increased costs and reduced the overall amount of funding available for road works. The other reasons desribed in the paragraph regarding Intermediate Results Indicator 1 also contributed to higher road costs. The sub-activity to enhance the existing rural roads management information system (RRMIS) and pilot it under through a program of works (Component C) will be dropped and the balance of US$11.1 million reallocated to Disbursement Categories 1(c). However, a key recommendation from the assessment for a new RRMIS was to use independent monitors to gather data on road conditions and communicate it to the authorities, and this has been taken on board. The rural road network planning activity under Component D will be dropped and the US$500,000 reallocated to Disbursement Category 1(c). A key activity under this component, the sharing of the rural road network GIS map with third parties, is restricted by local regulations so a competitive procurement process, which, counterparts felt, would jeopardize both the quality and cost of the output. Not all funds allocated to training and study tours will be utilized and US$210,000 will be allocated to Disbursement Category 1(c). Loan Closing Date. A couple of factors have contributed to the need to extend the closing date. The precedence given to high priority highway and railway projects early-on in implementation, and additional efforts to minimize land acquisition and disruption of commercial activities contributed to delays. Although efforts can be made to accelerate construction, there are concerns about the quality of works and worker safety if this is done. Other reasons for delay The World Bank (P129401) include the lack of counterpart funds, and the adoption of a new management structure for managing GRRP, which took effect in September 2018. The new management and reporting structure took time to solidify, and this slowed implementation for several months. Counterpart funds to carry out all remaining works under GRRP are now available and the new management structure is in place, but to ensure that ongoing and any remaining road works are carried out in a safe manner and works completed to high quality, additional time is needed to complete works. As such, the current closing date of June 30, 2019 will be extended by 18-months, or until December 31, 2020. This would be the first extension of the project’s (IBRD Loan 8337-CN) closing date. Reallocation between Disbursement Categories. The following table depicts reallocations between disbursement categories and changes in the percentages of Bank-financing: Disbursement Description Current Proposed Financing % Financing % Category Allocation Allocation (Current) (Proposed) 1(a) Works under Part A.1 30,000,000 30,000,000 68.6% 100.0% of the Project 1(b) Works under Part A.2 44,050,000 34,458,500 90.0% 100.0% of the Project 1(c) Works under Part B 50,535,000 74,976,500 89.3% 100.0% of the Project 2 Goods, non- 13,000,000 1,190,000 100.0% 100.0% consulting services, consultants’ services, training & workshops, and IOCs 3 Front-end Fee 375,000 375,000 Amount payable Amount payable pursuant to pursuant to Section 2.03 of Section 2.03 of this Agreement this Agreement 4 Accrued interest on 12,040,000 9,000,000 Amount payable Amount payable the Loan pursuant to pursuant to Section 2.04 of Section 2.04 of this Agreement this Agreement 5 Interest rate cap or 0 0 Amount payable Amount payable collar premium pursuant to pursuant to Section 2.07(c) of Section 2.07(c) of this Agreement this Agreement Reallocations. A total of US$24.4415 million will be reallocated as follows: (i) US$9.5915 million from Disbursement Category 1(b) to Disbursement Category 1(c); (ii) US$11.81 million from Disbursement Category 2 to Disbursement Category 1(c); and (iii) US$3.04 million from Disbursement Category 4 to Disbursement Category 1(c). The World Bank (P129401) Percentage of Bank-Financing. To fully utilize the World Bank Loan, the percentage of Bank-financing will change for the following Disbursement Categories:  Disbursement Category 1(a) will be increased from 68.6 percent to 100 percent.  Disbursement Category Part 1(b) will be increased from 90.0 percent to 100 percent.  Disbursement Category 1(c) will be increased from 89.3 percent to 100 percent. Disbursement Estimates. The estimated annual disbursements are modified as follows: Year Original Cumulative Actual Cumulative Proposed Cumulative Disbursements Disbursements Disbursements (US$ mil.) (US$ mil.) (US$ mil.) 2014 0.00 5.00 5.00 2015 20.00 19.44 19.44 2016 45.00 27.19 27.19 2017 80.00 45.18 45.18 2018 115.00 75.18 75.18 2019 145.00 110.00 2020 150.00 150.00 Implementation Schedule. The implementation schedule will be revised to reflect the 18-month extension of GRRP’s closing date. I. SUMMARY OF CHANGES Changed Not Changed Results Framework ✔ Components and Cost ✔ Loan Closing Date(s) ✔ Reallocation between Disbursement Categories ✔ Disbursement Estimates ✔ Implementation Schedule ✔ Implementing Agency ✔ DDO Status ✔ Project's Development Objectives ✔ Cancellations Proposed ✔ Disbursements Arrangements ✔ The World Bank (P129401) Overall Risk Rating ✔ Safeguard Policies Triggered ✔ EA category ✔ Legal Covenants ✔ Institutional Arrangements ✔ Financial Management ✔ Procurement ✔ Other Change(s) ✔ Economic and Financial Analysis ✔ Technical Analysis ✔ Social Analysis ✔ Environmental Analysis ✔ IV. DETAILED CHANGE(S) OPS_DETAILEDCHANGES_COMPONENTS_TABLE COMPONENTS Current Current Proposed Proposed Cost Action Component Name Component Name Cost (US$M) (US$M) Upgrading/Improving County and Upgrading/Improving County 147.36 Revised 167.76 Township Roads and Township Roads Rehabilitation of County and Rehabilitation of County and 77.23 Revised 118.50 Township Roads Township Roads Rural Road Maintenance Pilot 12.00 Revised Rural Road Maintenance Pilot 0.90 Technical Assistance 1.00 Revised Technical Assistance 0.29 TOTAL 237.59 287.45 OPS_DETAILEDCHANGES_LOANCLOSING_TABLE The World Bank (P129401) LOAN CLOSING DATE(S) Original Revised Proposed Proposed Deadline Ln/Cr/Tf Status Closing Closing(s) Closing for Withdrawal Applications IBRD-83370 Effective 30-Jun-2019 31-Dec-2020 30-Apr-2021 OPS_DETAILEDCHANGES_REALLOCATION _TABLE REALLOCATION BETWEEN DISBURSEMENT CATEGORIES Financing % Current Allocation Actuals + Committed Proposed Allocation (Type Total) Current Proposed IBRD-83370-001 | Currency: USD iLap Category Sequence No: 1-A Current Expenditure Category: CWs under Pt.A.1 30,000,000.00 8,643,440.96 30,000,000.00 68.60 100 iLap Category Sequence No: 1-B Current Expenditure Category: CWs under Pt.A.2 44,050,000.00 7,120,685.27 34,458,500.00 90.00 100 iLap Category Sequence No: 1-C Current Expenditure Category: CWs under Pt.B 50,535,000.00 44,888,482.62 74,976,500.00 89.30 100 iLap Category Sequence No: 2 Current Expenditure Category: GDs/non-CSs/CSs/TRN/WKs/IOC 13,000,000.00 470,241.75 1,190,000.00 100.00 100.00 iLap Category Sequence No: 4 Current Expenditure Category: interest 12,040,000.00 2,628,844.80 9,000,000.00 Total 149,625,000.00 63,751,695.40 149,625,000.00 OPS_DETAILEDCHANGES_DISBURSEMENT_TABLE DISBURSEMENT ESTIMATES Change in Disbursement Estimates The World Bank (P129401) Yes Year Current Proposed 2014 0.00 5,000,000.00 2015 20,000,000.00 14,443,874.14 2016 25,000,000.00 7,747,560.13 2017 35,000,000.00 17,990,852.47 2018 35,000,000.00 30,004,129.31 2019 35,000,000.00 34,816,583.95 2020 0.00 40,000,000.00 . The World Bank (P129401) . Results framework COUNTRY: China Project Development Objectives(s) The development objective of the Project is to provide improved transport accessibility in selected areas of Guiyang in a sustainable manner. Project Development Objective Indicators by Objectives/ Outcomes RESULT_FRAME_TBL_PDO Indicator Name DLI Baseline End Target Improved transport accessiblity in selected areas of Guiyang, in a sustainable manner. Number of People with Access to an All-Season Road (Number) 0.00 778,027.00 Rationale: As part of the mid-term review mission, it was discovered that PDO Indicator 1 measuring the number of people with access to an all-season road had been misstated due to a translation error in the Project Appraisal Document’s results indicator Action: This indicator has been Revised methodology section. Currently, the figures only consider those beneficiaries that benefit from upgraded roads and do not consider beneficiaries of roads that are rehabilitated. As a result, the end target for people with access to an all-season road will increase from 126,874 to 778,027. Travel time savings on upgraded / improved roads (Percentage) 0.00 40.00 Travel time savings on rehabilitated roads (Percentage) 0.00 30.00 Action: This indicator has been Revised Road length impacted by maintenance pilot activity (Kilometers) 0.00 240.00 Rationale: With additional time, more km of roads can be included in the pilot road maintenance program. End target will increase Action: This indicator has been Revised from 125km to 240km. The World Bank (P129401) PDO Table SPACE Intermediate Results Indicators by Components RESULT_FRAME_TBL_IO Indicator Name DLI Baseline End Target Upgrading/Improving/Rehabilitating County and Township Roads Roads rehablitated (CRI, Kilometers) 0.00 520.00 Rationale: Intermediate Results Indicator 1 measuring the km of roads rehabilitated will decrease due to substantial increases in the cost of road works. Heavy vehicles working on other priority road and rail projects during the first two years of GRRP’s implementation caused significant damage to Batch 1 roads. As a result, 67.5km of roads had to be reconstructed, rather than rehabilitated, which is significantly costlier to do. In addition, there have been numerous variations to works contracts Action: This indicator has been Revised over the last five years due to differences in the design and actual conditions of the roads, and this had major impacts on road costs. For Batch 2 and 3 roads, some counties wanted to modify road alignments through their jurisdictions to provide better connections and accessibility for villagers. In addition, tighter environment management policies increased the costs for materials, including aggregate, cement and steel. To a lesser extent, the cost of land acquisition also contributed to higher costs. Rural Road Maintenance Pilot (Action: This Component has been Revised) Percent of feedback from independent monitors that is 0.00 80.00 addressed. (Percentage) Rationale: Because the rural road maintenance pilot will not be fully implemented, an alternative indicator to measure sustainability is needed. For this purpose, Intermediate Results Indicator 2 will be replaced with the percent of feedback from independent Action: This indicator has been Revised monitors that is addressed. This is defined as the percentage of responses to requests for routine maintenance improvements from independent monitors using the grid monitoring system that are addressed within ten business days. Technical Assistance The World Bank (P129401) RESULT_FRAME_TBL_IO Indicator Name DLI Baseline End Target Number of trainees who attended training and study tours 0.00 125.00 (Number) Rationale: Action: This indicator has been Revised Additional trainees will be able to attend more training programs with an 18-month extension of the closing date. IO Table SPACE The World Bank (P129401)