Report No. PID3600 Project Name China - Fourth National (@) ... Highway Project (Hubei-Hunan Provinces) Region East Asia and Pacific Sector Transportation Project ID CNPE41268 Borrower People's Republic of China Beneficiaries Hubei and Hunan Provincial Governments Implementing Agency Hubei and Hunan Provincial Communications Departments Date this PID Prepared May 1999 Tentative Appraisal Date March 1999 Project Cost/Financing IBRD US$350.Om Central Government US$228.1 m Hubei Province US$174.6 m Hunan Province US$199.3 m Total US$952.0 m Country and Sector Background 1. China-s economic development since the opening of its economy in the late 1970s has resulted in a 9.5 percent average annual rate of economic growth. Key facets of this growth are rapidly increasing domestic and foreign trade as well as increasing personal mobility and consumption of energy. These, in turn, have caused the demand for transport to surge. Supply capacity, however, is constrained and this is now being recognized as one of the most serious bottlenecks to future economic growth and efficiency. In particular, motorization is growing rapidly but road transport, for historical reasons, has not been widely developed in much of China outside its cities. The road network ranks among the sparsest in the world relative to geographic area or population and is quite unsafe. Few expressways exist, and some 20 percent of rural communities have no all-weather vehicular access of any kind. Governments at all levels have therefore embarked on a major highway investment and improvement program. 2. At the central level, the basic strategy is to develop a National Trunk Highway System (NTHS) for the exclusive use of motorized vehicles, giving priority to two North-South and two East-West corridors ("two verticals and two horizontals"). The Ministry of Communications (MOC) has been planning the NTHS, consisting of 12 interprovincial trunk expressways, with a total length of some 30,000 km and connecting 95 major Chinese cities. The Beijing- Zhuhai (Jingzhu) Expressway constitutes the priority corridor in this program. This expressway crosses the provinces of Hebei, Henan, Hubei, Hunan, and Guangdong over a distance of approximately 2,500 km. It is designed as a high-grade, high-performance facility, at a minimum four lane standard, fully access controlled, and will be operated throughout as a toll highway. Jingzhu is scheduled for completion by about the year 2000. At the provincial/regional level, the strategy is to concentrate on network maintenance and the expansion and improvement of provincial and rural road networks currently totaling more than 1 million km, to provide greater mobility and to stimulate socio-economic development, particularly in less developed regions. The Project Provinces and JINGZHU Expressway 3. Hubei Province, located in Central China, is situated in the middle reaches of the Chang Jiang (Yangtze) river. It has an area of 180,000 sq km and a population of 55 million, of which some 26 million live in urban areas (479). Its economy is largely dominated by agriculture. The province-s commercial and industrial center is Wuhan, its largest and capital city, with a population of 4 million. Wuhan is one of China-s key transportation hubs, located at the crossroads of the new North-South (Beijing-Zhuhai) and East- West (Shanghai-Chengdu) expressways, of several main railway lines, and of important river routes on the Yangtze. 4. Jingzhu Expressway in Hubei Province has a total length of 283 km and consists of three distinct sections: (i) the Northern section from the Henan border to the Wuhan Junshan Yangtze bridge site, with a total length of 170 km, of which 140 km are being undertaken with Bank financing under the NH3 Project (the 30 km section between the Henan border and Dawu will be built later); (ii) the Yangtze crossing which includes the Junshan bridge and its approaches with a total length of 5 km; and (iii) the Southern section from Zhengdian to Tucheng on the Hunan border, with a length of 108 km and which would be financed by the Bank under the proposed NH4 Project. 5. Hunan Province, located in South-Central China, is situated in the middle reaches of the Xiang Jiang river. It has an area of 210,000 sq km and a population of 63 million, of which some 21 million live in urban areas (339). Its economy is primarily based on agriculture. The province-s commercial and industrial centers are Changsha, Xiangtan, Zhuzhou, and Hengyang, forming an important North-South corridor with a population of some 12 million. Changsha is Hunan-s capital with a population of 3 million. Dong Ting lake, once the biggest fresh water lake in China, is located in North- Eastern Hunan. 6. Jingzhu Expressway in Hunan Province has a total length of 532 km and consists of four distinct sections: (i) Tucheng (at Hubei border) to Changsha, 183 km, which is being prepared for Bank financing under NH4 Project; (ii) Changsha to Xiangtan, 45 km, which was constructed through ADB financing; (iii) Xiangtan to Leiyang, 169 km, which is being constructed through Bank financing under NH2 Project; and (iv) Leiyang to Yizhan (at Guangdong border), 135 km which is being financed through domestic loans. Project Objectives 7. The aim of the proposed highway project is to increase economic activity along the Wuhan-Changsha high-priority transport corridor through relieving congestion, facilitating trade and mobility and helping increase efficiency and traffic safety in Northern Hunan and Southern Hubei. - 2 - The proposed project would have the following objectives: (a) relieve traffic congestion and improve the mobility and integration of interprovincial trade and commerce between Hunan and Hubei Provinces by assisting in the development of a key section of China-s National Trunk Highway System (NTHS) in the principal Beijing-Zhuhai corridor; (b) strengthen highway institutional capacity at both HPCDs and related sector institutions, through policy and institutional reform, provision of training, technical assistance and equipment, in planning, design, construction, finance, operation and maintenance of highway networks; (c) develop and sustain a policy dialogue in the two key reform areas of the commercialization and corporatization of provincial toll road authorities and of province-wide highway maintenance management; and (d) improve the safety of road transport. Project Description 8. The investment components of the NH4 project would include the construction of (i) Tucheng - Changsha section (183 km) in Hunan; (ii) Zhengdian-Tucheng section (108 km) in Hubei; as well as (iii) interconnecting road programs in both provinces. 9. The institutional and policy components for both provinces would comprise: (i) staff training and equipment to improve province-wide highway financing, management, and operation; (ii) road traffic safety; (iii) studies on province-wide highway maintenance and its funding; (iv) technical assistance for the commercialization and corporatization of existing provincial expressway companies, based on the results of studies that would be carried out under NH2 and NH3 projects in Hunan and Hubei, respectively; and, (v) construction supervision services for the two expressway sections, their interconnecting roads, and other priority roads yet to be selected. In addition, Hunan and Hubei have agreed to jointly undertake a study on transport and trade integration in the Wuhan-Changsha corridor. Project Costs and Financing 10. The project is estimated to cost about $ 980 million (still tentative), including land acquisition and contingencies. The Bank loan of about $350 million would be onlent to Hunan ($200 million) and Hubei ($150 million) Provinces. The Central Government (MOC) would provide the equivalent of about $228 million, while Hunan Province and Hubei Province would provide the equivalent of about $199 million and $175 million, respectively, or the remaining costs of the project. Implementation 11. Overall direction of the project at the central level rests with the Ministry of Communication (MOC) in Beijing. The Bank loan would be given to the Borrower (the Ministry of Finance, MOF) which in turn would onlent the proceeds to the two provinces on the same conditions as the Bank loan to MOF. Consequently, there would be a loan agreement with MOF and two project agreements (one with each province) with Hunan and Hubei. Similar to what is -3 - being done in ongoing highway projects in China, all project accounts, its special accounts, and all statements of expenditures will be audited by the State Audit Administration. 12. In Hunan, the Hunan Provincial Communications Department (HPCD) has overall responsibility for project preparation and implementation. Under HPCD, Hunan Provincial Expressway Construction and Development Corporation (HPECDC) will be the executing agency for the Tucheng (Hubei border) - Changsha Expressway (TCE) section. In order to strengthen the management of the project, HPECDC has established a Tucheng Expressway Construction and Development Branch Corporation, to be specifically responsible for the preparation and implementation of the TCE section. In Hubei, the Hubei Provincial Communications Department (HPCD) has overall responsibility for project preparation and implementation. A special World Bank Finance Project Office (WBFPO) at HPCD has been created for the preparation and implementation of the World Bank-financed highway projects (NH3 and NH4) and it will be executing agency for the Zhengdian-Tucheng (Hunan border) Expressway (ZTE) section. In addition, six branches of WBFPO at HPCD, i.e.: Administration and Secretary Department, Planning and Financial Department, Engineering Department, Land Acquisition and Resettlement Department, General Engineer-s Office and Expressway Construction Headquarters have been established. Both the Hunan and Hubei project offices are staffed with sufficient and qualified manpower which is already being strengthened under the ongoing NH2 project in Hunan and the NH3 project in Hubei. Rational for Bank Involvement 13. A major objective of the CAS is to alleviate infrastructure bottlenecks. This, among other infrastructure sectors, also applies to China's highway sector and specifically to the construction of the NTHS. By implementing the Wuhan-Changsha Expressway as part of the NTHS, the proposed project would contribute directly to removing highway bottlenecks, facilitating interprovincial trade and commerce, and promoting long-distance highway transport between the capital cities of Hubei and Hunan Provinces and locations in-between. The Wuhan-Changsha Expressway is the central element of the much larger Beijing-Zhuhai Expressway Corridor (Jing-Zhu) which, with a total length of some 2,500 km, constitutes China's highest priority highway investment. The Bank is already heavily involved in the financing of several other high priority sections in this corridor through the First, Second and Third National Highway Projects which are all ongoing and progressing well. Since expressway construction between Wuhan and Shanghai and between Changsha and Guangzhou is already partially completed and partially ongoing, the NH4 project region of Northern Hunan and Southern Hubei would in the near future become well connected to fast growing coastal areas with their deep-water ports by high-grade highways. This will in turn help alleviate growing income disparities between interior and coastal provinces, through improved access to those coastal port cities and increased integration of Hunan and Hubei into the world trading system by contributing more to Chinese imports and exports. Lessons Learned from Past Operations in the Sector 14. Since 1985, the Bank has financed 21 highway projects in China (of which seven have closed), amounting to more than US$4.0 billion in Bank loans and IDA credits. The Bank has been and remains involved in the construction of some 2,800 km of toll expressways and other high-grade toll highways and in - 4 - the rehabilitation, upgrading and maintenance of some 13,000 km of lower level (including rural) roads. In addition, as revealed during a recent Bank review and assessment of its highway TA, the Bank was and is involved in more than 50 TA tasks, comprising (i) highway planning and prioritization; (ii) highway finance; (iii) highway maintenance; (iv) operation and management of high- grade highways; and (v) traffic safety. Moreover, since mid-1996, the Bank has also become heavily involved in the securitization of Bank-financed highway assets in China (so-called "asset-based financing"), through the issuance of highway equity of provincial toll road corporations on the Hong Kong and Shenzhen stock exchanges. 15. While the overall performance of the Bank's highway projects is by and large satisfactory, a number of problems have occurred, which have been taken into consideration in the design of the proposed project. The problems include: inadequate engineering designs and bid documents including costing of civil works; quality control of construction; late commencement of electrical and mechanical facilities component (which has delayed completion of some projects and necessitated the extension of the closing date of several Bank loans), and some lack in the scope and speed of policy and institutional reform, specifically relating to road maintenance, improved high-grade highway management and operation, and traffic safety. 16. All engineering designs and technical bid documents including cost estimates for the proposed expressways and related roads, including their E&M facilities, are being reviewed by international engineering consultants under grant funding from Italy (Hunan) and Spain (Hubei). These technical reviews are still ongoing and will be completed by mid-1999. The quality of project engineering has also profited from the involvement of a French expressway specialist who participated in every project preparation mission. Quality control of construction, specifically for expressway works will be undertaken by foreign and domestic supervision consultants, with on average one well trained and experienced supervisor per km of expressway. The matter will also be addressed through increasing the frequency and quality of the Bank-s supervision, by adding an experienced Chinese construction engineer to the technical staff at RMC who will also supervise the road works under NH4. This will be reflected in the proposed supervision mission plan. Timely completion of the E&M component will be achieved through stricter control and early commencement of the design and tendering procedures. 17. There also is a growing concern that adequate funding for highway maintenance is now not being secured to cover an expanding and more expensive highway system. Previously, this was not a real issue in China; adequate funding was set aside for this purpose. Two highway maintenance studies to be carried out under NH2 in Hunan and NH3 in Hubei as well as two Maintenance Cost and Fund Allocation studies under NH4 would address the organizational framework and develop a sustainable maintenance policy for the two provinces. 18. Experience in the area of land acquisition and resettlement has generally been satisfactory in the Bank-s highway projects in China. In this area, as in the environmental area, it is particularly important that the Bank make its requirements well known to the Chinese agencies at an early stage in the preparation of the project. A Bank resettlement specialist was involved from the very beginning in project preparation. The resettlement action plans for the proposed project are being reviewed and will be cleared by the Legal Department before appraisal of the project. Experience in the environmental - 5 - area in China has generally been favorable as well. As in the case of resettlement, a Bank environmental specialist has been involved in project preparation from the very beginning. However, more attention needs to be paid to environmental supervision during construction and to the training of environmental personnel by the Chinese side. The proposed project will provide an adequate institutional setup and training for such environmental supervision and training. The quality of the Bank-s resettlement and environmental work has also been improved recently, as part of the Bank-s decentralization efforts. More of this work will in future be shifted to RMC due to inceasing resident mission capacity in resettlement and environment. Environmental Aspects 19. The project is a category "A" from an environmental point of view. Environmental impact assessments (EIA) and Environmental Action Plans (EAP) have been prepared for the proposed expressway. The revised final EIAs, EAPs and EA Summaries were submitted in January 1999 and were found to be satisfactory to the Bank. In both the Hubei and Hunan sections of the expressway, the major environmental impacts during the construction period include noise, soil erosion, and dust. Lesser impacts include alteration of hydrological regimes, interference with local people and traffic and impacts on the local ecology and on irrigation system. Traffic noise, air pollution from vehicle exhaust emission, soil erosion and water pollution from service areas are identified as the major adverse impacts during the operation period. Resettlement Aspects 20. The project will require land acquisition and resettlement. Socioeconomic surveys of the affected people and communities have been conducted and census of Project Affected Persons (PAPs) and their assets has been completed on all the alignments considered for the project. Resettlement Action Plans (RAPs) are in accordance with Bank-s Operational Directive 4.30 and have been found satisfactory. Efforts will be made during project preparation to minimize land acquisition and resettlement through modifications in highway alignments and designs. Contact Point: The InfoShop The World Bank 1818 H Street, N.W. Washington D.C. 20433 Telephone: (202) 458-5454 Fax: (202) 522-1500 Note: This is information on an evolving project. Certain activities and/or components may not be included in the final project. Processed by the InfoShop week ending June 4, 1999. - 6 -