World Bank Document...CURRENCY EQUIVALENTS (Exchange Rate Effective April 8, 2010) Currency Unit =...

Document of The World Bank

Report No: ICR00001409

IMPLEMENTATION COMPLETION AND RESULTS REPORT (IBRD-47450)

ON A

LOAN

IN THE AMOUNT OF US$200 MILLION

TO THE

PEOPLE’S REPUBLIC OF CHINA

FOR

HUBEI SHIMAN HIGHWAY PROJECT

June 15, 2010

China and Mongolia Sustainable Development Unit Sustainable Development Department East Asia and Pacific Region

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CURRENCY EQUIVALENTS

(Exchange Rate Effective April 8, 2010)

Currency Unit = RMB Yuan RMB 1.00 = US$ 0.146

US$ 1.00 = 6.83

FISCAL YEAR January 1 – December 31

ABBREVIATIONS AND ACRONYMS

AADT Annual Average Daily Traffic CAS Country Assistance Strategy CNTIC China National Technical Import-Export Corporation CPS Country Partnership Strategy CPMS China Pavement Management System EAM Expressway Asset Management E&M Electrical & Mechanical EIA Environmental Impact Assessment EMP Environmental Management Plan ERR Economic Rate of Return FYP Five Year Plan GDP Gross Domestic Products HEMA Hanshi Expressway Management Administration HERO Hubei Expressway Resettlement Office HPCD Hubei Provincial Communications Department HPHAB Hubei Provincial Administration Bureau HPSEC Hubei Provincial Shiman Expressway Company HPTD Hubei Provincial Transport Department ICB International Competitive Bidding IEG Independent Evaluation Group (World Bank) ISR Implementation Status and Results Report ITC International Tendering Company LRIP Local Roads Improvement Program M&E Monitoring and Evaluation MOC Ministry of Communications MOF Ministry of Finance NCB National Competitive Bidding NTHS National Trunk Highway System PAD Project Appraisal Document PDO Project Development Objectives QAG Quality Assurance Group (in the World Bank) QEA Quality at Entry Assessment QSA Quality of Supervision Assessment RAP Resettlement Action Plan SCH Shiman Construction Headquarters SME Shiyan-Manchuanguan Expressway SOC Shiman Operational Center

VOC Vehicle Operating Costs ZH Zhongman Hospital

Vice President:James W. Adams, EAPVP

Country Director:Klaus Rohland, EACCF

Sector Managers:Ede Jorge Ijjasz-Vasquez, EASCS; and Narasimham Vijay Jagannathan, EASIN

Project Team Leader:Fei Deng, EASIN

ICR Team Leader:Fei Deng, EASIN

Selected Project Photos

Han-river Super-long bridge under construction SME Monitoring Center

Slope protection and greening works Fully restored slope at completion

SME Expressway before traffic opening Tunnel entrance and roadside greening

Xujiapeng Resettlement Site

Consultation with villagers

New aqueduct built by project

New brick-concrete house

Rural road improvement Rural road improvement

COUNTRY Project Name

CONTENTS

Data Sheet A. Basic Information

B. Key Dates C. Ratings Summary D. Sector and Theme Codes E. Bank Staff F. Results Framework Analysis G. Ratings of Project Performance in ISRs H. Restructuring I. Disbursement Graph

1. Project Context, Development Objectives and Design ........................................ 1 2. Key Factors Affecting Implementation and Outcomes........................................ 5 3. Assessment of Outcomes ................................................................................... 12 4. Assessment of Risk to Development Outcome.................................................. 19 5. Assessment of Bank and Borrower Performance............................................... 19 6. Lessons Learned................................................................................................. 22 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners.... 23 Annex 1. Project Costs and Financing ........................................................................ 25 Annex 2. Outputs by Component................................................................................ 26 Annex 3. Economic and Financial Analysis ............................................................... 28 Annex 4. Bank Lending and Implementation Support/Supervision Processes........... 32 Annex 5. Resettlement Implementation...................................................................... 35 Annex 6. Beneficiary Survey Results ......................................................................... 38 Annex 7. Stakeholder Workshop Report and Results................................................. 39 Annex 8. Summary of Borrower’s ICR and/or Comments on Draft ICR................... 40 Annex 9. Comments of Cofinanciers and Other Partners/Stakeholders ..................... 50 Annex 10. List of Supporting Documents................................................................... 51 MAP

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A. Basic Information

Country: China Project Name: Hubei Shiman Highway Project

Project ID: P081749 L/C/TF Number(s): IBRD-47450 ICR Date: 06/24/2010 ICR Type: Core ICR

Lending Instrument: SIL Borrower: PEOPLE'S REPUBLIC OF CHINA

Original Total Commitment:

USD 200.0M Disbursed Amount: USD 199.0M

Revised Amount: USD 199.0M Environmental Category: A Implementing Agencies: Hubei Provincial Transportation Department Cofinanciers and Other External Partners: B. Key Dates

Process Date Process Original Date Revised / Actual Date(s) Concept Review: 06/03/2003 Effectiveness: 12/30/2004 12/30/2004 Appraisal: 03/08/2004 Restructuring(s): Approval: 06/24/2004 Mid-term Review: Closing: 06/30/2009 12/31/2009 C. Ratings Summary C.1 Performance Rating by ICR Outcomes: Satisfactory Risk to Development Outcome: Moderate Bank Performance: Satisfactory Borrower Performance: Satisfactory

C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings

Quality at Entry: Satisfactory Government: Satisfactory

Quality of Supervision: Satisfactory Implementing Agency/Agencies: Satisfactory

Overall Bank Performance: Satisfactory

Overall Borrower Performance: Satisfactory

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C.3 Quality at Entry and Implementation Performance IndicatorsImplementation

Performance Indicators QAG Assessments

(if any) Rating

Potential Problem Project at any time (Yes/No):

No Quality at Entry (QEA):

None

Problem Project at any time (Yes/No):

No Quality of Supervision (QSA):

Satisfactory

DO rating before Closing/Inactive status:

Moderately Satisfactory

D. Sector and Theme Codes

Original Actual Sector Code (as % of total Bank financing) Roads and highways 97 97 Sub-national government administration 3 3

Theme Code (as % of total Bank financing) Administrative and civil service reform 24 24 Infrastructure services for private sector development 25 25 Injuries and non-communicable diseases 13 13 Rural services and infrastructure 25 25 Trade facilitation and market access 13 13 E. Bank Staff

Positions At ICR At Approval Vice President: James W. Adams James W. Adams Country Director: Klaus Rohland Klaus Rohland Sector Manager: Ede Jorge Ijjasz-Vasquez Ede Jorge Ijjasz-Vasquez Project Team Leader: Fei Deng Fei Deng ICR Team Leader: Fei Deng ICR Primary Author: Hernan Levy F. Results Framework Analysis Project Development Objectives (from Project Appraisal Document) The main objective of the project is to support socioeconomic development of Hubei province by enhancing its access to other provinces, particularly the western region of China, improving local mobility within poor, remote western parts of the province, and strengthening governance of the provincial road sector.

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This will be achieved through: (1) Construction of the Shiyan-Manchuangan Expressway (SME) which would increase the transportation capacity in a corridor connecting Hubei to western provinces; (2) A program of local road improvements in the poor northwestern part of Hubei; and (3) A series of institutional strengthening and policy development activities for road management and improvements in road safety. Revised Project Development Objectives (as approved by original approving authority) The PDO was not revised. (a) PDO Indicator(s)

Indicator Baseline Value

Original Target Values (from

approval documents)

Formally Revised Target Values

Actual Value Achieved at

Completion or Target Years

Indicator 1 : Daily average traffic volume on Shiman Expressway in vehicles/day per section -SME

Value quantitative or Qualitative)

A-B Shiman-Yunxian B-C Yunxian-Yunxi C-D Yunxi-Manchuanguan

A-B Shiman-Yunxian - 7955 B-C Yunxian-Yunxi - 8986 C-D Yunxi-Manchuanguan - 8851

A-B=9,770 B-C=9,170 C-D=8,901

Date achieved 12/31/2004 06/30/2009 04/30/2010

Comments (incl. % achievement)

Achieved. Development of traffic on the SME was higher than expected after immediate opening of the connecting Shaanxi expressway, and has been rapidly building up. Latest data showed all sections along SME have achieved the targeted traffic.

Indicator 2 : Daily average traffic volume on NH316 in vehicles/day per section - SME


A-B Shiman-Yunxian - 9,720 B-C Yunxian-Yunxi - 8936 C-D Yunxi-Manchuanguan - 7024

A-B Shiman-Yunxian - 3828 B-C Yunxian-Yunxi - 3973 C-D Yunxi-Manchuanguan - 4535

A-B=3,989 B-C=4,156 C-D=4,751

Date achieved 12/31/2004 06/30/2009 12/31/2009 Comments (incl. % achievement)

Satisfactorily achieved. Thanks to the SME, traffic on NH316 is about half that in 2004. Targets were met for the same reason as for Indicator 1.

Indicator 3 : Fatal accident rate on NH316 &SME (number per 100,000 veh-km) Value quantitative or 3.4 2.9 2.1

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Qualitative) Date achieved 12/31/2004 06/30/2009 12/31/2009 Comments (incl. % achievement)

Target achieved. Based on data collected over the years after the opening of the expressway, the accident rate has decreased over time, and surpassed the target in 2009.

Indicator 4 : Daily average traffic volume on LRIP in vehicles/day per section (A=Baoxia-Zhushan, B=Jiangunhe bridge) Value quantitative or Qualitative)

A=714 B=575

A=1,217 B=1,521

A=918 B=873


Target partially achieved. Based on data for 2008 (2009 data was not available), the daily traffic volume on LRIP for the two roads concerned has increased over time, and should be close to the target in 2009.

Indicator 5 : Number of days LRIP road/bridge closed to traffic Value quantitative or Qualitative)

A=95 B=45

A=25 B=5

A=0 B=0


Satisfactorily achieved. Road and bridge closures eliminated with the project-financed improvements.

Indicator 6 :

Improved efficiency and effectiveness of management and operations through adoption of new technologies A. Surveys by pavement detection vehicle (cumulated km) B. Implementation of new technologies for road maintenance (km)


Were expected to be put in place between 2006 and 2008. No numerical values set as targets

A=5,150 B=3,100

Date achieved 12/31/2008 12/31/2009 Comments (incl. % achievement)

Achieved. The new technologies were gradually put in place starting in 2006. Both A and B are in place for a large number of kilometers.

Indicator 7 : Adoption of new technologies improving efficiency and effectiveness of management and operations through an annual asset management plan for expressway in pilot study (cumulative km/year)


Were expected to be put in place between 2006 and 2008. No numerical values set as targets

1,050

Date achieved 12/31/2008 12/31/2009 Comments Achieved. Annual asset management plans were started in 2006, and by 2010 a

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(incl. % achievement)

significant amount of cumulative kilometers were covered under the plan.

Indicator 8 : Percentage of existing road freight and passenger transport enterprises systematically screened in accordance with the safety requirements, procedures and monitoring arrangements of the Safety Review Process


50% (2009), 75% (2010) 90%

Date achieved 12/31/2009 12/31/2009 Comments (incl. % achievement)

Achieved. HPTD reports that 90% of the companies were surveyed.

Indicator 9 : Employment rate (%) Value quantitative or Qualitative)

A=47 B=45

A=64 B=64

A=66 B=65


Achieved.

Indicator 10 : Population below poverty threshold Value quantitative or Qualitative)

A=60,260 B=31,980

A=46,016 B=20,513

A=45,780 B=20,110


Achieved.

Indicator 11 : School enrollment, annual growth (%) Value quantitative or Qualitative)

A=1.54 B=1.58

A=4.7 B=4.9

A=4.8 B=5.1


Achieved

Indicator 12 : Access to medical care, annual growth (%) Value quantitative or Qualitative)

A=1.44 B=1.38

A=5.5 B=5.3

A=5.7 B=5.4


Achieved

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(b) Intermediate Outcome Indicator(s)

Indicator Baseline Value

Original Target Values (from

approval documents)

Formally Revised

Target Values

Actual Value Achieved at

Completion or Target Years

Indicator 1 : SME-% of civil works completed of expressway section Value (quantitative or Qualitative)

0 100% 100%


Achieved. SME opened to traffic in Dec 2007. Some facilities were completed later.

Indicator 2 : LRIP - % of civil works completed (A: Baoxia-Zhushan road, B: Jingjunhe bridge, C: Shanghu road, and D: Dayong road)

Value (quantitative or Qualitative)

0

A - 100% B - 100% C - 100% D - 100%

A - 100% B - 100% C - 100% D - 100%


Achieved; three years ahead of target date.

G. Ratings of Project Performance in ISRs

No. Date ISR Archived DO IP Actual

Disbursements (USD millions)

1 08/19/2004 Satisfactory Satisfactory 0.00 2 12/23/2004 Satisfactory Satisfactory 0.00 3 05/06/2005 Satisfactory Satisfactory 22.09 4 01/24/2006 Satisfactory Satisfactory 54.03

5 12/01/2006 Moderately Unsatisfactory Moderately Satisfactory 117.98

6 05/29/2007 Satisfactory Satisfactory 160.56 7 10/25/2007 Satisfactory Satisfactory 189.81 8 05/22/2008 Moderately Satisfactory Satisfactory 189.81 9 02/06/2009 Moderately Satisfactory Satisfactory 198.27

10 07/08/2009 Moderately Satisfactory Satisfactory 198.77 11 12/29/2009 Moderately Satisfactory Satisfactory 199.00 12 06/17/2010 Satisfactory Satisfactory 199.00

H. Restructuring (if any) Not Applicable

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I. Disbursement Profile

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1. Project Context, Development Objectives and Design

1.1 Context at Appraisal China’s Highway Development The project was prepared in the context of China’s Tenth Five-Year Plan (FYP, 2001-2005). As regards highways and highway transport, the Tenth FYP focused on:

• Continued construction of the National Trunk Highway System (NTHS), with a view to completing it by 2010;

• Improved transport to the Western Region; • Improved accessibility to low-income populations in all regions in China; • Development of logistics concepts and their implementation; • Development of a market economy in the construction and operation in the

provision of transport services; and; • Improved traffic safety.

The Tenth FYP reflected the situation with transport and the road system at that time. Despite the significant expansion of the NTHS in support of domestic market integration since the 1980s, the road network remained sparse and logistics costs were high compared to developed economies. The main reasons were inadequate modal integration and service sector response. While the road network had doubled since 1980, reaching 1.76 million km in 2002, the network, at 0.19 kilometers per square kilometer, remained one of the less dense in the world. Logistics costs, at 18 percent of GDP, were about double those of an industrialized country. Western and central regions continued to suffer from poor accessibility, causing isolation and income inequality. The per capita income in the 12 western and central provinces was less than half that in the coastal provinces. Many people in the lagging regions lacked access to basic health and education services because of in part inadequate transport infrastructure. The Bank’s Assistance Strategy The project was prepared under the 2002 Country Assistance Strategy (CAS). Similarly to the preceding CASs, the 2002 CAS emphasized supporting modernization and development of China’s road network to help alleviate infrastructure bottlenecks. A Bank Highway Sector Strategy Review, discussed with the Government in 2001, identified the main challenges facing China’s highway sector as:

• Improving accessibility to low income areas and western provinces; • Supporting economic growth; • Improving traffic safety; and • Improving management of the road sector.

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1.2 Original Project Development Objectives (PDO) and Key Indicators The project development objective was to support socioeconomic development of Hubei province by enhancing its access to other provinces, particularly the western regions of China, improving local mobility within poor, remote western parts of the province, and strengthening governance of the provincial road sector. The following key results areas were selected, and relevant indicators identified:

• Regarding the Expressway component: traffic levels on the expressway, and on the parallel national highway (NH316);

• Regarding the local roads component: traffic levels and related indicators; and • Regarding the project’s institutional component: improvements in staff skills and

in the Hubei Provincial Transport Department (HPTD) management of the road sector.

1.3 Revised PDO and Key Indicators, and reasons/justification The PDO was not revised.

1.4 Main Beneficiaries

While the PAD does not identify the beneficiaries, the project components suggest that the project will have a range of beneficiaries:

• Travelers on the SME, who will save cost and time compared to using the routes existing prior to the construction of the SME. Benefits of using the SME will accrue to personal travel as well as freight carrying intra or interprovincial trade. Those that continue to travel on the existing road will also benefit as the road will be less congested, and will allow faster speeds;

• Traders and business people, located within the SME area of influence, or beyond at both ends of the SME, that will enjoy lower travel and shipping costs. The lower freight costs will positively impact the economic development of Hubei and of neighboring provinces;

• Residents of the low income counties where the project’s local roads are located, who will see their access to services and markets improved; and

• The HPTD, which will improve the skills of its staff through a broad training program, and its managerial capacity in various areas.

1.5 Original Components

Component I. Highway Capacity Investment (US$414.88 million)

This component was designed to increase highway capacity in northwestern Hubei province with the construction of the 105.1 kilometer-long Shiyan-Manchuanguan Expressway (SME), between Shiyan and the border with Shaanxi province. In Shiyan, the SME would link with the Xiangfan-Shiyan Expressway that opened to traffic in

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December 2003. At the Shaanxi border, the SME would connect to the Manchuanguan-Shanglou Expressway (under construction at the time) that would complete the Hubei-Xi’an corridor.

At the eastern end, the SME would serve Shiyan city, an industrial center with a strong automobile industry, mineral resources and tourist attraction and a population of over 3 million. At the other end, the SME would end at the border with Shaanxi, where a 2,200 meter tunnel, spanning both provinces, although mostly in Hubei, was part of the project.

The project also includes a 6-km, class II, connecting road in the Shiyan area, six interchanges, one monitoring center, two rest areas, two maintenance areas, and electrical and mechanical equipment (E&M) for maintenance operations and management. The E&M includes toll, telecommunications, and traffic monitoring systems, and safety and emergency facilities in tunnels.

Component II. Local Road Improvement Program, LRIP (US$50.70 million)

The LRIP program was intended to improve the competitiveness of the local economy and bring socioeconomic benefits to roadside communities by enhancing people’s mobility and ability to access education, health and other social services. Low class roads would be rehabilitated or upgraded around Shiyan city, in a remote area in the mountainous northwest of Hubei province. That area was selected because of the low per capita income (US$266 equivalent GDP per capita in 2002), the condition of the local roads, the high priority the province wanted to give to improving accessibility in this area, and the potential for leveraging the benefits of the SME, which would traverse Shiyan city.

The first phase of the LRIP, estimated to cost US$21.3 million and comprising the upgrading of Baoxia-Zhushan road (85 km) and the construction of the Jiangjunhe Bridge over the Han River, was identified at appraisal. The second phase was to be identified during project implementation.

Component III. Institutional Strengthening, Policy Development and Road Safety (US$6.36 million)

This component, complementing initiatives in previous projects, was designed to assist HPTD in adopting more efficient practices for managing the road network. The following subcomponents were included:

Training (US$550,000)

The program was designed following a comprehensive training needs survey conducted throughout HPTD. The program consisted of domestic training in topics such as environmental protection, supervision and quality control, resettlement, procurement, and project management, and of study tours and overseas training in more specialized skills such as road management, road finance, and expressway operations.

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Pilot Study on Expressway Asset Management (EAM) (US$160,000)

Building on HPTD’s previous development of expertise in infrastructure asset management, this study would prepare an asset management plan for an expressway company to be selected by HPTD and was expected to last throughout project implementation. Annual life-cycle reports would be prepared. The final report would review the effectiveness of the pilot study and make recommendations for applying the asset management approach to the provincial road network.

Capital Mobilization (US$150,000)

The study would analyze several mechanisms to provide capital for road construction, maintenance and management, and the most suitable for Hubei would be identified.

New Technologies for Road Maintenance (US$100,000)

This study would investigate domestic and foreign technologies that have the potential to improve delivery of maintenance in Hubei.

Group Management of Projects (US$100,000)

This study would identify opportunities for adopting group management of projects, thus addressing the major institutional challenges facing HPTD in completing the Tenth FYP projects.

HPTD Safety Management Plan (US$100,000)

The Safety Management Plan would optimize resource allocation to address road safety by establishing priorities, including regular safety performance monitoring.

Safety Review Process for Road Freight and Passenger Transport Enterprises (US$100,000)

This subcomponent would review road safety in transport enterprises, carry out pilot studies in selected enterprises to improve procedures to ensure safe operations, develop a safety screening and appraisal process, and carry out safety training for management and staff of transport enterprises and of HPTD staff.

Procurement of Equipment (US$5.1 million) Supplementing procurement of equipment under previous projects, this subcomponent would finance the purchase of equipment for construction quality control and monitoring, operation and maintenance of the SME, and office and information technology for HPTD.

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1.6 Revised Components The SME-Shiyan interconnecting road was dropped from the project, since the city of Shiyan arranged with the contractor of the original two-lane road to widen a four and six lane road. This was not in accordance with the Project Agreement, and safeguards procedures were not followed. The works were financed by the city of Shiyan. The loan savings amount from this revised component was US$0.47 million.

1.7 Other significant changes

The project closing date was extended by six months to December 31, 2009, to allow completion of the institutional components, and await completion of the connecting Shaanxi expressway that would allow traffic on the SME to build up.

The loan funds were reallocated twice. In May 2007, unallocated funds and those destined to the canceled interconnecting road were assigned to the construction of the SME, and the disbursement rate for the Expressway civil works was changed from 46 percent to 48 percent. In September 2008, funds originally destined for some civil works, goods and consulting services were assigned to cover cost overruns in the construction of the SME expressway.

A pilot HIV/AIDS Prevention Program was introduced in the project in 2005 (see Part 2.2, Implementation). As expected, two additional LRIP roads were identified and added during project implementation. These were the Shanghu and the Dayong roads, in Yunxi County.

2. Key Factors Affecting Implementation and Outcomes

2.1 Project Preparation, Design and Quality at Entry

Preparation. The project was well prepared. It built on the results of three previous Bank projects in the Hubei highway sector. During preparation, the Provincial government and HPTD showed a strong commitment to the project objectives and design. Quality at entry was satisfactory. The project objectives and components were relevant and well conceived (see Section 3.1).

Lessons Taken into Account. Preparation took into account lessons from past projects, and benefited from an evaluation by the Operations Evaluations Department (OED, currently Independent Evaluation Group, IEG) of the Bank’s China portfolio. The evaluation, while noting a high level of client satisfaction with the investment components, highlighted issues regarding the impact of institutional initiatives, coordination among ministries and levels of government, such as in road safety matters, and some aspects of design. As a result, the following lessons were taken into account in the design of the project:

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• Pilot testing of an asset management approach could serve as a way for road agencies to transform themselves into policymakers and regulators;

• Ensuring client ownership of institutional components, and HPTD building on its experience with previous project to determine priorities for institutional strengthening, policy development and road safety;

• Include accessibility in poor areas by upgrading local roads, in addition to financing construction of a major expressway;

• Minimize design changes and variations during construction, which in other projects led to significant cost overruns, by HPTD following a highly interactive process in designing alignment alternatives and assessing technical, environmental and social impacts;

• Implement resettlement activities on time, with HPTD establishing a resettlement organization at the beginning of the feasibility studies, and taking additional measures to avoid resettlement delays; and

• Avoid setting toll rates too high, that could deter drivers from using the expressway.

Alternatives Considered. For the SME, alternatives were considered regarding the following:

• Design. The alternative of Class I or Class II highway to an expressway was considered and discarded to maintain consistency with sections already built or planned on the rest of the Wuhan-Yinchuangan corridor, to meet medium to long term forecast transport demand, the relatively small savings of building Class I/II in view of the mountainous terrain and other topographic considerations. Aphased construction was also considered, but discarded in view of the numerous tunnels and technical difficulty and high cost of organizing civil works under traffic;

• SME Alignment. Two main alignments were assessed, with the one selected considered to better serve urban areas, have lower environmental impact and lower construction costs; and

• Private Financing. This approach was discarded because the financial assessment showed that the traffic in the early years would be too low to make project returns to be financially attractive to investors, and would have required a large government contribution to the investment.

For the LRIP, the area around Shiyan City became a priority as the other area where development lagged, Ens’hi Prefecture, had benefitted in recent years from significant investment under national programs supporting western regions.

Risks

The main concern at appraisal was the development of SME traffic, especially if the connecting expressway in Shaanxi was not completed on time. Consultations with Shaanxi and MOC confirmed plans for concurrent construction and opening of both the SME and the Shaanxi expressways. A related risk was the planned construction of

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another expressway between Xi’an and Hefei, which would run 150 km north of the SME and could divert traffic from the SME. The Bank reviewed the traffic analysis carried out by Hubei and found the forecast for SME took into account possible competing routes. In addition, a Bank-hired consultant reviewed traffic studies prepared by Henan and Hubei for the Xi’an-Wuhan-Hefei corridor and concluded that HPTD’s assumption regarding diversion rates was reasonable. Experience with past and on-going (at the time of appraisal) Bank highway projects in Hubei, and a review of HPTD’s budget forecasts gave comfort that counterpart funding would be provided on time. The financial evaluation confirmed that SME toll income would generate enough revenue to finance SME operations and maintenance and allow HPTD to repay the loan.

2.2 Implementation

Fast Start of SME Construction. Even before the project became effective, bid evaluations for the 11 contracts of the SME had been sent to the Bank for non-objection. Eight of the 11 SME contracts received a commence order in December 2004, just six months after approval of the loan.

Control of Work Order Variations. HPTD took a strict view of the demands by contractors regarding work variations. This resulted in relatively small cost overruns in contract values, despite the difficult terrain. No contract exceeded the 15 percent threshold increase in contract prices. The most significant type of cost variation was the replacement of embankment by viaducts, which was necessary because of soft soils and because the viaducts required less arable land than the embankments.

Delay in Completion of the Connecting Shaanxi Expressway. The Shaanxi expressway opened in October 2009, or a delay of six month after the planned opening date of the SME (18 months after the actual opening). The delay meant an initial level of toll revenues below the forecast, but the overall financial impact on the SME was minimal due to the strong growth of SME traffic once the connecting Shaanxi expressway was opened.

Construction Problems. Two exceptionally heavy rains in 2007, coupled with difficult geology, caused the collapse of slopes, retaining walls and local roads. Construction of the Han River Bridge along the SME proved to be exceptionally difficult and the contract for this bridge was the slowest to complete. One of the SME contracts was found to be in violation of the Environmental Management Plan, due to the deposit of sediments from concrete plants, direct discharge of tunnel water and improper storage of excavated materials contaminating river streams. Cuts 70-meter high shown in the engineering design were, through minor alignment changes, reduced to 50 meters to reduce stability risks, following advice given by Bank supervision missions.

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Slow Start of Institutional Development Components. Two years after project approval, two of the project-financed studies had not been started (project group management and new technologies for road maintenance), and the consultant on another study (asset management) had been unable to make much progress. Only the two studies related to traffic safety were on track. The delay was in part attributed to HPTD’s prioritization decision, and in part associated with long process in consultant procurement and finalization of study scope. A similar slow start happened with overseas training activities. Domestic training proceeded fast and was completed in 2006. After substantial prodding by Bank supervision missions, progress on the studies improved, but progress with overseas training remained slow, and was not completed by project closing due to lack of support from provincial finance bureau.

HIV/AIDS Prevention Program. This was not originally a part of the project, but was inserted as a pilot activity following a Bank decision in 2005 to test this program in a transport project in China. The Zhongman Hospital of Wuhan University was entrusted to lead implementation. The intervention took three years, and was successfully concluded in December 2007.

Identification and Inclusion of Two Additional LRIP Roads. As anticipated, two additional roads were identified and added to the project, both roads located in Yunxi County: Shanghu road (86 km) and Dayang road (91 km).

Project Cost. The final project cost was substantially higher than estimated in the PAD due mainly to the following factors: (i) a strong devaluation of the dollar during the project period, (ii) bids resulting in higher contract values than originally estimated; (iii) changes in resettlement compensation policy during implementation, (iv) significant inflation over the years of implementation for both labor and material costs; (v) force majeure such as extreme weather conditions contributing to increase in construction cost; (vi) MOT’s issuance of new bridge design standard significantly increased the cost of bridge construction; and (vii) approved design variations to accommodate changes unforeseeable at the project preparation stage.

2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization

The project’s M&E was comprehensive, and was organized along the three project components, the SME, the LRIP and the Institutional component, with outcome indicators related to each component. The indicators relating to the SME were limited to four, which were sufficient to monitor outcome. The indicators relating to the LRIP were eight, which was ambitious, especially since some of the social indicators were difficult to collect and also difficult to establish clear attribution between the LRIP roads and the expected impact. This is especially the case of indicators such as employment rate, school enrollment and access to medical care. While there is empirical evidence that local roads do have a positive impact in such areas, measuring is complex, and requires coordinating with other provincial government departments. At the same time, separating the effect of

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the project activities from other variables is more difficult for these variables than for other socioeconomic indicators included in the project, such as impact on the GDP in the areas served by the project.

M&E for institutional components are always difficult to identify and track. The project’s institutional development indicators attempted to capture the outcome to be expected from the studies, training and other activities. To this end, it included seven indicators, some of them in turn divided into subindicators.

While most of the targets were realistic, some were unrealistically high, notably the target value for the SME traffic which was inconsistent with the traffic forecast shown in the PAD’s economic evaluation, and the traffic on the LRIP roads, which was expected to double in a period of five years.

Data collection for the M&E system was based on information already collected by various divisions of the HPTD, complemented by police records (regarding safety indicators) and provincial government sources for socioeconomic data.

As shown in the Data Sheet, information was collected for the various indicators. Several of the indicators were useful for the HPTD’s management of the road sector, and for the Bank supervision missions. Some of the secondary PDO indicators tend to be broad and go beyond transport sector (such as enrollment to school and access to medical care). Though these indicators could be useful to demonstrate the social impact made by highway construction, the improvement shown in the date could not be solely attributed to the project in concern especially in the case where no control group was established.

The HIV/AIDS activity, because it was added to the project during implementation, was not part of the original M&E framework. However, a specific M&E was designed for it, and there was close monitoring of the progress and results. The PDOs in the Data Sheet focus on the main PDO indicators, while those for which other, external, variables are likely to have been major contributing factors to achieve the project targets are shown as secondary PDO indicators.

2.4 Safeguard and Fiduciary Compliance

Environment

The SME crosses a mountainous and environmentally sensitive area. At design stage, careful selection of the alignment minimized cuts and embankments quantities, lengths of access roads as well as global environmental impacts. The selected alignment mostly runs at the edge of valleys and is parallel to the Yunman provincial road. An environmental management and supervision system was set up by HPTD with staff especially in charge of environmental issues within each contractor and supervision team. Training on environmental issues was delivered to these staff prior to work commencement.

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The overall implementation of the Environmental Management Plan (EMP) was satisfactory. All planned measures have been implemented. In addition to the agreed actions like controlling noise and dust, particular attention has been paid to the following aspects:

• The expressway itself is noticeably green and well integrated in its environment. Grass and plantations cover the slopes of cuts and embankments, the wide medians near long tunnel entrances and exits, interchanges, annex areas.

• Additional surfaces needed for the construction of the expressway like borrow pits, waste deposits, precasting yards, construction camps have been fully restored and it is even hard to detect that these surfaces could have a temporary different use

These achievements clearly contrast with previous projects where greening was not so systematic and successful at the time of project completion. These noticeable outcomes have been obtained despite major technical difficulties during implementation: exceptionally heavy rains damaged high slopes under implementation and various collapses had to be stabilized, treated and greened again. They also destroyed a retaining wall containing a major waste deposit from Erdaoya tunnel excavation and the material invaded a narrow valley and covered the river. Restoration of the retaining wall and of the waste deposit is still ongoing and should be completed by July 2010. The Yunman Road, which was used as access road for most of the contracts, was fully restored after work completion. A domestic environmental inspection for environment took place after project completion and the Ministry of Environment assessed the environmental aspects of the project as very satisfactory.

Resettlement

Resettlement was carried out in accordance with the Resettlement Action Plan (RAP). The HPTD established the Hubei Expressway Resettlement Office (Hero) to manage operations and ensure compliance with the RAP. Extensive public consultation was carried out throughout the entire project. Resettlement was independently monitored. 5,007 persons in 1,480 households were relocated. Land acquired amounted to 60.6 thousand mu (approximately 4,020 ha). These values were lower than expected in the RAP, thanks to a strategy aimed at reducing the impact of resettlement, applied through minor design adjustments of the SME expressway. A post resettlement survey found that 75% of the affected families felt that their livelihood had improved, 16% that it had improved somewhat, and 4% that it had stayed the same. The successful implementation

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of resettlement is documented in a case study and in the resettlement implementation report.1 Details are included in Annex 5.

Procurement

Project procurement was carried out in accordance with the Bank’s procurement policies and procedures, and no major issue was encountered during implementation. The project included ICB civil works, road maintenance equipment and electrical and mechanical (E&M) supply and installation contracts for SME. Other works, including buildings in annex area of SME and LRIP were procured under NCB, following procedures acceptable to the Bank. The CNTIC International Tendering Company (ITC-CNTIC), a company with extensive experience in Bank-financed projects, acted as the procurement agent.

The design and construction of 6 km long SME connecting road in Shiyan city ($0.47 million and 20% disbursement ratio) was changed from class 2 connecting highway to a much wider urban arterial roads together with Gansu Road (not financed by the Bank) as the road is in the Shiyan urban area and required by Shiyan municipal government. The Bank was not informed of this change in advance. A Bank post review mission in April 2006 found that Bank policies on procurement and safeguard were not strictly followed. Therefore the connecting road was not financed by the Bank under the project.

Construction of the Yinling tunnel, on the SME, crossing the Hubei-Shaanxi border with most of its section insider Hubei, was procured and supervised under the project, under a single contract. The Shaanxi portion of the tunnel was financed by Shaanxi with local provincial funds.

Financial Management

This is the fourth Bank-financed highway project implemented by Hubei Provincial Transportation Department (HPTD, formerly HPCD). HPTD and its Project Management Office (PMO) have further strengthened their capacity and experience in managing this project. The overall financial management compliance was satisfactory. The financial management system had no significant changes from appraisal. The project financial management system, including accounting, budgeting, internal control, funds flow, financial reporting and auditing, was acceptable to the Bank. Audit compliance was satisfactory and, the PMO submitted annual audit reports to the Bank in a timely manner. All the audit reports were reviewed by the Bank and considered acceptable. Additionally, the PMO demonstrated its capacity to submit loan withdrawal applications in line with the construction progress.

2.5 Post-completion Operation/Next Phase

11) Z. Liu and C. Bennett, 2008. Using Involuntary Resettlement on Highway Projects to Alleviate Poverty: A Case Study from the

Hubei Shiman Highway Project in China, and 2) Wuhan University, 2007. Shiman Expressway Project: Resettlement Implementation Completion Report.

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Since opening to traffic in December 2007 through December 2009, the SME was operated by the Shiman Construction Headquarters (SCH). From start of 2010, operations of the SME were transferred to the Hanshi Expressway Management Administration (HEMA). HEMA is an entity of HPTD, located in Wuhan, in charge of the operation and maintenance of the whole expressway from Wuhan to the Shaanxi border in Manchuanguan. A branch of HEMA, Shiman Operational Center (SOC) located in Shiyan, is in charge of operation and maintenance of SME. SOC includes 180 staff as follows: 130 for toll collection and monitoring, 37 for patrolling SME, 13 for routine maintenance (two in Qingqu maintenance center, two in Shanjing maintenance center, and the rest in Shiyan). The operation center is in Shiyan. Heavier maintenance activities will be outsourced. Operations and maintenance of the LRIP roads is the responsibility of Shiyan City Communications Bureau, SCCB.

3. Assessment of Outcomes

3.1 Relevance of Objectives, Design and Implementation

The project objective was and remains highly relevant. China, over the last two decades, has made major investments in the road sector, with a view to closing the ‘infrastructure gap’ that existed in the early 1990s. A World Bank report in 2007

2

analyzed the major positive impact that such program of infrastructure development has brought to China, and the importance of continuing such a program. Enhancing the road access of Hubei province to other provinces and improving local mobility within the poor parts of the province was clearly in line with the goal of closing the infrastructure gap, as was the strengthening of governance in the road sector, which the Bank report highlights as one of the future challenges.

The project components were well selected to meet the objectives. The SME closed a key gap in the connection between Hubei and Shaanxi provinces, and to other provinces via the Shaanxi road network. The LRIP program, which targeted mostly remote and poor areas around Shiyan, was a well focused program in support of poverty alleviation. The institutional strengthening, policy development and safety components complemented and extended initiatives in previous projects, and included a range of important topics in road management. HPTD had good experience with past Bank highway projects and had the capacity to implement the present project. As with other road projects, recently completed or ongoing, the objective of the Hubei-Shiman project remains consistent with the Country Partnership Strategy 2006-2010, particularly in two areas: i) reducing internal and external barriers to trade; and ii) reduce poverty, inequality and social exclusion through expanding access to basic social and infrastructure services.

2World Bank, 2007: China’s Expressways: Connecting People and Markets for Equitable Development.

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3.2 Achievement of Project Development Objectives Overall rating: Satisfactory

The support to Hubei’s socioeconomic development was expected to be achieved through three measurable results: enhancing Hubei access to other provinces, particularly the western region of China, improving local mobility within poor areas, and strengthening governance of the provincial road sector. Each of the expected results was achieved. Enhancing Hubei’s Access to Other Provinces The construction of the SME was completed earlier than planned. The SME is part of China’s National Trunk Highway System. It connects with the large network of expressways that already exists and that continues to be expanded. The SME provides immediate and direct access to Shaanxi, via the SME’s tunnel at the border, and the connecting expressway in Shaanxi, which leads to Shaanxi’s capital, Xi’an. At the same time, the SME, via its connection to the Xiangfan-Shiyan expressway to Wuhan, provides Hubei’s northwestern region fast road access to several provinces east, south and southwest of Hubei. Of special importance is the linkage to Hunan, and from there to Guangdong, a major industrial and manufacturing area. Some of these expressway links already exist; others are under construction or planned for construction in the near future. Traffic growth on the SME was slow in its early years of operation, when the connecting expressway in Shaanxi had not yet been put into operation. When this expressway opened in October 2009, traffic on the SME picked up rapidly, reaching between 6,600 and 8,700 vehicles per day in early 2010 on the SME section, or between four and 10 times the traffic at the end of 2008. This huge traffic increase reflects the benefits the SME brings in major savings in time, distance and operating costs for trucks and vehicles travelling on the Wuhan-Shiyan-Xi’an corridor, and the fact that most SME traffic is cross-provincial passenger and freight vehicles. Improving Local Mobility within Poor Areas

The four LIRP subcomponents, the two identified at appraisal (one bridge and one road), and the two added early during implementation (two roads), were satisfactorily completed. The bridge and the roads, all located in remote, poor areas, provided a significantly improved accessibility to the poor populations in those areas. The new Jiangiunhe Bridge provides good traffic flow, replacing the old unsafe bridge that was usable only for single trucks and for cars. The three LRIP roads all were originally earth roads of the lowest standards (Class IV), subject to frequent traffic cuts, were upgraded with bitumen surface, the construction of small new bridges and many new culverts. As a result, all these roads are now all-weather, remaining open year round. By comparison, the two roads selected for monitoring, had road closures of 45 and 90 days at the start of the project. The better roads greatly improved the mobility of the population in the area, as reflected by the substantial increase in traffic on all these roads, an increase of four to five times in the frequency of bus services, an 80 percent rise in the counties’ GDP, and improvements on all other socioeconomic indicators (see Data Sheet).

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As noted in the M&E Section, the LRIP’s socioeconomic impact is difficult to analyze as there may have been other government activities that also influenced those indicators. In any case, the LRIP has been an important contributor to the improvement in the socioeconomic data in the areas served by the LRIP roads. Strengthening Governance of the Road Sector

The project’s training program plus a substantive number of studies, and provision of equipment made a useful contribution to the governance of the road sector. Although several of the activities started late, by project completion all activities had been carried out, the main exception being the overseas training. Important outcomes included improved efficiency and effectiveness in road sector management, by the introduction of survey detection vehicles, weigh-in motion equipment for monitoring overloading, and implementation of new technologies, all of which were inexistent at start of the project. In these three areas, utilization had, by the end of 2008, increased by 50 percent or more over what had been achieved two years earlier. Similar improvements were achieved in other road management areas supported by the project (see Data Sheet and Section 3.5b). The project also had a positive impact on road safety. Fatal accidents on the NH316 and SME dropped from 3.4 per million veh-km at start of the project, to 3.1 in 2008, which is close to the 2.9 target expected for 2009. At the same time, HPTD safety management plan for Class I and Class II roads was extended to 90 percent of those roads, and a safety review of road freight and passenger enterprises covered 90 percent of those enterprises. This review was important, and found that commercial vehicles had a much worse safety record than non-commercial vehicles, and had, therefore, to receive special attention. The creation of the Hubei Safety Implementation Commission in 2007 will certainly help taking practical measures to tackle road safety issues. Training of HPTD staff was substantially exceeded for domestic training, by more than 50 percent the original estimate of persons to be trained. Overseas training fell significantly short of the estimate. Details of the impact of training are in Section 3.5b.

PAD Actual Domestic persons 243 380

Overseas training and tours persons 50 18 Persons-month 39.5 9

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HIV/AIDS Pilot This pilot, not originally part of the project, proved highly successful (See 3.5a).

3.3 Efficiency Economic Evaluation SME. The ex-post economic evaluation of the SME follows the same methodology applied at appraisal. It computes the SME benefits in terms of reduction in vehicle operating costs, travel time costs and maintenance costs and construction and maintenance costs using the actual values. At completion the ERR is estimated at 18 percent, which is satisfactory. This is slightly higher than the PAD estimate of 17 percent, because, on average, traffic on the SME in 2010 is 90 percent higher than estimated at appraisal, despite the fact that actual construction cost turned out to be roughly 67 percent higher than originally estimated and despite the fact that the connecting expressway in Shaanxi opened later than expected.

SME Economic Evaluation Appraisal Estimate Actual

EIRR EIRR Section (%) (%) Shiyan - Yunxian 14.4 13 Yunxian – Yunxi 16.5 20 Yunxi - Manchuanguang 17.5 22 Total 16.5 18

LRIP

The actual construction costs of the LRIP were 13% lower than estimated at appraisal. The actual cost of the upgrading of the Baozhu road was 150 Million RMB compared to 177 Million RMB estimated at appraisal, and the actual cost of the rehabilitation of the Jiangjunhe bridge was 36.6 Million RMB compared to 40 Million RMB estimated at appraisal. Therefore, one can conclude that the ex-post economic justification of the LRIP is also satisfactory. The Baozhu road and the Jiangjunhe bridge were evaluated at appraisal, while the Dayang and Shanghu roads were added to the LRIP program during project implementation. The LRIP ex-post economic evaluation results show that the actual ERR of the LRIP program is 34%, which is higher than the appraisal estimate (24%) due to the lower actual unit construction costs and the higher actual traffic on the Baozhu road and the Jiangjunhe bridge.

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Overall Economic Return of the Project The overall ex-post EIRR of the project, including the SME construction and the LRIP program, is 19%, which is higher than the appraisal estimate of 17%. Financial The financial return of the SME at appraisal was estimated at about 1 percent. At completion, the financial return is estimated to be in the same order of magnitude, in line with the relative values ex-ante and ex-post of the economic return. The HPTD collects tolls on the HPTD. At appraisal, HPTD indicated that the financial purpose of the toll revenue is to repay the project’s Bank and domestic loans, cover operating and non-operating expenses and cover routine maintenance, rather than maximize the financial rate of return. The financial analysis at appraisal showed that this would be achieved. At completion, the cost of the project was 68 higher than originally estimated, but, on average, traffic on the SME was 90 higher than estimated, therefore generating revenues proportionally higher. In conclusion, the HPTD will be able to meet the financial objective it set for the SME.

3.4 Justification of Overall Outcome Rating Rating: Satisfactory The Satisfactory rating is justified because the project objectives were and remain highly relevant to China's development strategy and to the Bank's assistance strategy, the objectives were substantially achieved, and the project's physical investments show a satisfactory economic efficiency. Until the opening of the Hubei-Shaanxi border tunnel in October 2009, there was uncertainty about traffic development on the SME, and its potential negative effect on the SME’s return if traffic was low. Since the tunnel became operational, traffic has grown at a high pace. The economic analysis shows that the economic return turned out to be higher than expected in the PAD, despite the late opening of the tunnel. In the few months since opening of the tunnel, traffic on the SME has been growing rapidly and by April 2010 the traffic volume has already surpassed the targets (Indicator 1). Other key indicators presented positive PDO achievements, especially in the areas of socioeconomic development, enhancing Hubei’s access to other provinces, improving local mobility, and strengthening governance of the provincial road sector: most of the targets set at appraisal time have been well achieved such as daily average traffic volume on local roads, number of days local roads are closed to traffic; transport cost, GDP per capital in local communities, school enrollment and access to medical care, population below poverty threshold, etc.

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In addition, the project demonstrated very good practice in the aspect of social protection and risk mitigation. The innovative approaches taken for resettlement and HIV/AIDS prevention activities have been disseminated to other regions and countries. The project’s outcome might have been considered highly satisfactory if more concrete results had been achieved under the institutional component.

3.5 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development

As noted in Section 3.3, the LRIP, thanks to the improved roads that became passable year-round and with better riding quality, helped (probably coupled with other activities by Hubei government) achieve gains in the GDP, school enrollment, access to health services, and frequency of public transport services. The resettlement process under the SME led to an improvement in the quality of life of the people resettled, as documented in a Bank paper in 2008.3 A survey showed that livings standards had increased for 71 percent of those resettled. Other main findings were improvement in the following areas:

• Housing materials: close to 100 of the homes after resettlement were of brick-concrete, compared with mostly earth-wood before the project;

• Access to roads: average distance to a road was reduced by 55 percent, and the number of houses with formal road access increased from 41 percent to 75 percent; and

• Drinking water: 100 percent had access to tap water after the project, compared with only 64 percent at start.

Substantial achievements were made by the HIV/AIDS pilot in several management aspects of this epidemic. Major achievements included: HIV/AID awareness among construction workers increased from 56.7 percent before training to 75.8 percent after training, significant behavioral changes with a large increase in the use of condoms, discrimination against HIV/AIDS infectors dropped from 39.4 percent to 21.2 percent in three years, and guidelines on how to promote multisectoral collaboration in combating HIV/AIDS was developed and disseminated. (b) Institutional Change/Strengthening The domestic training program strengthened the capacity of HPTD in several areas, especially in procurement, financial management, maintenance management, construction quality and supervision, traffic engineering, environmental management and traffic safety. Overseas training, which would have helped HPTD learn more from

3Liu, Z and Bennett, C, 2008: Using Involuntary Resettlement in Highway Projects to Alleviate Poverty: A Case Study from the

Hubei Shiman Highway Project in China. East Asia and Pacific Region, World Bank.

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relevant methods and approaches used in industrialized countries, was only partially carried out. The main outputs of the institutional capacity strengthening activities included six individual reports based on a series of situation reviews, case studies, consultation workshops, and field surveys. These reports summarized the efforts made and more importantly, provided policy recommendations to the decision makers. By topic, these reports covered the following areas: Capital Mobilization for Development Finance: The available options for financing highway development were explored and ideas were proposed on how to further strengthen the integrated Government–Enterprise-Bank (GEB) investment-finance platform in order to achieve the ultimate goal of sustainable development for Hubei’s highway sector. The policy recommendations on developing the GEB platform were submitted in the form of a special report to the Hubei provincial government for review. Project Management: A comprehensive study on the existing project management models was carried out, some representative project cases were examined and the challenging issues were identified and analyzed. The study summarized the possible measures to improve the current project management practices in highway construction, and directed the policy makers to strategically think about the future models for better project management. Pilot Expressway Asset Management: A Five Year Asset Management Plan was developed, including a detailed technical proposal and implementation arrangements. Research-based policy advice was informed to HPTD and a tool was provided for more rationally allocating asset management funds. Asphalt Pavement Maintenance: Under the general road asset management scheme, asphalt pavement maintenance topics were specially studied and suggestions were made to the HPTD, including adaptation of emerging cutting-edge technology, establishment of life cycle maintenance plan, creating and maintaining provincial pavement management database, etc. Road Safety Management Plan and Safety Review of Transport Companies: A Hubei Provincial Road Safety Management Plan based on extensive surveys and accident data analysis was produced and submitted to the Provincial Road Safety Leadership Team, who would lead the effort of implementing the Plan within the province. A monitoring mechanism was also expected to be formed. A separate Report on Road Transport Enterprise Safety Audit was also generated. See Annex 2. (c) Other Unintended Outcomes and Impacts (positive or negative)

The HIV/AIDS program yielded significant achievements, including a significant increase in the awareness level of construction workers and residents (56.7 percent before to 75.8 after program, behavioral changes (increase of 20 percent in sample place), reduced stigmatized attitude (rate of discrimination dropped from 39.4 to 21.2 percent),

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cross-sector institutional training (several program-prepared materials now widely adopted in Hubei and other provinces).

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3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops Not applicable

4. Assessment of Risk to Development Outcome Rating: Moderate The benefits stemming from the construction of the SME are unlikely to be reversed. Traffic is likely to continue growing at a sustained rate, further increasing the benefits of the SME, compared with the roads existing prior to the SME. The SME is likely to be well maintained, as traffic is higher than expected in the PAD, and, consequently, toll revenues are also higher than expected. Potential risk to development outcome are more significant regarding the maintenance of the LRIP roads, which depend on the allocation of funding by Shiyan city, and the institutional improvements, for which HPTD has not shown strong commitment.

5. Assessment of Bank and Borrower Performance

5.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry

Rating: Satisfactory Preparation of the project was facilitated by Bank experience during the preparation of the Hubei Xiaogan-Xiangfan Highway project (Ln. 4677), which was ongoing when the Hubei-Shiman project was approved. The Bank prepared a relevant project, with a good mix of expressway, local roads and institutional components. The latter was ambitious, since it included several studies and related institutional activities, making it a more complex project, on the institutional side, than other road projects in China. The approach consisting of applying the asset management activity to a pilot, rather than to the whole HPTD network, proved to be correct and helped make the institutional component manageable. The M&E system, comprising over 20 PDO indicators, was complex and burdensome on both the Borrower and Bank supervision. There was detailed attention to environmental and social safeguards issues, and Bank reviews of the relevant documentation ensured that such documents (EIA, EMP, RAP) met the requirements, including public consultation. Quality was fully satisfactory as explained above.

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(b) Quality of Supervision

Rating: Satisfactory A QAG Assessment of Supervision was carried out on August 7, 2006. The Assessment rated supervision overall as satisfactory, and found several aspects of supervision performance to be highly satisfactory, such as actions taken and follow up and quality and continuity of project supervision staffing. As with other highway projects in China, supervision of the Hubei-Shiman project consisted, on average, of two missions per year, plus short visits as required by specialists residing in Beijing. Supervision was facilitated by the continuity of the supervision mission staff, especially the team leader that remained unchanged from project approval in 2004 until 2008. Supervision missions were especially concerned with safety of people and road users. This included ensuring that construction workers used proper equipment and gear, that students were provided with adequate footpaths, that the level of noise near schools was within accepted standards, and ensuring safe road design and operations including appropriate road signs. Most mission aide-memoires contain detailed identification of safety issues and recommended remedial actions. Following a grant by the Global Road Safety Facility for the implementation of a Road Traffic Safety Center, the Bank became responsible for supervising this activity. The technical assistance and knowledge contribution provided by the Bank team has always been highly appreciated by the counterpart of Hubei. (c) Justification of Rating for Overall Bank Performance

Rating: Satisfactory The Bank prepared a relevant and well conceived project, and supervised it effectively.

5.2 Borrower Performance (a) Government Performance

Rating: Satisfactory The project during preparation and appraisal was strongly supported by China’s central authorities and by the government of Hubei. During implementation, counterpart funding was promptly provided, allowing speedy implementation. The only exception to this was the allocation of funding for the project’s overseas training, which had a late start and eventually only a small part of the intended program was completed.

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The creation of Hubei Safety Implementation Commission, which covers roads but also other sectors, shows the provincial government’s support for improving safety in the province. The provincial government was very supportive of the institutional strengthening component of the project by making available sufficient resources and considering the recommendations from the studies. In particular, the studies on road safety management and new ways to finance highway development in Hubei. Several policy and operational recommendations out f the road safety study have already been adopted by the provincial government. Currently, the government is studying the recommendations on highway finance and it is expected that a relevant policy decision will be made shortly. (b) Implementing Agency or Agencies Performance

Rating: Satisfactory The performance of the implementing agency was satisfactory as regards implementation of the civil works. The project was well prepared and HPTD was ready to start the bidding process shortly after project approval. As a result, construction started early and the expressway was completed earlier than planned, despite problems with contractors who withdrew their bids and had to be replaced and construction delays by contractors preparing the SME’s road subgrade. Cost estimates for the SME were significantly underestimated resulting from the bids. HPTD was rigorous in reviewing contractors’ request for work order variations, which limited cost overruns relative to contract values during implementation to a minimum. Payments to contractors were regularly made on time. While there were some issues related to road construction and traffic safety, supervision missions noted significant progress in this area relative to previous Bank road projects in Hubei. Resettlement was especially well done, and led to the preparation of a Bank paper analyzing the successful experience with the SME. Implementation of the project’s institutional strengthening components was relatively slow. It is clear that this was a complex component, comprising several different activities and involving various units of the HPTD. However, HPTD had the capacity, and it was able to allocate more resources and management attention to expedite in the institutional strengthening components. By project completion, all such activities had been carried out, with the notable exception of overseas training caused by political reasons and insufficient funding allocated by Hubei financial authority. An earlier completion of the institutional strengthening components would have allowed a firmer grasp of the impact of this component.

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(c) Justification of Rating for Overall Borrower Performance

Rating: Satisfactory The overall Borrower performance is rated as satisfactory. This is based on the ratings of the government and the implementing agency and also considering the project outcome is satisfactory and is deemed largely to be sustainable.

6. Lessons Learned

HIV/AIDS interventions as part of highway projects can be successful. Components on HIV/AIDS in Bank projects in the past have shown that it is difficult to achieve successful results, mainly because it is difficult to coordinate with relevant health officials. The Hubei-Shiman pilot, the first one on a China highway project, lasted three years and concluded in December 2007. It showed that a well designed and closely monitored pilot can achieve important outcomes. Key was the association of the Zhongman Hospital (ZH) of Wuhan University as a consultant to the HIV/AIDS intervention. Working in collaboration with road building contractors, ZH offered training courses on HIV/ AIDS prevention, disseminated booklets with related information, encouraged voluntary consultation and physical examination, and offered early detection and treatment. Materials and approaches developed under the project for combating HIV/AIDS have been widely adopted in various provinces in China.

Resettlement has the ability to increase the standard of living of project affected persons. The experience with the construction of the SME shows that resettlement can have beneficial effects on living standard of the affected people through the following measures, such as (i) effective leadership of provincial government; (ii) efficient management and distribution of resettlement funds; (iii) extensive public consultation throughout the entire project and responsiveness to village issues and concerns; (iv) effective procedures for receiving and addressing complaints; and (v) dealing with complaints in a timely manner. Among these, the public consultation was the key factor. The public made useful suggestions on the expressway alignment, the selection of centralized resettlement sites prior to relocation, the allocation of housing lots at these sites, land reclamation. From the start, specific objectives were adopted, including minimizing resettlement impact, saving cultivated land, creating new arable land, relocating to more productive land, and restoring roads and irrigation systems. The result was improvements in housing standards, road access, drinking water, and the large majority of those resettled expressing satisfaction with the process and their new dwellings and location.

Close inter-agency coordination and attention to design are key to avoiding blackspots at interchanges and interconnecting roads. A problem of agency coordination occurs in the locations where expressway interchanges connect with local roads. In the case of Shiman, the agencies were the highway administration bureau in charge of local roads and the expressway company. These locations may become blackspots (locations with high accident rates) if not properly designed and implemented. This is often the case in

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China, because of lack of coordination between the relevant agencies. The Bank missions helped to achieve a safe design and implementation of works at these locations.

Better timing among connecting expressways will improve economic efficiency. The SME was completed about 18 months before the connecting Shaanxi expressway was opened to traffic. Most of the SME traffic being interprovincial, the SME had minimal traffic during this period. In consequence, such an early opening was not optimal. A slower pace of construction of the SME could have helped to address construction issues better, and ensure that not only the SME but the related facilities were completed about the same time.

More attention to institutional components is required to ensure they contribute to improving management of the road sector. Highway agencies are correct in ensuring that the important and costly investments, such as the SME, as well as the LRIP, are well carried out, ensuring good control of quality and cost. This requires constant attention and focus by key agency managers. At the same time, such agencies need to find a way to ensure that important institutional components, aimed at improving the management of the road sector, are also well implemented. This is likely to require the agency to organize at the start of the project and to allocate staff with clear responsibilities for the project institutional components, and ensuring that such staff has adequate access to the agency’s senior managers. Some systematic issues associated with expressway development remain to be tackled.Although having been implemented better than previous Bank financed projects in the province, SME still presents various weaknesses common to expressway projects in China. There is room for improvement in areas including roadside hazard protection, functionality of monitoring center, tunnel safety, operation management and rescue coordination, design and usage of annex areas, modeling of noise barriers, and speed management. Extensive discussion took place between the Bank team and the counterparts, and general recognition and agreement were reached on these issues. Possible remedies may include updating some design standards, adjusting the design process, achieving systematic road safety audits at design and implementation stages. However, these remedial measures are beyond the control of provincial level, hence further discussions should be carried out at national level. The Bank team shall engage more at national level to provide technical assistance and raise awareness.

7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/implementing agencies

A summary of the Borrower’s own Implementation Completion Report is attached in Annex 7. The Borrower concludes that the project objectives were met, thanks to the successful construction of the 106.4 km SME expressway, the improvement of rural roads under the LRIP program, and the institutional development and strengthening program. The training program is considered especially important, with the domestic training program

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largely exceeding the original estimates. The HPTD notes, however, that the overseas training was only limited to two groups of staff. Implementation of the project components generated significant benefits for the provinces road network. The Borrower’s report highlights the good cooperation with the World Bank through five highway projects (including the subject of this ICR) over a period of 15 years. The report identifies key areas where the relationship with the Bank, including in the last project, was of special benefit to HPTD because of the introduction or improvement of technologies and methodologies. These include: engineering design, construction management, expropriation and resettlement, environmental protection, institutional strengthening and policy reforms, among others. (b) Cofinanciers

Not applicable (c) Other partners and stakeholders

Not applicable

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Annex 1. Project Costs and Financing

(a) Project Cost by Component (in USD Million equivalent)

Estimated Domestic

Actual Domestic

Estimated Foreign

Actual Foreign

Estimated Total

Actual Total

Project Component /or Activity US$million US$million US$million US$million US$million US$millionI. SME - civil works 211.07 425.5695 146.62 174.5784 357.69 600.1479- buildings and annex areas 7.13 6.1612 1.78 0.7953 8.91 6.9565

- E&M equipment works 2.95 8.59 11.81 10.3763 14.76 18.9663 - Connecting roads 1.79 3.169 0.45 0 2.24 3.169 - Construction Supervision 5.88 6.208 1.82 1.1872 7.70 7.3952 - Land Acquisition 26.89 31.5736 0 0 26.89 31.5736 II. RRIP - Civil works 40.00 39.8439 10.00 10.0921 50.00 49.936

- Construction Supervision 0.7 0.6991 0 0 0.70 0.6991 III. Institutional Development and road sector management - Institution studies 0.55 0.9398 0.00 0 0.55 0.9398

- Road safety studies 0.36 0.1152 0.00 0 0.36 0.1152 - Training Program 0.05 0.0498 0.28 0.0685 0.33 0.1183 - Equipment 2.57 4.4419 2.79 0.9022 5.36 5.3441 Total Baseline Cost 299.94 527.361 175.55 198 475.49 725.361 Physical Contingencies 20.80 12.71 0 33.51 0 Price Contingencies 15.16 9.74 0 24.90 0

Total Project Cost(1) 335.90 527.361 198.00 198 533.90 725.361

Front-end Fee 2.00 1 2.00 1

Total Financing Required 335.90 527.361 200.00 199 535.90 726.361

Identical taxes and duties are US$ 13.36 million, and the total project cost, net of taxes, is US$522.24 million. Therefore, the share of project cost net of taxes is 38.29%.

(b) Financing

Source of Funds Type of Cofinancing

Appraisal Estimate

(USD millions)

Actual/Latest Estimate

(USD millions)

Percentage of Appraisal

Borrower 329.00 527.00 160% International Bank for Reconstruction and Development

200.00 199.00 99.50%

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Annex 2. Outputs by Component

Component Output Comments

PHYSICAL COMPONENTS Construction of SME Expressway

SME Expressway 106.4 km, 4-lane, access-controlled expressway

Opened to traffic December 2007. However, tunnel at border with Shaanxi province opened in October 2009.

Interconnecting Road at Shiyan city interchange

Completed as a 2-lane road Further widening to 4 and 6-lane was financed by Shiyan city

Local Road Improvement Program (LRIP)

Total length 262 km 2 roads identified in the PAD as Phase I, two additional roads identified during implementation as Phase II roads

• Phase I roads Completed Baoxia-Zhushan 85 km, Class II, pop:131,000 Population shown is in immediate

area of influence Jiangiuhe bridge 355 m, Class II, pop 78,000 Ditto

• Phase II roads Dabakou-Yangwei ( Dayang road)

91 km, Class IV, pop: 140,200

Ditto

Shangjin-Hubeikou (Shangu road)

86 km, Class III, pop:134,200

Ditto

Component Output Comments PROCUREMENT OF EQUIPMENT

Equipment for construction quality control and monitoring, O&M of SME and office IT for HPTD.

Procurement completed and equipment operational

Equipment was procured in two ICB packages

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INSTITUTIONAL COMPONENT Capacity Building

Component Output Comments

Training Domestic: 380 persons, 250 man-months

Largely exceeded PAD estimates of 242.5 persons

Overseas: 18 persons, 9 man-months

Substantially below PAD estimates of (including overseas training and tours) 52 persons, 39.5 man-months

Studies Pilot Expressway Asset Management

Completed A 5-Year Asset Management Plan was prepared for the 2008-2012 period. The implementation of the Plan is through qualified contractors. Totally 12 contractors are responsible for 14 individual road sections.

Capital Mobilization Completed Policy recommendations on establishment of an integrated Government–Enterprise-Bank (GEB) investment-finance platform for sustainable development of highway sector were submitted to Hubei provincial government and government support is sought.

Road Maintenance Technology

Completed Specific suggestions made to HPTD for improving road maintenance technology. These included adoption of emerging cutting-edge technology, establishment of life cycle maintenance plan, creating and maintaining provincial pavement management database, etc. Based on the suggestions, an action plan was also created.

Group Management of Projects

Completed Possible measures targeting different existing PM models to improve management of project were proposed, and an action plan was proposed.

HPTD Safety Management Plan

Completed A Road Safety Management Plan, based on extensive surveys and accident data, was submitted to the relevant Provincial team. HPTD is the leading agency for implementing the Plan and a monitoring mechanism was suggested.

Safety Review of Transport Companies

Completed Basic information collected and provided useful data for analysis and considering policy measures on

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transport enterprise safety management, audit, and training.

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Annex 3. Economic and Financial Analysis Economic Evaluation SME The ex-ante economic evaluation of the project done at appraisal covered the following two project components: (i) construction of the 105.1 km Shiyan-Manchuangan Expressway (SME); and (ii) upgrading of one rural road (85.8 km) and construction of one bridge (355 m) under first phase of the LRIP. The ex-post economic evaluation covers the SME construction (89% of the project civil works costs) following the same economic methodology applied at appraisal that computes project benefits in terms of reduction in vehicle operating costs, travel time costs and maintenance costs over a 24 year evaluation period at a 12% discount rate. For evaluation purposes, SME has been divided into three sections. The table below shows the appraisal estimated lengths and the actual lengths for each road section, indicating an actual overall distance savings of 50%.

SME Road Sections Length Appraisal Estimate Actual Actual Actual

Length of the New Length of the New Length of the Distance

Section Road (km) Road (km) Existing Road (km) Savings

(%) Shiyan - Yunxian 24.1 29.1 42.6 32% Yunxian - Yunxi 45.0 42.0 89.2 53% Yunxi - Manchuanguang 36.0 35.2 80.0 56% Total 105.1 106.4 211.8 50%

The table below shows the actual construction costs per road section that varies from 43.2 to 44.5 Million RMB per km. The actual overall construction cost per km is 49.7 Million RMB per km that is around 52%4 higher than the appraisal estimate (32.7 Million RMB per km). The actual construction period was four years, similar to what was predicted as appraisal, and the actual overall distribution of the road work costs during the construction period was 2% in 2004, 34% in 2005, 36% in 2006 and 28% in 2007.

SME Road Sections Actual Construction Costs

Actual Actual Construction Construction

Section cost (Million

RMB) cost (Million RMB/km)

Shiyan - Yunxian 1,298 44.5 Yunxian - Yunxi 1,846 43.9 Yunxi - Manchuanguang 1,522 43.2 Total 4,667 43.9

4The exchange rate used for this calculation is 1US$=RMB 7.8 Yuan.

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The expressway was open to traffic in 2008 and in 2010 carries between 8,901 and 9,770 AADT. The table below shows the projected SME traffic in 2010 estimated at appraisal and the actual traffic in 2010 that shows that the actual traffic in 2010 is around 59% higher than the one estimated traffic at appraisal on the Shiyan - Yunxian section, 127% higher on the Yunxian - Yunxi section and 142% higher on the Yunxi - Manchuanguang section. The actual expressway traffic in 2010 over the entire SME is 90% higher than the appraisal estimates, part of which could be attributed to the conservative traffic projection at the appraisal time. The actual traffic composition on SME is 45% cars, 12% buses and 43% trucks.

SME Road Sections Traffic

Appraisal Estimate Actual

SME Traffic SME Traffic Section in 2010 (AADT) in 2010 (AADT) Shiyan - Yunxian 6,665 9,770 Yunxian – Yunxi 4,231 9,170 Yunxi - Manchuanguang 3,831 8,901

The ex-post economic evaluation was done by first replicating the appraisal economic evaluation results on an Excel based economic evaluation model using road user costs computed with the Highway Development and Management Model (HDM- 4) relationships and considering all the input assumptions presented on the appraisal economic evaluation annex. The ex-post economic evaluation was done updating the main inputs of the model to reflect actual values. The ex-post economic evaluation considers: (i) actual lengths, (ii) actual construction costs, (iii) actual construction cost distribution, and (iv)actual SME traffic in 2010. The traffic projections for 2010-2019 and 2020-2029 adopted at appraisal (3.5% and 2.7% per year respectively) were maintained at the ex-post evaluation. The table below presents the ex-post economic evaluation results that show that the actual Economic Internal Rate of Return (EIRR) of the SME construction is 19.1%, which is higher than the appraisal estimate (16.5%) due mainly to the fact that the increase in actual project costs with relation to the appraisal estimates (68% increase in costs) was compensated by the increase in the actual expressway traffic in 2010 with relation to the appraisal estimates (90% increase in traffi

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