Completion Report. Project Number: Loan Number: 2051 August People s Republic of China: Yichang Wanzhou Railway Project

Transcription

1 Completion Report Project Number: Number: 2051 August 2012 People s Republic of China: Yichang Wanzhou Railway Project

2 CURRENCY EQUIVALENTS Currency Unit yuan (CNY) At Appraisal At Project Completion (18 November 2003) (22 December 2010) CNY1.00 = $ $ $1.00 = CNY CNY ABBREVIATIONS ADB Asian Development Bank EIA environmental impact assessment EIRR economic internal rate of return EMP environmental management plan FIRR FSDI FCTIC financial internal rate of return Fourth Survey and Design Institute of China Railway Foreign Capital and Technical Import Center MOR Ministry of Railways PRC People s Republic of China SEPP TA soil erosion protection plan technical assistance WACC YWR YWRCH weighted average cost of capital Yichang Wanzhou Railway Yichang Wanzhou Railway Construction Headquarters WEIGHTS AND MEASURES km kilometer m 2 square meter m 3 cubic meter mu a Chinese unit of measurement (1 mu = m 2 ) (i) NOTES In this report, "$" refers to US dollars, unless otherwise stated. Vice-President S. Groff, Operations 2 Director General R. Wihtol, East Asia Department (EARD) Director H. Sharif, People s Republic of China Resident Mission, EARD Team leader Team members F. Wang, Senior Project Officer (Financial Management), EARD W. Zhu, Senior Project Officer (Resettlement), EARD Z. Niu, Senior Project Officer (Environment), EARD Y. Gao, Project Analyst, EARD In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.

3 CONTENTS Page BASIC DATA i I. PROJECT DESCRIPTION 1 II. EVALUATION OF DESIGN AND IMPLEMENTATION 1 A. Relevance of Design and Formulation 1 B. Project Outputs 3 C. Project Costs 5 D. Disbursements 5 E. Project Schedule 6 F. Implementation Arrangements 6 G. Conditions and Covenants 7 H. Related Technical Assistance 7 I. Consultant Recruitment and Procurement 8 J. Performance of Consultants, Contractors, and Suppliers 8 K. Performance of the Borrower and the Executing Agency 9 L. Performance of the Asian Development Bank 9 III. EVALUATION OF PERFORMANCE 9 A. Relevance 9 B. Effectiveness in Achieving Outcome 10 C. Efficiency in Achieving Outcome and Outputs 11 D. Preliminary Assessment of Sustainability 12 E. Impact 12 IV. OVERALL ASSESSMENT AND RECOMMENDATIONS 14 A. Overall Assessment 14 B. Lessons 14 C. Recommendations 15 APPENDIXES 1. Project Framework Chronology of Major Events Project Cost and Financing Plan Projected and Actual Contract Awards and Disbursements Appraisal and Actual Implementation Schedule Organization Chart Compliance with Covenants Contract Packages Financed by the Asian Development Bank Technical Assistance Completion Report for Strengthening Involuntary Resettlement Practices Technical Assistance Completion Report for Ensuring Safeguard Practices Economic Reevaluation Financial Reevaluation Social Impact and Poverty Reduction in the Project Area Land Acquisition and Resettlement Environmental Impact Analysis 63

4

5 BASIC DATA A. Identification 1. Country 2. Number 3. Project Title 4. Borrower 5. Executing Agency 6. Amount of 7. Project Completion Report Number People s Republic of China 2051 Yichang Wanzhou Railway Project People s Republic of China Ministry of Railways $500 million PCR: PRC 1332 B. Data 1. Appraisal Date Started Date Completed 2. Negotiations Date Started Date Completed 3. Date of Board Approval 4. Date of Agreement 5. Date of Effectiveness In Agreement Actual Number of Extensions 6. Closing Date In Agreement Actual Number of Extensions 7. Terms of Interest Rate Maturity Grace Period 8. Terms of Relending Interest Rate Maturity Grace Period Second-Step Borrower 17 July August November November December May August July June December London interbank offered rate (LIBOR) based 26 years 6 years London interbank offered rate (LIBOR) based 26 years 6 years Ministry of Railways

6 ii 9. Disbursements a. Dates Initial Disbursement Final Disbursement Time Interval 26 July December months Effective Date Original Closing Date Time Interval 26 July June months b. Amount ($) Category Original Allocation Last Revised Allocation Amount Canceled Net Amount Available Amount Disbursed Civil works 349,000, ,077, ,077, ,077,567 Equipment 77,180,000 27,012, ,012,740 27,012,740 Materials 45,820,000 87,936, ,936,233 87,936,233 Consulting services and training 1,300, , , ,460 Front-end fee 2,500,000 2,500, ,500,000 2,500,000 Unallocated 24,200, Total 500,000, ,000, ,000, ,000,000 Source: Asian Development Bank. C. Project Data 1. Project Cost ($ million) Cost Appraisal Estimate Actual Foreign Exchange Cost 1, Local Currency Cost 1, , Total 2, , Financing Plan ($ million) Cost Appraisal Estimate Actual Implementation Costs Borrower Financed 1, , ADB Financed Total 2, , IDC Costs Borrower Financed ADB Financed Total ADB = Asian Development Bank, IDC = interest during construction and commitment charge. Sources: Asian Development Bank.

7 iii 3. Cost Breakdown by Project Component ($ million) Foreign Exchange Appraisal Estimate Local Currency Total Cost Foreign Exchange Actual Local Currency Total Cost Component A. Base Costs 1. Civil Works , , , Railway Materials Signaling, Communications, MIS 4. Electric Power and Electrification 5. Operational, Safety, and Maintenance Equipment Land Acquisition and Resettlement 7. Environmental Protection, Mitigation, and Monitoring 8. Administration, Consulting Services, and Miscellaneous Cost Subtotal (A) , , , , B. Contingencies 1. Physical Price Escalation Subtotal (B) C. Front-End Fee D. Interest During Construction Total 1, , , , , MIS = transport management information system. Sources: Asian Development Bank and the Ministry of Railways. 4. Project Schedule Item Appraisal Estimate Actual Date of Contract with Consultants Jul 2004 Mar 2008 Completion of Engineering Designs Aug 2003 Aug 2003 Civil Works Contract Date of Award Aug 2004 Sep 2004 Completion of Work Dec 2008 Oct 2010 Equipment and Supplies Dates First Procurement Jun 2006 Jan 2005 Last Procurement Jun 2009 Jul 2007 Completion of Equipment Installation Jun 2009 Oct 2010 Start of Operations Jan 2010 Dec 2010 Sources: Asian Development Bank and the Ministry of Railways.

8 iv 5. Project Performance Report Ratings Implementation Period Development Objectives Ratings Implementation Progress From 1 Dec 2003 to 31 Mar 2004 Highly Satisfactory Satisfactory From 1 Apr 2004 to 31 Aug 2005 Satisfactory Satisfactory From 1 Sep 2005 to 30 Sep 2007 Satisfactory Highly Satisfactory From 1 Oct 2007 to 31 Dec 2011 Satisfactory Satisfactory Source: Asian Development Bank. D. Data on Asian Development Bank Missions Name of Mission Date No. of Persons No. of Person-Days Specialization of Members a Fact-finding 19 Nov 6 Dec a, b, c, d, e Appraisal 17 Jul 11 Aug a, b, d, e, f, g Negotiation Mission 5 8 Nov a, e, g Inception Mission 7 13 Dec h, i Review Mission Nov h, i, d Review Mission 2 28 Nov 1 Dec h, i, d Midterm Review Mission Nov h, i, j Review Mission Oct i, k, l, m Review Mission Nov i, k, l Review Mission Nov i, k, l Project Completion Review Mar i, k, l, m a a = financial specialist, b = resettlement specialist, c = transport engineer, d = environmental specialist or consultant, e = project specialist, f = program officer, g = counsel, h = transport specialist, i = project analyst, j = project management officer, k = financial management officer, l = resettlement officer, m = environment officer. Source: Asian Development Bank.

9 I. PROJECT DESCRIPTION 1. Railways play an important role in transportation in the People s Republic of China (PRC) due to the large land area and population size. The Government of the PRC has been increasing the railway transport capacity to meet economic and social development needs. During , the rail network expanded by 30%, from 70,057 kilometers (km) to 91,000 km. The total capital investment in the sector was CNY2,431 billion during the Eleventh Five- Year Plan (11th plan) period covering There have been substantial increases in both passenger and freight traffic. From 2001 to 2011, passenger traffic increased by 101.6%, from billion passenger-kilometers (p-km) to billion p-km, and freight increased by 100.5%, from 1,469.4 billion ton-km to 2,946.5 billion ton-km. Despite such growth, railway capacity still seriously lagged behind demand. The government s plan for railway development gives priority to expanding the railway network and constructing new lines in the central and western regions. The Yichang Wanzhou Railway (YWR) was initially proposed in the Tenth Five-Year Plan, (10th plan) of the Ministry of Railways (MOR) and was then included in the 11th plan. 2. The YWR provides a new rail link in the national network, connecting Yichang in Hubei Province with Wanzhou in Chongqing Municipality. The 377-km railway was the last missing section of the east west railway connection between Shanghai and other economic centers on the east coast and Chongqing and Chengdu in the western region. It reduced the travel distance significantly compared with other railway routes and alleviated serious network bottlenecks. The railway traverses eight counties and districts in a mountainous region in three prefectures which are less developed due to poor accessibility and expensive motorized transport. The project s objective was to remove transport barriers, reduce transport and logistics costs, and promote pro-poor economic and social development. The YWR is the first railway link in the region and constitutes a strategic link in the central PRC railway corridor. Its connection to the national network has improved traffic maneuverability, reduced transportation constraints on other parts of the national railway network, and lowered network transportation costs. The project framework is in Appendix 1 and the chronology of major events is in Appendix 2. II. EVALUATION OF DESIGN AND IMPLEMENTATION A. Relevance of Design and Formulation 3. The strategy of the Asian Development Bank (ADB) for the railway sector in the PRC focuses on helping to (i) expand the railway system by constructing new lines in unserved and less-developed areas, (ii) modernize and increase the capacity to improve efficiency on key routes of the national railway system, (iii) commercialize railway operations to sustain efficient operations, and (iv) increase railway competitiveness in the transport sector through restructuring and reform. This strategy remained unchanged at the time of appraisal and project completion. ADB has provided a series of assistance programs and projects in the development of railways in poor and less-developed inland provinces to promote sustainable economic growth and reduce poverty. The government s Western Development Strategy aimed to narrow development disparities between the western and coastal regions, and this was also the key theme of the 10th and 11th plans. The project supported the government s strategy and was consistent with ADB s country operational strategy. 1 1 ADB Country Strategy and Program Update ( ): People s Republic of China. Manila.

10 2 4. ADB provided project preparatory technical assistance 2 (TA) to review alternative alignments, assess the project s feasibility, and strengthen arrangements for ensuring compliance with safeguard requirements. In addition to construction of the railway, the project included elements that added value and corresponded to ADB s strategic priorities, such as providing consulting services to strengthen the capacity of MOR, providing track maintenance equipment, developing container terminals, and improving capacity of railways connecting to the YWR. Recognizing the complexity of project implementation, project design included additional measures for strengthening land acquisition, monitoring resettlement, and mitigating key environmental risks. 3 Through the TA for strengthening involuntary resettlement practices, 4 the capacity of the project counterpart institutions, including the local government dealing with the land acquisition and resettlement, was enhanced; ADB's resettlement and social safeguard good practices were disseminated; and a computer-based management information system for resettlement reporting was developed. Through the attached TA for ensuring safeguard practices 5 an independent environmental panel was engaged to oversee compliance with ADB s safeguard polices with regard to potential disturbance of the Chinese sturgeon breeding grounds and other sensitive species due to bridge construction over the Yangtze River The YWR was originally designed as a single-track, electrified, standard-gauge Class I railway. In September 2006 the government approved the proposal to double-track the 288-km section from Yichang to Liangwu (close to Lichuan). The double tracking was considered necessary for the rapid development of the railway network in the PRC. 7 The YWR forms part of the Shanghai Chongqing Chengdu Railway corridor, which connects the major cities of Shanghai, Nanjing, Wuhan, Chongqing, and Chengdu. The YWR is connected at the eastern end with the Wuhan Yichang railway, and at the western end with the Chongqing Lichuan Railway 8 at Liangwu, and with the Daxian Wanxian Railway 9 at Wanzhou. The Wuhan Yichang and Chongqing Lichuan railways, as well as the rest of the sections of the Shanghai Chengdu corridor, are double-track electrified lines, which required the double tracking of the YWR to ensure consistent specification of the corridor. The original design had anticipated the double tracking, 10 and therefore the foundations of bridges and tunnels had been designed to allow for double tracking. Simultaneous construction of the double-tracked section, instead of double tracking at a later stage, was justified because it reduced the impacts on the environment by utilizing the same spoil disposal sites, work camps, and construction access roads, and reduced the need to remobilize construction equipment and vehicles, and thus reduced the cost significantly. 2 ADB Technical Assistance to the People's Republic of China for Preparing the Yichang Wanzhou Railway Project. Manila. 3 The major environmental risk identified was potential adverse impacts on habitats of Chinese sturgeon due to the construction crossing the Yangtze River at Yichang city. 4 ADB Technical Assistance to the People s Republic of China for Strengthening Involuntary Resettlement Practices for the Yichang Wanzhou Railway Project. Manila. 5 ADB Technical Assistance to the People s Republic of China for Ensuring Safeguard Practices for the Yichang Wanzhou Railway Project. Manila. 6 ADB Ensuring Safeguard Practices for the Yichang Wanzhou Railway Project. Consultant s report. Manila. The panel remarked that This all demonstrates that, with adequate care, even a major bridge can step lightly across the natural environment. 7 In 2004, the State Council of the PRC approved the railway development plan for the period up to 2020, which seeks to expand the railway network to 100,000 km. 8 ADB Report and Recommendation of the President to the Board of Directors on a Proposed to the People s Republic of China for the Chongqing Lichuan Railway Development Project. Manila. 9 ADB Report and Recommendation of the President to the Board of Directors on a Proposed to the People s Republic of China for the Daxian Wanxian Railway Project. Manila. 10 ADB Report and Recommendation of the President to the Board of Directors on a Proposed to the People s Republic of China for the Yichang Wanzhou Railway Project. Manila (para. 25).

11 3 B. Project Outputs 1. Yichang Wanzhou Railway 6. The YWR comprises 324 km in Hubei Province and 53 km in Chongqing Municipality. Due to the difficult terrain, the project involves a large number of bridges (including two over the Yangtze River) and tunnels; 74% of the total length is bridges and tunnels, which is the highest percentage among railways constructed before 2010 in the PRC. Construction commenced during September December By the end of 2007, subgrades, bridges, most tunnels, and culverts were completed. Overall progress was prolonged by the construction of the 10.5 km Qiyueshan Tunnel, which was at the point with the most difficult terrain. During its construction, about 200 caves, 3 underground rivers, and 15 geological faults were encountered, which required special treatments and mitigation measures. The tunneling works caused the overall construction schedule to be extended by almost 1 year. Track laying was completed in August Buildings and ancillary facilities were implemented simultaneously to match the implementation schedule of subgrade works. Electrification, signaling, and telecommunication works were completed in October The YWR was recognized as the most challenging railway project of the period given the complex topographical, geological, engineering, and hydrogeological conditions. Located in the western region of Hubei Province, it passed through the Yungui Highlands at an elevation of 700 1,500 meters, and the watershed of the Yangtze and Qing rivers. Limestone is distributed throughout the entire geological area, and 70% of the route is on karst topography. 11 Faults and folds, underground caves, landslides, underground rivers, methane, and high ground stresses are among the prominent problems encountered. Of the 159 tunnels, 32 are longer than 3 km, 3 are longer than 10km, and the longest one is km. There are 253 bridges, the highest of which has 135-meter high piers, and the largest concrete span is 275 meters. Track laying on sections with continuous long slopes with the maximum gradient of 18 also posed high risks. In overcoming these technical challenges, the MOR has gained valuable experience in constructing complex railways in mountainous areas. 8. Equipment and facilities for power supply, signals and telecommunication, and train control systems were installed and commissioned. Thirteen traction substations were built and the power supply station anticipated at appraisal was not needed because of power supply facilities established under another project in the region. Overhead contact wire of 923 km was installed. Several key design standards and specifications were upgraded, including use of ballastless embankments in tunnels longer than 3 km, seamless track along the whole line, computerized interlocking, synthetic lightning protection, computerized signal control, enhanced tunnel lighting and ventilation, cable trough in subgrades, safety fences, and fire-fighting design. Recognizing the potential risks of the mountainous environment to operational safety, specific measures were incorporated in the design, including using advanced fiber-optic sensor technology to monitor and report natural disasters such as landslides, rockfalls, and rock mass failures, and installing video monitors to monitor key bridges and tunnels. The structure gauge of the YWR permits operation of double-stack container trains, the first national railway to incorporate this requirement in the design. Double-stack container transport operation on electrified track reduces land use; increases carrying capacity by 60% on the same track; improves energy and environmental efficiency by 40% 60%; and allows cargo to move more quickly, safely, and efficiently. 11 Karst refers to porous limestone containing deep fissures and sinkholes and characterized by underground caves and streams.

12 4 9. The MOR issued its provisional acceptance in November 2010 after completing the check on construction quality and the transportation safety assessment. Public safety campaigns were conducted to familiarize the local people with safety issues related to the electrified railway. The local governments also established offices to assist the safety efforts. Trial operation of the YWR started on 22 December 2010 for both passenger and freight operations. Responsibility for operation of the YWR has been assigned to the Wuhan Railway Administration for the Yichang Liangwu section, and to the Chengdu Railway Administration for the Liangwu Wanzhou section. The design speeds of 160 kilometers per hour (km/h) for the double-tracked section and 120 km/h for the single-tracked section have been achieved. Five pairs of freight trains and 17 pairs of passenger trains were operated on the YWR for the initial stage. Telecommunication, signaling, electrification, and traffic control system equipment were found in good condition at project completion review. 2. Stations, Freight Yards, and Industrial Sidings 10. The number of new stations was reduced from 24 as originally planned to 10. In addition, Yichang East and Wanzhou stations were expanded from existing stations. Freight yards were established at these stations. The reduced number of new stations was due to the double tracking of the Yichang Liangwu section, which eliminated the need to construct passing stations. All stations are fully operational with appropriate equipment and facilities. Main station access and link roads have been completed, and public bus services provided. One industrial siding of 5.9 km with an annual capacity of 500,000 tons was constructed in Enshi. Construction of several industrial sidings is planned in Yichang. In addition, 600 km of access roads were constructed and handed over to the local governments; most of these roads have become the main roads in remote mountainous areas, benefiting the local communities. 3. Operational Equipment and Environmental Protection Facilities 11. ADB financed a package of equipment for mechanized track maintenance. Compared with conventional manual methods, the mechanized track maintenance reduces the interruption to operations by 50% for major track repairs and by 60% 80% for routine maintenance; it also improves maintenance quality. The operating speed of the first train after track maintenance has increased from 15 km/h to 45 km/h. The track machines are based at track maintenance depots and are being efficiently used and well maintained. Sufficient rolling stock has been provided by the Wuhan Railway Administration and Chengdu Railway Administration. Environmental protection facilities established under the project included wastewater treatment facilities installed in all stations and sound barriers at sensitive sites. In addition, solar or electric heaters were adopted to replace the originally proposed oil-burning boilers for specified stations and residential quarters. The use of ballastless embankments and seamless track has greatly reduced the noise impact during operation. In particular, shock absorbers were installed on the bridges over the Yangtze River to alleviate the vibration impacts of railway carriages on the habitats of aquatic animals, such as the Chinese sturgeon. 4. Consulting Services and Institutional Strengthening 12. Ten national supervision companies and five consulting firms and/or institutes with a total contract value of CNY million were engaged for (i) supervision of the civil works contracts, electrification and signaling engineering, and environmental protection measures; and (ii) independent monitoring of resettlement implementation, impacts on Chinese sturgeon habitats, and special monitoring of soil erosion. In view of the geotechnical complexity of the

13 5 terrain along the alignment, the MOR also employed national experts on tunnels and bridges to evaluate the detailed structural designs and selection of construction methods, and conduct onsite consultation on and diagnosis of technical problems encountered during construction. The use of national expertise effectively helped to overcome the technical challenges. 13. ADB financed the international consulting services to develop the guidelines for appraisal of railway investment projects. 12 The guidelines introduced international best practices in economic and financial appraisal methodologies that have been applied in the MOR investment approval process. This component improved the MOR s capacity to use quantitative methods in project appraisal and decision making. Other consulting components such as for establishment of the financial system for line-based profitability and investment returns, and diversifying financing sources and improving the utilization of foreign capital were not undertaken mainly due to the postponed reform timetable under the MOR s institutional framework. The component for increasing the business development and marketing capacities for the YWR was also canceled, following MOR s decision that the operating railway administrations will separately develop business development and marketing options for the YWR to enhance its financial viability. C. Project Costs 14. The project cost at completion was CNY27,490 million, a significant increase from the appraisal estimate of CNY19,563 million. The additional cost due to the double-tracked section of the alignment (para. 5) accounted for 30% of the total cost. Modification to the original design due to the complex topography and geological conditions for construction, upgrading of key design standards, and additional considerations to improve operational safety standards are the main reasons for the cost increase. Other factors are (i) increased land acquisition and resettlement costs because of incremental compensation for building relocation and temporary land use, and relocation of electricity and telecommunication lines; (ii) significantly increased investment for environmental protection; (iii) significantly higher actual costs for administration, consulting services, and miscellaneous expenditures as a result of increased supervision and consulting services (para. 12); and (iv) higher interest during construction. The project cost in US dollars increased from $2,364 million to $4,125 million as a result of the substantial appreciation of the yuan against the US dollar during the implementation period. 15. The financing plan envisaged at appraisal included an ADB loan of $500 million representing 21% of the project cost, a loan from the China Development Bank of $725 million representing 31% of the project cost, and equity inputs from the MOR of $1,138 million representing 48% of the project cost. ADB actually financed $500 million, representing 12% of the project cost. Actual counterpart funds comprised MOR equity investment of $1,429 million (35% of project cost), railway bonds of $698 million (17%), and loans from the China Development Bank of $1,498 million (36%). The project costs and financing plan are in Appendix 3. D. Disbursements 16. The ADB loan proceeds of $500 million were fully disbursed from July 2004 to December An imprest account was utilized. The average annual turnover ratio of 2.34 indicated efficient utilization of the imprest account. Direct payment and commitment 12 ADB Economic and Financial Appraisal of Railway Investment Projects. Consultant s report. Manila ( 2051-PRC).

14 6 disbursement procedures were also used. Of the loan proceeds, $ million were used for civil works, $27.01 million for equipment, $87.94 million for materials, $0.47 million for international consulting services, and $2.50 million for front-end fee. The loan closing date was extended from 30 June 2010 to 31 December The loan account was closed on 23 December The executing agency applied appropriate disbursement procedures and ADB s disbursement process was efficient. The projected and actual contract awards and disbursements are in Appendix 4. E. Project Schedule 17. The project was envisaged to be implemented over 6 years from 2004 to Prequalification and bidding started on schedule following the advance actions modality, but were completed 5 months later than the planned schedule. Civil works construction started in January 2004 and was completed in October 2010, 22 months later than envisaged at appraisal. Technical difficulties caused by geographic and topographical complexity were the main reasons for the significant delay (paras. 6 7). Track laying could not start until June 2008 due to the construction of tunnels, and was completed in August 2010, 17 months later than the original schedule. Equipment installation for telecommunications, signaling, and electrification was completed in October Land acquisition and resettlement activities began in late 2003 and were largely completed by the end of 2005, however rehabilitation took much longer due to delay in construction of the resettlement sites. Trial operation commenced on 22 December 2010, which was 1 year later than the original schedule. The appraisal and actual project implementation schedule is in Appendix 5. F. Implementation Arrangements 18. The implementation arrangements were appropriate. The MOR was the executing agency for the project. A project coordination office consisting of key divisions under MOR s steering committee was established to provide overall guidance during project implementation. The Zhengzhou Railway Administration Bureau and Chengdu Railway Administration Bureau were the implementing agencies until 2007 when the MOR s Railway Construction Management Center started to supervise the implementation through the onsite YWR Construction Headquarters (YWRCH). The Foreign Capital and Technical Import Center (FCTIC) coordinated the project management office's tasks and was responsible for the procurement of ADBfinanced contracts, withdrawals of ADB loan proceeds, and reporting to ADB. The organization chart is in Appendix The MOR assumed lead accountability for the land acquisition and resettlement, and the institutional responsibility for implementing the resettlement plan rested with the local governments in the provinces, prefectures, and counties traversed by the YWR. The resettlement office under the YWRCH had overall responsibility for coordination, fund raising, and internal monitoring and evaluation for land acquisition and resettlement implementation. Railway support offices were established under the Enshi, Wanzhou, and Yichang municipal and/or prefecture governments, which were responsible for implementing land acquisition, house demolition, and relocation. The Fourth Survey and Design Institute of China Railway (FSDI) was engaged to conduct external monitoring and submitted annual reports to the MOR and ADB. 20. The YWRCH was responsible for environmental management and supervision during the implementation period. Effective institutional arrangements were established to implement the environmental management plan (EMP), which is part of the summary environmental impact

15 7 assessment (SEIA) and the soil erosion protection plan (SEPP) for the project. At the beginning of the project, the YWRCH issued the Implementing Rules for Environment Protection and Soil and Water Conservation to regulate and assess the performance of contractors in implementing the EMP. Monitoring and mitigation measures were included in the covenants of the civil works contracts. Local environmental monitoring stations were engaged to undertake onsite monitoring of surface water and air quality, and noise. The Soil and Water Conservation Monitoring Station of the Yangtze River Commission was contracted to monitor soil erosion as per the SEPP. The FSDI was engaged as the environmental supervision engineer to supervise implementation of the EMP and SEPP. The Yangtze Aquatic Institute of the Chinese Academy of Aquatics monitored the impact on Chinese sturgeon from bridge construction over the Yangtze River. During construction, the Beijing OASIS Environmental Protection Technology Company was engaged to oversee the overall project environmental monitoring and submit monitoring reports to the MOR and ADB. Contractors and construction supervision companies had designated staff in the site management team to deal with environmental issues. G. Conditions and Covenants 21. The loan covenants were considered adequate and major covenants were complied with. The MOR completed the preparation for the trial operation within 2 months after the physical completion, demonstrating strong capacity in operational organization and administration. Adequate wagons and locomotives were provided and specific measures were taken to ensure operational safety. The capacity of connecting lines was significantly expanded during through electrification of existing railway lines and construction of new lines. Container terminals were completed in Chongqing (December 2009), Chengdu (May 2010), and Wuhan (August 2010). National railways passenger transport tariffs have been applied on the YWR. Freight tariffs for the YWR are CNY0.24/ton-km for local traffic and CNY0.16/ton-km for transit traffic, which are higher than the national level of CNY0.12/ton-km. The only exception relates to the operating ratio of the MOR of not higher than 75%. The actual values of the ratio fluctuated in the 72% 93% range during the implementation period. Compliance with loan covenants is in Appendix 7. H. Related Technical Assistance 22. ADB provided two associated TA projects to ensure compliance with ADB s safeguard policy (para. 4). Under the TA for strengthening involuntary resettlement practices (footnote 3), a resettlement training workshop was conducted for municipal and county resettlement officials in the project area, a computer-based resettlement management information system was established, and two international engineers with expertise in railway tunnels and bridges conducted structural engineering review to identify technical risk factors. The TA strengthened the resettlement practices and was rated successful (the TA completion report is in Appendix 9). Under the TA for ensuring safeguard practices (footnote 4), the consultants carried out independent review and gave a professional opinion on the project s compliance with ADB's safeguard policy, particularly with regard to the mitigation measures for endangered species in the Yangtze River. The independent opinion, which was based on observations at site visits, interviews with relevant agencies, and analysis of information, confirmed the adequacy of preventive measures to protect endangered species. Potential issues and risk factors were identified, and precautionary and mitigation measures were taken. Good practices were introduced through specific recommendations and dialogue with MOR officials, contractors, design institute, and monitoring agencies, which improved their capacity to implement the project following international standards. The TA was also rated successful (the TA completion report is in Appendix 10).

16 8 I. Consultant Recruitment and Procurement 23. An international consulting firm was recruited under the loan. The recruitment followed the quality- and cost-based selection method in accordance with ADB s Guidelines on the Use of Consultants (2007, as amended from time to time). The consultants were fielded in April 2008 and their services were completed in December ADB-financed procurement packages followed the international competitive bidding method and ADB's Procurement Guidelines (1999, as amended from time to time). In the bidding documents and contracts, relevant sections of ADB's anticorruption policy were incorporated and implemented. The FCTIC was responsible for procurement of ADB-financed contracts. Four domestic procurement agents were engaged by the FCTIC to assist with procurement activities. In May 2003 ADB approved advance procurement action for civil works. Procurement was initiated in October 2003 and ADB approved the prequalification of contractors in February Twenty five civil works contracts were awarded in two batches in September 2004 (2 months after loan effectiveness) and December 2004 (5 months after loan effectiveness). The advance action was efficiently utilized in view of the large and complex nature of these contracts. Two packages for track materials (12 contracts) and one package for track maintenance equipment (7 contracts) were procured under ADB loan financing. Because of the substantial increase in metal prices and the appreciation of the yuan against the US dollar, the material contracts were significantly higher than estimates, resulting in the ADB loan being insufficient to procure all the planned equipment. As a result, some equipment was procured using counterpart financing. Seventeen civil works contracts and 123 contracts for materials and equipment followed the national competitive bidding process, and these contracts were fully financed by the borrower. All the bids were processed on time within the project implementation schedule. The ADB-financed packages are listed in Appendix 8. J. Performance of Consultants, Contractors, and Suppliers 24. The project substantially used national consultant expertise. The national experts were engaged not only for the supervision of civil works contracts but also for the supervision of electrification and signaling engineering, environmental protection measures, independent monitoring of resettlement implementation, the impacts on Chinese sturgeon habitats, and soil erosion impacts. The national experts were also engaged to undertake onsite consultation and diagnosis as well as panel meetings on key technical issues, all of which contributed to overcoming the construction challenges. The international consultants delivered a final report of high technical quality, which detailed the internationally accepted economic and financial appraisal methodologies for the government to follow to improve the feasibility analysis of railway investment projects. 25. Civil works contractors performed well and successfully constructed the difficult tunnels and bridges. With advanced equipment and experienced managers and engineers, these contractors overcame the challenges of complex geological conditions. Many innovative construction methods were utilized, and quality control was strictly exercised. Risk management was exercised and systematic measures were taken to ensure worker safety at construction sites. Equipment suppliers also performed well and all equipment was installed and commissioned as required. The YWR is now fully operational for freight and passenger transport and the design speed has been achieved. The overall performance of consultants, contractors, and suppliers was highly satisfactory.

17 9 K. Performance of the Borrower and the Executing Agency 26. The MOR successfully addressed the major technical and engineering challenges of constructing railways in mountainous regions. It effectively mobilized the resources of design institutes, contractors, supervision engineers, and foreign and national experts with specific expertise to tackle the difficulties of constructing complex tunnels and bridges. The innovation created and experience gained in overcoming the technical challenges were significant, particularly in the areas of (i) tunnel construction in karst topography, dealing with high ground stress, caves, underground rivers, and flammable and poisonous gases; and (ii) large bridge construction, including high bridges over deep valleys and long bridges spanning the Yangtze River. For the first time in the railway subsector, a risk management system was introduced in project management. Geological detection technology was utilized to forecast characteristics of rock formations and faults, as well as distribution of underground water. To ensure construction safety, a monitoring system was established to provide real-time information about hydrogeological situations and structure changes, with which disaster alarm systems were connected. The MOR is also to be commended for ensuring mitigation of key environmental risks and compliance with ADB s safeguard policies (para. 20). The design was also optimized to reduce environmental disturbance, improve the capacity for water and soil conservation, and increase the ability to resist natural hazards and the level of operational safety. The performance of the borrower was considered highly satisfactory in promptly processing the loan signing and effectiveness, endorsing the requests of the MOR in a timely manner, and providing guidance on overall project implementation. Overall, the performance of the borrower and the MOR was highly satisfactory. L. Performance of the Asian Development Bank 27. ADB s performance was satisfactory. The processing team included social dimensions in the project, incorporated rigorous safeguard monitoring arrangements, assessed major risks, and designed appropriate loan covenants. During implementation, procurement was processed efficiently and the loan proceeds were disbursed in a timely manner. Eight review missions, including a midterm review, were fielded during implementation. The review missions and ADB s frequent communications with the MOR resolved problems encountered during implementation. The MOR expressed appreciation for ADB s efficiency in procurement and disbursement processing and in resolving other implementation issues. ADB effectively strengthened the safeguards supervision during project implementation. The resettlement database system provided useful information for resettlement management, and benefited other projects through experience learning and system replication. ADB closely monitored the project impact during the construction period as well as the impact of the railway on the local economy beyond project completion. III. EVALUATION OF PERFORMANCE A. Relevance 28. The project was assessed highly relevant. The project is located in the mountainous area in Hubei Province and Chongqing Municipality, where poverty incidence is much higher than the national average level. The project removed transport barriers and reduced transport and logistics costs, and thereby promoted pro-poor economic and social development in this poor area. The government listed the project as a priority in both the 10th and 11th plans. With the completion of the YWR, the railway trunk corridor connecting major economic centers in the east and west of the PRC was established. Under the government s program, the capacity of

18 10 several connecting lines has been significantly improved, reaffirming the relevance of the YWR. In 2008, ADB approved two projects in the same region, the Chongqing Lichuan Railway (footnote 7) and the Lanzhou Chongqing Railway, 13 both double-track electrified railways. The double tracking of the section between Yichang and Liangwu, a change that significantly improved the capacity of the YWR, further improved its relevance in the vital role that the YWR plays in connection with these lines. The project was in line with ADB s country strategy and program for the PRC, both at the time of approval (footnote 1) and for the current period, 14 which has prioritized inclusive growth and balanced development. 29. The project proved to be extremely challenging given the large number of tunnels and bridges, many of them of world-class complexity for construction. ADB anticipated those associated risks and provided much-needed technical support through the project preparatory TA and two related TA projects. Recognizing the challenges in ensuring safeguard compliance, ADB also made special arrangements, including an independent panel of environmental experts and a management information system (MIS) for land acquisition and resettlement monitoring (para. 22), which was the first time such an approach was adopted in ADB funded projects in the PRC. The project adopted advanced technology for signaling, communications, train control system, and mechanized track maintenance. Special designs and facilities were also incorporated to ensure safe operation considering the mountainous environment. Consistent with the target of promoting containerized transport, the YWR was constructed to allow for the operation of double-stack container trains, the first time this has occurred in railways in the PRC. B. Effectiveness in Achieving Outcome 30. The project is considered highly effective in achieving outcomes because it significantly promoted economic growth in the project area, reduced transport bottlenecks on the national network, increased transportation capacity of the corridor, and lowered transport costs. 31. The direct benefit of the project to the local economy was the increased incomes through direct and indirect employment opportunities. The YWR provided direct job opportunities of 790,830 person-days of unskilled labor, of which 620,660 person-days (78%) came from the local labor market. Of the jobs created locally, 404,750 person-days (65%) of work went to laborers from poor households. A total of CNY13.74 million was disbursed to local poor households during the construction period, contributing greatly to poverty reduction in the project area. Since the YWR began operation, 193 local laborers have been recruited for track maintenance and security. As railway traffic increases, more employment opportunities will be generated for the local labor market, and particularly for the poor. Significantly, the YWR contributed to economic growth in the project area, particularly Enshi Prefecture, by boosting tourism development and attracting 493 enterprises with CNY9.7 billion investments in four counties of the prefecture. Tourism and manufacturing industries are booming, which play an important indirect role in employment of local surplus laborers. This leads to increased fiscal revenues, which in turn increases the capacity of local governments to improve social welfare for the people in the project area. 32. The YWR greatly increased the transportation capacity of the corridor. Completing the last section of the east west railway corridor between the coast and the heart of the western region, the YWR removed the major bottleneck in the existing railway network. The YWR 13 ADB Report and Recommendation of the President to the Board of Directors on a Proposed to the People s Republic of China for the Lanzhou-Chongqing Railway Development Project. Manila. 14 ADB Country Partnership Strategy ( ): People s Republic of China. Manila.

19 11 connects with the Chongqing Lichuan Railway and provides the most direct connection with Chongqing and Chengdu. Once the Chongqing Lichuan Railway becomes operational in 2014, travel by train between Wuhan and Chongqing will take about 5 hours, compared to the current 22 hours. Alternative railway routes also benefit through shifting passenger trains to the YWR, thus releasing line capacity for freight transport. The number of trains on the YWR will grow from 17 in 2011 to pairs per day in 2020 for passenger transport, and from five in 2011 to pairs per day in 2020 for freight transport. 33. The YWR demonstrates obvious competitive advantages over other transport modes for its low cost, shorter travel time, better safety and more reliable performance. Waterway transport on the Yangtze River is restricted by the capacity of the five-level lock system of the Three Gorges Dam and Gezhouba Dam, which requires additional 4 6 hours over the journey, and is also affected by the high loading and unloading charges and cargo damage costs. The parallel Yichang Wanzhou Expressway, a section of the national trunk highway between Shanghai and Chengdu, is constrained by its high toll level, speed limits for tunnels, continuous long slopes with high gradient, and interruptions due to bad weather. With the completion of container terminals in Chongqing, Chengdu, and Wuhan, there is great potential for the YWR to develop container traffic. Passenger traffic on the YWR is growing rapidly. About 70% of the road passenger traffic and 60% of the airline passenger traffic has diverted to the YWR since its opening. The cost advantage of the YWR over other transport modes makes it the preferred transport mode for local people, particularly for the poor and migrant laborers. C. Efficiency in Achieving Outcome and Outputs 34. Economic and financial reevaluation rated the project efficient. 35. The reevaluated economic internal rate of return (EIRR) is 15.6%, higher than the 14.4% estimated at appraisal. Benefits from passenger traffic are the major source of economic benefits (32.9%), followed by benefits from tourism (31.6%), freight traffic (18.7%), environmental and safety benefits (9.6%), and network benefits (7.2%). The higher EIRR is due to the significantly higher than anticipated passenger traffic and the tourism benefits. The project is considered economically viable. Sensitivity analysis was carried out to test the impacts of (i) a decrease in forecast traffic, (ii) an increase in operation and maintenance costs, and (iii) a decrease in benefit valuation. According to this analysis, the project will continue to be economically viable under these conditions. With the worst-case scenario of a 20% increase in operation and maintenance costs and a 20% benefit reduction, the EIRR falls to 13.5%. The economic reevaluation is in Appendix The financial internal rate of return (FIRR) was recalculated at 3.9%, lower than the 5.8% estimated at appraisal. The variance is mainly due to the substantially higher capital costs, lower passenger tariff, and shortage of freight traffic at the early stage of operation. The aftertax weighted average cost of capital (WACC), in real terms, was calculated using the actual capital mix and costs of various financing sources. The WACC was recalculated as 2.5%, which is much lower than the appraisal estimate, mainly because of the preferential interest rate granted by the China Development Bank and the comparatively low interest rate of the railway bonds. The FIRR is higher than the WACC, and the project is considered financially viable. Sensitivity analysis conducted to test the impacts of variation in operation and maintenance costs and revenues indicated that the project remains financially viable under the sensitivity scenarios. The financial reevaluation is in Appendix 12.