asian development bank...currency equivalents currency unit — yuan (y) at appraisal at project...

ASIAN DEVELOPMENT BANK PCR:PRC 27398

PROJECT COMPLETION REPORT

ON THE

LIAONING EXPRESSWAY PROJECT(Loan 1388-PRC)

IN THE

PEOPLE’S REPUBLIC OF CHINA

September 2000

CURRENCY EQUIVALENTSCurrency Unit — Yuan (Y)

At Appraisal At Project Completion(14 July 1995) (17 March 2000)

Y1.00 = $0.1183 $0.1208$1.00 = Y8.4518 Y8.2781

ABBREVIATIONS

AADT – average annual daily trafficADB – Asian Development BankBER – bid evaluation reportBME – benefit monitoring and evaluationEIA – environmental impact assessmentEIRR – economic internal rate of returnEMB – Expressway Management BureauFIRR – financial internal rate of returnICB – international competitive biddingkm – kilometerLCB – local competitive biddingLPCD – Liaoning Provincial Communications DepartmentLPHHCH – Liaoning Provincial High-Grade Highway Construction

Headquartersm – meterMOC – Ministry of Communicationsmte – medium truck equivalentNTHS – national trunk highway systemPIU – project implementation unitPQER – prequalification evaluation reportPRC – People’s Republic of ChinaTA – technical assistanceVOC – vehicle operating cost

NOTES

(i) The fiscal year (FY) of the Government and the Executing Agency ends on 31December.

(ii) In this report, "$" refers to US dollars.

CONTENTS

Page

BASIC DATA ii-iv

MAPs v-vi

I. PROJECT DESCRIPTION 1

II. EVALUATION OF IMPLEMENTATION 2

A. Project Components 2B. Implementation Arrangements 3C. Project Costs and Financing 4D. Project Schedule 5E. Engagement of Consultants and

Procurement of Goods and Services 5F. Performance of Consultants, Contractors, and Suppliers 6G. Conditions and Covenants 6H. Disbursements 6I. Environmental and Social Impact 7J. Performance of the Borrower and the Executing Agency 8K. Performance of the Asian Development Bank 8

III. EVALUATION OF INITIAL PERFORMANCE AND BENEFITS 8

A. Financial Performance 8B. Economic Performance 9C. Attainment of Benefits 9

IV. CONCLUSIONS AND RECOMMENDATIONS 12

A. Conclusions 12B. Lessons Learned 12C. Recommendations 12

APPENDIXES 14

BASIC DATA

A. Loan Identification

1. Country People’s Republic of China2. Loan Number 1388-PRC3. Project Title Liaoning Expressway Project4. Borrower People’s Republic of China5. Executing Agency Liaoning Provincial Communications Department

(LPCD)6. Amount of Loan $100.0 million7. PCR Number PCR:PRC 586

B. Loan Data

1. Appraisal- Date Started 29 June 1995- Date Completed 14 July 1995

2. Loan Negotiations- Date Started 29 August 1995- Date Completed 31 August 1995

3. Date of Board Approval 28 September 1995

4. Date of Loan Agreement 28 February 1996

5. Date of Loan Effectiveness- In Loan Agreement 28 May 1996- Actual 28 May 1996- Number of Extensions 0

6. Closing Date- In Loan Agreement 31 January 2000- Actual 28 April 2000- Number of Extensions 0

7. Terms of Loan- Interest Rate US dollar-denominated variable lending rate- Maturity (number of years) 24- Grace Period (number of years) 4

8. Terms of Relending- Interest Rate US dollar-denominated variable lending rate- Maturity (number of years) 24- Grace Period (number of years) 4- Second-Step Borrower LPCD

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9. Disbursements

a. DatesInitial Disbursement Final Disbursement Time Interval

8 July 1996 28 April 2000 3 years, 10 months

Effective Date Original Closing Date Time Interval28 May 1996 31 January 2000 3 years, 8 months

b. Amount ($ million)

Category

No.Description

OriginalAllocation

RevisedAllocation

AmountDisbursed

UndisbursedAmount a

IIIIIIIV

V

Civil WorksEquipmentConsultingServicesIDCb

UnallocatedTotal

68,500,00010,200,000

800,00011,300,0009,200,000

100,000,000

80,300,0007,700,000

700,00011,300,000

0100,000,000

80,300,0007,608,461

694,30411,300,000

099,902,765

091,5395,696

00

97,235

a Canceled at loan closing date.b IDC=interest during construction

10. Local Costs (ADB-Financed)- Amount (dollars) 0

C. Project Data

1. Project Cost ($ million)

Item Appraisal Estimate ActualForeign Exchange CostLocal Currency Cost

Total Cost

124.0168.2292.2

120.8167.3288.1

2. Financing Plan ($ million)

Appraisal Estimate ActualItem Foreign Local Total Forei gn Local Total

ADBMinistry of CommunicationsLiaoning ProvincialGovernment Total

100.00.0

24.0124.0

0.026.0

142.2168.2

100.026.0

166.2292.2

99.90.0

20.9120.8

0.046.5

120.8167.3

99.946.5

141.7288.1

ADB = Asian Development Bank

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3. Cost Breakdown by Project Components ($ million)

Appraisal Estimate ActualItem Foreign Local Total Foreign Local Total

Civil WorksEquipmentLand Acquisition andRelocationConstruction Supervisionand TrainingContingenciesInterest DuringConstruction

Total

87.610.20.0

0.8

14.111.3

124.0

98.93.3

20.0

3.6

42.40.0

168.2

186.513.520.0

4.4

56.511.3

292.2

101.27.60.0

0.7

0.011.3

120.8

139.80.2

20.7

6.6

0.00.0

167.3

241.07.8

20.7

7.3

0.011.3

288.1

4. Project Schedule

Item Appraisal Estimate Actual

Date of Contract with ConsultantsCivil Works Contract

Date of AwardCompletion of Work

Equipment and SuppliesDates

First ProcurementLast Procurement

May 1995

March 1996July 1999

July 1996October 1998

March 1996

March 1996July 1998

July 1997January 1999

D. Data on ADB Missions

Name ofMission Date

No. ofPersons

No. ofPerson-Days

Specializationof Members a

Fact-Finding 22 Mar - 11 Apr 1995 4 80 a,c,d,eAppraisal 29 Jun-14 Jul 1995 5 75 a,b,c,d,eInception 4-8 Aug 1996 2 8 a,cReview 1 21-28 Aug 1997 3 24 a,c,fReview 2 13 –24 Jul 1998 2 24 a,fProject Completion Reviewb 06-17 Mar 2000 4 29 a,c,f

a a-engineer; b-counsel; c-project economist; d-financial analyst; e-programs officer; f-assistant projectanalyst;.

b The Mission comprised Y. Nagao, Project Engineer and Mission Leader; M. Ojiro, Senior ProjectEconomist; and O. Guanlao, Assistant Project Analyst. The Mission was assisted by H.Sakurai,Financial Analyst, at ADB headquarters.

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I. PROJECT DESCRIPTION

1. The People’s Republic of China (PRC) ranks among the lowest in the world in terms oftransport capacity relative to either population or area. The rapid economic growth of the PRCand the consequent high transport demand are straining the country’s transport system. Despitethe Government’s efforts to increase the country’s transport capacity, serious constraints andbottlenecks remain, especially in the road subsector. The Government’s principal strategy foraddressing the constraints in the road sector has been through a 30-year development plan(1991-2020) for a national trunk highway system (NTHS), in which interprovincial expresswaysand highways of about 30,000 kilometers (km) are to be constructed.

2. The Liaoning Expressway from Tieling to Siping forms part of the priority section of theNTHS and represents the third phase1 of interventions by the Asian Development Bank (ADB) topromote the development of the northeastern road corridor from Tongjiang on the border withthe Russian Federation to Shenyang, Beijing, and the north central region of the PRC (Map 1).The Project included a feeder road component for the first time in an ADB-supported roadproject in the PRC to provide poor people with convenient access to project facilities andservices. A feasibility study for the Project was carried out by the Liaoning ProvincialCommunications Department (LPCD), and in October 1994 ADB approved a project preparatorytechnical assistance (TA)2 to update and refine the feasibility study, including the environmentalimpact assessment and resettlement plan. The TA was completed in March 1995 and its resultsconfirmed the technical, financial, and economic viability of the Project, and the adequacy of theenvironmental and social measures being implemented concurrently with the Project. Based onthe work of the loan fact-finding and appraisal missions, the proposed investment for thedevelopment of the project expressway was considered suitable for ADB financing. Followingloan negotiations held in Manila from 29 to 31 August 1995, ADB’s Board of Directors approveda loan of $100 million to the PRC for the Project on 28 September 1995. The Loan Agreementwas signed on 28 February 1996 and the loan was declared effective on 28 May 1996.

3. The project scope at appraisal comprised(i) civil works for the construction of 109 km of four-lane controlled access toll

expressway from Tieling to Siping;(ii) upgrading of 203 km of feeder roads;(iii) procurement of equipment, including provision and installation of

communications facilities, environmental protection equipment, and vehicleweighing stations;

(iv) land acquisition for the civil works, demolition and removal of existing structures,and relocation of affected people; and

(v) consulting services for design, construction supervision, and foreign, on-the-joband classroom training at the LPCD Communications College.

1 The first two phases were assisted by Loan 1324-PRC: Heilongjiang Expressway Project and Loan 1262-PRC: Jilin

Expressway Project. These projects have been completed and the project completion reports have been prepared.2 TA 2195-PRC: Hebei and Liaoning Expressway Projects, for $560,000, approved on 31 October 1994.

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II. EVALUATION OF IMPLEMENTATION

A. Project Components

4. The 109 km access-controlled expressway between Tieling, in Liaoning Province, andSiping, just across the border in Jilin Province, is part of the priority section of the NTHS, whichprovides a four-lane integrated expressway link between the provincial capitals of Shenyang inLiaoning and Changchun in Jilin. The Liaoning Expressway plays a central role in developingthe expressway links that are planned to be extended through Liaoning and Hebei provinces toBeijing in the south, and from Jilin Province through to Harbin in Heilongjiang Province in thenorth. The alignment of the expressway in the northern area of Liaoning Province starts from thevicinity of Tieling, and ends at the border of Jilin Province, passing through the administrativeregions of Tieling, Kaiyuan, and Changtu cities. The Project included a feeder road component,comprising eight sections totaling 203 km, to provide poor people with convenient access to itsfacilities and services. The location of the Project is shown in Map 1 and the major events in theproject history are listed in Appendix 1.

1. Civil Works

5. At appraisal, procurement of civil works comprised four components: (i) four contracts forearthworks and bridges using international competitive bidding (ICB) procedures; (ii) twocontracts for pavement works and traffic engineering under ICB; (iii) three contracts formanagement, administration, and service facilities using local competitive bidding procedures;and (iv) eight contracts for feeder roads using force account procedures. The construction oflarge and small bridges, culverts, underpasses, interchanges, and grade separations started inApril 1996 and was completed in September 1997. Pavement construction, construction ofmanagement, administration and service facilities along the route, environmental protection,planting, and beautification works commenced in April 1997 and were completed in July 1998.The expressway was opened to traffic in August 1998, one year ahead of the scheduleprepared at the time of appraisal.

6. During the Inception Mission in August 1996 when subgrade works were almost halfcompleted, ahead of schedule, LPCD proposed to advance the procurement and installation oftelecommunications equipment for traffic surveillance and monitoring, optical fiber digitaltransmission, and roadside emergency telephone systems. LPCD also proposed a civil works’component of telecommunications equipment (such as casing pipes for the cable) to beincorporated in the four ICB contracts for earthworks and bridges. ADB approved the proposalon 29 August 1996. Variation orders were submitted for minor changes in design and forincreased quantity of works.

7. The actual civil works cost increased because of additional works in subgrades andbridges. The cost of subgrades and bridge works also increased because (i) bridge structuraldesigns changed due to unexpected geological conditions, (ii) an unforeseen wide stretch ofbad soil was replaced with good soil, and (iii) a larger quantity of masonry was used to makeslopes more stable than they would have been by merely planting grass. Map 2 shows thelocation of the civil works contract packages, and the interchanges and feeder roadsconstructed under the Project. A summary of the civil works included in each contract is inAppendix 2.

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2. Equipment

8. At appraisal, procurement of equipment comprised three packages: (i) communicationfacilities such as a traffic surveillance and monitoring system, optical fiber digital transmissionsystem, and roadside emergency telephone system, to be procured using ICB; (ii)environmental protection equipment through international shopping; and (iii) vehicle weighingstations through international shopping. The actual equipment cost was below the appraisalestimate. This was due to the cancellation of the installation of the originally envisaged 800mega bit per second (mbps) mobile phone telecommunications (single station) system foremergencies as LPCD decided to install a more sophisticated multistation network system tocover the whole expressway network of the province. The system will be procured after furtherresearch and study upon the completion of the Liaoning expressway network by using LPCD’sown resources.

3. Consulting Services

9. An international consulting firm was engaged for construction supervision and training.Its services commenced in April 1996 and were initially expected to be completed by June 1997.However, subgrade works on a section of the road took longer than expected. Due to the delay,LPCD requested that the services be extended until the end of July 1998. The total person-months thus increased from 16 to 20.

4. Training

10. The international consulting firm trained LPCD staff in (i) quality control procedures ofcivil works, especially pavement quality management procedures using testing and inspectionequipment; (ii) asphalt pavement design; and (iii) traffic engineering, including road marking,traffic signs, and quality control of reflective materials. The first local seminar was conductedfrom 15 to 26 April 1996 with 75 participants, and the second from 7 to 12 April 1997 with 380participants. Long-term international training for 6 persons was conducted from 16 September to12 December 1996 in Denmark, followed by short-term out-of-country training for 10 persons innorthern Europe from 7 to 31 October 1996 to facilitate a transfer of technology in expresswayconstruction and operations. The training covered construction management and supervision,and project management and implementation. On-the-job training was provided on a one-to-onebasis by the resident staff of the international consultants as part of the local seminars, and atthe work site as necessary. The subject matter of the training was formally incorporated in thecurriculum of the LPCD Communications College. Comprehensive reports of each trainingcourse and seminar, with a course evaluation by the trainees, were completed and submitted toLPCD and ADB.

B. Implementation Arrangements

11. A project implementation unit (PIU) was established in Shenyang at LPCD’s LiaoningProvincial High-Grade Highway Construction Headquarters (LPHHCH) with district PIUs atTieling. A project implementation committee, consisting of local officials from various agencies,was established in Tieling municipality to ensure that local concerns, including land acquisition

4

and equitable resettlement arrangements, were adequately addressed. All these units wereappropriately staffed and the arrangements were similar to those that had been successfullyadopted on other expressway projects in the PRC. The chief engineer, assisted by suitablyqualified technical and support staff, had overall responsibility for construction. Upon thecompletion of the Project, LPCD, through its Expressway Management Bureau (EMB), wasgiven responsibility for the operation and maintenance of project facilities. The executing agencyand other organizations involved in project implementation are shown in Appendix 3.

C. Project Costs and Financing

1. Project Costs

12. The actual project cost amounted to $288.1 million (Y2.38 billion), $4.1 million lower thanthe appraisal estimate of $292.2 million (Y2.42 billion). The breakdown of the appraisal estimateand actual project costs is provided in Appendix 4. The cost savings resulted mainly from theelimination of the cost of the mobile phone telecommunications system, which will be borne byLPCD at a later date. The actual cost of civil works amounted to $241.0 million, accounting for84 percent of the total project cost, compared with the appraisal estimate of $233.4 million(including contingencies).

2. Financing

13. The financing plan envisaged at appraisal included $100.0 million from ADB (34 percentof the total project cost) to finance 81 percent of the foreign exchange cost. The remaining 19percent of the foreign exchange cost ($24.0 million) was to be financed by the LiaoningProvincial Government, and the entire local currency requirements of $168.2 million equivalentwere to be met by grants from Ministry of Communications (MOC) for $26.0 million equivalent,and the Liaoning Provincial Government’s own funds ($142.2 million equivalent). The actualADB loan of $99.9 million covered 35 percent of the total project cost and 83 percent of theforeign exchange cost. The remaining 17 percent of the foreign exchange cost ($20.9 million)was financed by the Liaoning Provincial Government, and the entire local currency cost of$167.3 million equivalent, was provided by grants from (i) MOC ($46.5 million equivalent); and(ii) the Liaoning Provincial Government ($120.8 million equivalent). MOC increased its localcurrency grant so that the Project could be completed within the ninth five-year plan (1996-2000). The appraisal and actual financing figures are summarized in Table 1:

Table 1: Project Financing Plan($ Million)

Appraised ActualSource Foreign Local Total Foreign Local Total

ADB 100.0 0.0 100.0 99.9 0.0 99.9

MOC 0.0 26.0 26.0 0.0 46.5 46.5

Liaoning ProvincialGovernment 24.0 142.2 166.2 20.9 120.8 141.7

Total 124.0 168.2 292.2 120.8 167.3 288.1ADB = Asian Development Bank, MOC = Ministry of Communications.

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D. Project Schedule

14. On 26 May 1995, ADB approved advance action for the procurement of civil works,materials, and equipment, and for the recruitment of consultants for construction supervision.The advance action involved the prequalification of contractors, tendering, bid evaluation, andaward of contracts. ADB also approved, in principle, retroactive financing of contracts awardedprior to loan effectiveness, not exceeding $10 million. Advance action and retroactive financingwere beneficial to project implementation because the consultants for construction supervisionwere engaged and civil works contracts awarded prior to loan effectiveness, by the beginning ofthe construction season3 in 1996.

15. Construction activities commenced on 18 April 1996 and all equipment contracts wereawarded by January 1999. Construction activities were completed in July 1998 and theexpressway was opened to traffic on 8 August 1998, one year ahead of schedule. The feederroads were opened in September 1997, one year earlier than the opening of the expressway.The appraised and actual implementation schedules are shown in Appendix 5. Earlyimplementation of the Project was made possible by (i) timely completion of preconstructionactivities, (ii) timely completion of land acquisition and resettlement, and (iii) efforts bycontractors to meet their schedules by mobilizing additional funds and labor, and introducingdouble shifts during construction seasons.

E. Engagement of Consultants and Procurement of Goods and Services

16. International consultants financed under the loan were engaged following the ADB’sGuidelines on the Use of Consultants. LPCD engaged the consultants promptly and ADBprocessed the recruitment expeditiously. The award of the consultants’ contract was approvedby ADB on 2 February 1996, and the consultants commenced their services on 15 April 1996,three days before the civil works began. Domestic consultants for construction supervision wereengaged using Government recruitment procedures acceptable to ADB. The services of thedomestic consultants were financed by LPCD. The actual input by domestic consultants was3,044 person-months compared with the appraisal estimate of 1,360 person-months. Theincrease was due to LPCD’s commitment to ensure high construction quality.

17. Four civil works contracts were awarded for the project expressway as envisaged atappraisal (Appendix 6). Prequalification and bid evaluation were conducted for the four ICBcontracts in accordance with ADB’s Guidelines for Procurement. Since no foreign contractorssubmitted bids, ADB approved the award of all civil works contracts to domestic contractors on6 May 1996. No major difficulties were encountered in the bidding and execution of thesecontracts. The size of the contracts proved to be appropriate in light of the success achieved inshortening the construction by one year. The upgrading of feeder roads to interchanges wasimplemented on a force account basis because the small-scale construction sites were widelyspread in remote areas (Map 2). The feeder roads were upgraded through eight packages byLPCD as envisaged at appraisal.4 The total cost of feeder roads upgrading was $55.6 million,$1.1 million less than envisaged at appraisal.

3 In the project area, construction is not possible from about November to March because of the winter.4 ADB financed only four packages due to a shortfall of funds in the civil works category. The Government financed

the balance.

6

18. Two supply contracts for expressway operation equipment were financed under the loan.In accordance with ADB’s Guidelines for Procurement, one contract was awarded following ICBprocedures and one through international shopping, both to foreign suppliers (Appendix 7). Theprocurement of communication facilities under ICB was delayed because LPCD took longerthan expected to prepare and evaluate the bid and the central Government took longer toauthorize the contract than envisaged at appraisal. The equipment installation was delayed byabout 10 months and was not completed by the opening date of the expressway. One contractfor environmental protection equipment was not awarded because LPCD decided it wouldprocure the equipment from its own resources upon completion of the Liaoning expresswaynetwork in 2002.

F. Performance of Consultants, Contractors, and Suppliers

19. The international consultants performed their work satisfactorily in accordance with theterms of reference. A satisfactory working relationship was established between the domesticand international consulting firms engaged under the Project, and LPCD was satisfied with theout-of-country and on-the-job training on international standards and practices in projectmanagement, contract administration, and quality control. The domestic consulting firm incharge of construction supervision also performed satisfactorily.

20. The civil works contractors performed satisfactorily and completed their contracts withinthe three short construction seasons dictated by the severe weather conditions in the projectarea.

21. The delivery by the supplier of the communication equipment was delayed due to severeweather conditions in 1999. LPCD reported that the suppliers satisfactorily provided thenecessary onsite operation and maintenance training, and that the equipment performed well inaccordance with the required technical specifications, even though the supplier did not installand test the equipment on time.

G. Conditions and Covenants

22. Overall, the Project was implemented satisfactorily in compliance with all the loancovenants (Appendix 8). The project progress reports, including monthly, quarterly, and annualreports, and audited project accounts and financial statements were submitted in accordancewith the requirements.

23. LPCD will establish a preliminary benefit monitoring and evaluation (BME) system withinEMB. EMB has started collecting some relevant data, such as the amount of traffic on theexpressway and National Highway 102, the expressway’s operational data, and statistics oneconomic and social developments in the project area. LPCD agreed that BME would beundertaken five years after the opening of the expressway.

H. Disbursements

24. Of the $100.0 million loan proceeds, a total of $99.9 million was disbursed over theperiod 1996-2000. The reimbursement payment procedure was applied for payment of civil

7

works and the direct payment procedure was used to meet construction supervision costs. Forpurchase of equipment, the letter of credit procedure was applied. Disbursement controlprocedures were satisfactory. Civil works accounted for 80 percent of the loan amount, andconstruction supervision for 7 percent. A force account was used for upgrading feeder roads ata cost of $21.9 million. Actual interest during construction amounted to $11.3 million, consistentwith the amount envisaged at appraisal. A comparison table and graph of projecteddisbursement at appraisal and actual disbursement are shown in Appendix 9.

I. Environmental and Social Impacts

1. Environmental Impact

25. An environmental impact assessment (EIA) was conducted by Xian HighwayTransportation University from December 1992 to July 1993 and approved by the StateEnvironmental Protection Administration on 2 August 1993. In addition, a summary EIA wasprepared by LPCD with assistance from the TA consultants (footnote 2). The summary EIA wascirculated to ADB's Board of Directors on 22 May 1995.

26. During implementation, environmental monitoring and mitigation measures wereundertaken in accordance with the EIA and summary EIA. Environmental mitigation measurescarried out to minimize negative impacts included (i) planting 59,000 trees and 233,000 squaremeters of green belts with multiple layer tree species on both sides of the expressway, (ii)replanting borrow pits and planting grass along slopes to protect against erosion, (iii) channelingall surface runoff through sedimentation ponds to minimize the entrance of eroded soil and toxicelements into natural waterways and to facilitate the containment of accidental spills of toxicmaterials, and (iv) installing emergency telephones and hazard warning signs to minimize therisk of accidents. Environmental monitoring of air, noise, and water conditions is being done bythe Provincial Environmental Protection Bureau, which advises LPCD on a regular basis of itsfindings.

2. Social Impact

27. The resettlement program was successful; 855 people were resettled and provided withadequate financial compensation for their homes, compared with 630 people in the initial plan.The increase was due to the change of affected areas caused by a design change duringimplementation. In most instances, the compensation funds were used to construct betterquality homes. Families were resettled within 1 km of their former homes. Most of the affectedpeople were in rural areas, but some who were not provided with arable land moved out tourban areas after receiving adequate compensation and found new jobs. Over 80 underpassesand 16 overpasses were constructed to allow farmers easy access to their fields. The standardof living for the resettled households improved through (i) better housing conditions, (ii) morepiped water, (iii) convenient access to electricity, (iv) efficient and timely access to large citiesfor purchase of farming supplies, (v) additional opportunities for remunerative work during thenonfarming season, and (vi) improved access to social services like schools and hospitals.

28. During project planning and implementation, an effective process of consulting withaffected people was undertaken at city, county, and township/village levels. The processcomprised meetings with representatives of affected people and site visits by local governmentofficials to explain to the affected persons and the beneficiaries, the Project's objectives andscope and make arrangements for resettling those affected. The affected people were given

8

opportunities to make representation during the compensation process and reasonabledemands made in accordance with the Land Administration Law were accepted. The results ofthese public consultations were taken into consideration in project design and implementation.

J. Performance of the Borrower and the Executing Agency

29. The Borrower completed all requirements up to loan effectiveness in a timely manner.The Project was implemented following the arrangements envisaged at appraisal, and the civilworks were completed within budget. LPCD had little difficulty following ADB’s Guidelines forProcurement because LPCD was familiar with ADB's policy and guidelines, as this was thesecond ADB-financed expressway project it implemented. Withdrawal applications weresubmitted on a timely basis, and contractors and suppliers were paid promptly. Land acquisitionand resettlement actions were completed on time to the satisfaction of the affected persons.

K. Performance of the Asian Development Bank

30. ADB's performance in completing the Project was satisfactory. The implementationarrangements were appropriate to the project needs and the loan reallocations allowed foradditional works to enhance the expressway's level of service. The number of review missionswas adequate, the necessary approvals for procurements were given promptly, and the level ofsupport provided by ADB missions was appreciated by LPCD.

III. EVALUATION OF INITIAL PERFORMANCE AND BENEFITS

31. At appraisal, the forecast traffic for the Project in the first full year of operations wasestimated at 8,190 average annual daily traffic (AADT) in medium truck equivalent (mte). Basedon data supplied by EMB and on the Mission’s assessment, AADT was 8,790 mte in 1998 and9,400 mte in 1999. The latter represents an increase of approximately 15 percent over theappraisal forecast. The data for the existing National Highway 102 is slightly lower than theappraisal forecast. Approximately 71 percent of the corridor traffic is using the expressway asanticipated at appraisal. Based on the actual traffic volumes on the project expressway andfuture economic growth forecast in the project area, the appraisal traffic has been revisedslightly upward. AADT is forecast to grow at 6.8 percent to reach about 16,970 mte in 2008, andto grow thereafter more slowly at 5.9 percent. By 2018 AADT is forecast to reach 30,000 mte,which is within the design capacity of the expressway. Details of actual and forecast traffic areshown in Appendix 10.

A. Financial Performance

32. At appraisal, the financial viability of the Project was justified based on the level of tollsbeing set in accordance with the expected increase in traffic volume, the loan amortizationschedule, and interest payments. An analysis of EMB’s financial performance shows that theexpressway toll revenues will cover the cost of operation and maintenance, debt servicing, andbusiness tax, and provide a further amount at least equivalent to depreciation charges. Thefinancial projection demonstrates that EMB’s profitability in operations will be satisfactory

9

(Appendix 11). EMB will continue to monitor toll levels to ensure the recovery of extraordinarycosts, including foreign exchange variations.

33. The methodology of the with-project and without-project comparison used at appraisalhas been followed in recalculating the financial internal rate of return (FIRR). The underlyingassumptions at appraisal have been verified and updated, using the results of actual operations.Outlays during the construction period are based on the actual investment for the Project. Theproject cost excluding interest during construction has been adjusted to 2000 prices. Tollrevenues are based on the revised traffic forecasts and toll rates net of business taxes until2018. The FIRR in 2000 constant prices is estimated at 7.7 percent compared with 6.7 percentat appraisal (Appendix 12). The slightly higher FIRR is attributed to lower capital cost and highertraffic volumes than estimated at appraisal. The weighted average cost of capital is estimated at7.3 percent. Hence, this reevaluation shows that the Project continues to be financially viable.

B. Economic Performance

34. Economic reevaluation of the project expressway follows the methodology used atappraisal: comparing the with-project and without-project situations. The analysis of the Projectcovers 1996-2018, including 3 years of major construction and 20 full years of expresswayoperations. The assumptions used at appraisal have been examined and updated. The primarydifferences between reevaluation and appraisal are (i) revised economic costs derived fromactual costs, (ii) a shorter construction period, and (iii) additional data on traffic volumes on theexpressway as well as the existing National Highway 102. The main sources of economicbenefits from the Project are (i) savings in vehicle operating costs (VOCs) for vehicles that withoutthe Project would have to travel on the existing road, (ii) time savings for passenger and cargotraffic using the new expressway, and (iii) benefits from reduced congestion accruing to traffic thatremains on the existing roads after the opening of the expressway. The economic internal rate ofreturn (EIRR) for the Project is estimated at 22.4 percent compared with the appraisal estimateof 21.1 percent. The increase in the EIRR is due to (i) lower capital costs, (ii) the revised highertraffic levels for the expressway, and (iii) opening of the expressway earlier than originallyenvisaged. Savings in VOCs constitute the largest benefit. The economic reevaluation, includinga sensitivity analysis, is described in detail in Appendix 13.

C. Attainment of Benefits

1. Poverty Reduction Impact

35. To maximize the poverty reduction impact of the Project, the feeder roads componentwas included in the project scope for the first time in an ADB-funded road project in the PRC toprovide improved access for the poor in the Project’s hinterland. Eight feeder roads, totaling 203km and costing $56.7 million, were selected using the following criteria: (i) proximity to theproject expressway, (ii) low incomes of the communities served, and (iii) prevalence ofdisadvantaged groups within the served communities. The upgraded feeder roads now serveabout 3.3 million rural people, with an annual income of Y2,238 in 1998 compared with theprovincial average of Y2,580. The upgraded roads reduce transport time and the cost ofreaching schools, hospitals, and other social services. They make health care and skillsdevelopment opportunities more accessible to the poor, improving their chances of findingemployment in nearby industries. The Project generated about 15,000 jobs for the expressway

10

component and 1,500 jobs for the feeder roads component. The expressway’s operation andmaintenance have created an additional 300 permanent jobs, particularly for toll stations.

2. Road Conditions

a. Design

36. The project expressway was constructed in accordance with modern expressway designstandards, taking into account both geometry and pavement design. Safety features include (i)continuous guardrails in the median strip and along the top of high embankments, (ii) pavedhard shoulders, (iii) roadside emergency telephones provided at regular intervals,5 (iv) adequateroad signs, and (v) two weigh stations installed at the toll plazas to ensure stricter enforcementof legal load limits. The drainage system is well designed and all major slopes have beenprotected with open precast concrete lattice blocks with grass infill or regular grass. Paved ditchlining has been provided where required.

37. The pavement design is considered adequate to carry the traffic loads forecast up to thetime of the first overlays scheduled 10 years after opening. The pavement design at somevulnerable sections incorporates 35-cm frost-resistant layers below the 20-cm base course. Thepavement at the time of the site visit was fully serviceable. Some settlement had occurred atbridge or culvert abutments, and slight surface unevenness was due to patching of theoccasional areas undertaken during the defects liability period. However, the surface texturewas satisfactory, the overall riding quality good and surface roughness, in terms of theinternational roughness index,6 well within allowable tolerance (at 0.55-0.62 meter perkilometer).

38. Transverse cracks, 5 to 10 millimeter (mm) wide at intervals of about 40 to 50 meters(m) along the nearly 20 km section of the expressway, appeared during the winter seasonsNovember 1998 to March 1999 and November 1999 to March 2000. A recent investigation byan asphalt concrete pavement specialist7 concluded that thermal shrinkage of the base coursewas the primary cause. LPCD had taken measures to avoid the same type of cracks as reportedfor the previous two ADB-financed projects in similar climatic conditions (footnote 1): 5-mmwide, and 5-7 mm deep ditches were cut at 50-100 mm intervals in the binder or the surface andbituminous emulsion was placed over them so that it worked as an expansion joint. Thecontractors had moved quickly to seal the cracks to prevent the ingress of rainwater to theunderlying layers, but there was evidence of incomplete or unsatisfactory sealing. The crackswill require additional and continuous maintenance throughout the life of the pavement, and asuitable crack-filling agent should be used. LPCD will monitor the pavement regularly andundertake further technical investigation to identify the causes of cracking and adequatemeasures to prevent further cracking.

39. At the time of the Mission in March 2000, EMB had taken over maintenance of the roadfrom the contractors, and it was too early to assess maintenance performance. For 1999, EMBprovided a routine maintenance budget of Y184,000 per km, compared with the appraisedestimate of Y100,000 per km. At present, some parts of the expressway drainage systemappear to lack routine maintenance as ditches have not been cleared of vegetation and someculverts are clogged with sediments from erosion. Some erosion was noticed on cut slopes, 5 The Mission tested one of the telephones and was able to contact the emergency exchange within 15 seconds.6 Accumulated axle movements recorded using standard bump integrator equipment measured over a 1-km section.7 Engaged under TA 2846-PRC: Changchun-Harbin Expressway Project, for $600,000, approved on 22 August

1997.

11

especially at the top, where vegetation had not yet become established. These problems will beaddressed by EMB as part of its routine maintenance program.

b. Road Safety

40. In 1999, 110 accidents occurred on the Shenyang-Siping expressway, causing 59fatalities and 88 injuries. This is equivalent to 0.20 accidents per million vehicle-km and 0.11fatalities per million vehicle-km. The number of accidents and fatalities per million vehicle-km onthe National Highway 102 decreased from 0.50 and 0.10 in 1997 to 0.18 and 0.08 in 1999. Thecombined accident rate on the expressway and the National Highway 102 1n 1999 was lowerthan that of the national highway in 1997 while the combined fatality rate was higher.

41. LPCD has identified the main causes of the accidents on the expressway: (i) poor visiondue to fog, (ii) slippery road surface due to snow, and (iii) driver fatigue caused by continuousdriving. To cope with these traffic hazards, in line with the recommendations given under ADB-financed TA,8 LPCD has been implementing: (i) installation of antiglare plates on medians,speed limit signs, reflective signs, reflective markings, and hazard warning signs; (ii) timelyremoval of snow, (iii) traffic enforcement by the public security bureau and expressway patrol byEMB’s local offices; (iv) construction of service stations as well as maintenance yards, and (v) aroad safety campaign to educate drivers through seminars.

3. Economic Conditions

42. The Project has achieved its principal objective by helping eliminate road transportbottlenecks that constrain economic growth. The feeder road component has had a significantimpact on raising incomes and living standards and reducing poverty. Road conditions haveimproved substantially and travel time between Tieling and Siping has been reduced from fourhours to one hour. VOCs have decreased by 50-60 percent. The expressway has facilitatedtransport of agricultural and industrial goods to markets within Liaoning Province, and to Dalianport, Beijing, and elsewhere in the PRC. The Project has also generated competition betweenroads and railways for passenger services. A modern coach service with a daytime frequency ofabout one hour has been started between Tieling and Siping, and railway operations are beingimproved through electrification. The Project’s impact on improving access to the maineconomic centers and ports will be increased by completing the remaining sections of theexpressway network from Beijing and Dalian to Tongjiang. In this corridor, ADB has beenfinancing six other expressway sections along this corridor, totaling 1,137 km (out of 1,800 km)with a combined loan amount of $1,078 million (see Map 1).9

8 TA 2177-PRC: Preparation of a Road Safety Program for Heilongjiang, and TA 5620-REG: Regional Initiatives in

Road Safety.9 Loan 1262: Jilin Expressway, for $126 million, approved on 9 November 1993; Loan 1324: Heilongjiang

Expressway, for $142 million, approved on 29 September 1994; Loan 1387: Hebei Expressway, for $220 million,approved on 28 September 1995; Loan 1483: Shenyang-Jinzhou Expressway, for $200 million, approved on 19November 1996; Loan 1641: Changchun-Harbin Expressway : Changyu Expressway, for $220 million, approvedon 27 November 1998; and Loan 1642: Changchun-Harbin Expressway : Hashuang Expressway, for $170 million,approved on 27 November 1998.

12

IV. CONCLUSIONS AND RECOMMENDATIONS

A. Conclusions

43. The Project has achieved its main objective of reducing traffic congestion. It wascompleted satisfactorily within the cost estimated at appraisal and one year ahead of schedule.The expressway has been in operation since 8 August 1998 and has not had any majorstructural or maintenance problems. People affected by the Project were relocated satisfactorily,and the overall socioeconomic impact of the Project has been positive. There have been nomajor adverse environmental impacts. The feeder road component has impacted directly onpoverty reduction by providing better access for the poor to markets, income generatingopportunities, and social services.

44. The financial and economic reevaluation of the Project shows that the FIRR and EIRRare satisfactory. The Project is generating sufficient revenue to satisfactorily cover ADB loanprincipal and interest repayments. The Project is considered to be generally successful.10

B. Lessons Learned

45. The delay in the procurement of the supply contract for communication facilities occurredbecause LPCD took longer than anticipated to prepare and evaluate bids and the centralGovernment took more time to authorize the contract than envisaged at appraisal. The facilitiesshould have been in operation when the expressway opened. Internal review and approvalprocedures need to be streamlined to ensure timely procurement of such facilities and thustimely completion of projects.

C. Recommendations

1. Project-Related

46. LPCD should continue to monitor the pavement performance and ensure timely routinemaintenance. In addition, LPCD should update the relevant pavement standards andspecifications on the basis of further studies on alternative pavement designs to avoid furthercracks.

47. The BME activity report should be submitted to ADB five years after the opening of theexpressway to enable ADB to evaluate the improvement of social and economic conditions inthe project area. The report should be followed up during the next country portfolio reviewmission.

48. The project performance audit report for the Project should be prepared in 2001 or later.By then, the project expressway will have been fully operational for more than three years and abetter assessment of its traffic, maintenance, and physical condition will be possible.

49. The economic and social development impact study of the Beijing to Tongjiangexpressway corridor should be conducted after the completion of the whole corridor.

10 Under the new rating system, which has four categories and is being introduced, the Project would qualify as highly

successful.

13

2. General

50. ADB should continue supporting highway projects with a complementary feeder roadcomponents to enhance the poverty reduction impact of such projects.

14

APPENDIXES

Cited onNumber Title Page (page, para.)

1 Major Events in Project History 15 2, 4

2 Summary of Civil Works by Contract 18 2, 7

3 Organization ChartLiaoning Expressway Project 19 4, 11

4 Appraised and Actual Project Costs 20 4, 12

5 Implementation Schedule 21 5, 15

6 Contract Packages for Civil Works 22 5, 17

7 Contract Packages for Equipment 23 6, 18

8 Compliance with Loan and Project 24 6, 22Agreement Covenants

9 Appraised and Actual Disbursement 27 7, 24

10 Traffic Forecasts 28 8, 31

11 Financial Performance 30 9, 32

12 Financial Reevaluation 32 9, 33

13 Economic Reevaluation 34 9, 34

Appendix 1, page 1

MAJOR EVENTS IN PROJECT HISTORY

22 Mar 95 to Fact-Finding Mission11Apr 95

26 May 95 Management approved advance action and retroactive financing upto 10 per cent for civil works, equipment, and recruitment ofinternational consultants.

29 Jun –14 Jul 95 Loan Appraisal Mission.

31 Jul 95 Staff Review Committee meeting.

29-31 Aug 95 Loan Negotiations.

28 Sep 95 The Asian Development Bank (ADB) approved a loan of $100million from its Ordinary Capital resources to the People’s Republicof China (PRC) for the Liaoning Expressway Project.

31 Oct 95 Consultants Selection Committee (CSC) met to shortlist consultantsand approve invitation documents for the recruitment ofconstruction supervision consultants.

06 Nov 95 ADB received the Prequalification Evaluation Report (PQER) forearthworks and subgrade.

29 Nov 95 ADB approved the PQER for earthworks and subgrade.

25 Jan 96 ADB received the evaluation of consultants’ proposals.

02 Feb 96 ADB approved the ranking of consultants and negotiations with firstranked consultant.

13-16 Feb 96 Contract negotiations with the first ranked consultant forconstruction supervision held in Shenyang.

19 Feb 96 ADB received the Bid Evaluation Report (BER) for earthworks andsubgrade.

28 Feb 96 Loan Agreement signed.

06 Mar 96 ADB approved award of 4 contracts for earthworks and subgrade.

15 Apr 96 ADB received signed contract between the Executing Agency andconsultant for construction supervision.

15-26 Apr 96 Training seminar held in Shenyang.

15

Appendix 1, page 2

28 May 96 The loan became effective.

27 Jun 96 ADB received the PQER for pavement works and trafficengineering.

02 Jul 96 ADB received the required list of equipment to be purchased.

11 Jul 96 ADB approved the PQER for pavement works and trafficengineering.

05-08 Aug 96 Loan Inception Mission.

29 Aug 96 ADB approved Executing Agency’s request to include procurementof telecommunications facilities in the civil works component ofearthworks and bridges

30 Aug 96 ADB received detailed schedule of training program for long termoverseas training and list of nominated candidates for short termtraining.

07 Oct 96 ADB received bidding documents on the supply and delivery ofequipment for telecommunications facilities.

10 Oct 96 ADB received BER for pavement works and traffic engineering.

6 Sep – 12 Dec 96 Long-term overseas training program was conducted.

07 Oct – 03 Nov 96 Long-term overseas training program conducted.

31 Oct 96 ADB approved award of two contracts for pavement works andtraffic engineering.

10 Dec 96 ADB received signed contract for two contracts for pavement worksand traffic engineering.

21 Feb 97 ADB received Overseas Training Report (long and short term) fromthe consultant.

7 to 12 Apr 97 Second local seminar in Shenyang was conducted.

27 Jun 97 ADB received the Consultant’s Report on Seminar for training.

27 Jun 97 ADB received BER for procurement of equipment.

20 - 31 Aug1997 Loan Review Mission 1.

16

Appendix 1, page 3

05 Sep 97 ADB received a fax from People’s Bank of China (PBC) requestingfor reallocation of loan proceeds per discussion with EA during loanreview mission.

10 Sep 97 ADB sent fax approving loan reallocation.

18 Sep 97 ADB received contract variation orders for civil works and BER formanagement, administration and service facilities.

03 Oct 97 ADB approved award of two contract packages for management,administration and service facilities.

05 Dec 97 ADB received three copies of contracts for traffic monitoring andtelecommunications.

31 Jul 98 Consultant services completed.

08 Aug 98 Expressway was formally opened to traffic.

02 Mar 99 ADB received Completion Report from Consultant.

31 Jan 2000 Loan was closed.

06-16 March 2000 Project Completion Review Mission (PCRM) was conducted.

17

SUMMARY OF CIVIL WORKS BY CONTRACT

Contract Road Section From To Length a Major bridges Medium/Minor bridges Grade Service

No. km km (km) No. Length (m) No. Length (m) Underpass Overpass Separations Interchanges Toll Plaza Area

Earthworks

1 Pingdingpu-Qingheqiao K66+295 K92+500 26.21 2 508.80 16 440.80 25 2 1 1 2 2

2 Qingheqiao-Wujianfang K92+500 K112+553 19.99 3 826.00 12 429.60 20 5 1 - - -

3 Wujianfang-Xishuangshu K112+553 K133+300 20.32 6 1,687.10 8 863.52 15 3 - 1 1 1

4 Xishuangshu-Wulipo K133+300 K159+988 26.69 5 1,184.20 10 620.20 15 10 10 1 2 -

Total 93.21 16 4,206.10 46 2,354.12 75 20 12 3 5 3 a 16.28 km subgrade section was constructed by the Executing Agency using its own resouces

Connections from Rural Road to Interchange(Feeder Roads) Length (km)

1 Liao Hai Tun Interchange 13.20

2 Di Yun Suo Interchange 34.90

3 Xiao Li Tai Interchange 2.00

4 Chang Tu Interchange 3.00

5 Shuangmiaozi Highway 20.00

6 Kaiyuan to Xifeng 68.00

7 Xifeng to Anmin 24.10

8 Kangping to Liaoyangwopu 37.90

Total 203.10

From To Length

Pavement km km (km)

1 Tieling-Liaoguanpo K50+500 K105+500 55.00

2 Liaoguanpo-Wulipu K105+500 K159+988 54.49

Total 109.49

Management, Admin. And Service Facilities

1 Section 50 + 500

2 Section 112 +552

3 Section 133 + 300

Appendix 2

18

19

Appendix 3

ORGANIZATION CHARTLIAONING EXPRESSWAY PROJECT

Internal Organization Bureaus and Agencies

a PIU = Project Implementation Unit, it existed only during construction.

People's Government of Liaoning Province

Liaoning Provincial Communications

Department

Expressway Management

PlanningDivision

AccountingDivision

EngineeringDivision

Science and Technology Division

Security MonitoringDivision

Planning and Design

Highway Administration

Transport Management

Transport School

Road TransportAgency

General Administration Office

Highgrade Highway

Construction

General Manager

-Engineering-Technology-Contracts-Planning and Finance-Administration-Coordination-Project Management Office

PIU a

Chief EngineerDistrictPIUs a

20

APPRAISED AND ACTUAL PROJECT COSTS($ million)

Appraised ActualComponent Foreign Local Total Foreign Local Total

A. Civil Works 87.6 98.9 186.5 101.2 139.8 241.0

B. Equipment 10.2 3.3 13.5 7.6 0.2 7.8

C. Land Acquisition and Relocation 0.0 20.0 20.0 0.0 20.7 20.7

D. Consulting Services and Training 0.8 3.6 4.4 0.7 6.6 7.3

Base Cost (A+B+C+D) 98.6 125.8 224.4 109.5 167.3 276.8

E. Contingencies a

Physical 9.9 12.6 22.5 0.0 0.0 0.0Price Escalation 4.2 29.8 34.0 0.0 0.0 0.0 Subtotal 14.1 42.4 56.5 0.0 0.0 0.0

F. Interest During Construction 11.3 0.0 11.3 11.3 0.0 11.3

Total 124.0 168.2 292.2 120.8 167.3 288.1a Actual expenditure amounts for physical and price contingencies are included in actual civil works cost.

Source: Staff estimates based on data from LPCD.

Appendix 4

IMPLEMENTATION SCHEDULE1995 1996 1997 1998 1999

1 3 4 5 7 8 10 11 2 5 6 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12

ACTIVITY J F M A M J A O N D J F M A M J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D

Detailed Design

Civil works1. Earthworks and Subgrade

Prequalification Bidding Mobilization ConstructionContract 1



Prequalification Bidding Mobilization ConstrcutionContract 4

Contracts 1 to 4

2. Pavement and Traffic EngineeringPrequalification Bidding Mobilization Construction

Contract 1

Prequalification Bidding Mobilizaiton Construction

Contract 2

Contracts 1and 2

3. Management and Administrative \Prequalification Bidding Mobilization Construction

Contract 1



Contracts 1 to 3

4. Connections from rural roadsto interchanges (feeder roads)

EquipmentTendering Manufacture & Delivery Installation and Commissioning

1 Telecommunications Facilities

Tendering Delivery & Installation2 Vehicle Weighing Stations

Consu ltants' Serv ices

1. Domestic

2. International

Appraised Actual

7

J

21

Appendix 5

2 12 1

J

9

S

6 3 4

CONTRACT PACKAGES FOR CIVIL WORKS

Original Variations a Final Approved Final Payment b

Cont. Name of Contractor Mode of Contract Country Cont. Amount Amount Contract Contract Amount

Proc. Date (Y) (Y) % (Y) (Y) ($ equivalent)

A. Earthworks and Subgrade

1 Shenyang Highgrade Highway Const. General Co. ICB 3/18/96 PRC 158,480,000 44,040,674 27.8 202,520,674 84,004,351 10,113,734

2 Heilongjiang Provincial Road & Bridge Const. Gen. Co ICB 3/18/96 PRC 132,390,000 12,722,889 9.6 145,112,889 58,454,772 7,034,823

3 The 1st Highway Engineering Corp. of MOC ICB 3/18/96 PRC 176,068,533 17,687,638 10.0 193,756,171 78,303,355 9,424,831

4 The 18th Engineering Bureau of Min. of Railway ICB 3/18/96 PRC 173,843,986 11,419,716 6.6 185,263,702 76,988,507 9,266,861

Subtotal A 640,782,519 85,870,917 726,653,436 297,750,985 35,840,249

B. Pavement and Traffic Engineering

5 Shenyang High-grade Higway Const. General Co. ICB 12/15/96 PRC 204,880,000 9,863,261 4.8 214,743,261 73,952,494 8,925,476

6 General Road and Bridge Const. ICB 12/15/96 PRC 239,569,879 17,006,156 7.1 256,576,035 85,351,421 10,300,983

Subtotal B 444,449,879 26,869,417 471,319,296 159,303,915 19,226,459

C. Management, Admin. And Service Facilities

7 Traffic Engineering Corp. of Liaoning LCB 11/5/96 PRC 31,980,000 7,439,774 23.3 39,419,774 12,182,337 1,470,835

8 No. 4 Eng. Const. Corp. of Liaoyang LCB 11/5/96 PRC 27,263,000 7,376,210 27.1 34,639,210 10,442,603 1,260,803

9 No. 4 Eng. Const. Corp. of Liaoyang LCB 11/5/96 PRC 11,144,000 2,433,749 21.8 13,577,749 4,270,925 515,666

Subtotal C 70,387,000 17,249,733 87,636,733 26,895,865 3,247,304

D. Connections from rural roads to interchanges FA 362,815,402 0 362,815,402 182,483,700 21,985,988

TOTAL (A+B+C+ D) 1,518,434,800 129,990,067 8.6 1,648,424,867 666,434,465 80,300,000

ICB = international competitive bidding, LCB = local competitive bidding, FA=force account.a Major variations include additional works due to design revisions and access roads.b

Based on the final payment certificates.

Appendix 6

No.

(ADB's portion)

22

Mode Bank's Total

of Approval Contract Contract Amt. Amount Contract

Package No. Item Proc. (Date) Supplier Amount ($ Equiv) Disbursed Contract No. Signing

UKL1,803,218

Package 1: Traffic Monitoring System and

Telecommunications Facilities ICB 21 July 1997 Siemens, Plc (UKG) $4,574,136 $7,477,781 $7,477,781 CGFB-S972077 28 Nov 97

Package 2: Vehicle Weighing Stations (2 sets) IS 11 Feb 1999 Haus International $130,680 $130,680 $130,680 CCAFB-S992001 06 Jan 99

Holding Ltd. (CAN)

Totals $7,608,461 $7,608,461ICB= international competitive bidding, IS=international shopping.

CONTRACT PACKAGES FOR EQUIPMENT

Appendix 7

23

Appendix 8, page 1

COMPLIANCE WITH LOAN AND PROJECT AGREEMENT COVENANTS

Covenants Reference toLoan Documents

Status ofCompliance

1. Implement the Project diligently andefficiently and in conformity with soundadministrative, financial, engineering,environmental, and constructionpractices.

Loan Agreement (LA)Section 4.01(a) andProject Agreement (PA)Section 2.01(a)

Complied with.

2. Make available, promptly as needed,the funds, facilities, services, land, andother resources that are required, inaddition to the proceeds of the Loan, forthe carrying out of the Project.

LA, Section 4.02 Complied with.

3. Carry out work for the improvement ofconnections from rural roads to theexpressway interchanges by forceaccount.

LA, Schedule 4, para. 5 Complied with.

4. Employ competent and qualifiedinternational consultants in accordancewith procedures of the AsianDevelopment Bank (ADB) and domesticconsultants in accordance withprocedures acceptable to ADB.

LA, Schedule 5, paras.2, 3, and 4, PA 2.03

Complied with.

5. Take all action necessary to facilitatethe timely passage of the proposedHighway Law.

LA, Schedule 6, para. 1 Complied with. The HighwayLaw was approved by theNational People’s Congress in1997 and was made effectivein January 1998.

6. Carry out road safety enhancementmeasures such as provision of relevanttraining in road safety and trafficengineering.


7. Prior to commencement of foreigntraining, submit for approval to ADB thetraining plan and program, list ofnominated candidates, workshopprogram, and list of training equipment.


24

Appendix 8, page 2


Status ofCompliance

8. Provide ADB with the evaluation of theworkshops and identify those that areproposed for formal incorporation intothe regular curriculum of the TransportSchool of the Liaoning ProvincialCommunications Department (LPCD).


9. Upon completion of the project, ensurethat project facilities are adequatelyoperated and maintained. Provide on atimely basis, all funds needed.


10. Ensure that environmental problemsrelated to construction and operationare minimized by implementingmitigation measures and environmentallaws and regulations.


11. Carry out the resettlement action planand keep ADB informed of the progressof its implementation.


12. Establish appropriate toll charges for useof the project facilities and review thelevel and structure of such charges fromtime to time to ensure that appropriatetolls are maintained.


13. Undertake regular benefit monitoringand evaluation of the project facilities inaccordance with the methodologyagreed with ADB.

LA, Schedule 6, para. 9 Being complied with.It will be undertaken fiveyears after opening of theexpressway.

14. Carry out the Project in accordance withplans, design standards, specifications,work schedules, and constructionmethods acceptable to ADB.

PA, Section 2.04 Complied with.

15. Submit quarterly reports on theexecution of the Project and theoperation and management of projectfacilities.

PA, Section 2.08(b) Complied with.

16. Submit a report on the execution and PA, Section 2.08(c) Complied with.

25

Appendix 8, page 3


Status ofCompliance

initial operation of the Project not laterthan six months after physicalcompletion of the Project.

17. Submit audited accounts (within ninemonths after the close of the fiscal yearto which they relate) and relatedfinancial statements for the Project inEnglish.

PA, Section 2.09(a) Complied with.

18. Effective from the commencement of tollroad operations and for five yearsthereafter, LPCD will submit thefinancial statements of ExpresswayManagement Bureau (EMB) not laterthan nine months after the end of thefiscal year.

PA, Section 2.09(b) Complied with. Financialstatements will be submittedfive years after the opening ofthe expressway.

26

27

Appendix 9

APPRAISED AND ACTUAL DISBURSEMENT

Disbursement Schedule ($ million)Cumulative

Year Appraisal Actual Appraisal Actual 1996 5.00 40.96 5.00 40.961997 24.98 20.98 29.98 61.941998 45.04 24.98 75.02 86.911999 24.98 9.99 100.00 96.902000 0.00 3.00 100.00 99.90Total 100.00 99.90



Cumulative Disbursements

0.00

20.00

40.00

60.00

80.00

100.00

1996 1997 1998 1999 2000

Year

$ m

illio

n

Appraisal

Actual

Appendix 10, page 1

TRAFFIC FORECASTS

1. The traffic forecast has been revised to take into account the actual traffic data onNational Highway 102 and the project expressway that has become available since appraisal.The assumptions underlying the traffic forecast made at the time of appraisal have been reviewedand updated based on the prevailing economic conditions at the time of the Project CompletionReview Mission (PCRM).

2. At appraisal, average annual daily traffic (AADT) for the Project was estimated at 8,190medium truck equivalent (mte) for 2000, the projected first year of expressway operation. Thetraffic was forecast to grow to 15,790 mte in 2010, at an annual average growth rate of 6.8percent. The traffic was then projected to grow more slowly to 27,920 mte in 2020 at an annualaverage growth rate of 5.9 percent. The traffic forecast made at appraisal was based on the resultof an origin-destination survey as well as macroeconomic parameters for the project area,including the growth rate of the output value of industry and agriculture, population growth rate,and per capital income increase. Economic development plans in the project area were alsotaken into account.

3. Based on the data supplied by the Executing Agency (EA) and the PCRM's assessment,the actual AADT was 8,790 mte in 1998 and 9,400 mte in 19991. This represents an increase ofapproximately 15 percent over the appraisal estimate. While the actual volume for theexpressway is higher than forecast at appraisal, the volume for the existing National Highway102 is slightly lower than the appraisal forecast, reflecting the higher volume of traffic on theexpressway. Approximately 71 percent of the corridor traffic is using the expressway which issimilar to the appraisal estimate. Based on the actual data for traffic volumes on the projectexpressway and future economic growth forecast in the project area, the appraisal trafficforecast has been revised slightly upward primarily due to higher corridor traffic volume. Thetraffic is forecast to grow at 6.8 percent to reach an AADT of about 16,970 mte in 2008 andthereafter more slowly at 5.9 percent. By 2018 traffic is forecast to reach an AADT of about30,000 mte, which is within the design capacity. The construction of other infrastructurenecessary for industrial development that underpins traffic growth will ensure the continuation ofrapid economic growth in Liaoning Province.

�

For example, the expressway’s improvement oftransport links to the Zhangshi and Nanbu economic and technological development zones inShenyang, each with a Y20 billion investment target, will enable the local governments to attractmore foreign and domestic investment. Diversion of traffic to the expressway has led to adecline in AADT on National Highway 102 from over 9,100 mte in 1997 to 5,200 mte in 1998and 3,800 mte in 1999, resulting in reduced congestion.

��

1 This is based on the weighted average of the traffic on each section of the project expressway.

28

29Appendix 10, page 2

Actual Traffic on NH102(Average Annual Daily Traffic in Medium Truck Units)

FreightYear Small Medium Large Trailer Small Large Total

1990 410 1,324 185 657 501 97 3,1741991 590 1,315 199 619 544 108 3,3751992 731 1,533 351 632 726 114 4,0871993 879 1,868 395 996 1,158 173 5,4691994 997 2,043 501 1,144 1,269 247 6,2011995 1,113 1,992 463 1,191 1,928 276 6,9631996 1,307 2,421 706 1,407 2,108 291 8,2401997 1,525 2,625 855 1,398 2,293 440 9,1361998 891 1,450 275 702 1,700 176 5,1941999 807 883 170 -- 1,645 384 3,889


2000 1,333 2,815 576 1,251 1,794 421 8,1902010 2,504 5,288 1,081 2,349 3,701 870 15,793

2020 4,302 9,087 1,858 4,037 6,992 1,647 27,923

Revised Traffic Forecast for the Project Expressway(Average Annual Daily Traffic in Medium Truck Units)


Actual1998 1,431 3,021 618 1,343 2,060 452 8,7901999 1,490 3,147 643 1,398 2,354 518 9,400

Projected2000 1,634 3,450 706 1,533 2,199 516 10,038 2008 2,763 5,834 1,194 2,593 3,718 873 16,9742010 3,016 6,370 1,302 2,829 4,458 1,048 19,0232018 4,758 10,049 2,054 4,464 7,033 1,653 30,011

Passenger

Passenger

Passenger

Appraisal Traffic Forecast for the Project Expressway(Average Annual Daily Traffic in Medium Truck Units)

Appendix 11, page 1

FINANCIAL PERFORMANCE

1. The actual and projected financial statements of the Expressway Management Bureau(EMB) were prepared for comparison with the projected performance at appraisal. It should benoted that, as an operating and maintenance arm of the Liaoning Provincial CommunicationsDepartment (LPCD), EMB is not responsible for the debt management that is undertaken byLPCD. EMB’s financial statements do not thus reflect the asset and liabilities associated withthe indebtedness incurred. However, these elements were incorporated in Table 1 as anadjustment in order to facilitate the comparison with the appraisal estimate as well as to properlyassess the financial soundness of EMB. At the end of 2000, EMB has seven expressways1 tomanage, operate and maintain, of which three expressways were in the scope of the projectionsat appraisal.

2. 2.5 percent per annum is assumed to be international inflation. Domestic inflation isforecast at 1.8 percent for 2000, 2 percent for 2001, 2.1 percent for 2002, and 5 percent for2003 and beyond. The original exchange rate between US dollar and Chinese Yuan was Y8.27per dollar. The exchange rate varies every year on the basis of inflation and purchasing powerparity.

3. Traffic was forecast to increase at 6 percent per annum for the already-builtexpressways and at 2–3 percent per annum for the early years of operation for the newly builtexpressways. Toll was assumed to be constant in real terms at all times.

4. Operating and maintenance costs are projected to increase according to the domesticinflation rate and traffic volume.

5. Depreciation expenses are calculated assuming 40 years of economic life for civil worksand 10 years for equipment.

6. Based on historical figures, current liabilities, which consist mainly of accounts payableand wages/welfare payable, are taken to be 2.5 months of working expenses, accountsreceivables are taken to be 0.85 months of operating revenue, and inventory level is assumedto increase annually according to traffic volume.

7. Four expressways out of the seven are financed partly by domestic loans, which bearinterest at 9.5 percent for 1996, 8.5 percent for 1997, 7.5 percent for 1998, 6.5 percent for 1999,and 6.21 percent for 2000 onward. Repayment is taken to be made on a straight line basis.

8. Based on cash availability, EMB annually provides surplus cash to LPCD’s capitalinjection from the road maintenance funds after all the debt is serviced. From 2000 onward, therate of provision of cash is assumed to be 23 percent of the net operating revenue.

9. EMB shows a strong financial performance in terms of operating efficiency and debtservice capacity as represented in the financial indicators. The seven expressways would bringEMB about 6.5 percent of real financial internal rate of return on EMB’s capital investment forthe period from 1996 to 2020. This indicates sustainable and sound investment management ofthe expressway network in the public sector.

1 Shenyang-Dalian, Shenyang Ring Road, Shenyang-Benxi-Nanfen (financed by the Asian Development Bank

[ADB]), Tieling-Shiping (ADB-financed), Shenyang-Tieling, Jinzhou-Shanhaiguan, and Shenyang-Jinzhou (ADB-financed).

30

Item Appraisal Actual Appraisal Actual Appraisal Actual Appraisal Actual Appraisal Revised Appraisal Revised Appraisal Revised Appraisal Revised Appraisal Revised Appraisal Revised

Income Statement Net Operating Revenue 88.8 455.6 197.5 534.6 210.5 622.3 224.4 952.7 376.8 1,170.3 441.3 1,422.7 516.4 1,493.9 568.9 1,568.5 630.1 1,647.0 693.1 1,729.3Working Expenses 48.6 140.9 93.1 154.1 97.8 174.7 102.7 293.7 112.0 328.4 123.9 396.4 133.7 415.4 144.4 433.6 155.9 451.4 172.2 469.9Depreciation Expenses 50.0 71.5 104.2 134.3 157.7 188.3 172.7 265.7 179.2 410.3 188.5 567.6 198.8 567.6 209.4 567.6 224.3 567.6 234.4 567.6Operating Expenses 98.6 212.4 197.3 288.4 255.5 363.0 275.4 559.5 291.2 738.7 312.4 964.0 332.5 983.0 353.8 1,001.2 380.2 1,019.0 406.6 1,037.5Operating Profit (Loss) (9.8) 243.2 0.2 246.2 (45.0) 259.3 (51.0) 393.3 85.6 431.6 128.9 458.8 183.9 510.9 215.1 567.4 249.9 628.0 286.5 691.8Net Financial Income (Expenses) 0.0 (20.4) 0.0 (60.8) (25.6) (84.1) (72.2) (145.9) (70.3) (211.7) (68.3) (413.4) (66.2) (449.0) (63.8) (425.4) (61.4) (401.4) (58.8) (378.8)Net Profit (Loss) before Forex Profit (Loss) (9.8) 222.8 0.2 185.4 (70.6) 175.1 (123.2) 247.4 15.3 219.9 60.6 45.4 117.7 61.8 151.3 142.0 188.5 226.6 227.7 313.1Extraordinary Profit (Loss) for the Year 0.0 0.0 0.0 0.0 0.0 0.0 0.0 7.6 0.0 24.4 0.0 35.9 0.0 44.9 0.0 (9.0) 0.0 (62.3) 0.0 (114.7)Net Profit (Loss) before distribution to LPCD (9.8) 222.8 0.2 185.4 (70.6) 175.1 (123.2) 255.0 15.3 244.2 60.6 81.3 117.7 106.7 151.3 133.0 188.5 164.4 227.7 198.3Distribution to LPCD 0.0 104.8 0.0 123.0 0.0 320.1 0.0 166.6 0.0 269.2 0.0 327.2 0.0 343.6 0.0 360.8 0.0 378.8 0.0 397.7Net Profit for the Year (9.8) 118.0 0.2 62.5 (70.6) (145.0) (123.2) 88.4 15.3 (24.9) 60.6 (245.9) 117.7 (236.9) 151.3 (227.8) 188.5 (214.5) 227.7 (199.4) Working Ratio 54.7% 30.9% 47.1% 28.8% 46.5% 28.1% 45.8% 30.8% 29.7% 28.1% 28.1% 27.9% 25.9% 27.8% 25.4% 27.6% 24.7% 27.4% 24.8% 27.2%Operating Ratio 111.0% 46.6% 99.9% 53.9% 121.4% 58.3% 122.7% 58.7% 77.3% 63.1% 70.8% 67.8% 64.4% 65.8% 62.2% 63.8% 60.3% 61.9% 58.7% 60.0% Balance SheetAssetsCurrent Assets Cash and Bank Deposits 49.2 124.7 33.0 266.5 16.2 229.1 64.7 352.2 92.4 486.3 95.2 386.6 115.9 234.3 160.0 138.3 149.0 132.3 265.0 214.4 Receivables 0 21.9 0 25.7 0 9.5 0 70.2 0 82.9 0 100.8 0 105.8 0 111.1 0 116.7 0 122.5 Inventory 0 1.6 0 1.7 0 2.2 0 3.9 0 4.3 0 4.7 0 4.8 0 4.9 0 5.0 0 5.1 Others 8.6 7.8 9.3 8.4 10.0 19.8 10.8 108.3 11.7 20.8 12.6 21.8 13.6 22.9 14.7 24.1 15.9 25.3 17.1 26.5Total Current Assets 57.8 156.0 42.3 302.3 26.2 260.6 75.5 534.6 104.1 594.3 107.8 513.9 129.5 367.8 174.7 278.4 164.9 279.3 282.1 368.6Fixed Assets Gross Fixed Assets 997.7 2,200.0 2,083.9 4,132.0 3,152.3 5,794.3 3,451.3 8,176.0 3,580.3 12,626.0 3,766.3 17,464.0 3,973.9 17,464.0 4,184.9 17,464.0 4,483.9 17,464.0 4,684.9 17,464.0 Less: Accumulated Depreciation 72.8 643.5 177.0 777.8 334.7 966.1 507.4 1,231.8 686.6 1,642.2 875.1 2,209.8 1,073.9 2,777.3 1,283.3 3,344.9 1,507.6 3,912.5 1,742.0 4,480.1 Net Fixed Assets 924.9 1,556.5 1,906.9 3,354.2 2,817.6 4,828.2 2,943.9 6,944.2 2,893.7 10,983.9 2,891.2 15,254.2 2,900.0 14,686.7 2,901.6 14,119.1 2,976.3 13,551.5 2,942.9 12,983.9Total Assets 982.7 1,712.5 1,949.2 3,656.5 2,843.8 5,088.8 3,019.4 7,478.8 2,997.8 11,578.1 2,999.0 15,768.1 3,029.5 15,054.5 3,076.3 14,397.4 3,141.2 13,830.8 3,225.0 13,352.5 Liabilities and Capital Current Liabilities 5.8 20.1 6.3 16.6 6.8 57.6 7.3 130.6 7.9 68.4 8.6 82.6 9.3 86.5 10.0 90.3 10.8 94.0 11.7 97.9ADB Loan (Loan 1388 and 1483) 306.0 342.4 654.8 575.6 994.1 1,668.0 1,065.5 2,107.9 1,034.8 2,455.9 1,002.1 2,391.6 967.3 2,323.3 930.1 2,248.9 890.5 2,167.7 848.3 2,079.1Other Loans 0 375.4 0 1,008.0 0 1,110.0 0 1,745.2 0 3,159.5 0 4,778.7 0 4,411.1 0 4,043.5 0 3,706.6 0 3,397.7Total Liabilities 311.8 737.9 661.1 1,600.2 1,000.9 2,835.5 1,072.8 3,983.7 1,042.7 5,683.8 1,010.7 7,252.9 976.6 6,821.0 940.1 6,382.8 901.3 5,968.3 860.0 5,574.7 Paid-In Capital 647.1 856.5 1,264.3 1,875.8 1,889.7 2,217.8 2,116.6 3,378.8 2,116.6 5,827.4 2,116.6 8,730.2 2,116.6 8,730.2 2,116.6 8,730.2 2,116.6 8,730.2 2,116.6 8,730.2 Retained Earnings 23.7 118.0 23.8 180.5 (46.8) 35.5 (170.0) 116.3 (161.6) 66.9 (128.3) (214.9) (63.6) (496.7) 19.6 (715.5) 123.3 (867.7) 248.5 (952.4)Total Capital 670.8 974.6 1,288.1 2,056.3 1,842.9 2,253.3 1,946.6 3,495.1 1,955.0 5,894.3 1,988.3 8,515.2 2,053.0 8,233.5 2,136.2 8,014.7 2,239.9 7,862.5 2,365.1 7,777.8Liabilities and Capital 982.7 1,712.5 1,949.2 3,656.5 2,843.8 5,088.8 3,019.4 7,478.8 2,997.8 11,578.1 2,999.0 15,768.1 3,029.5 15,054.5 3,076.3 14,397.4 3,141.2 13,830.8 3,225.0 13,352.5

Cash Flow Statement Sources of Funds Operating Income (9.8) 243.2 0.2 246.2 (45.0) 259.3 (51.0) 393.3 85.6 431.6 128.9 458.8 183.9 510.9 215.1 567.4 249.9 628.0 286.5 691.8 Depreciation 50.0 71.5 104.2 134.3 157.7 188.3 172.7 265.7 179.2 410.3 188.5 567.6 198.8 567.6 209.4 567.6 224.3 567.6 234.4 567.6 Cashflow from Operations 40.2 314.7 104.4 380.5 112.7 447.6 121.7 659.0 264.8 841.9 317.4 1,026.3 382.7 1,078.4 424.5 1,135.0 474.2 1,195.6 520.9 1,259.4 Increse of Capital 458.7 643.5 617.2 1,019.3 625.4 341.9 226.9 1,161.0 0.0 2,448.6 0.0 2,902.8 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Drawdown of loans 1388 and 1483 (ADB) 239.0 342.4 348.8 233.2 349.2 1,092.4 100.2 446.7 0.0 369.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Drawdown of loans (Others) 0 429.0 0 679.5 0 228.0 0 774.0 0 1,632.4 0 1,935.2 0 0.0 0 0.0 0 0.0 - 0.0Total Sources of Funds 737.9 1,729.7 1,070.4 2,312.5 1,087.3 2,109.9 448.8 3,040.8 264.8 5,291.9 317.4 5,864.3 382.7 1,078.4 424.5 1,135.0 474.2 1,195.6 520.9 1,259.4Application of Funds Capital Expenditure 750.2 1,415.0 1,086.2 1,932.0 1,068.4 1,662.3 299.0 2,381.8 129.0 4,450.0 186.0 4,838.0 207.6 0.0 211.0 0.0 299.0 0.0 201.0 0.0 Debt Service - ADB (Loan 1388 and 1483) 0.0 0.0 0.0 0.0 35.5 0.0 101.0 55.4 101.0 73.9 101.0 221.9 101.0 221.0 101.0 226.4 101.0 231.9 101.0 237.6 Debt Service - Others 0 74.0 0 107.7 0 210.1 0 236.0 0 377.0 0 571.8 0 663.9 0 641.1 0 587.7 - 538.7 Remittance to LPCD 0.0 104.8 0.1 123.0 0.0 320.1 0.0 166.6 6.9 269.2 27.3 327.2 53.0 343.6 68.1 360.8 84.8 378.8 102.5 397.7 Changes in Working Capital 0.2 11.2 0.2 8.0 0.2 (45.3) 0.3 77.8 0.3 (12.2) 0.3 5.2 0.3 2.3 0.3 2.8 0.4 3.2 0.4 3.3Total Application of Funds 750.4 1,605.0 1,086.5 2,170.7 1,104.1 2,147.3 400.3 2,917.7 237.2 5,157.8 314.6 5,964.0 361.9 1,230.7 380.4 1,231.0 485.2 1,201.5 404.9 1,177.3Net Cashflow for the Year (12.5) 124.7 (16.1) 141.8 (16.8) (37.4) 48.5 123.0 27.6 134.1 2.8 (99.7) 20.8 (152.3) 44.1 (96.0) (11.0) (5.9) 116.0 82.1Cash at the beginning 61.7 0.0 49.2 124.7 33.1 266.5 16.3 229.1 64.8 352.2 92.4 486.3 95.2 386.6 116.0 234.3 160.1 138.3 149.1 132.3Cash at the end 49.2 124.7 33.1 266.5 16.3 229.1 64.8 352.2 92.4 486.3 95.2 386.6 116.0 234.3 160.1 138.3 149.1 132.3 265.1 214.4

Debt Service Ratio — 4.3 — 3.5 3.2 2.1 1.2 2.3 2.6 1.9 3.1 1.3 3.8 1.2 4.2 1.3 4.7 1.5 5.2 1.6 — = not available, LPCD = Liaoning Provincial Communications Department.

Source: Staff estimates.

2001 2002 2003 2004

31

2005

Appendix 11, page 2

Table A11 : Projected Financial Statements of the Expressway Management Bureau(Y million)

1996 1997 1998 1999 2000

Appendix 12, page 1

FINANCIAL REEVALUATION

1. The financial internal rate of return (FIRR) of the Project expressway has beenreevaluated based on the actual capital and operation and maintenance (O&M) costs as well asrevenues from 1996 to 1999, and estimated incremental revenues and costs from 2000 onward,resulting from the project expressway operations. The major assumptions used in calculating theFIRR are as follows:

(i) The costs and revenues are in constant 2000 prices. They cover a 23-year periodfrom 1996 to 2018.

(ii) Capital costs include all incremental capital expenditures related to theconstruction and equipment of the project expressway, but exclude interest duringconstruction.

(iii) O&M costs include all incremental costs incurred by the operation of theexpressway, but exclude depreciation provisions.

(iv) Periodic maintenance for pavement resurfacing will take place after 10 years ofoperation at a cost of Y157 million.

(v) The residual value for the civil works and equipment is based on the averageeconomic asset life for different items.

(vi) Incremental revenues beyond 1999 are based on the revised traffic forecast andthe current toll rate, which is projected to remain constant in real terms.

2. The FIRR for the project expressway is estimated at 7.7 percent compared with 6.7percent at the time of appraisal (Table 1). The main reasons for the higher return were lowerconstruction costs and a higher traffic forecast. A sensitivity analysis of the financial return wascarried out to test the effects of possible unfavorable scenarios with respect to O&M costs andrevenues. The result shows that financial viability is not very sensitive to changes in the keyparameters. The FIRR is higher than the weighted average cost of capital, which is 7.3 percentestimated on the basis of the after-tax interest rate of the Asian Development Bank’s loan, thecoupon rate of the Government bond, and the provincial bond.

32

33

Appendix 12, page 2

(Y million)

Year

1996 769 (769) 1997 383 (383)

1998 460 9 60 (409)

1999 187 18 123 (81) 2000 55 19 132 58

2001 20 140 121 2002 21 150 129 2003 22 160 138 2004 23 171 148

2005 24 183 159

2006 25 195 170 2007 27 208 182 2008 185 222 37 2009 29 235 206 2010 31 249 219 2011 32 264 232 2012 34 279 245 2013 36 296 260 2014 37 313 276 2015 39 331 292 2016 41 351 310 2017 43 372 328 2018 (927) 45 393 1,275

Financial Internal Rate of Return 7.7

FIRRItem (percent)

1. Base Case 7.7%2. Increase in O&M Cost by 20 percent 7.4%3. Decrease in Toll Revenue by 20 percent 5.7%4. Combination of 2 and 3 5.3%

FIRR = financial internal rate of return, O&M = Operation and Maintenance.

Table 2: Sensitivity Analysis

Table 1: Financial Internal Rate of Return

OperationCapital and Toll NetCost Maintenance Revenue Cashflow

Appendix 13, page 1

ECONOMIC REEVALUATION

A. General

1. The economic reevaluation of the Project was conducted for the with- and without-Projectcases, following a similar methodology adopted during appraisal. In the without-Project scenario,the existing roads would be used until the practical capacities are exceeded. There would be anincreasing degree of traffic congestion and a mixture of fast- and slow-moving vehicles. In thewith-Project scenario, the new expressway with improved horizontal and vertical alignmentswould be extensively used for intercity traffic because of lower vehicle operating costs (VOCs),shorter travel time, higher vehicle speeds, and distance reductions. The existing roads would beused mostly by local traffic with slow-moving vehicles such as tractors, motorcycles, and bicycles.The economic reevaluation for the Project is based on the findings of the Project CompletionReview Mission that held discussion with officials of the Executing Agencies and localgovernment, carried out site visits in the Project area, and interviewed Project beneficiaries.

B. Costs

2. The economic costs of implementing the Project are estimated from the financial costs ofcivil works, equipment, land acquisition, consulting services, and training. To determine theappropriate economic costs, goods and services used in project implementation were divided intotradable and nontradable items. The costs of the tradables were expressed in border prices plustransport and handling costs, while the costs of nontradables were converted into economic costsby using the standard conversion factor of 0.926. Financial operation and maintenance costswere also adjusted by the same approach to obtain economic costs. The asphalt concrete roadsurface is assumed to have periodic maintenance take place during the operation of the Project.All economic costs are estimated in constant 2000 prices.

C. Benefits

3. The main sources of economic benefits from the Project are (i) savings in VOCs forvehicles that without the Project would have to travel on the existing road, (ii) time savings forpassenger and cargo traffic using the new expressway, and (iii) benefits from reduced congestionaccruing to traffic that remains on the existing roads after the opening of the expressway. Inestimating benefits, the financial benefits were converted to economic benefits by applying thesame approach as in the estimation of economic costs. Benefits from VOC savings account forabout 95 percent of the total benefits. The unit economic VOCs for passenger and freight traffic inthe with- and without-Project scenarios were estimated by using cost information in the People’sRepublic of China (PRC) as promulgated by the Ministry of Communications in its guidelines forestimating such costs. VOC savings will accrue from increasing vehicle speeds, improved roadsurfaces and alignment conditions, and reduced traffic congestion. Based on traffic projections forthe new expressway and existing parallel road (National Highway 102), the benefits of VOCsavings were calculated for increased average speed, and a better road surface for traffic divertedfrom the existing roads to the new expressway. VOC savings by vehicle type in yuan per vehicle-kilometer have been calculated as follows: small truck, 0.51; medium truck, 1.15; large truck,1.43; passenger car and medium bus, 0.87; and large bus, 1.60.

34

Appendix 13, page 2

4. Improved road geometric conditions provided by the Project will result in time savings.Time costs for cargo and passengers were estimated using the interest cost of the average cargovalue and average annual wage for passengers. About half of the passenger benefits wereincluded in the calculation as not all the passenger traffic will be involved in the economicactivities. These values were converted to a rate per minute and applied to the actual driving timesaved by using the new expressway. The time-saving benefits apply to both the traffic on the newexpressway and the remaining traffic on the existing road. The reduction of travel distance on thenew expressway also contributes to the time savings. The diversion of about 70 to 75 percent ofthe traffic from the existing road to the new expressway will relieve congestion and therebyenhance the operating performance of the remaining vehicles on the existing road. This diversionrate was estimated taking into account traffic volume on, and the capacity of, the projectexpressway and the existing road, savings in VOC and time costs as a result of the Project andtoll charges on the project expressway. The initial two years of operation showed the diversionrate of 63 percent and 71 percent, respectively, which is in line with that observed for the JilinExpressway (Siping-Changchun), an adjoining expressway section financed by the AsianDevelopment Bank (ADB)1 and the Shenyang-Dalian expressway in Liaoning Province. Thereduction of traffic congestion on the existing roads will generate VOC savings to vehiclesoperating on the existing roads. VOC savings for this traffic were calculated in the same manneras the VOC savings for the new expressway. Economic benefits will also accrue from theincreased economic activity and transport demand generated by the improved accessibilityoffered by the new expressway.

5. To ensure that the social and economic benefits from the project expressway areadequately extended to the rural communities in the hinterland of the expressway, eight feederroads2 totaling 203 km were upgraded under a poverty reduction component to provide increasedaccess for the poor to project facilities and services. This was the first PRC road project financedby ADB to include a feeder roads component, which specifically benefits the poor.3 Thesocioeconomic impact of the feeder roads component, complemented by the expresswayconstruction, has been significant (Table 1). During the four-year period from 1994 to 1998, thegross domestic product (GDP) of the seven counties served by these feeder roads increasedfrom Y7.2 billion to Y11.1 billion, equivalent to an annual growth rate of 11.5 percent, similar tothat for the PRC. While the GDP per capita increased during the same period at a similar growthrate, per capita rural income more than doubled from Y1,025 to Y2,238. Even allowing for otherfactors affecting economic development in the project area, the impact of the Project, includingexpressway construction and feeder roads upgrading, has been significant in improving incomesand living standards, and reducing poverty. The link between transport development and

��

1�Loan 1262-PRC: Jilin Expressway, for $126 million, approved on 9 November 1993. This project expressway was

opened to traffic in October 1996.2 The feeder roads upgrading component includes: (i) 13 km road from class 3 to class 1 at the Liaohaitun interchange,

(ii) 35 km road from class 3 to class 2 at the Diyunsuo interchange, (iii) 2 km road from class 3 to class 2 at theXiaolitai interchange, (iv) 3 km road from class 3 to class 2 at the Changtu interchange, (v) 20 km ShuangmiaoziRoad from class 4 to class 3, (vi) development of 68 km Kaiyuan-Xifeng road, (vii) 24 km Xifeng-Anmin road fromclass 4 to class 3, and (viii) 38 km Kangping-Laoyangwuobao road from class 3 to class 2.

3 The Project was processed together with Loan 1387-PRC: Hebei Expressway Project, for 220 million, approved on 28September 1996, which included a feeder roads component.

35

Appendix 13, page 3

poverty reduction is generally recognized and this is illustrated by a general trend observed inthe relationship between road development and income levels in each province (Figure 1).4 Thereis a positive relationship between the road density (km of road per km2 of land) and per capitaannual rural income of each province. The figure shows that the higher the road developmentstage, the higher the per capita rural income. These relationships are supported by theexperience from completed ADB-financed transport projects.5 The significant socioeconomicimpact of a rural road project is also confirmed by the experience of the World Bank.6

6. Project benefits include savings in road accident costs attributable to better horizontal andvertical alignments; removal of conflicts between motorized, nonmotorized, and pedestrian traffic;and safety facilities, such as guardrails, signing and marking features. Benefits due to safetyimprovements are difficult to estimate because of a lack of established methodology. However,evidence from the Shenyang-Dalian expressway indicates that the accident rate in terms of thenumber of accidents per million vehicle-kilometer was 0.50, less than half of that (1.23) for theparallel National Highway 202. Although accident rates on the existing road will be reducedbecause of the Project, accident cost savings have not been included in the economic analysis.

D. Economic Reevaluation

7. At appraisal, the economic internal rate of return (EIRR) was calculated at 21.1 percent.The EIRR has now been recalculated at 22.4 percent (Table 2). The increase in the EIRR is dueto the revised traffic forecast, higher than the appraisal estimate, resulting in larger benefitsaccruing to project beneficiaries. The EIRR was subjected to a sensitivity analysis to test theeffects of a 20 percent increase in the operation and maintenance cost, 20 percent decrease inbenefit, and a combination of the two scenarios. The Project continues to be economically viableunder these scenarios (Table 3). The switching value for benefits is unlikely to occur, given therecent high traffic development in the project area. The switching value for costs is also unlikely tooccur.

��

4 A simple regression analysis was carried out with the following tentative result (t-value in parenthesis): Rural Income= 1,223 (5.43) + 3,921 (5.65) * Road Density: R2 = 0.52. This is a preliminary attempt to examine the relationshipbetween road infrastructure and rural income level in PRC. The statistical significance of this analysis is limited and itsresult should be interpreted with care. The analysis will need to be strengthened by investigating other simultaneouslyinfluencing independent variables on poverty reduction, such as social expenditures, investment, and governmentgrants.

5 Experience from ADB-financed railway projects also indicate similar relationship. See PCR: PRC 26462: Jing-JiuRailway Technical Enhancement Project, April 2000, and PCR PRC 22276: Hefei-Jiujiang Railway Project, February2000.

6 World Bank. 1996. Kingdom of Morocco--Impact Evaluation Report: Socioeconomic Influence of Rural Roads.Washington, D.C.

36

37

Appendix 13, page 4

Kang Kai Chang Total/Indicators Year Liaoning Tieling Faku Ping Yuan Tu Xifen Tiefa Average

Population 1994 39,830 382 441 325 590 987 339 210 3,274 ('000s) 1998 41,570 382 442 330 568 1,016 342 228 3,308 0.3%

% change 4.4 - 0.2 1.5 (3.7) 2.9 0.9 8.6 1.0 GDP 1994 177,124 1,160 816 671 1,338 1,750 637 782 7,154 (million Yuan) 1998 388,170 1,285 1,764 938 1,776 2,675 852 1,785 11,075 11.5%

% change 119 11 116 40 33 53 34 128 55 GDP per capita 1994 4,447 3,037 1,850 2,065 2,268 1,773 1,879 3,724 2,371 (Yuan) 1998 9,333 3,364 3,991 2,842 3,127 2,633 2,491 7,829 3,754 12.2%

% change 110 11 116 38 38 48 33 110 58 Average Rural 1994 1,597 1,051 1,013 988 - 1,229 843 - 1,025 Income (Yuan) 1998 2,580 2,710 2,399 1,542 2,612 2,439 2,102 2,781 2,238 21.6%

% change 62 158 137 56 - 98 149 - 118

- = not applicable, GDP = gross domestic product.Source: LPCD's Statistical Yearbook,1999.

Average Annual Growth

Rate

Table 1: Socioeconomic Indicators of Counties Connected by Upgraded Feeder Roads

Figure 1: Road Development and Poverty in PRC, 1998

0

1000

2000

3000

4000

5000

6000

- 0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80

Road Density by Province (km of road per km2 of land)

Per

Cap

ita A

nnua

l Rur

al

Inco

me

by P

rovi

nce

(yua

n)

Source: 1999 China Statistical Yearbook and staff estimates.

38Appendix 13, page 5

Table 2: Economic Internal Rate of Return(Y million)

Costs BenefitsOperation Net

Year Capital and Total Total BenefitMaintenance New

RoadExisting

RoadDistance

Reduction

1996 685 685 (685)1997 341 341 (341)1998 409 8 417 74 8 45 6 134 (284)1999 166 16 182 185 21 112 16 334 1522000 49 17 66 198 22 120 17 357 2912001 18 18 211 24 128 18 381 3642002 19 19 226 26 137 19 408 3892003 19 19 241 27 147 21 435 4162004 20 20 257 29 157 22 465 4452005 21 21 275 31 167 23 497 4762006 23 23 294 33 179 25 531 5082007 24 24 314 36 191 27 567 5442008 165 165 335 38 204 29 606 4412009 26 26 355 40 216 30 642 6162010 27 27 377 43 229 32 680 6532011 29 29 399 45 242 34 721 6922012 30 30 423 48 257 36 764 7332013 32 32 448 51 272 38 809 7772014 33 33 474 54 288 40 857 8242015 35 35 502 57 305 43 908 8732016 37 37 532 60 324 45 962 9252017 38 38 564 64 343 48 1,019 9802018 (825) 40 (785) 597 68 363 51 1,079 1,864

EIRR = 22.4%NPV = 1,462

EIRR = Economic Internal Rate of Return, NPV = Net Present Value, VOC = Vehicle Operating Cost.

Table 3: Sensitivity Analysis

Change

(percent)aEIRR

(percent)

Economic Net

Present Value

(Y million)

Switching Value

(percent)b

1. Base Case - 22.4% 1,462 -2. Operation and + 20 22.2% 1,430 469.4 Maintenance Cost3. Benefit - 20 18.7% 889 25.54. Combination of 2 and 3 - 18.5% 858 -

a Change (percent) means percentage change in NPV / percentage change in variable tested.b Switching Value indicates the percentage increase in a cost item (or decline in a benefit item) required for the NPV to become zero.

Scenario

VOC SavingsPassenger

Time Savings