Technical Assistance Report

Project Number: 35354 September 2006

People’s Republic of China: Preparing the Lanzhou–Chongqing Railway Development Project

CURRENCY EQUIVALENTS (16 August 2006)

Currency Unit – yuan (CNY)

CNY1.00 = $0.1250 $1.00 = CNY8.0015

ABBREVIATIONS

ADB – Asian Development Bank EIA – environmental impact assessment MOR – Ministry of Railways PRC – People’s Republic of China TA – technical assistance

TECHNICAL ASSISTANCE CLASSIFICATION

Targeting Classification – General intervention Sector – Transport and communications Subsector – Railways Theme – Sustainable economic growth Subthemes – Promoting economic efficiency and enabling

markets, fostering physical infrastructure development

NOTES

In this report, “$” refers to US dollars.

Vice President C. Lawrence Greenwood, Jr., Operations Group 2 Director General H. S. Rao, East Asia Department (EARD) Director N. Rayner, Transport Division, EARD Mission leader M. Parkash, Senior Transport Specialist (Railways), EARD Team members S. Ferguson, Senior Resettlement Specialist, EARD A. Maxwell, Environment Specialist, EARD

to Urumqi

South China SeaGulf ofTonkin

BohaiSea

Hua

ng H

e(Y

ello

w R

iver

)

Chang Jiang

(Yangtze River)

Yuanping

Taiyuan

Yuci

Shijiazhuang

Tunilu

Linfen

Xiaoyi

YueshanHoumaXin Xiang

Jiaozuo

Hengshui

Fengteng

Dezhou

Tianjin

Huanghua

Shuoxian

Yanzhou

Heze Linyi

ZhengzhouTongguan

Xi'an

BaojiSanyuan

Xingping

Huxian

Yan’an North

Hancheng

Suide

Mucun

Shenmu North

Dongsheng

Zhongwei

Yulin

Gantang

Lanzhou

Xining

Yinchuan

Qinhuangdao

Bazhou

BEIJING

Datong

Baotou

Xinfeng

Jinan

Shijiusuo

Lianyungang

Qingdao

Yangpingguan

Baishun

Guangyuan

Tongbai Mountains

Dabie

Mou

ntains

HuaiyuanScenic Area

Qingling Tunnel

Dazhou

Wanzhou (Wanxian)Yichang

Jingmen

JingzhouYaqueling

Shimen

Dayong

AnkangGucheng

Xiangfan

Nanyang

Macheng

Huangchuan

Xinyang

Xiaolin

Lishan

Shangnan

XixiaDanjiangkou

Baofeng

Luoyang

Luohe

Zhoukouzhen

Wuhan

HuanyanAnlu

Changjiangfu

Changsha

Chongqing

Fuling

Changshou

Guiding

Pingzha

Luocheng

Guilin

Hechi

Sancha Liuzhou

HeshanLaibin

Sanshui

Longchuan

Huaihua

Zhuzhou

Henyang

Ji'an

Nanchang

Xiangtang

Sanjiangcheng

Yingtan

Yiyang

Nanping

Longyan

Dingnan

Ganzhou

Xiamen

Meizhou

Chaozhou

Zhangzhou

Zhakou

BeihaiZhanjiang

Hechun

Yunfu Yaogu

Zhuhai

Changping

Kowloon

Shenzhen

Santang

Loudi

Macao

Guangzhou Shantou

Ping Xiang

Nanning

Litang

Qinzhou

Fangcheng

Hepu

TieshanMaoming

Fuyang

Huainan

HefeiLu'an

Gaohepu

ShuchengWuhu

Anqing

Qimen

JiujiangJingdezhen

Yixing

Nanjing

Bengbu

Huaiyuan

Xinyi

Xuzhou

Shangqiu

Kunming Qujing

Zhanyi

Liupanshui

Baiguo

Hongguo

Weishe

Guiyang

Chengdu

Neijiang

Suining

Jiajiang

Yibin

GUIZHOU

GUANGXIGUANGDONG

JIANGXIHUNAN

ZHEJIANG

FUJIAN

HENAN

HUBEI

SHAANXI

GANSU

SHANDONG

HEBEI

BEIJING

TIANJIN

INNER MONGOLIA

JIANGSU

ANHUISICHUAN

CHONGQING

QINGHAI

YUNNAN

NINGXIASHANXI

HONG KONG SARMACAO SAR

National Capital

Provincial Capital

City/Town

Existing Railway

Project Railway

Planned Railway

Railway under Construction

Asian Development Bank-- Financed Project

River

Provincial Boundary

International Boundary

Boundaries are not necessarily authoritative.

LANZHOU CHONGQING RAILWAYDEVELOPMENT PROJECT

IN THEPEOPLE'S REPUBLIC OF CHINA

0 50 100 150

Kilometers

N

06-3219 HR

120 00'Eo

120 00'Eo

110 00'Eo

110 00'Eo

25 00'No

35 00'No

35 00'No

I. INTRODUCTION 1. The Government of the People’s Republic of China (PRC) requested technical assistance (TA) for preparing the Lanzhou–Chongqing Railway Development Project for Asian Development Bank (ADB) financing. ADB considered this request, and the Fact-Finding Mission (i) visited the project area in July 2006; (ii) carried out an initial poverty and social assessment and a rapid environmental assessment; and (iii) discussed technical and socioeconomic issues with representatives of the Government, provincial and local governments, and the Ministry of Railways (MOR). This paper is based on the understanding reached by the Government and the Mission on the impact, outcome, output, activities, implementation arrangements, cost, financing arrangements, and terms of reference for the TA. The TA is included in ADB's country assistance program for 2006.1

II. ISSUES A. Growth in the Railway Transportation Sector 2. From 1978, when market-oriented economic reforms were introduced, through to 2005, the PRC has experienced sustained rapid economic growth, which has resulted in an accordingly rapid increase in demand for transportation. The annual growth of passenger transport was 9% and freight transport grew at 7.6% during the 1978–2004 period. In 2005, road traffic accounted for 53.2% of total passenger-kilometers (km), followed by railways with 34.7%, civil aviation with 11.7%, and coastal and inland waterways with 0.4%. The modal split for freight ton-km was 61.3% for coastal and inland waterways, 26.5% for railways, 11.0% for roads, 1.1% for pipelines, and 0.1% for civil aviation. 3. From 1978 and 2005, railway freight grew from 535 billion ton-km to 2.07 trillion ton-km, equivalent to an annual growth rate of 5.1%. Meanwhile passenger traffic grew at 6.6% annually, increasing from 109 billion passenger-km to 606 billion passenger-km. The average lead for railway journeys increased from 134 km in 1978 to 527 km in 2005, which compares with growth in the average journey per passenger on roads from 35 km to 54 km over the same period. Despite such growth rates, railway capacity has lagged behind demand due to constraints in the railway system. Given rail’s important role in providing economical transportation, these constraints, if not removed, will continue to adversely effect efficient economic growth. Because of these concerns, the Government has adopted an aggressive plan to improve the railways and has planned network extensions and construction in underserved areas. B. Railway Strategy, Reforms, and Development Plan 4. The Government’s policy on railway development is focused on (i) removing constraints and expanding the system, (ii) encouraging construction of joint-venture local railways to promote development of local economies, (iii) improving efficiency by using new technology and modern management tools in planning and operation, (iv) reducing operating subsidies through appropriate pricing and commercialization of services, (v) initiating institutional and structural reforms to increase MOR’s autonomy and accountability, and (vi) encouraging nongovernment investment in infrastructure and related services. 5. The Tenth Five-Year Plan (2001–2005) identified transportation, including railway development, as a priority. It envisaged (i) constructing 6,000 km of new lines to provide access 1 The TA first appeared in ADB Business Opportunities on 13 June 2006.

2

to unserved areas, bringing the network length to a total of 75,000 route-km; (ii) providing 3,000 km of double lines and electrifying 5,000 km of key lines to increase capacity, and (iii) increasing operating speeds on 5,000 km, bringing the total length of high speed lines to 15,000 km. Total investment of CNY350 billion was planned for the railway sector, including CNY270 billion on capital construction and CNY80 billion for rolling stock. By the end of 2005, total investment of CNY308 billion for capital construction had been made for constructing 6,458 km of new lines, providing 3,275 km of double lines, and electrifying 6,259 km of track. During 2003–2007, investments for capital construction are expected to reach CNY450 billion. The 11th Five-Year Plan (2006–2010) continues to emphasize railway development. 6. In 2004, the state council approved the new railway development plan covering the period up to 2020. The plan seeks to expand the railway network from 72,000 km to 85,000 km by 2010 and to 100,000 km by 2020. Increasing train speed is identified as a major goal. Train speeds will be raised to more than 200 km per hour on the trunk network by 2020. Priority will be given to developing railways in unserved areas and regions lacking transport that have remained less developed. The route network length will increase by 16,000 km in the PRC’s western region to reach 40,000 km there by 2020. To improve operational efficiency, MOR has taken steps to separate passenger and freight trains on key rail corridors. C. ADB Strategy and External Assistance 7. ADB's operational strategy for the railway sector in the PRC focuses on (i) expanding the railway system in unserved, less developed, and poor areas; (ii) modernizing and increasing the capacity of key routes of the national railway system to improve transport efficiency; (iii) commercializing railway operations to sustain efficient operations; and (iv) increasing rail’s competitiveness in the transport sector through restructuring and policy reform. The strategy will continue to focus on railway development in underserved areas in poor interior provinces in order to link lower-income regions with growth centers. That will facilitate pro-poor growth, a prerequisite for reducing poverty. The policy issues addressed in the railway sector include corporatization, marketing and business development, and tariff setting with improved cost recovery. ADB has enhanced policy dialogue with MOR and is providing MOR technical assistance support for policy reforms.2 This consultation will continue to further the reforms in the sector. 8. Japan is the major source of external financing in the PRC railway sector, followed by ADB and the World Bank. Since 1979, Japan has provided about Y558 billion for 15 railway projects to expand rail transportation capacity. ADB has focused on developing railways in less-developed inland provinces to promote growth and reduce poverty. ADB provided 13 loans, totaling about $2.6 billion, to finance construction of about 1,921 km of provincial railways and 4,597 km of national railway projects. The World Bank has provided 10 loans since 1984, totaling over $2.4 billion, for nine national railway projects to expand railway capacity on high-priority corridors, modernize system–wide technology, and strengthen institutional capabilities, as well as for one local railway project. D. Project 9. The project involves constructing 817 km of class I double-track electrified railway line and 21 new railway stations in the hilly and mountainous area in Gansu, Shaanxi, and Sichuan

2 ADB. 2004. Technical Assistance to the People’s Republic of China for World Trade Organization-Policy Reform

Support to the Ministry of Railways. Manila.

3

provinces, as well as Chongqing municipality. The railway will link the main city of Lanzhou in the northwest to Chongqing in southwest PRC (see map). The project impact area includes 13 counties and cities with a total population of about 15 million in Dingxi, Guangyuan, Hechuan, Lanzhou, Longnan, and Nanchong cities. The total rural population is about 10.5 million, of which about 1.2 million people (11.6%) live below the poverty line, including those in 2,240 poverty villages that do not have access to highways, electricity, telephone service, or potable water. 10. Most people living in the area work in agriculture characterized by a low level of productivity. Despite the area’s rich natural resources and good tourist potential, the people have remained largely poor and cut off from mainstream development due to a lack of transportation. No expressway or railway connects this region. The existing class II road passes through difficult terrain, has limited passing capacity, and is in poor condition. The railway link will provide the shortest north–south rail route from Xinjiang, Baoji and Lanzhou to Chongqing and Kunming. The line will also connect central Asia (Alashankou–Xinjiang–Lanzhou) with southeast Asia (Chongqing–Guiyang-Kunming–Hekou). 11. The project will help develop the railroad network in an unserved area and enhance pro-poor economic growth. It is included as a priority project in MOR’s 11th Five-Year Plan, as well as the railway development plan, and the project will support the Government’s western region development strategy. The railway will facilitate economic development and integration of the poor western region and is expected to stimulate industrial and natural resources development as well as tourism and related industries. The railway will, in the construction and operation phases, increase local people’s access to markets and social services and give them opportunity to improve their living standards. Completed and ongoing ADB-financed railway projects show that such projects create jobs in construction and in loading and unloading operations, as well as such other income-generating activities as the supply of materials, food and small services around construction sites.3 The lower transportation costs after project completion will make goods and services available at more economical prices to the people living in the area, including the poor, and provide them with opportunities to sell their produce to broader markets. Most people living in the project area have not traveled beyond the nearest town due to high transport fares. The railway will offer them more affordable, reliable, and punctual transport than is currently available. The project will improve the living standards of local people and influence all aspects of their daily lives, directly or indirectly, in a positive manner. The project is consistent with ADB’s country operational strategy and will support the Government’s strategic policy objective of greater developmental emphasis on poor, interior, and underserved areas of the PRC by improving transportation linkage with growth centers. 12. The project envisages the construction of an electrified double-track railway line with subgrades, bridges, and tunnels. Because of the hilly topography along the Lanzhou–Chongqing railway route, tunnels and bridges will comprise 75% of the route’s length. 13. The project will be undertaken as a joint venture between MOR and the Chongqing, Gansu, and Sichuan provincial or municipal governments and will be implemented by MOR. A feasibility study is being prepared with cost estimates that reflect current materials and construction prices and traffic forecasts. MOR advised ADB that the project proposal is 3 In the ADB-financed Daxian–Waxian Railway Project, the average net income along the proposed alignment of the

railway increased by 25% in real terms during the construction period. The average real increase in Chongqing for the same period was approximately 10%. Education is often the first spending priority for families. Because of an improved cash position, some poor people are reportedly no longer indebted for school tuition for the next generation. (ADB. 1996. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the Republic of China for Daxian–Waxian Railway Project. Manila. Loan 1439, approved in 4 June 1996.)

4

expected to be approved by the National Development Reforms Commission by September 2006. The feasibility study, environmental impact assessment (EIA), and draft resettlement plan will be submitted to ADB by September 2006. The provincial and local governments of Chongqing, Gansu, and Sichuan provinces confirmed that all the affected counties have experience in implementing resettlement projects. Resettlement under the project will be implemented as per the national laws, provincial regulations and ADB policy on involuntary resettlement.4

III. THE TECHNICAL ASSISTANCE A. Impact and Outcome

14. The TA aims to help develop an efficient, reliable, and affordable railway transport system in Chongqing municipality and in Gansu and Sichuan provinces. The TA will (i) help the Government in reviewing and strengthening the project feasibility study, EIA, plan for resettlement, and related studies to meet ADB's requirements for possible financing; (ii) identify policy measures and institutional development needs that will improve railway operational efficiency and management and ensure financial sustainability of operations; and (iii) identify the social dimensions to be incorporated into the project design, including measures to enhance social development and reduce poverty in the project area. The outcome will be the design of a project suitable for ADB financing. The TA framework is in Appendix 1. B. Methodology and Key Activities 15. The work under the TA will: (i) review and strengthen the feasibility study to meet ADB requirements for: (a) technical aspects related to construction and operation; (b) economic and financial analyses, including to review the traffic forecast and financial performance of project facilities operations; and (c) financial management assessment, including to review budgetary and planning control, financial and management accounting, and internal control and audit systems; (ii) develop a set of measurable performance indicators, including for socioeconomic and poverty dimensions, and a sustainable mechanism for monitoring during and beyond the construction stage; (iii) recommend policy measures that will improve railway operating efficiency and management and assess specific institutional development needs in order to commercially operate the project facilities and ensure financial sustainability; (iv) review the potential for private sector participation in construction, provision of services, and tourism development; (v) review and update the EIA report and prepare a summary EIA with appropriate environmental monitoring and management plans; (vi) review and refine the resettlement plan so that involuntary resettlement will be consistent with ADB’s policy and guidelines; (vii) review the initial poverty and social assessment; carry out a detailed poverty and social analysis, including a baseline socioeconomic profile of the population living in the project area; and prepare relevant mitigation and enhancement measures (Appendix 2); and (viii) undertake a distribution analysis of the project and associated developments on poverty reduction. 16. The TA’s key activities are field surveys; document review; data analysis; and consultations with stakeholders that include government officials, project beneficiaries, and such affected people as minority groups, women, and the poor.

4 ADB. 1995. ADB's Involuntary Resettlement. Manila.

5

C. Cost and Financing 17. The cost of the TA is estimated at $670,000 equivalent, of which the Government requested that ADB finance $500,000 (Appendix 3). The TA will be financed on a grant basis by ADB’s TA funding program. MOR will provide the remaining $170,000 equivalent in local currency cost for counterpart staff, office facilities, support services, and local communications. The Government and MOR have been informed that approval of the TA does not commit ADB to finance any ensuing project. D. Implementation Arrangements 18. The TA will require about 39 person-months of consulting services (15 international and about 24 national) spread over 5 months, including fieldwork. ADB will engage consultants in accordance with ADB’s Guidelines on the Use of Consultants (2005). A consulting firm will be selected and engaged following the quality and cost-based selection method, and simplified technical proposals will be required. The international consultants will have expertise in transport economics, traffic forecasting, railway engineering and operation, institution building, resettlement, and social and poverty analysis. These consultants will also have expertise in financial analysis, financial management, and environmental sciences. Expertise required from national consultants will be in transport economics, railway engineering and operation, and resettlement and socioeconomics. Environmental engineering expertise will also be needed. Appendix 4 provides outline terms of reference for the consulting services. The consultants will procure equipment in accordance with ADB’s Procurement Guidelines (2006), and this will be handed over to the Executing Agency upon completing the TA. 19. The TA is expected to begin in November 2006 and be completed by May 2007. MOR, as the Executing Agency, will be responsible for supervising and monitoring TA activities. The Government and MOR have agreed to provide the assistance required for implementing the TA. MOR will make available (i) all relevant reports, studies, and information; (ii) suitable office accommodation and appropriate and qualified counterpart staff; (iii) local transport facilities needed to visit the site; and (iv) any other assistance that the consultants may reasonably request, including liaison with the Government and local authorities.

IV. THE PRESIDENT'S DECISION 20. The President, acting under the authority delegated by the Board, has approved the provision of technical assistance not exceeding the equivalent of $500,000 on a grant basis to the Government of the People’s Republic of China for preparing the Lanzhou–Chongqing Railway Development Project, and hereby reports this action to the Board.

6 Appendix 1

DESIGN AND MONITORING FRAMEWORK

Design Summary

Performance Targets/Indicators

Data Sources/Reporting

Mechanisms

Assumptions and Risks

Impact An efficient, reliable, and affordable railway transport system is developed in the region.

Increase in passenger and freight traffic volumes in 2014 and 2024 Reduction in travel time in 2014 Reduction of cost of travel in 2014 Reduction in accident rate on the existing road in 2014 Number of shops, tourist centers, hotels, and businesses established in the vicinities of stations by 2014 and 2024

Ministry of Railways (MOR) statistics and operating data before and after the project Progress reports Project administration missions and project completion report Post-project evaluation surveys and reports from Executing Agency Local government statistics

Assumptions • Forecast economic

growth rates are realistic and achievable.

• Traffic forecasts for the

Lanzhou–Chongqing Railway will be realized.

• Passengers currently

using other transport modes will divert to the Lanzhou–Chongqing Railway.

• Local governments will

be committed to local area development.

Outcome Project design and feasibility study improved to a level suitable for Asian Development Bank (ADB) financing and agreed by ADB and Government.

Memorandum of understanding signed by Government and ADB during appraisal mission of October 2007.

Memorandum of understanding

Assumptions • Government will be

willing to address necessary changes in priorities.

• Government will obtain

necessary additional sources of funding.

Outputs 1. Technical assessments completed

Inception report submitted to Government and ADB by December 2006.

ADB document registration Government document registration

Assumption • Effective stakeholder

participation and ownership developed.

Appendix 1 7

2. Project design requirements accomplished.

Summary environmental impact assessment, poverty and social analysis, resettlement plan, and ethnic minorities development plan, if required, submitted to Government and ADB by February 2007. Draft final report submitted to Government and ADB by March 2007.

Risks • Restricted availability

and access to information and government personnel

• Restricted access to

geographical sites

Activities with Milestones 1.1 Analyze transport demand in the region (by March 2007). 1.2 Assess adequacy of railway infrastructure (by March 2007). 1.3 Review technical aspects related to railway construction and operation (by March 2007). 1.4. Develop a set of verifiable performance indicators, including for socioeconomic and poverty dimensions (by March 2007). 1.5 Conduct consultations with MOR, World Bank and other funding agencies to recommend policy reform measures and institutional development needs (by March 2007). 1.6 Conduct surveys, discussions, and meetings with private investors to explore opportunities for private sector participation (by March 2007). 2.1 Carry out consultations with stakeholders, including government officials; project beneficiaries; and such affected people as ethnic minority groups, women, and the poor (January–February 2007). 2.2 Carry out social and poverty assessment (by February 2007). 2.3 Complete baseline survey (by February 2007). 2.4 Carry out financial and economic analysis (by March 2007). 2.5 Carry out institutional analysis (by March 2007). 2.6 Complete summary environmental impact assessment (by February 2007). 2.7 Prepare resettlement plan and ethnic minorities development plan, if required (by February 2007). 2.8 Finalize project design and monitoring framework (by March 2007).

Inputs • 15 person-months of

international and 24 person-months of national consultant services.

• ADB: $500,000 • Government:

$170,000

8 Appendix 2

INITIAL POVERTY AND SOCIAL ANALYSIS

A. Linkages to the Country Poverty Analysis

Is the sector identified as a national priority in country poverty analysis?

Yes

No

Is the sector identified as a national priority in country poverty partnership agreement?

Yes

No

Contribution of the sector or subsector to reduce poverty in the People’s Republic of China: The transport sector and railway subsector contribute to poverty reduction directly through improved access to markets, employment opportunities, and social services; and indirectly by stimulating economic development.

B. Poverty Analysis Targeting Classification: General intervention

What type of poverty analysis is needed?

Poverty analysis will be carried out to assess the impact of the new railway on the existing railway services (passenger and freight) that currently serve the poor. The analysis will be carried out in accordance with Asian Development Bank’s handbooks for poverty and social analysisa and for integrating poverty impact into the economic analysis of a project.b

C. Participation Process

Is there a stakeholder analysis? Yes No The stakeholder analysis will (i) identify the key stakeholders that will affect or be affected by the project; (ii) identify all the key institutional stakeholders, including those within the government and outside government that have stakes in the project; (iii) analyze the characteristics, interests, and influence of key stakeholders; and (iv) incorporate stakeholders’ needs and priorities into the project design. Is there a participation strategy? Yes No The participation strategy will (i) be based on the stakeholder analysis, prepare a participation action plan or participatory strategy for stakeholder involvement in project implementation and monitoring; and (ii) examine ways of increasing public access to information and making government institutions more accountable for goods and services they have been tasked to provide.

D. Gender Development

Strategy to maximize impacts on women: The railway project in general will provide equal opportunity to women, and experience indicates that some 15%–25% of unskilled jobs are taken by women. The same policies will be included in the project design.

Has an output been prepared? Yes No

Appendix 2 9

E. Social Safeguards and Other Social Risks Item

Significant/

Not Significant/ None

Strategy to Address Issues

Plan Required

Resettlement

Significant

Not significant

None

A resettlement plan will be prepared in accordance with the Land Administration Law and Asian Development Bank Involuntary Resettlement policy. The plan will be disclosed to the public and affected people. Internal and external monitoring arrangements will be put in place.

Full

Short

None

Affordability

Significant

Not significant

None

The proposed tariffs will be lower than current service charges, as rail travel is considerably less costly than road and other modes. Hence, travel will be made more affordable.

Yes

No

Labor

Significant

Not significant

None

In the short term, the project will create construction jobs; in the long term, it will create jobs through economic multiplier effects. The project will not have adverse impact on labor issues.

Yes

No

Indigenous Peoples

Significant

Not significant

None

The main minority nationality in the project area is Hui, with smaller percentages of Zang and Miao. They will benefit equally from the project. If any groups are adversely affected by land acquisition or housing displacement, this will be addressed in the resettlement plan. Some special measures may need to be taken to enhance the benefits to displaced persons.

Yes

No

Other Risks and/or Vulnerabilities

Significant

Not significant

None

The railway will be more affordable than other existing modes of transportation, and no negative impacts of Asian Development Bank intervention are likely. The risk of HIV/AIDS and other sexually transmitted diseases will be assessed during the technical assistance. Prevention measures will be prepared.

Yes

No

HIV/AIDS = human immunodeficiency virus/acquired immunodeficiency syndrome aADB. 2001. Handbook on Poverty and Social Analysis: A Working Document. Manila. bADB. 2001. Handbook for Integrating Poverty Impact Assessment in the Economic Analysis of Projects. Manila.

10 Appendix 3

COST ESTIMATES AND FINANCING PLAN ($ '000)

Total Item Cost A. Asian Development Bank (ADB) Financinga 1. Consultants a. Remuneration and Per Diem i. International Consultants 280 ii. National Consultants 80 b. International and Local Travel 33 c. Reports and Communications 5 2. Equipmentb 8 3. Training, Seminars, and Conferences 2 4. Surveys 25 5. Miscellaneous Administration and Support Costs 2 6. Representative for Contract Negotiations 6 7. Contingencies 59 Subtotal (A) 500 B. Government Financing 1. Office Accommodation and Transport 60 2. Remuneration and Per Diem of Counterpart Staff 70 3. Others 40 Subtotal (B) 170 Total 670 a Financed by ADB’s technical assistance funding program. b Including computer hardware and software, photocopier, facsimile machine, and

other equipment to be procured under the consultant’s contract, in accordance with procedures acceptable to ADB, and whose ownership will be transferred to the Government.

Source: ADB estimates.

Appendix 4 11

OUTLINE TERMS OF REFERENCE FOR CONSULTANTS

A. Scope of Services 1. The scope of the technical assistance (TA) includes (i) railway engineering and operations; (ii) economic and financial analyses; (iii) policy measures to improve operational efficiency and management; (iv) an environmental impact assessment (EIA) report with appropriate environmental monitoring and management plans; (v) a resettlement plan; and (vi) poverty and social analysis that includes an ethnic minority development plan, if necessary. B. Terms of Reference 2. The tasks under the TA will include, but will not necessarily be limited to, the following: 3. Railway Engineering and Operations. The consultant will have the following tasks:

(i) Review the Government’s planning for development of a transportation network

and other infrastructure in the project area, including the building of the Lanzhou–Chongqing Railway, the complementary road network, link and access roads to the hinterland, other infrastructure, and social development programs. Document details of projects and programs, giving estimated costs, funding sources, implementing agencies, schedules, and benefits envisaged.

(ii) Analyze project and alignment alternatives to determine if the least-cost solution is proposed while minimizing environmental impacts and involuntary resettlement. Review the capacity of connecting railway lines, identify network constraints that may affect traffic to and from the Lanzhou–Chongqing Railway, and review plans for their mitigation.

(iii) Review all technical aspects presented in the feasibility study and preliminary designs, including safety aspects during construction and operation and maintainability of the new railway line after its completion.

(iv) Review and update the cost estimates on the basis of current prices of goods and services, including the costs of environmental mitigation measures and monitoring, land acquisition, and resettlement. Revised base cost estimates should be provided to the financial analyst for computing price contingencies and interest and other charges during construction. Prepare a list of contract packages (with justification and estimated contract amount) for Asian Development Bank (ADB) financing that may be procured using international competitive bidding procedures, in accordance with ADB’s Procurement Guidelines.1

(v) Review the implementation arrangements and organizational setup for project management and maintaining project accounts and make recommendations for any needed changes. Prepare an implementation schedule and a schedule for disbursement of loan funds and counterpart funds.

(vi) Review the requirements for tourism development, including provision of facilities and operational arrangements. Assess which of these could be offered to the public and/or private sector on a profit-sharing basis to facilitate tourism development in the project area.

(vii) Prepare a design and monitoring framework that outlines the impact, outcome, outputs, activities, and inputs under the project in accordance with staff instructions on the use of logical frameworks for ADB-assisted loans and TA.

1 ADB. 2006. Procurement Guidelines. Manila.

12 Appendix 4

4. Economic Analysis. The consultant will have the following tasks:

(i) Include in the economic analysis (a) an economic analysis of the project as further described in this section; (b) an economic analysis of the program for development of associated transport infrastructure, such as roads and other infrastructure that would help maximize poverty reduction; (c) an economic analysis taking into account items (a) and (b) combined; (d) a distribution analysis; and (e) an alternative analysis to identify the least-cost solution. All economic analyses should be done in accordance with ADB’s guidelines on economic analysis of projects, and handbooks relating to poverty and social analysis.2

(ii) Review the project rationale based on a problem diagnosis and provide a basis for ADB involvement. Assess the relevance and priority of the project to the transport sector strategy as well as ADB’s and the Government’s developmental strategies and the Millennium Development Goals.

(iii) Assess service differentiation with road transportation in terms of types of transport services demanded, bus and truck service complementarity, and competition. Review the demand for transport of goods by the railway based on origin–destination data and traffic forecast by commodity. Review the demand for passenger traffic based on an origin–destination survey. Develop a passenger profile for the railway. The forecast of freight and passengers should be subdivided into categories to show the source of the traffic and enable the benefits of the railway and modal competition to be estimated. The forecast should be subdivided into traffic diverted from roads, traffic diverted from other modes, and traffic generated. The traffic forecast should cover a period of 25 years from the start of project operation, under two scenarios: (a) a base-case scenario; and (b) a low-traffic scenario that takes into consideration experience gained and lessons learned with similar projects in the past, in which the actual traffic was less than the forecasts, due to delays in the implementation of envisaged developmental projects that were expected to provide traffic for the project and/or any other reasons.

(iv) Identify all project costs and benefits while comparing with- and without-project situations. Estimate the economic internal rate of return on the basis of nonincremental and incremental economic benefits and economic costs (including economic capital, operation, and maintenance costs) in constant economic prices. In an economic analysis, evaluate the environmental aspects and analyze poverty reduction benefits envisaged under the project. Include in the economic analysis for the period during project operation the effects on poverty reduction due to provision of goods at affordable prices due to more economic and lower-cost rail transportation, increased prices of goods received by rural producers at the markets in urban areas, and less costly personal travel. Also include the incremental benefits related to the project.

(v) Undertake a sensitivity analysis to assess the effects of adverse changes in key assumptions that underline the economic analysis, including but not limited to project costs, traffic, and implementation delays. Express the results as a sensitivity indicator and a switching value. If the project is sensitive to the value of a key variable, recommend measures to minimize the risk. Carry out a quantitative risk analysis in accordance with ADB’s guidelines for integrating risk analysis into economic analysis.3

2 ADB. 1997. Guidelines for the Economic Analysis of Projects. Manila; ADB. 2001. Handbook on Poverty and Social

Analysis: A Working Document. Manila; and ADB. 2001. Handbook for Integrating Poverty Impact Assessment in the Economic Analysis of Projects. Manila.

3 ADB. 2002. Handbook for Integrating Risk Analysis in the Economic Analysis of Projects. Manila.

Appendix 4 13

(vi) Develop for project monitoring, together with item (i), a set of verifiable and monitored performance indicators, including operational, financial, environmental, socioeconomic, and poverty reduction parameters. Specify baseline targets for the socioeconomic and poverty indicators and a sustainable mechanism for monitoring during and beyond the construction stage. Assess the developmental impact of the project while focusing on economic activities generated. Draw up a project performance management system.

5. Financial and Institutional. The consultant will have the following tasks:

(i) Undertake a financial analysis of the project as per ADB’s guidelines for financial governance and management of investment projects,4 including a financial return at constant prices and financial projections over 10 years at current prices. Calculate the financial internal rate of return and the weighted average cost of capital for comparison with the financial internal rate of return. Conduct a sensitivity analysis, including the effects of a change in the exchange rate. Prepare the financial projections for the existing railway administration in the project area on a pro forma basis.

(ii) Undertake a sustainability analysis looking at both financial implications and implementation capacity. This should discuss any policy instruments to be installed so as to ensure the project’s sustainability, including tariffs, maintenance, etc.

(iii) Review the current status of private sector participation in the railway sector. Assess the potential for private sector participation in constructing project facilities and providing services for operation and tourism development, and assess the financial impact.

(iv) Review the status of reforms in the railway sector (since 1985). Document the status of their implementation, achievements and lessons learned, and impact of reforms on the operational efficiency and profitability of the national railway and the project. Review the 11th Five-Year Plan and the reforms that are proposed to be implemented in the future, together with their likely impacts. The status should be reflected in a matrix, together with supporting background and description.

(v) Review and recommend areas for reform in the railway sector that may be pursued under the project. Review the organizational structure for the proposed Lanzhou–Chongqing Railway and identify specific areas where support is required for institutional development of joint-venture railways.

6. Environmental. The consultant’s tasks are described below:

(i) The Ministry of Railways (MOR) has contracted the Second and Fourth Survey

and Design Institute to carry out investigations and prepare the draft EIA report prior to commencement of the TA. The TA consultant will (a) review the draft EIA to ensure it conforms to ADB’s environment policy and assessment guidelines, as well as to its Environmental Review Procedures;5 (b) assist the Executing Agency in carrying out further investigations and analyses, as required, and in finalizing the environmental impact statement, management plan, and monitoring plan by incorporating the comments from ADB and provincial environmental protection bureaus; and (c) prepare the summary EIA, an environment management plan, and supplement to the EIA, if required.

(ii) Based on a preliminary environmental investigation, it appears that the major issues to be assessed in the EIA include impacts and issues relating to (a) ecological resources, (b) cultural heritage sites and tourism (c) soil erosion, (d)

4 ADB. 2002. Guidelines for the Financial Governance and Management of Investment Projects Financed by ADB.

Manila. 5 ADB. 2002. Environmental Policy. Manila; ADB. 2003. Environmental Assessment Guidelines. Manila.

14 Appendix 4

noise and air quality, (e) spills of hazardous or toxic chemicals, and (f) local community disturbances from construction activity. The EIA will include detailed plans for (a) protecting sensitive ecological areas, (b) protecting or enhancing environmental resources that promote tourism, and (c) mitigating environmental impacts from construction activities.

(iii) The consultant will (a) determine costs of the proposed environmental measures, (b) appraise the level of cost against expected environmental benefits, (c) assist the Executing Agency in incorporating appropriate mitigating measures into the project design, (d) prepare contractor specifications for environmental management and monitoring, and (e) prepare terms of reference and a budget for independent environmental monitoring and evaluation. The consultant will assist the Executing Agency with public consultation and EIA preparation.

7. Poverty and Social Analysis. The consultant will have the following tasks:

(i) Prepare socioeconomic and poverty profiles for the areas (counties and

townships) to be served by the railway and local roads. Collect data through statistical records, field surveys when and where needed, key informant interviews (e.g., officials of local governments, women’s federation, business associations, community groups, and others) and participatory community appraisal techniques. Conduct surveys to develop a profile of transport services and costs that are currently available in the project areas and assess whether accessibility is affordable for low-income groups. This information will also serve as a baseline for performance monitoring.

(ii) Conduct, based on the initial poverty and social assessment, a poverty and social analysis in accordance with ADB’s Handbook on Poverty and Social Analysis and Handbook for Integrating Poverty Impact Assessment in the Economic Analysis of Projects. Assess how the proposed construction of the railway will help improve people’s incomes and livelihoods. In collaboration with the economist and resettlement specialist, estimate (a) the number of project beneficiaries by area, occupation, and income level (poor, low, medium, and high); and (b) the number of adversely affected people by type of impact. Recommend measures to enhance benefits and minimize adverse impacts, particularly for the poor and ethnic minorities.

(iii) Assess other social issues, including those related to ethnic minorities and gender and vulnerable groups and recommend appropriate measures to address impacts and promote development opportunities during construction and operation and maintenance of the road. If the social analysis indicates that the project will affect ethnic minorities, significantly or adversely, prepare a minority people’s development plan, as set out in ADB’s Policy on Indigenous Peoples.6 If the project is gender sensitive, formulate strategies and an action plan to enhance project benefits and improve the gender balance.

(iv) Assist the MOR in establishing consultation and participatory processes that will continue throughout project design, construction, and operation. Identify stakeholders and representatives to be consulted for incorporating their needs and demands into the project. Prepare a public participation and consultation status report and plan for project implementation. This consultation plan could be combined with the environmental and resettlement aspects.

(v) Review local government policies, strategies, and programs for poverty reduction and regional economic development as these pertain to the project areas. Analyze how the proposed railway development project will complement government development programs. Consult with local governments to identify development initiatives that could complement the railway project, particularly

6 ADB. 1998. Policy on Indigenous Peoples. Manila.

Appendix 4 15

those targeted at the poor and ethnic minorities, and identify possible sources of funding for these initiatives.

(vi) Develop, together with the economist, a set of verifiable and easily monitored socioeconomic and poverty indicators. Specify baseline targets and assist with preparing the performance monitoring and evaluation systems, including a reporting format and how to measure indicators during and beyond the construction stage.

8. Resettlement. The consultant will have the following tasks:

(i) Review the draft resettlement plan and prepare modifications as required to

comply with ADB’s involuntary resettlement policy7 and the operations manual issued in 2003 in relation to involuntary resettlement. Conduct resettlement household surveys to ensure adequate understanding of social impacts. The resettlement plan must include a village-level impact assessment of project-affected people, land, assets, and occupations. Prepare gender disaggregated socioeconomic data on affected persons, identify and discuss specific socioeconomic impacts to women and provide recommendations on how to mitigate these.

(ii) Define categories for impact and compensation eligibility of affected people and prepare an entitlements matrix covering compensation and other assistance for all types of impacts in order to achieve full replacement for lost assets, income, and livelihoods. Prepare, for seriously affected villages, village economic rehabilitation plans that will restore incomes of affected people and host people. Identify specific measures for severely affected people, poor people, ethnic minorities, affected women, or other vulnerable households.

(iii) Assist the Executing Agency and relevant local government officials in initiating and expanding consultation with affected communities, local leaders, and local stakeholders who may be opposed to the project. Prepare a consultation plan for the Executing Agency and a format for documenting consultation with affected people. Assist the Executing Agency in preparing a resettlement information booklet, and distribute this to all affected villages and households.

(iv) Assess and justify that (a) the compensation standards are based on replacement value, and (b) the overall resettlement budget is sufficient to acquire the land and implement the resettlement plan based on the proposed entitlements and rehabilitation plans.

(v) Review the organizational structure and capacity for resettlement implementation and recommend improvements and actions required before the start of land acquisition. Assist MOR to prepare a detailed resettlement implementation schedule and a plan for external and internal monitoring and evaluation.

9. Schedule and Reporting Requirements. The consultant will have the following tasks: 10. Submit (i) an inception report (within 3 weeks of starting work) and a preliminary social analysis (within 6 weeks); (ii) a brief progress report (each month); (iii) a draft summary EIA, together with the EIA and a supplement to the EIA, a draft resettlement plan, as well as an ethnic minorities development plan, if necessary; and poverty and social analysis (within 3 months of starting work); (iv) the draft final report (within 4 months of starting work), which will be discussed at a tripartite meeting involving the Government, ADB, and the consultant; and (v) the final report (within 2 weeks of the tripartite meeting). All reports will be submitted to ADB in the English language (three copies) and to the Government and Ministry of Railways in the English and the Chinese languages (three copies of each).

7 ADB. 1995. Involuntary Resettlement, Manila.