Report and Recommendation of the President to the Board of Directors

Project Number: 39153 November 2007

Proposed Loan People’s Republic of China: Railway Safety Enhancement Project

CURRENCY EQUIVALENTS (as of 5 November 2007)

Currency Unit – yuan (CNY)

CNY1.00 = $0.1338 $1.00 = CNY7.4715

The exchange rate of the yuan is determined under a floating exchange rate system. In this report, a rate of $1.00 = CNY7.5160, the rate prevailing at the time of appraisal of the Project, is used.

ABBREVIATIONS

ADB – Asian Development Bank AFD – Agence Française de Développement

(French Development Agency) EA – executing agency EIRR – economic internal rate of return FYP – Five-Year Plan GDP – gross domestic product KfW – Kreditanstalt für Wiederaufbau LIBOR – London interbank offered rate MOR – Ministry of Railways PCR – project completion report PRC – People’s Republic of China SSB – Safety Supervision Bureau TA – technical assistance WTO – World Trade Organization

NOTES

(i) The fiscal year (FY) of the Government and its agencies ends on 31 December. (ii) In this report, “$” refers to US dollars. (iii) For an explanation of rating descriptions used in ADB evaluation reports, see: ADB. 2006. Guidelines for Preparing Performance Evaluation Reports for Public Sector Operations. Manila.

Vice President C. Lawrence Greenwood, Jr., Operations Group 2 Director General H. S. Rao, East Asia Department (EARD) Director N. Rayner, Transport Division, EARD Team leader M. Parkash, Senior Transport Specialist (Railways), EARD Team members S. Athukorala, Financial Analysis Specialist, EARD S. Ferguson, Senior Social Development Specialist (Resettlement), EARD A. Kunth, Young Professional, Southeast Asia Department R. Nagpal, Counsel, Office of the General Counsel S. Noda, Transport Specialist, EARD M. Ojiro, Principal Transport Economist, EARD

CONTENTS Page

LOAN AND PROJECT SUMMARY i

MAP

I. THE PROPOSAL 1 II. RATIONALE: SECTOR PERFORMANCE, PROBLEMS, AND OPPORTUNITIES 1

A. Performance Indicators and Analysis 1 B. Analysis of Key Problems and Opportunities 1

III. THE PROPOSED PROJECT 10

A. Impact and Outcome 10 B. Outputs 10 C. Special Features 10 D. Project Investment Plan 12 E. Financing Plan 13 F. Implementation Arrangements 14

IV. PROJECT BENEFITS, IMPACTS, ASSUMPTIONS, AND RISKS 16

A. Economic Analysis 16 B. Sustainability 16 C. Environmental Impact and Assessment 16 D. Poverty Reduction and Social Strategy 17 E. Risks 17

V. ASSURANCES 17 VI. RECOMMENDATION 18 APPENDIXES 1. Design and Monitoring Framework 19 2. Problem and Constraints Analysis 21 3. Railway Sector Safety Strategy 22 4. Railway Sector Analysis 23 5. Management of Railway Safety 28 6. External Assistance to the Railway Sector 33 7. Reform Agenda Matrix 34 8. Lessons Learned from Asian Development Bank-Financed Railway Projects 35 9. Detailed Cost Estimates 38 10. Implementation Schedule 40 11. Procurement Plan 41 12. Outline Terms of Reference for Consultants 42 13. Project Performance Management System 43 14. Economic Analysis 44 15. Summary Poverty Reduction and Social Strategy 47 SUPPLEMENTARY APPENDIX (available on request) A. Chronology of Major Railway Reforms

LOAN AND PROJECT SUMMARY

Borrower People’s Republic of China (PRC) Classification Targeting Classification: General intervention

Sector: Transport and communications Subsector: Railways Theme: Sustainable economic growth Subthemes: Promoting economic efficiency and enabling markets, and fostering physical infrastructure development

Environment Assessment

Category C

Project Description The Railway Safety Enhancement Project (the Project) is a priority

project included in the Eleventh Five Year Plan (FYP), 2006–2010, of the Government. The Project is the first stand-alone sector-wide intervention by the Asian Development Bank (ADB) for enhancing railway safety on a network basis. It will promote railway safety through the introduction of modern technology, capacity building, and institutional development. These actions will lead to improved reliability, higher mobility, increased network capacity, optimal use of the network and assets, and increased staff productivity—all of which will lead to a higher level of efficiency in railway transport in the People’s Republic of China (PRC).

Rationale The Project reflects ADB’s railway sector operational strategy for the

PRC, which includes promoting sustainable economic growth by improving the efficiency of railway transport through reducing railway network constraints and enhancing railway safety. The components are formulated in line with the 2004 railway development plan and the Eleventh FYP for railway development. Delays in rescue and inefficient restoration of accidents and emergencies contribute to loss of lives, heavy damages to goods and people, and prolonged disruption of traffic movement on the PRC railway network. They are also two of the constraints preventing railways from capitalizing on their comparative advantages. The Project will (i) introduce new and modern technology for responding more quickly to emergencies, taking less restoration time and enhancing safety; (ii) provide capacity building support for handling emergencies more efficiently; and (iii) provide an institutional framework for developing a quick, responsive, and efficient emergency rescue and restoration system on the PRC railway network. This will help improve safety and reliability, increase mobility, and reduce downtime—all of which will help achieve higher standards of railway safety, staff productivity, and line capacity.

Impact and Outcome

The Project will help develop an efficient, safe, reliable, and competitive railway transport system in the PRC. The outcome of the Project will be an efficient and effective railway emergency management system on the

ii

PRC railway network. This will be achieved by introducing safe, reliable, energy-efficient, and environment-friendly technologies; and by providing capacity building support via staff training, which will help develop a more responsive, quicker, and efficient rescue and restoration system for dealing with emergencies on PRC railways. The Project comprises the following: (i) supply and installation of railway emergency rescue and restoration equipment, (ii) capacity building and training, and (iii) institutional development. The key inputs needed for project implementation include supply of equipment, training, and Ministry of Railways (MOR) staff inputs.

Project Investment Plan

The investment cost is estimated at $140 million.

Financing Plan A loan of $100 million from ADB’s ordinary capital resources will be

provided under ADB’s London interbank offered rate (LIBOR)-based lending facility. The loan will have a 25-year term including a grace period of 5 years, an interest rate determined in accordance with ADB’s LIBOR-based lending facility, a commitment charge of 0.35% per annum, and such other terms and conditions set forth in the draft loan agreement.

Period of Utilization

Until 30 June 2013

Estimated Project Completion Date

31 December 2012

Executing Agency MOR Implementation Arrangements

The Project will be implemented by MOR over 5 years. MOR will coordinate the project management tasks and be responsible for procurement, withdrawals, and reporting to ADB.

Procurement MOR will procure ADB-financed components in accordance with ADB’s

Procurement Guidelines (2007, as amended from time to time). Contracts valued at or greater than $1 million will be procured through international competitive bidding. Contracts valued at less than $1 million will be procured through international competitive bidding or national competitive bidding, in accordance with the PRC Tendering and Bidding Law, 1999, subject to clarifications agreed with ADB as determined by the contract package. Below $100,000, procurement will follow the shopping procedure. Other items, not financed by ADB, will be procured in accordance with government procedures acceptable to ADB.

Consulting Services

The ADB loan will finance 5 person-months of consulting services for strengthening the institutional and capacity development functions of the railway emergency management system. Consultants will be recruited using the quality and cost-based method (80% technical and 20% financial weightings) and biodata technical proposal, in accordance with

iii

ADB’s Guidelines on the Use of Consultants (2007, as amended from time to time).

Project Benefits and Beneficiaries

The Project will (i) enhance railway safety, enabling railway users to benefit from lower transport costs; (ii) increase the line capacity, benefiting consumers and producers of goods and services through the provision of timely and efficient transport services and lower logistics costs; (ii) improve staff productivity, enabling railway users to benefit from lower costs; (iv) improve environment and reduce pollution; and (v) reduce fuel consumption and enhance energy efficiency, enabling the PRC to save valuable foreign exchange. The major project beneficiaries will be (i) the Government, which will benefit from improved safety, reduced economic losses, and a reduced energy bill; (ii) passengers, who will benefit from affordable, faster, and safer trips; and (iii) freight shippers, who will benefit from reduced damages to shipments and more affordable, faster, and safer trips. Safe rail transport will benefit all passenger and shippers. The poor will benefit equally or more from the intervention. The links between poverty and accidents are apparent, and the poor are at a disadvantage recovering from the physical and the economic losses suffered from injuries or physical loss of goods. The Project will provide an efficient and quick restoration system that will help reduce economic losses. The Project is economically sustainable. The economic internal rate of return is estimated at 57.2%.

Risks and Assumptions

Potential risks for the Project during implementation could be in the areas of financing, technology, interoperability, and procurement. These have been assessed, and mitigating measures have been provided based on lessons from other railway projects in the PRC. Inadequate staff skills are also a risk to the Project. The project design includes a capacity development program to enhance staff skills, as they are critical to the success of the Project.

South China Sea

Gulf ofTonkin

Yellow Sea

BohaiSea

Huang He(Yellow River)

Chang Jiang

(Yangtze River)

JING-JIU RAILWAY

HEFEI-JIUJIANG RAILWAY

DAXIAN-WANXIAN RAILWAY

SHANXI-XIAOLIU RAILWAY

TAIYUAN-ZHONGWEI RAILWAY

YAOGU-MAOMING RAILWAY

GUANG-MEI-SHAN RAILWAY

HEFEI-XI'AN RAILWAY

DALI-LIJIANG RAILWAY

YICHANG-WANZHOU RAILWAY

ZHENGZHOU-XI'AN RAILWAY

GANZHOU-LONGYAN RAILWAY

SHENMU-YAN'AN RAILWAY

GUIZHOU-SHUBAI RAILWAY

Yuanping

Taiyuan

Yuci

Shijiazhuang

Tunilu

Linfen

Xiaoyi

YueshanHouma

Xin XiangJiaozuo

Shehe

Hengshui

Fengteng

Dezhou

Tianjin

Huanghua

Shuoxian

Yanzhou

Heze LinyiZhengzhouTongguan

Xi'anBaoji

Zhongjiacun

Yan’an North

Hancheng

SuideMucun

Shenmu North

Dongsheng

ZhongweiYulin

Gantang

Lanzhou

Xining

YinchuanYumen

Qinhuangdao

Bazhou

BEIJING

HohhotJining

Datong

Baotou

Xinfeng

Jinan

Shijiusuo

Lianyungang

Qingdao

Yantai

YangpingguanTongbai Mountains

Dabie

Mou

ntains

HuaiyuanScenic Area

Qingling Tunnel

Daxian

Wanzhou(Wanxian) Yichang

Jingmen

AnkangGucheng

Xiangfan

Nanyang

Macheng

Huangchuan

XinyangXiaolin

Lishan

ShangnanXixiaDanjiangkou

Wuhan

Hankou

Changsha

ChongqingFuling

Lichuan

Guiding

Pingzha

Luocheng

Guilin

Hechi

SanchaLiuzhou

Heshan LaibinSanshui

Longchuan

HuaihuaZhuzhou

Henyang

Ji'an

Nanchang

XiangtangSanjiangcheng

Yingtan

Yiyang

NanpingFuzhou

LongyanDingnan

Ganzhou

Xiamen

Meizhou

Chaozhou

Zhangzhou

Wenzhou

ZhakouBeihai

Zhanjiang

Hechun

Yunfu YaoguZhuhai

Changping

Kowloon

Shenzhen

Haikou

SantangYangpu

ChaheNada

Basou

Sanya

Shilu

Loudi

Macao

GuangzhouShantou

Ping XiangNanning

Litang

Qinzhou

FangchengHepu

Maoming

FuyangChangfeng

Hefei

Lu'an

Wuhu

Anqing

Jiujiang

Yixing

Nanjing

HananBengbuYangping

Huaiyuan

Wuxi

Jiangyin

Changxing

Ningbo

Hangzhou

Shanghai

Nantong

Xinyi

Xuzhou

Shangqiu

DukuoLanping

Lijiang

Zhongdian

DaliBaoshan

Ruili

Lincang

Mohei

Jinghong

Chuxiong

ShipingKaiyuan

Kunming

Yiliang

Qujing

Zhanyi

Liupanshui

BaiguoHongguo

Weishe

Guiyang

Chengdu

Neijiang

Yibin

to Urum

qi

GUIZHOU

GUANGXI

HAINAN

GUANGDONG

JIANGXIHUNAN

ZHEJIANG

FUJIAN

HENAN

HUBEI

SHAANXI

GANSU

SHANDONG

HEBEI

TIANJIN

INNER MONGOLIA

JIANGSU

ANHUI

SICHUAN

CHONGQING

QINGHAI

XIZANG

YUNNAN

NINGXIA SHANXI

SHANGHAI

HONG KONG SARMACAO SAR

VIET NAM

M O N G O L I A

LAO PEOPLE'SDEMOCRATIC

REPUBLIC

MYANMAR

River

Provincial Boundary

International Boundary

Completed

Under Construction

Proposed

National Capital

Provincial Capital

City/Town

Existing Railway

Planned Railway

Boundaries are necessarily authoritative.

Railway Projects Financed by theAsian Development Bank

RAILWAY SAFETYENHANCEMENT PROJECT

IN THEPEOPLE'S REPUBLIC OF CHINA

0 10050 150 200 250

Kilometers

N

07-3467 HR

120 00'Eo

120 00'Eo

100 00'Eo

100 00'Eo

25 00'No

25 00'No

35 00'No

35 00'No

I. THE PROPOSAL

1. I submit for your approval the following report and recommendation on a proposed loan to the People’s Republic of China (PRC) for the Railway Safety Enhancement Project (the Project). The design and monitoring framework is in Appendix 1.

II. RATIONALE: SECTOR PERFORMANCE, PROBLEMS, AND OPPORTUNITIES

A. Performance Indicators and Analysis

2. From 1978, when market-oriented economic reforms were introduced, through to 2006, the PRC has experienced sustained rapid economic growth, which has resulted in a rapid increase in demand for transportation. Annual growth of passenger transport was 9% and freight transport grew at 7.6% during 1978–2006. Railways are the principal mode of freight transport in the PRC. In 2006, the modal split for freight ton-kilometer (km) was 47.5% for railways, followed by 27.9% for inland waterways and seashore shipping, 21.1% for roads, 3.3% for pipelines, and 0.2% for civil aviation. In 2006, road traffic accounted for 52.8% of total passenger-km, followed by railways with 34.5%, civil aviation with 12.3%, and coastal and inland waterways with 0.4%. 3. The railway is the primary mode of transport for long-distance and bulk transport. At the end of 2006, the PRC’s railway system of 77,000 km comprised 63,400 km of national railways and 13,600 km of joint venture and local railways. The Ministry of Railways (MOR) operates the state-owned national railway as an integrated system. The joint venture and local railways, comprising regional lines within provincial boundaries, are constructed under the sponsorship of provincial governments and/or MOR to serve local needs and provide interconnection to the national railway network. Despite its large size, the railway network does not provide adequate coverage for the country’s population and land area.1 4. PRC railways have the highest freight transport density in the world and second highest passenger transport density after Japan. Locomotive turnover is the highest in the world. Between 1978 and 2006, railway freight increased from 535 billion ton-km to 2,172 billion ton-km, equivalent to an annual growth rate of 5.14%. Passenger traffic grew at 6.65% annually from 109 billion passenger-km to 666.2 billion passenger-km. For passenger trips, the average railway journey increased from 134 km in 1978 to 535 km in 2006, compared with the average road journey, which grew from 35 km to 55 km over the same period. For freight, the average railway journey is 770 km, compared to 65 km for road in 2006. Despite such growth rates, railway capacity has lagged behind demand because of system constraints (Appendix 2). Given the railways’ important role in providing economic transportation, these will continue to be major constraints to efficient economic growth if not removed. The Government’s aggressive plan to improve railways includes improving railway safety, modernizing technology, and expanding the railway network. B. Analysis of Key Problems and Opportunities

1. Government Strategy 5. The Government's policy on railway development focuses on (i) removing constraints and expanding the system, (ii) encouraging the construction of joint venture local railways to promote the development of local economies, (iii) improving the efficiency and safety of the 1 The network density per 1,000 square km of land is one third that of India and one tenth that of Japan.

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existing system 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 autonomy and accountability, and (vi) encouraging nongovernment investment in infrastructure and related services. 6. The Tenth Five-Year Plan (FYP), 2001–2005, identified transportation, including railway development, as a priority. It envisaged (i) constructing 6,000 km of new lines to provide access to unserved areas with the network length reaching 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 with the total length of such lines reaching 15,000 km. By the end of 2005, an investment of CNY308 billion had been made for capital construction, which included (i) constructing 6,458 km of new lines, (ii) providing 3,275 km of double lines, and (iii) electrifying 6,259 km of tracks. 7. 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 to 100,000 km by 2020. Priority will be given to the development of railways in unserved areas and regions that lack transport and have remained less developed. The route network length will increase by 16,000 km in the western region of the PRC to reach a network length of 40,000 km by 2020. The plan identifies enhancing safety as a major goal. It seeks to ensure a high level of safety performance in infrastructure construction and construction services by: (i) strictly adhering to safety regulations, (ii) strengthening transport safety by using modern and better quality equipment, (iii) proper training of staff, (iv) improving staff education and technical skills, (v) strengthening responsibility and accountability for safety in railway transportation, and (vi) comprehensive management of public security. 8. The Eleventh FYP, 2006–2010, continues to emphasize railway development and seeks to speed up railway construction. The plan envisages constructing 17,000 km of new lines; 45% of the network length will be double track and electrified. The plan seeks to (i) build a dedicated passenger railway network through the construction of 7,000 km of passenger dedicated lines by 2010, (ii) develop coal transport corridors by increasing the capacity of existing lines, (iii) expand the railway network in the poor western region (to reach 34,000 km), (iv) build international corridors at the borders in the southwest and northwest, and (v) develop a countrywide intermodal container network. Given the rapid development of the network, the plan seeks to enhance safety and security over the railway network. A total investment of CNY1.5 trillion or about $190 billion (CNY1.25 trillion for construction and CNY250 billion for rolling stock) is planned over the next 5-year period.

2. Asian Development Bank Strategy and Sector Experience 9. The Asian Development Bank (ADB) strategy for the railway sector focuses on helping (i) expand the railway system by constructing new lines in unserved, less developed areas; (ii) modernize railways, enhance safety, and increase capacity to improve efficiency on key routes of the national railway system; (iii) commercialize railway operations to sustain efficient operations; (iv) promote energy conservation and environmental sustainability; and (v) increase railway competitiveness in the transport sector through restructuring and reform. ADB has focused on the development of railways in poor, less-developed inland provinces to promote

3

sustainable economic growth and reduce poverty.2 ADB has provided 14 loans totaling about $2.9 billion to finance the construction of about 1,921 km of eight provincial railways operated by joint ventures with MOR, and 5,541 km of new railway lines under the six national railway projects (Appendix 4). The Project, designed to enhance safety and promote economic growth by providing safe and reliable railway transportation, is consistent with the PRC’s development priorities and the ADB strategy. 10. Policy Dialogue. Policy dialogue has been a feature of ADB assistance to the railway sector and has effectively complemented the lending operations. Since 1989, 13 technical assistance (TA) initiatives totaling $6.1 million have been provided for developing the emergency management system on the PRC railway network, institutional development of dedicated passenger lines and local railways, tariff and organizational studies for the Jing–Jiu railway, enhancement of commercial and business operations, marketing and business development, human resource development, and improvement of financial management and accounting systems (Appendix 6). ADB policy dialogue with MOR focuses on (i) poverty reduction as the overarching objective of ADB operations, (ii) full compliance with ADB safeguard policies, (iii) enhancing railway safety, (iv) promoting energy conservation and environmental sustainability, (v) sector reforms, (vi) marketing and business development, (vii) private sector participation and nongovernment financing, and (viii) regional cooperation. The railway development plan defines the major goals for the PRC railways to 2020, and is in broad agreement with ADB’s strategic agenda. MOR’s proposed reform agenda for this plan seeks to (i) study and learn from the best international practices gained worldwide, (ii) separate core operations from noncore transportation businesses, (iii) rationalize and reduce staff, (iv) reform the railway investment and financing system, and (v) establish specialized transportation companies. 11. MOR has adopted a structured approach to railway reform. In 1999, using a new management concept—the asset operating liability system—MOR entered into management contracts with railway administrations to improve profitability (as a pilot project). The contracts helped improve operational and financial performance; this approach was subsequently extended to all railway administrations. Separation of core and noncore businesses is a key element of MOR’s restructuring program. The total number of employees in the core transportation business was reduced from 1.89 million in 1997 to 1.41 million in 2006. In the noncore transportation business, five large companies employing 616,500 staff have been divested. To provide jobs for redundant staff, by the end of 2006 MOR had set up 3,625 diversified businesses (independent of the core transportation business) employing more than 321,544 staff to supply equipment, goods, and services to the railway industry. In 1998, MOR initiated a cost-sharing scheme for health insurance and pensions for railway employees. In 2005, MOR completed the transfer of 822 primary and middle schools, 46 vocational schools, and 181 nursery schools; and 260 hospitals and medical units to local governments. One hundred branch lines comprising 7,800 km were separated to improve productivity and reduce operating losses. The reform agenda matrix is in Appendix 7. Supplementary Appendix A includes a chronology of railway reforms. 12. Poverty Reduction. The strategic purpose of ADB involvement in the railway sector is to create the conditions for sustainable economic growth to help improve living standards. ADB-financed projects are located in unserved areas of the central and western part of the PRC, and have the potential for economic growth once improved, cost-effective transport access is 2 ADB. 2000. Technical Assistance for Assessing the Impact of Transport and Energy Infrastructure on Poverty

Reduction. Manila. The findings conclude that completed railway projects supported general economic growth in the region and led to small areas of high economic growth in towns served by railway stations.

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provided. Identifying ways to enhance the poverty reduction impact has been an integral part of ADB interventions. Specific features in project planning and design include (i) providing employment during construction and operation of the railways on a preferential basis to poor workers, including women;3 (ii) utilizing locally produced materials that meet the requirements of quality and economy (e.g., sand, stone, cement); (iii) adding provisions for railway station area development; (iv) providing station access roads and construction access roads; and (v) supporting poverty reduction programs of local governments.4 ADB-financed projects have been complemented with local government development programs, such as improving the road network and transport services in the project area concurrently with the Project, and these have helped increase the welfare gains for the poor, including women, and help spread project benefits to the poverty villages. 13. Energy Conservation and Environmental Sustainability. Beginning 2006, an important element of ADB policy dialogue with MOR has been the enhancement of energy conservation and environmental sustainability. The Eleventh FYP of the Government also identifies energy conservation and environmental sustainability as the two important areas of sustainable development, and seeks to formulate plans and actions to achieve this. The emphasis of ADB dialogue has focused on creating awareness on these two issues and includes factors such as energy savings and environmental improvements in the evaluation of performance of railway administrations and other entities. The dialogue encourages adopting energy efficient technologies and environmental improvements in railway construction, operation, and maintenance. Use of fuel-efficient locomotives; double-stack container trains; creating “green corridors”; environment-friendly waste disposal; environment-friendly station design; and use of fuel-efficient, environment-friendly safety, and maintenance equipments are some of the areas integrated in the ADB-financed project design. This area has been of mutual interest to other development partners such as the World Bank, French Development Agency, and German development cooperation through Kreditanstalt für Wiederaufbau. Close coordination has been maintained with them. 14. Enhancing Safety. Safety is an integral part of providing competitive, high quality, and reliable transportation for people and goods. As PRC railways have modernized, introduced new concepts and technologies, and increased speeds, the safety needs have changed. The Eleventh FYP of MOR recognizes this important aspect and seeks to promote integrated safety management, information network security, and an emergency management system consistent with the development needs of the PRC railways. It seeks to attract foreign technology and expertise to meet these needs. ADB policy dialogue with MOR emphasizes the need for operational reforms for the rail network, including enhancing safety in construction, operation, and maintenance. MOR and ADB support the safety and security objective on PRC railways through introduction of modern technologies, policy development, legislation, monitoring, and enforcement and outreach activities (Appendix 3). Since 2003, ADB has supported investments in railway safety as part of ADB financing, and has worked closely with the safety and transportation departments of MOR to develop a comprehensive plan on the institutional, investment, and training needs for safety in PRC railways. ADB also initiated dialogue on adopting a sector-wide approach on safety rather than a project-based approach. Adopting a sector-wide approach is consistent with the network approach adopted for railway operations in 3 In the Guizhou–Shuibai Railway Project, the proportion of the poor in unskilled labor was 41% on average and 64%

during peak construction. ADB. 1998. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the People’s Republic of China for the Guizhou–Shuibai Railway Project. Manila.

4 Some completed projects reported that about 40% of the poor at appraisal were raised above the poverty line upon project completion, e.g., in the case of the Hefei–Jiujiang Railway Project, 41% of the poor were raised above the poverty line. ADB. 1993. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the People’s Republic of China for the Hefei–Jiujiang Railway Project. Manila.

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the PRC; and helps in providing economies of scale and better management of emergencies, preventive maintenance, and accidents. 15. An important element of the sector-wide approach to safety is the management of various kinds of emergencies, disasters, and accidents at different levels of management (ministry, railway administration, and railway station). MOR has an established system of handling railway accidents at the three levels (Appendix 5). However, the system to deal with emergencies and natural disasters (e.g., earthquakes, typhoons, or other natural calamities) is in a nascent stage. It was only after the outbreak of severe acute respiratory syndrome in 2003 that MOR first planned setting up a mechanism at the national level to deal with natural disasters and major emergencies (e.g., earthquakes, typhoons, and other natural calamities). MOR made a start in 2005 by establishing an emergency management office directly under the control of the minister (as part of the minister’s office). In 2006, an emergency management center was established under the transportation department. 16. Managing emergencies and crises on a technologically advanced high-speed railway system is a new concept for PRC railways, and managing such a network is different from managing the conventional railway system. MOR has limited experience in emergency and crisis management, so it sought to learn from international experience and best practices. The Government and MOR requested ADB assistance in researching and learning from best international practices on an emergency management system in advanced railway systems in developed countries, and help in adapting them to PRC railways. ADB has provided a TA grant of $500,000 to help develop an emergency management system on PRC railways.5 17. Sector Reforms. ADB is supporting institutional reform of the railway sector to separate government and enterprise functions, giving full play to market forces and increasing the competitiveness of the railways. ADB has actively pursued (i) separation of the core transport business from the noncore transport business, (ii) segmentation of passenger and freight services, and (iii) strengthening of the recently corporatized specialized transportation companies. As part of ADB’s policy dialogue with MOR, three large companies handling containers, special goods, and express parcel have been set up. 6 Setting up passenger-dedicated corridors with a separate institutional structure is a key ADB intervention.7 ADB is assisting in developing the institutional, marketing, business development, and technical standards for such initiatives.8 18. Rationalization of staff and reduction of transportation and non-transportation staff is also being pursued. On 18 March 2005, under a major restructuring exercise, MOR abolished 41 sub-railway administration bureaus, thereby reducing one tier of railway management. By the end of 2006, the number of stations and sections were reduced from 1,500 to 695. This has helped reduce 22,000 staff, rationalize operations, improve productivity, and enhance efficiency.

5 ADB. 2007. Technical Assistance to the People’s Republic of China: Railway Emergency Management System

Study. Manila. The TA is ongoing. 6 These companies are China Railway Container Transport Company, China Railway Express Parcel Company, and

China Railway Special Goods Company. The startup process is ongoing. ADB and MOR have agreed on the separation of container businesses as part of the ADB-financed Yichang–Wanzhou Railway Project. ADB. 2003. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the People’s Republic of China for the Yichang–Wanzhou Railway Project. Manila.

7 ADB is financing the main east–west passenger dedicated corridor. ADB. 2005. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the People’s Republic of China for the Zhengzhou–Xi’an Railway Project. Manila.

8 ADB. 2006. Technical Assistance to the People’s Republic of China: Managing Railway Passenger Operations More Efficiently. Manila. The TA is ongoing.

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Recent ADB interventions have supported operational reforms and emphasized railway safety—including the introduction of safe and reliable technology, upgrading speeds, introducing dedicated passenger and freight lines, a modern dispatch control system, and high quality information systems on the PRC railway network. The PRC’s accession to the World Trade Organization has intensified competition among different modes of transport and the structure of transport demand is likely to change.9 ADB is providing an advisory TA for policy reform support to MOR,10 which is analyzing the conflicting roles of meeting social obligations and making profits, increasing modal competition, impacts caused by the fast pace of urbanization and economic development, and demand for delivery of improved services. During project processing, coordination was maintained with the World Bank, French Development Agency, and German development cooperation through Kreditanstalt für Wiederaufbau; and a common approach to reforms and assistance was developed. This will be continued during project implementation. 19. Marketing and Business Development. As the PRC progresses to a market-driven economy, the railways need to compete on the basis of price and service quality for demand-based transportation services. New marketing and business development initiatives are needed both for freight and passenger services to be competitive. In past projects, ADB has supported project-specific studies to create marketing and business development opportunities, including skills and knowledge for market-oriented operation and awareness of profitable operations. ADB is supporting the development of marketing and business strategies for dedicated passenger lines,11 7,000 km of which is to be completed by 2010. The first dedicated passenger line from Beijing to Tianjin is expected to start operation by August 2008. 20. Private Sector Participation. ADB’s policy dialogue encourages increased private sector participation in the railway sector. ADB is assisting MOR with a study to examine opportunities for diversified financing sources, increased private sector involvement, and the possibility of public-private partnerships in the PRC railway sector. In 2005 and 2006, the State Council and MOR issued guidelines on facilitating the investment and financing system reforms, which seek to reduce the threshold of the investment, encourage the private sector to invest, and welcome strategic investors in railway financing.12 Strategic and private investors13 are participating in the project equity of the ADB-financed Taiyuan–Zhongwei Railway Project.14 In 2006, an initial public offering for Daqin railway company (CNY15 billion) was made, which was heavily oversubscribed. 3. Lessons 21. The evaluation 15 of ADB assistance for the PRC transport sector assessed ADB’s railways program “successful”. The evaluation noted that ADB’s strategic priorities were well 9 Since opening up the freight transport market to foreign companies under World Trade Organization commitments,

two joint venture companies with foreign participation have entered the market. 10 ADB. 2005. Technical Assistance to the People’s Republic of China: Railway Passenger and Freight Policy Reform

Study. Manila. The TA is ongoing. 11 ADB. 2006. Technical Assistance to the People’s Republic of China: Managing Railway Passenger Operations

More Efficiently. Manila. The TA is ongoing. 12 China National Oil Petroleum Company is financing CNY1.7 billion for the Beijing–Tianjin intercity railway line,

whose construction started in July 2005 and is expected to be completed by August 2006. 13 China Communication Construction Engineering Group, Beijing; China Engineering Construction Group, Beijing;

and Shaanxi Province Hualong Energy Limited Liability Company, Xi’an. 14 ADB. 2006. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the

People’s Republic of China for the Taiyuan–Zhongwei Railway Project. Manila. 15 ADB. 2007. Sector Assistance Program Evaluation of the Asian Development Bank Assistance for Roads and

Railways in the People’s Republic of China. Manila.

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aligned with PRC needs in the railway subsector. Its overall focus of building railways using modern technologies addressed needs to increase railway capacity and reduce the persistent gap between demand and supply as quickly and efficiently as possible. ADB’s priority of improving efficiency and commercial orientation, and its emphasis on restructuring and reforming policy, was well matched to evolving institutional reforms in railways. 22. Experience from completed and ongoing ADB-financed railway projects in the PRC showed strong commitment and satisfactory capabilities of executing agencies for project implementation. The speed of implementation generally exceeded expectations at appraisal, and agencies generally complied with loan covenants. Resettlement and environmental management were carried out satisfactorily. Audit covenants were complied with in a timely manner, and the audited financial statements were generally acceptable (Appendix 8). Of the 14 ADB-supported railway projects, 9 have been completed, 16 1 has started commercial operations,17 and 4 are under implementation.18 23. Previous railway projects have contributed to socioeconomic development in the projects’ influence areas. The main impacts are as follows: (i) new railway lines in less developed regions stimulated economic development, resulting in higher growth rates of gross domestic product (GDP) and rural incomes compared with the without-project scenario; 19 (ii) construction activities generated demand for unskilled labor and employment of poor workers, including women, who would have otherwise remained unemployed or 16 ADB. 1989. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the

People’s Republic of China for the Shanxi–Xiaoliu Railway Project. Manila (Loan 948-PRC for $39.7 million, approved on 31 January); ADB. 1991. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the People’s Republic of China for the Yaogu–Maoming Railway Project. Manila (Loan 1087-PRC for $67.5 million, approved on 20 June); ADB. 1992. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the People’s Republic of China for the Guang–Mei–Shan Railway Project. Manila (Loan 1167-PRC for $200 million, approved on 25 June); ADB. 1993. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the People’s Republic of China for the Hefei Jiujiang Railway Project. Manila (Loan 1221-PRC for $110 million, approved on 30 March); ADB. 1994. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the People’s Republic of China for the Jing–Jiu Railway Technical Enhancement Project. Manila (Loan 1305-PRC for $200 million, approved on 14 July); ADB. 1996. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the People’s Republic of China for the Daxian–Wanxian Railway Project. Manila (Loan 1439-PRC for $100 million, approved on 4 June); ADB. 1997. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the People’s Republic of China for the Shenmu–Yanan Railway Project. Manila (Loan 1553-PRC for $200 million, approved on 29 September); ADB. 1998. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the People’s Republic of China for the Guizhou Shuibai Railway Project. Manila (Loan 1626-PRC for $140 million, approved on 18 August); and ADB. 2000. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the People’s Republic of China for the Hefei–Xi'an Railway Project. Manila (Loan 1748-PRC for $300 million, approved on 17 August).

17 ADB. 2001. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the People’s Republic of China for the Ganzhou–Longyan Railway Project. Manila (Loan 1850-PRC for $200 million, approved on 18 October).

18 ADB. 2003. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the People’s Republic of China for the Yichang–Wanzhou Railway Project. Manila (Loan 2051-PRC for $500 million, approved on 15 December); ADB. 2004. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the People’s Republic of China for the Dali–Lijiang Railway Project. Manila (Loan 2116-PRC for $180 million, approved on 2 December); ADB. 2005. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the People’s Republic of China for the Zhengzhou–Xi’an Railway Project. Manila (Loan 2182-PRC for $400 million, approved on 22 September); and ADB. 2006. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the People’s Republic of China for the Taiyuan–Zhongwei Railway Project. Manila (Loan 2182-PRC for $300 million, approved on 23 November).

19 In the project area of the Jing–Jiu Railway (footnote 15), the GDP of 10 counties in Jiangxi Province increased from CNY4.9 billion in 1993 to CNY15.4 billion in 1998, an annual increase of 25.5% compared with 10.2% for the province as a whole. Rural income per capita in Xinfeng County increased from CNY802 in 1993 to CNY2,222 in 1998, an annual increase of 18.5% compared with 10.3% during 1985–1992 (before the project).

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underemployed;20 (iii) service roads built for construction activities opened up and benefited rural communities in inaccessible areas; (iv) domestic resource mobilization improved, providing additional resources for social programs 21 and generating employment; (v) supply and transportation of local materials; (vi) improved and lower cost transport resulted in lower prices of agricultural inputs (such as fertilizers), which stimulated cash-crop farming and provided more income to farmers; increased the mobility of rural residents; and allowed access to more markets, employment opportunities, and social services beyond the immediate communities; (vii) counties provided with new railway access recorded higher GDP growth rates than other counties; (viii) the investment environment was enhanced, resulting in rapid development of secondary and tertiary industries that generated employment;22 (ix) the consequent shift in the structure of employment from low productivity agriculture to higher productivity agroprocessing and light industry increased employment opportunities for women whose incomes and social status then improved;23 (x) tourism developed because of more affordable and convenient railway travel; and (xi) environmental protection and mitigation measures were taken under the projects in accordance with the environmental impact assessments for the projects. The railway projects have contributed to a transformation of the local economies: per capita rural incomes increased substantially, living standards improved, and poverty reduced. The lessons learned and experiences gained are incorporated in the current project design.

4. Rationale

24. The project rationale reflects ADB’s railway sector operational strategy for the PRC, which includes promoting sustainable economic growth by improving the efficiency of the railway transport through reducing railway network constraints and enhancing railway safety. The Project is the first stand-alone intervention by ADB for enhancing railway safety on a network basis and will pursue the operational reforms, including emphasis on safety, with the introduction of safe, reliable, and modern technology on the railway network; improved reliability; higher mobility; increased network capacity; optimal use of the network and assets; and increased staff productivity. All of these will lead to higher efficiency of railway transport. 25. Safety is an important aspect of reliable transportation and a critical part of providing a competitive, high quality, and safe mode of transport for people and goods. The PRC, a country with diverse geology and challenging environment, has two thirds of its areas threatened by floods; nearly half of the cities located in the seismic belt; more mountainous area than plain areas; great elevation differences between east and west; frequent geological disasters, such as landslides and flow of debris; frequent typhoons in the southern part; frequent sandstorms and windstorms in the western part; and snowstorms in the northern part. PRC railways crisscross the length and breadth of the country, and this working environment makes managing safety on the PRC railways a technical and human challenge.

20 During the first 2 years of construction of the Guizhou–Shuibai Railway (footnote 15), a total of about 7.5 million

person-days of employment was generated, of which 4.1 million person-days (about 55%) were provided to local poor people, thereby raising them above the poverty line.

21 The financial revenue of 10 poverty counties in Jiangxi Province that are traversed by the Jing–Jiu Railway (footnote 15) increased from CNY0.5 billion in 1993 to CNY1.4 billion in 1998, an annual increase of 22.7% compared with 12.3% during 1985–1992, before construction of the Jing–Jiu Railway.

22 The Jing–Jiu Railway facilitated setting up many resource- and agriculture-based industries in Xingfeng County of Jiangxi Province—from 3 in 1992 to 39 in 1998, after project completion. The number of businesses grew from 8,005 in 1992 to 19,287 in 1998, and the number of persons employed in these businesses increased from 18,484 in 1992 to 52,153 in 1998—an annual increase of 23%. In the same county, the number of people living below the poverty line was reduced from 30,400 in 1993 to 11,580 in 1998, a decline of 62%.

23 Beneficial income and social impacts, particularly on women, were noted in the influence areas of the Yaogu–Maoming Railway (footnote 15) and Guang–Mei–Shan Railway (footnote 15).

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26. As PRC railways have modernized, introduced new concepts and technologies, and increased speeds, the safety needs have changed. In April 2007, train speeds were raised to 200 km/hour (h) and 250 km/h after the sixth speedup on the PRC railway network. In 2008, the Beijing–Tianjin dedicated passenger line, with a speed of more than 200 km/h, will be put into operation. Train speeds on dedicated passenger lines are expected to be increased to 300 km/h by 2010. Trains with higher trailing loads have been introduced on the Daqin railway line. MOR seeks to introduce double-stack container operation under electrified traction on the Shanghai–Chengdu corridor by 2012. By 2010, MOR seeks to set up 19,600 km of nationwide passenger and intercity express corridor with speed capabilities of 200 km/h and above, introduce heavy-haul long freight trains with higher axle loads, increase locomotive and rolling stock utilization, and reduce wagon turnaround time. 27. Managing accidents, emergencies, and crises on a technologically advanced high-speed railway system—consisting of a high-speed dedicated passenger network 24 and a heavily loaded freight network in a difficult and challenging environment—needs an emergency management system (emergency rescue and restoration system for dealing with accidents and emergencies on PRC railway network) that is reliable, technically more advanced and less vulnerable to human error. The system should be able to undertake the restoration and maintenance work more quickly with a high degree of reliability and be able to respond to emergency situations quickly. Delays in rescue and inefficient restoration can lead to loss of lives, heavy damages to goods and people, and prolonged disruption of traffic movement on the railway network, affecting railway efficiency and preventing railways from capitalizing on their comparative advantages. 28. Although the current system of emergency rescue and restoration on the PRC railways seems to work (Appendix 5), it has severe limitations to meet the requirements of the advanced railway network under development in the PRC. Some of the major limitations are as follows: (i) the location of rescue and restoration centers is not commensurate with the traffic flow density and the range of operation is small (200 km), (ii) the design capacity of rescue and restoration equipment is limited, (iii) equipment is old and actual capacity is less than the design capacity, (iv) mobile speed of the rescue and restoration equipment is much less (maximum is only 85 km/h) compared to train speed of 200–250 km/h, (v) the operational speed of the equipment is low, (vi) safety during operation and lifting functions are not reliable, and (vii) the rescue and restoration time is long. All of these affect the safety, reliability, mobility, and line capacity of the PRC railways. 29. The Project will help MOR improve the emergency management system by providing a quick, responsive rescue and restoration system on the entire railway network. The Project will (i) rationalize the location of the rescue and restoration centers (the location will be adjusted according to traffic flows and the number of locations will be reduced from 175 to 136); (ii) procure equipment that is the latest available in the market, with a much higher capacity consistent with the needs of current development in PRC railways; (iii) have higher operating speeds (120 km/h) and lifting capacity; (iv) be provided with a safety protection system for lifting and operation; (v) have a self-diagnostic system; and (vi) be more versatile. All these features will help in reducing the rescue and restoration time for accidents and emergencies significantly. The equipment to be procured is energy-efficient and environment-friendly. It is not

24 ADB is financing the main east–west passenger dedicated corridor. ADB. 2005. Report and Recommendation of

the President to the Board of Directors on a Proposed Loan to the People’s Republic of China for the Zhengzhou–Xi’an Railway Project. Manila; and ADB. 2006. Technical Assistance to the People’s Republic of China for Managing Railway Passenger Operations More Efficiently. Manila. The TA is ongoing.

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manufactured nationally and will be procured from the international market. About 250 staff will be trained in the use of equipment. 30. The implementation will be done in phases. First, all railway administrations will be provided with the proposed equipment, followed by the main lines, heavy-haul busy lines, and then the complete network. The complete network will be covered by 2012. When completed, the Project will improve the capacity of rescue and restoration from natural disasters, accidents, and other emergencies; help minimize the economic losses; and help protect the health and lives of the people. 31. The Project is a key intervention in the railway sector, with many technical, operational, safety, and economic benefits. It seeks to introduce modern technology for enhanced safety on a network basis, increase the throughput, and improve the reliability—all of which will lead to a more affordable, faster, cheap, safe, energy-efficient, and more environment-friendly mode of transport in the PRC. ADB intervention in financing safety systems is also expected to play a catalytic role in facilitating the flow of further foreign capital to finance the safety and maintenance needs of PRC railways.25

III. THE PROPOSED PROJECT

A. Impact and Outcome

32. The impact of the proposed Project is an efficient, safe, reliable, and competitive railway transport system developed in the PRC. The outcome of the Project will be an efficient and effective railway emergency management system on the PRC railway network. This will be achieved by introducing safe, reliable, energy-efficient, and environmental-friendly emergency rescue and restoration technologies; providing capacity building support through staff training; and rationalizing the location of the comprehensive emergency rescue and restoration centers—all of which will help in developing a more responsive, quicker, and efficient rescue and restoration system for dealing with accidents and emergencies on the PRC railway network. B. Outputs

33. The Project comprises (i) supply and installation of railway emergency rescue and restoration equipment, (ii) capacity building and training, and (iii) institutional development. ADB will finance (i) procurement of modern emergency rescue and restoration equipment that can respond to emergencies more quickly, efficiently, and effectively; and (ii) capacity building, including staff training. At an institutional level, MOR will rationalize the location of the comprehensive emergency rescue and restoration centers (modern emergency and restoration equipment will be located in these centers) by reducing the number of locations from 175 to 136, and increasing the zone of influence of the equipment from 200 km to 250 km on the PRC railway network. About 250 staff will be well trained in the use of this equipment. The key inputs needed for project implementation include equipment, installation, and MOR staff. C. Special Features

34. Network Approach to Safety. ADB policy dialogue has emphasized the need for operational reforms for the rail network, including enhancing safety, by introducing safe and

25 ADB financing of the Zhengzhou–Xi’an dedicated passenger line in September 2005 attracted keen interest from

other development partners such as the World Bank, French Development Agency, and German development cooperation through Kreditanstalt für Wiederaufbau, which are now financing similar dedicated passenger lines.

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reliable technology, modernizing maintenance systems, and capacity building. Since 2003, ADB has supported investments in railway safety as part of ADB-financed projects and financed safety components in Dali–Lijiang Railway Project, Zhengzhou–Xi’an Railway Project, and Taiyuan–Zhongwei Railway Project. This Project, however, seeks to adopt a network approach to safety and is a stand-alone sector-wide investment support for strengthening the emergency rescue and restoration management system on the PRC railway network. At an institutional level, MOR will rationalize the location of the comprehensive emergency rescue and restoration centers (modern emergency and restoration equipment will be located in these centers) by reducing the number of locations, and increasing the zone of influence of the centers. Adopting a sector-wide approach is consistent with the network approach adopted for train operations in the PRC; and helps in providing economies of scale, and better management of emergencies, preventive maintenance, and accidents. 35. New Technologies. The Project will introduce new and modern technologies. The equipment to be procured will be the latest available in the market, with a much higher capacity, consistent with the needs of current development in the PRC railways. It will be energy-efficient and environment-friendly; have higher operating speeds (120 km/h) and lifting capacity; have a safety protection system for lifting and operation and a self-diagnostic system; and will be more versatile. It can work in very cold temperatures (below –25˚ centigrade), in tunnels and bridges, and under electrified traction. All these features will help in reducing the rescue and restoration time for accidents and emergencies significantly. The equipment to be procured is not manufactured nationally, and will be procured from the international market. 36. Comprehensive Rescue and Restoration Centers. Each of the centers will be developed into a comprehensive rescue and restoration center; and will have a set of rail-mounted rescue and restoration equipment, tunnel rescue equipment, passenger rescue equipment, power generation car, tool car, medical car, and staff car. They will be formed into a mobile rescue and restoration unit and will be able to operate at speeds of 120 km/h (current speed is about 50 km/h). The centers will be stocked with adequate spares and consumables for reliable operation and maintenance of the equipment; have adequate staff well trained in the use of the equipment and dealing with accidents and emergencies; and have the necessary maintenance facilities and well-trained staff to maintain the equipment. This configuration will be placed on all the railway administrations, six main lines, heavy-haul busy lines, and the rest of the network by 2012. 37. Capacity Development. Enhancing staff capacity is a key objective of the Project. The rescue center set up by each of the railway administrations (18 in total) will become centers for training of staff in rescue and restoration equipment and skills. These centers, in addition to the emergency and rescue and restoration equipment located in these rescue bases, will be equipped with simulators, training models, technical literature, and track for test operating the equipment. The centers will organize special courses for staff in the operation and maintenance of this equipment. The Project also includes capacity development programs consisting of (i) overseas training during the equipment manufacturing period, (ii) on-site training during installation and before commencement of regular operation, and (iii) training of staff at the above emergency rescue centers. About 250 staff will be trained in the use of the above equipment. Technical exchanges on advanced technologies and new maintenance techniques are proposed to be organized to familiarize and educate staff in the operation and maintenance of this equipment. 38. Promoting Good Governance. To deliver on high levels of safety and security in railway transportation requires upholding and demonstrating the principles of good governance,

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accountability, transparency, and results-based programs. Setting up the emergency management system will promote good governance, as it will help consolidate the different functions under a single unit. The centers will act as one financial unit, offering better financial management and accounting control. Administratively, they will be easier to manage, as they will follow similar management control and have management autonomy. They will have well-defined functions and clear targets, which will make them accountable for activities under their control. They will support human resources development through the training functions, which will be delegated to each of the 18 rescue centers. All of these steps will help promote good governance and achieve the long-term objective of continuously improving the high level of safety on the PRC railway network, thereby achieving a high level of customer confidence in the PRC railway safety strategies. ADB-financed consulting services will assist in strengthening the institutional and capacity development functions of the emergency management system. 39. Reforms. ADB has engaged MOR in dialogue aimed at enhancing policy reforms in railway safety during project processing. Significant progress has been achieved and MOR adopted a new Railway Safety Law on 1 September 2007, which provides an increased impetus to railway safety. The classification of railway accidents has been revised to include multiple factors such as number of deaths or injured people; breakdown time and time taken for restoration of services; and economic losses to railway assets during accidents as the key factors. Discussions with MOR have led to the adoption of technologies for (i) training of staff for operation and maintenance;26 and (ii) preventive maintenance and measures to enhance safety during construction, operation, and maintenance. 40. Moving from a project-based approach on safety to a sector-wide intervention is a result of sector dialogue and is a significant step forward. Agreement with MOR to rationalize the location and reduce the number of the emergency rescue and restoration centers will improve railway efficiency, help reduce staff, and improve staff productivity. The investment support for modern and more-efficient equipment and the capacity development program will greatly improve the capacity of rescue, particularly from serious accidents, natural disasters, and calamities. This will help save peoples’ lives, reduce damage and loss to property, and minimize losses from accidents and emergencies. The response time is expected to reduce significantly because of the increased speed, and the restoration time is expected to be reduced by 50% through the use of more efficient, higher capacity, and more versatile equipment. This will improve railway efficiency and enhance railway transportation capacity. The model of financing developed for the Project has also encouraged MOR to seek similar financing support from other development partners and financial institutions for railway safety.27 The intervention is well aligned with the TA support provided for developing the emergency management system in the PRC. The Project will bring in new technology, emphasize safety, and build capacity for MOR. D. Project Investment Plan

41. The project investment cost is estimated at the equivalent of $140 million. Table 1 summarizes the project investment plan and details are in Appendix 9. The cost estimates are based on quantities derived from unit rates, reflecting market prices for goods and materials. 26 ADB recommended MOR to use simulators for hands-on training, trouble-shooting, and checking the response and

reaction of locomotive drivers and operating staff. MOR has purchased two locomotive simulators, placed them in two of the training institutes, and is using them for the training of drivers and other locomotive operating staff. These simulators are expected to improve drivers’ operating skills, and help in objective assessment and evaluation of their response and reaction in the event of accidents and emergencies.

27 Export-Import Bank of the United States has committed $200 million for the purchase of the permanent way equipment for enhancing safety on tracks in 2007.

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Table 1: Project Investment Plan ($ million)

Item Amountsa A. Base Costb 1. Safety Equipment 109.1 2. Installation and Commissioning 5.2 3. Consulting Services, Administration, and Training 3.5 4. Taxes and Duties 4.6 Subtotal (A) 122.4 B. Contingenciesc Price Contingencies 3.6 Subtotal (B) 3.6 C. Financing Charges During Implementationd 14.0 Total (A+B+C) 140.0

a Includes taxes and duties. b Mid-2007 prices. c Physical contingencies computed at 5.6% of base cost on average. Price contingencies computed

at 0.8% for 2008 and thereafter on foreign exchange costs and 2.2% for 2008, and 3% for 2009 and thereafter on local currency costs; includes provision for potential exchange rate fluctuation under the assumption of a purchasing power parity exchange rate.

d Includes interest and commitment charge. Interest during implementation has been computed at the 5-year forward London interbank offered rate (LIBOR) plus a spread of 0.6% and commitment charge of 0.35% for the Asian Development Bank loan.

Source: Asian Development Bank estimates. E. Financing Plan

42. The Government has requested a loan of $100 million from ADB’s ordinary capital resources to help finance the Project. The loan will have a 25-year term, including a grace period of 5 years, an interest rate determined in accordance with ADB’s London interbank offered rate (LIBOR)-based lending facility, a commitment charge of 0.35% per annum, conversion options that may be exercised in accordance with ADB’s loan regulations and conversion guidelines, and such other terms and conditions set forth in the Loan Agreement. The Government has provided ADB with (i) reasons for its decision to borrow under ADB’s LIBOR-based lending facility on the basis of these terms and conditions, and (ii) an undertaking that these choices were its own independent decision and not made in reliance on any communication or advice from ADB. 43. The ADB loan will be used for financing the procurement of the equipment and training of staff. ADB will finance 100% of the contract packages procured under the ADB loan. MOR will finance the installation cost and has made budgetary provisions for the counterpart funds. The allocation of loan proceeds in the Loan Agreement will be presented with reference only to total expenditure, in accordance with the policy on Cost Sharing and Eligibility for Asian Development Bank Financing: A New Approach.28 A summary of the financing plan is in Table 2 and details are in Appendix 9.

Table 2: Financing Plan

($ million) Source Total % Asian Development Bank 100.0 71.4 Ministry of Railways 40.0 28.6 Total 140.0 100.0

Source: Asian Development Bank estimates. 28 ADB. 2005. Cost Sharing and Eligibility for Asian Development Bank Financing. Manila.

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F. Implementation Arrangements

1. Project Management 44. MOR will be the Executing Agency responsible for overall project implementation. MOR will coordinate the project management tasks and be responsible for procurement, withdrawals, and reporting vis-à-vis ADB. MOR confirmed that the staff employed will be experienced in railway engineering, financial, and administrative matters; and implementing projects financed by international financial institutions.

2. Implementation Period

45. The Project will be implemented in about 5 years from January 2008 to December 2012. Procurement will start in January 2008 and installation will be completed in 4 years. Trial operations and final acceptance will be completed by December 2012 (Appendix 10).

3. Procurement

46. All ADB-financed procurement will follow ADB’s Procurement Guidelines (2007, as amended from time to time). ADB will finance procurement of materials and equipment as described in the procurement plan (Appendix 11). Contracts valued equal or greater than $1 million will be procured through international competitive bidding. Contracts valued at less than $1 million will be procured through international competitive bidding or national competitive bidding, in accordance with the PRC Tendering and Bidding Law, 1999, subject to clarifications agreed with ADB as determined by the contract package. Below $100,000, procurement will follow the shopping procedure. MOR will select tendering companies on a competitive basis to handle international bidding. The relevant sections of ADB’s Anticorruption Policy (1998, as amended to date) will be included in all documents and contracts during bidding for, and implementation of, the Project.

4. Consulting Services

47. The ADB loan will be used to finance 5 person-months of consulting services to strengthen institutional and capacity development functions of the emergency management system in PRC railways. Terms of reference for the consultants—to be recruited using the quality and cost-based method (80% technical and 20% financial weightings) and biodata technical proposal, in accordance with ADB’s Guidelines on the Use of Consultants (2007, as amended from time to time)—are in Appendix 12. The provisions of ADB’s Anticorruption Policy will be included in all invitation documents and contracts for international consultants.

5. Anticorruption Policy 48. ADB’s Anticorruption Policy was explained to, and discussed with, the Government. Consistent with its commitment to good governance, accountability, and transparency, ADB reserves the right to investigate, directly or through its agents, any alleged corrupt, fraudulent, collusive, or coercive practices relating to the Project. To support these efforts, relevant provisions of ADB’s Anticorruption Policy are included in the loan regulations and bidding documents for the Project. In particular, all contracts financed by ADB in connection with the Project shall include provisions specifying the right of ADB to audit and examine the records and accounts of MOR and all contractors, suppliers, consultants, and other service providers as they relate to the Project.

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49. In relation to the Project, MOR will ensure that (i) a supervisory body is established for prevention of undue interference in business practices, and adequate resources are made available for its effective operation; (ii) a leading group of officials from the supervision division of MOR is located in offices involved in the bidding, construction, and other operational activities under the Project; and (iii) periodic inspections on the contractor’s activities related to fund withdrawals and settlements are carried out. MOR shall also initiate liaison meetings with the prosecutor’s office, on a needs basis, where any warnings about, or information on, alleged corrupt, fraudulent, collusive, or coercive practices relating to the Project can be discussed.

6. Disbursement Arrangements

50. The ADB loan will be disbursed in accordance with ADB’s Loan Disbursement Handbook (2007, as amended from time to time). Since most payments will be made for large contracts, direct payment, reimbursements, and commitment procedures will be used. If the Government initially funds eligible expenditures, ADB’s reimbursement procedure will be followed. The statement of expenditures procedure may be used for reimbursement of eligible expenditures not exceeding $100,000 per individual payment in accordance with ADB’s Loan Disbursement Handbook. The payments on excess of statement of expenditures ceiling will be reimbursed or liquidated, based on the full supporting documentation process.

7. Accounting, Auditing, and Reporting

51. MOR will maintain separate accounts for the Project and have such accounts and related financial statements audited annually by an external auditor in accordance with auditing standards acceptable to ADB. MOR will submit to ADB, within 6 months after the end of each fiscal year, certified copies of such audited project accounts and MOR financial statements and auditor’s reports, all in English. The audit of such financial statements will include (i) an assessment of the adequacy of accounting and internal control systems with respect to project expenditures and other financial transactions, (ii) an assessment of compliance with loan covenants and ADB requirements for project management, and (iii) an opinion on the use of the statement of expenditures procedure. 52. MOR will make satisfactory arrangements for reporting the progress of project implementation by submitting quarterly progress reports. Within 3 months of completion, MOR will submit a project completion report to ADB.

8. Project Performance Monitoring and Evaluation

53. MOR agreed to a set of indicators for evaluating project performance in relation to its impacts, outcomes, outputs, and conditions. The indicators, to be reviewed at the start of project implementation, include (i) railway transport indicators (passenger and freight services), (ii) safety indicators, and (iii) indicators for capacity development. At the beginning of project implementation, MOR will establish baseline and target values for the indicators. The indicators will be measured at project inception, completion, and 3 years later; and compared with the baseline (Appendix 13). The main sources of data include PRC railway statistics and reports from MOR. MOR will submit a report summarizing the key findings of monitoring at inception, completion, and 3 years later to ADB.

9. Project Review

54. ADB and MOR will carry out review missions annually, including a midterm review in the third year after loan effectiveness, covering all institutional, administrative, organizational,

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technical, environmental, economic, and other relevant aspects that may have an impact on the performance of the Project. The review will examine progress in sector reforms, policy development, and compliance with covenants in the Loan Agreement.

IV. PROJECT BENEFITS, IMPACTS, ASSUMPTIONS, AND RISKS

55. The project benefits and impacts were assessed along with potential risks associated with the Project. The combined benefits and impacts will outweigh the costs, and net benefits will accrue to the people and the freight shippers. A. Economic Analysis

56. The economic internal rate of return (EIRR) was calculated by comparing with- and without- project situations, using constant 2007 economic prices. The Project will introduce new and modern technology for responding more quickly to emergencies, taking less restoration time, and enhancing safety. Economic costs include costs for emergency rescue and restoration equipments, including installation and commissioning. Economic benefits include (i) user cost savings for freight and passenger traffic; and (ii) time savings for diverted passenger and freight traffic from buses, trucks, and other railway lines. The EIRR for the Project is estimated at 57.2% (Appendix 14). Sensitivity analysis tested eight scenarios to assess the robustness of the results of the economic analysis. The initial capital cost would have to be more than 1,154% higher than estimated for the EIRR to fall below the cutoff rate of 12%. Considering the experience of ADB-financed projects in the railway sector, this switching value is unlikely to occur. The freight benefits would have to decrease more than 100% to make the Project economically nonviable. A 1-year delay in completion does not affect economic viability. Combinations of adverse effects of benefits and costs were also tested. The results showed that the Project would maintain its economic viability under plausible scenarios of variability. B. Sustainability

57. The key factors for the sustainability of the emergency system developed are (i) availability of funds for operation and maintenance, (ii) availability of spare parts, and consumables, and (iii) required skills of the staff that will operate this equipment. The Project is part of the Eleventh FYP for railway development, approved by the State Council, with clear targets for implementation and financing allocation. MOR has confirmed the availability of counterpart funds for the Project. The Project will procure 2 years of spare parts and consumables for the first 2 years’ operation and maintenance with the equipment procurement to sustain initial operations. The Government and MOR have committed to the availability of funds for operation and maintenance of the equipment. Enhancing staff skills is included in the project design. These include overseas training, on-site training, and training in the 18 rescue centers set up at the railway administration level. Initially, 250 staff will be trained in the handing of this equipment. C. Environmental Impact and Assessment

58. The Project is classified category C. It will have no adverse environmental impact. The equipment to be procured utilizes energy efficient technologies. The environmental benefits include having the capacity to respond more effectively to railway accidents and natural disasters, thereby limiting any potential pollution resulting from these causes.

17

D. Poverty Reduction and Social Strategy

59. The aim of a safe and secure transportation system is to avoid events that result in the loss of or damage in life, health, and property. It also enables the efficient flow of people and goods; protects the environment from pollution that can result from such events; and is an essential component for a healthy population, a high quality of life, and a prosperous economy. 60. The Project will (i) enhance railway safety, enabling railway users to benefit from lower transport costs; (ii) increase the line capacity, benefiting consumers and producers of goods and services through the provision of timely and efficient transport services and lower logistics costs; (ii) improve staff productivity, enabling railway users to benefit from lower costs; (iv) improve the environment and reduce pollution; and (v) reduce fuel consumption and enhance energy efficiency— enabling the PRC to save valuable foreign exchange. 61. The major project beneficiaries will be (i) the Government, which will benefit from improved safety, reduced economic losses, and a reduced energy bill; (ii) passengers, who will benefit from affordable, faster, and safer trips; and (iii) freight shippers, who will benefit from reduced damages to shipments and more affordable, faster, and safer trips. 62. Safe railway transport will benefit all passengers. The poor will benefit equally or more from the intervention. The links between poverty and accidents are apparent, and the poor are at a disadvantage in recovering from the physical and the economic losses suffered because of injuries or physical loss of goods. The summary poverty reduction and social strategy is in Appendix 15. The Project will provide for an efficient and quicker restoration system that will help reduce economic losses. E. Risks

63. The Project is formulated to minimize potential risks. Based on experience with previous railway projects, traffic demand is estimated conservatively. Sensitivity tests indicate that economic circumstances would have to become substantially adverse for the Project to lose economic viability. Other potential risks for the Project during implementation could be financing, technology, interoperability, and procurement. These risks have been assessed and mitigating measures have been provided based on lessons from other railroad projects in the PRC. Inadequate staff skills are also a risk to the Project. The project design includes a capacity development program to enhance staff skills, as they are critical to the success of the Project.

V. ASSURANCES

64. Specific Assurances. In addition to the standard assurances, the Government has given the following assurances, which are incorporated in the legal documents.

(i) Reform measures. The Government will continue to implement the Eleventh FYP for railway development.

(ii) Equipment quality. The Government will cause MOR to ensure that the emergency rescue and restoration equipment is procured and used in accordance with the Government’s national technical standards, and that supervision, quality control, and contract management are carried out in a periodic and satisfactory manner.

18

(iii) Associated facilities. The Government will cause MOR to ensure that necessary associated facilities required for the operation of the project equipment are completed in a timely manner.

(iv) Supply of rolling stock. The Government will cause MOR to provide sufficient

rolling stock at all times for effective operation of the project equipment.

(v) Sustainability. The Government will cause MOR to ensure (a) adequate counterpart funding, staffing, and institutional support for implementation of the Project; (b) that necessary measures are taken promptly to resolve any issues identified during operation of the project equipment; and (c) appropriate budgetary allocations are made for the continued operation and maintenance of the project equipment.

(vi) Anticorruption. In addition to ensuring compliance with ADB’s Anticorruption

Policy, the Government will ensure, and cause MOR to ensure, that (a) a supervisory body is established for prevention of undue interference in business practices, and adequate resources are made available for its effective operation; (b) a leading group of officials from the supervision division of MOR is located in offices involved in operational activities under the Project; and (c) periodic inspections on the contractor’s activities related to fund withdrawals and settlements are carried out. The Government will also cause MOR to initiate liaison meetings with the prosecutor’s office, on a needs basis, where any warnings about, or information on, alleged corrupt, fraudulent, collusive, or coercive practices relating to the Project can be discussed.

VI. RECOMMENDATION

65. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Asian Development Bank (ADB) and recommend that the Board approve the loan of $100,000,000 to the People’s Republic of China for the Railway Safety Enhancement Project from ADB’s ordinary capital resources, with interest to be determined in accordance with ADB’s London interbank offered rate (LIBOR)-based lending facility; a term of 25 years, including a grace period of 5 years; and such other terms and conditions as are substantially in accordance with those set forth in the draft Loan Agreement presented to the Board. Haruhiko Kuroda President 16 November 2007

Appendix 1

19

DESIGN AND MONITORING FRAMEWORK Design Summary

Performance Targets/ Indicators

Data Sources/Reporting Mechanisms

Assumptions and Risks

Impact An efficient, safe, reliable, competitive railway transport system that contributes to the PRC’s social development is developed in the PRC

Passenger traffic increases from 666 billion passenger-km in 2006 to 950 billion passenger-km in 2012 Freight traffic increases from 2,172 billion ton-km in 2006 to 3,000 billion ton-km in 2012 20% improvement in the rate of accidents per billion traffic units by 2012, over 2006 Operating ratio is less than 1 in 2012

PRC railway statistics before and after the Project Project performance management system at inception, completion, and 3 years after Project completion report

Assumption • Government investment

is implemented as planned

Outcome An efficient and effective emergency management system is developed

136 emergency rescue and restoration centers are set up by December 2012 Rescue time for accident and emergencies is reduced by 50% by December 2012 Restoration time for accident and emergencies is reduced by 50% by December 2012

MOR statistics Progress reports Project administration missions and project completion report Annual reports from MOR

Assumptions • MOR gives high priority

to establishment of safety centers

• Institutional changes are

carried out as proposed

Outputs 1. Modern emergency

rescue and restoration centers are established

Emergency rescue and restoration equipment is procured, installed, and put into operation by 2012 2-year spare parts and consumables required for 2 years of operation emergency rescue and restoration equipment are available by 2012

Progress reports Project administration missions and project completion report

Assumptions • Emergency rescue and

restoration equipment is procured as planned

• Adequate counterpart

funds are provided

2. Corporate governance promoted

The number of emergency rescue and restoration centers is rationalized and reduced from 175 to 136 by 2012

Project administration missions, progress reports, and PCR

• Approval will be given in a timely manner

3. Institutional capacity strengthened

18 comprehensive rescue training centers, complete with training facilities, are set up in the railway administration by 2012 An effective training and skill enhancement program is developed; 250 staff are trained on safety maintenance equipment by 2012 5 person-months of international consulting services are provided for capacity development and institutional strengthening by 2012

Progress reports Project administration missions and project completion report Consultant’s reports

• Adequate counterpart funds are provided

• Trained staff is deployed

in their areas of expertise, and apply their knowledge to daily work

Risk • Adequate funds are not

invested in training

Appendix 1

20

Activities with Milestones 1.1 Contracts awarded by June 2009 1.2 Procurement of equipment completed by December 2010 1.3 Equipment installation completed by December 2011 1.4 Capacity building and staff training completed by December 2011 1.5 Trial operations and final acceptance completed by December 2012

Inputs • ADB: $100 million: $94.71 million

(equipment) $3.54 million (training) $1.75 million

(contingencies) • MOR: $40 million

ADB = Asian Development Bank, MOR = Ministry of Railways, PCR = project completion report, PRC = People’s Republic of China.

Appendix 2 21

PROBLEM AND CONSTRAINTS ANALYSIS

Goal Safe and efficient flow of goods and people on railway network

Objective Reduce network downtime resulting

from disruptions caused by accidents and natural disasters

Benefits to Local Economy and

Population Direct • Safe, reliable,

comfortable transportation

• Reduced damage to goods and people

Indirect • Better health • Influence on public

perception on railway travel

• Investment climate change

Benefits to National Economy

Direct • Reduced time and

budget for railway disruptions

• Reduced travel time • Improved rail

services • Reduced damage

to goods and people

Indirect • Better supply and

lower prices for goods and services

• Improved passenger and labor mobility

Problems Disruption in movement of trains, damages to goods and

people, and delays in shipments

Constraints • Delays in emergency rescue activities • Delays in restoration activities

Contributing Cause Accidents and emergencies

Project Inputs • Rationalize location • Rescue and restoration equipment • Staff training

Project Outputs • Efficient management system • Well-equipped emergency rescue and

restoration centers • Trained staff

Activities • Closure and relocation of centers • Equipment procurement and installation • Training and capacity development

Risks • Poor compliance of

measures to enhance safety

• Inefficient management

Risks • Ministry of Railways

does not proceed with the planned investments necessary to establish a comprehensive emergency rescue and restoration system

Mitigating Factors • Funds have been

budgeted • Ministry of Railways has

shown commitment to improving safety

Mitigating Factors • Monitored at highest level

of management • Capacity to be enhanced

by staff training

Strategy Implement comprehensive emergency rescue

and restoration management system

22 Appendix 3

RAILWAY SECTOR SAFETY STRATEGY

High confidence in the safety and security of the rail transportation system

A competitive and harmonized rail transportation system, both domestically and internationally

Protection of life, health, environment,and property

Effective Regulatory Tools • Impact on efficiency and

effectiveness through consistent legislation • Impact on market

conditions as safer products/practices are purchased/adopted • Effective intervention that

results in corrective measures are being made

Partnerships and Stakeholder Engagement • Improvements to

railway/road infrastructure due to funding programs • Sharing of best practices and

research through information forums • Leverage partnership

participation • Stakeholder satisfaction

Public and Industry Awareness • Influence on public

perception of safety • Influence on public and

businesses to behave in a safe manner • Impact on public awareness

through workshops, campaigns, website, and public service announcements • Sharing of best practices

and research through information forums

Improved Safety Culture • Influence on

industry’s perception of safety • Impact on safety

culture • Impact on industry’s

safety choices in research, innovation, and new products • Proactive corrections

made

Compliance and Management of Risk • Improved

compliance • Proactive

corrections made • High risk areas

targeted • Impact on industry’s

safety choices in research, innovation, and new products

Effective Management • Efficient management

of financial resources-budgets on target • Rail safety is

considered a good place to work by employees • Coordinated efforts

within rail safety and with other directorates for effective and efficient operations

Policy, Regulation, Standards, and Research

Outreach-Education and Awareness Programs

Monitoring Investigation and Enforcement

Program Planning and Management

Legislation, Policy Development, and Interpretation • Development

of legislation, policy, and alternatives • New

technology scanning • Technology

assessment • Interpretation

of policy • Identification

and management of research projects

Intra-Governmental and Departmental Relations • Negotiation of

agreements • Formalized

shared program delivery • Harmonization

and liaison

Education and Awareness Programs • Project

development • Awareness

programs • Skill

enhancement programs • Training

sessions • Training

needs assessment • Information

dissemination

Communications and Consultation • Administration of

consultative committees • Committee

participation • Promotional

activities • Education

sessions • Technical advice • Communication • Needs assessment • Information

dissemination

Program Delivery and Tracking • Work

planning and risk assessment • Enforcement

actions • Complaint

handling • Program

delivery

Issues and Crisis Management • Occurrence

response and investigation • Ministry of

Railways’ observer role • Media

relations • Major issue

management

Planning, Review, and Analysis • Strategic

planning • Investment

planning • Risk analysis • Data

collection • Trend analysis • Quality

assurance • Staff feedback • Environmental

scanning • Ensure

consistency • Emergency

and contingency planning

Administration, Support, and Training • Financial

management • Internal

communications • Records

management • Training needs

analysis • Human

resources • Information

systems support • Course

development and delivery

Funding Programs • Project

development • Approval and

certification • Review

proposals • Program

administration and oversight

Vision: Safe, reliable, and efficient railway transportation system developed in the People’s Republic of China

Out

com

es

Key

Res

ult

Are

as

Key

Act

iviti

es

Prog

ram

Fun

ctio

ns

Appendix 4 23

RAILWAY SECTOR ANALYSIS A. Railway Sector Profile 1. Key Features. Despite government efforts to increase the country's transport capacity, serious constraints and bottlenecks remain, especially in the road and railway sectors. By the end of 2005, the People’s Republic of China (PRC) transport system comprised about 75,438 kilometers (km) of railways, 1.86 million km of highways, 123,300 km of inland waterways, and 2.05 million km of civil aviation routes. However, the density of the transport network ranks among the lowest in the world relative to either population or geographic area. From 1978, when economic reforms were first introduced, through to 2006, the PRC experienced sustained rapid economic growth. This resulted in a rapid increase in demand for transportation. The annual growth of passenger transport was 7.6% and freight transport 9.0% during 1978–2006. Railways are the principal mode of freight transport in the PRC. In 2006, the modal split for freight ton-km was 47.5% for railways followed by 27.9% for inland waterways and sea-shore shipping, 21.1% for roads, 3.3% for pipelines, and 0.2% for civil aviation. In 2006, road traffic accounted for 52.8% of total passenger-km, followed by railways with 34.5%, civil aviation with 12.3%, and coastal and inland waterways with 0.4%. 2. Recent Developments. To improve transport inefficiencies and eliminate transport bottlenecks that constrain efficient economic development, the Government increased investment in transport infrastructure in the Tenth Five-Year Plan (FYP), 2006–2010, and the Eleventh FYP, 2006–2010. Investment in transport infrastructure as a share of gross domestic product (GDP) more than doubled in the last decade. By the end of 2005, a total investment of CNY308 billion for capital construction was made for constructing 6,458 km of new lines, providing 3,725 km of double lines and electrifying 6,259 km of tracks. A World Bank study1 indicates that total transport investment should be increased to at least 3.8% of GDP to avoid economic costs associated with transport constraints. To meet the increase in transport demand, more infrastructure investments are needed. The Government continues to accord high priority to transport. 3. Future Development Priorities and Outlook. The Eleventh FYP envisages substantial investments in the road and railway sectors from both domestic and international financing sources, including the private sector. It continues to emphasize railway development, and seeks to speed up railway construction. The plan envisages (i) constructing 17,000 km of new lines, and (ii) that 45% of the network length will be double-track and electrified. It seeks to (i) build a dedicated passenger railway network through the construction of 7,000 km of passenger dedicated lines by 2010; (ii) develop coal transport corridors by increasing capacity of the existing lines; (iii) expand the railway network in the poor western region (to reach 34,000 km); (iv) build international corridors at the borders in the southwest and northwest; and (v) develop a countrywide intermodal container network. A total investment of CNY1.5 trillion or about $190 billion (CNY1.25 trillion for construction and CNY250 billion for rolling stock) is planned over the next 5-year period (Table A4). 4. In 2004, the State Council approved the new railway development plan (up to 2020). The plan seeks to expand the railway network from 74,000 km in 2004 to 85,000 km by 2010, and to

1 East Asia and Pacific Regional Office. World Bank. 1998. China: Forward with One Spirit: A Strategy for the

Transport Sector. Report No. 1595-CHA Transport Sector Unit. Washington, DC.

24 Appendix 4

100,000 km by 2020. Increasing train speed is a major goal.2 Priority will be given to developing railways in unserved areas, and regions that lack transport and have remained less developed. The route network length will be increased by 16,000 km to reach 40,000 km in the western region of the PRC by 2020. The plan calls for separating passenger and freight traffic in heavily trafficked corridors, and 12,000 km of passenger dedicated corridor will be developed by 2020. The plan also seeks to ensure a high level of safety performance in infrastructure construction and construction services by (i) strictly adhering to safety regulations, (ii) strengthening transport safety by using modern and better quality equipment, (iii) proper training of staff, (iv) improving staff education and technical skills, (v) strengthening the responsibility and accountability for safety in railway transportation, and (vi) comprehensive management of public security. 5. Other Development Partner Operations. In the railway subsector, the Japan Bank for International Cooperation and the World Bank, in addition to the Asian Development Bank (ADB), have been mainly involved in expanding the capacity of national railways. In the past 20 years, the Japan Bank for International Cooperation has provided ¥578 billion for 15 railway projects to expand rail transport capacity, particularly in major coal transport corridors. It has also financed development of new sections of the national railway network in inland provinces. Since 1984, the World Bank has provided 11 loans totaling $2.6 billion for 10 national railway projects and one local railway project. ADB introduced the French Development Agency in the PRC railway sector in 2004,3 and has since financed two railway projects. In recent years, German development cooperation through Kreditanstalt für Wiederaufbau has also provided assistance to the Ministry of Railways (MOR) for financing three railway projects. B. Asian Development Bank Experience 6. Assistance in the Sector. ADB has focused on improving infrastructure in less developed and poor regions to promote sustainable economic growth and reduce poverty. Since 1989, ADB has provided 14 loans totaling about $2.9 billion to help finance the construction of 1,921 km of new railway lines under eight local railway projects, and 5,541 km of new railway lines under six national railway projects. These projects have introduced modern technology and improved the efficiency of railway operation through institutional and structural reforms. ADB also provided 12 technical assistance initiatives totaling about $5.6 million to promote the commercial operation of railways, establish corporate governance, achieve cost recovery, and improve railway management. 7. Evaluation of Assistance. The evaluation4 of ADB assistance for the transport sector in the PRC assessed ADB program’s for railways “successful”. The evaluation noted that, in the railway subsector, ADB strategic priorities were well aligned with PRC needs. Its overall focus of building railways using modern technologies addressed needs to increase railway capacity and reduce the persistent gap between demand and supply as quickly and efficiently as possible. ADB’s priority of improving efficiency and commercial orientation, and its emphasis on restructuring and reforming policy, was well matched to evolving institutional reforms in railways. 8. Experience from completed and ongoing ADB-financed railway projects in the PRC shows strong commitment and generally satisfactory capabilities of the executing agencies 2 In April 2007, train speed was increased to over 160 km/hour (h) on 14,000 km and 200–250 km/h on 6,000 km of

railway lines. 3 AFD cofinanced ($40 million) ADB. 2004. Report and Recommendation of the President to the Board of Directors

on a Proposed Loan to the People’s Republic of China for the Dali–Lijiang Railway Project. Manila. 4 ADB. 2007. Sector Assistance Program Evaluation of the Asian Development Bank Assistance for Roads and

Railways in the People’s Republic of China. Manila.

Appendix 4 25

(EAs) for project implementation. The speed of implementation has often exceeded expectation at the time of appraisal. The EAs generally complied with the loan covenants. Resettlement and environmental management were carried out satisfactorily. Audited financial statements were submitted in a timely manner, and the audited financial statements were found generally acceptable. Of ADB’s 14 railway projects, eight are complete, two started trial operation, and four are under implementation. The key lessons highlight the need to (i) ensure that the EA established for project processing and implementation has adequate capacity; (ii) prepare realistic traffic forecasts; (iii) review constraints to traffic on a network basis, and the impact on project viability of the existing and/or planned railway lines and other transportation modes that may compete with the project facilities; and (iv) finance railway projects with appropriately determined debt-equity ratios. The railway projects have contributed to a dramatic transformation of local economies. Per capita rural incomes in project areas increased substantially. Living standards were raised and poverty reduced. The project performance audit report5 for the ADB-financed Jing–Jiu railway project in the PRC concluded that the project was “successful” and exceeded its original passenger traffic forecasts. C. ADB Strategy 9. Strategy and Priorities. ADB’s strategy for the railway sector has three broad objectives: (i) improve economic efficiency, (ii) promote growth in poor inland provinces to reduce poverty, and (iii) protect the environment and manage natural resources. In pursuit of these three objectives, the strategy supports developing efficient and integrated transport networks to meet the needs of a growing market economy and to contribute to reducing poverty through investment targeting poorer areas, coupled with policy and institutional reforms. Because of the importance of railway transport for the development of the national economy, ADB’s strategy for the railway sector focuses on (i) expanding the railway system by constructing new lines in unserved areas that are less developed and poor; (ii) modernizing railways, enhancing safety, and increasing the capacity to improve transport efficiency on key routes of the national railway system; (iii) commercializing railway operations to sustain efficient operations; (iv) promoting energy conservation and environmental sustainability; and (v) increasing railway competitiveness in the transport system through restructuring and reform. 10. Poverty Reduction. ADB focuses on four issues to enhance the poverty reduction impacts of transport investments: (i) locating ADB-financed projects in less developed and poor regions where new lines will stimulate economic development, (ii) encouraging maximization of employment of poor people during project construction and operation, (iii) supplying local materials that meet the requirements of quality and economy from poor villages, and (iv) providing station access roads and link roads to widen project benefits to poor interior areas. 11. Governance and Policy Reform Agenda. The ADB policy reform agenda in the railway sector is contributing to restructuring MOR, commercializing operations, supporting management autonomy of railway operations, developing human resources, and improving financial management and accounting systems. 12. Promoting Private Sector Development. The PRC’s large infrastructure needs require local governments to shift from traditional financing modes to capital markets. In the railway sector, a wider role for the private sector is envisaged. ADB’s policy dialogue encourages increased private sector participation in the railway sector. ADB is assisting MOR with a study to

5 ADB. 2002. Project Performance Audit Report on the Jing–Jiu Railway Technical Enhancement Project in the

People’s Republic of China. Manila.

26 Appendix 4

examine opportunities for diversified financing sources, increased private sector involvement, and the possibility of public-private partnerships in the PRC railway sector. Possible areas for private participation include container transportation, setting up inland container depots, industrial sidings, commercial services, tourism, parcel-related businesses, and equity stake in projects. MOR has taken steps to create the conditions necessary to attract investments in the project facilities and services from nongovernment and private sector sources. In 2005 and 2006, the State Council and MOR issued guidelines on facilitating the investment and financing system reforms, which seek to reduce the threshold of the investment, encourage private sector to invest, and welcome strategic investors in railway financing.6 Strategic and private investors7 are participating in the project equity of the ADB-financed Taiyuan–Zhongwei Railway Project.8 In 2006, an initial public offering for Daqin railway company (CNY15 billion) was made, which was heavily oversubscribed. 13. Regional Cooperation. The PRC is an active participant in three regional cooperation initiatives: (i) through Yunnan and Guangxi province for the Greater Mekong Subregion, (ii) through the Xinjiang Autonomous Region for the Central Asian republics initiative, and (iii) through Inner Mongolia with Mongolia. Improvement of cross-border trade regimes is a common feature of these initiatives. Since these programs involve the poorer areas of the PRC, expanding regional markets and options could help reduce poverty. The Greater Mekong Subregion and Central Asia Regional and Economic Cooperation programs are developing strategies for transport cooperation, of which railway is an important subsector. Steps are being taken to develop an institutional framework to facilitate the implementation of regional transport projects, e.g., Uzbekistan–Kyrgyz Republic–PRC railway development and the Pan-Asian railway project (Singapore–Kunming railway link project). D. Performance Monitoring and Evaluation 14. Monitoring Targets, Indicators, Modality, and Processes. The Government monitors and evaluates sector performance annually; these are reviewed by ADB through the process of the country partnership strategy. Indicators for evaluating sector performance include (i) economic development and poverty indicators for the western region; (ii) transport density in relation to land area and population; (iii) public and private investment in railways; (iv) transport demand for freight and passengers with modal split data; (v) level of user charges (railway construction surcharges, etc.); and (vi) cross-border traffic volumes with the Central Asian republics, Greater Mekong Subregion, and Mongolia.

6 China National Oil Petroleum Company is financing CNY1.7 billion for Beijing–Tianjin intercity railway line, whose

construction started in July 2005 and is expected to be completed by August 2006. 7 China Communication Construction Engineering Group, Beijing; China Engineering Construction Group, Beijing;

and Shaanxi Province Hualong Energy Limited Liability Company, Xi’an. 8 ADB. 2006. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the

People’s Republic of China for the Taiyuan–Zhongwei Railway Project. Manila.

Appendix 4 27

Table A4: Railway Sector Road Map Indicators Item 2000 2006 2010 A. Sector Outcomes 1. Service for poor areas Low Low Improving 2. Increasing capacity in key routes Moderate Moderate Improving

B. Sector Outputs

1. Expanded railway network (route-km) 68,650 77,000 90,000 2. Higher rail density (km/100 km2) 3. Improved railroad conditions 4. Increased traffic volume (billion ton-km) 1,830 2,838 5. Freight (billion ton-km) 1,277 2,172 6. Passenger (billion passenger-km) 453 666 7. Share of high-speed network (%) 15

C. Sector Issues and Constraints

• Inadequate rail network, particularly in unserved and poor areas

• Need to modernize and increase capacity in key routes • Need to commercialize railway operations to sustain

efficient operation • Weak corporate governance of local railways • Low level of private sector participation • Need to promote regional cooperation with Greater

Mekong Subregion, Central Asian republics, and Mongolia

D. Actions, Milestones, and Investments

Agency Issue Schedule ADB Others/External GovernmentFour South–North and Four East–West Railways

2005–2020 X World Bank AFD KfW

X

High Speed Passenger Network (20,000 km)

2004–2020 X World Bank X

High Speed Freight Network (16,000 km) 2003–2020 X World Bank AFD KfW

X

Accelerate Railway Construction in West 2004–2020 X World Bank AFD

X

Enhance Safety on the Railway Network Investment Needs: $150 billion

2004–2020

2006–2010

X

X

World Bank KfW

World Bank AFD KfW

X

X

Reforms and Restructuring Ongoing X World Bank X ADB = Asian Development Bank, AFD = Agence Française de Développement (French Development Agency); KfW = German development cooperation through Kreditanstalt für Wiederaufbau; km2 = square kilometer, X = included in investment program. Source: ADB estimates.

28 Appendix 5

MANAGEMENT OF RAILWAY SAFETY 1. Managing safety is an important aspect of reliable transportation and critical to providing a competitive, high quality, and safe mode of transport to people and goods. The People’s Republic of China (PRC), a country with diverse geology and challenging environment, has two thirds of its areas threatened by floods; nearly half of the cities located in the seismic belt; more mountainous area than plain areas; great elevation differences between east and west; frequent geological disasters such as landslides and flow of debris; frequent typhoons in the southern part; frequent sandstorms and windstorms in the western part; and snowstorms in the northern part. PRC railways crisscross the length and breadth of the country, and this working environment makes managing safety on the PRC railways a technical and human challenge. 2. The Government and Ministry of Railways (MOR) attach great importance to rail transport safety, and it is an important cornerstone of the PRC railway development strategy. Safety is an inherent element underlying all planned modernization and technological upgrading on PRC railways. It is supported through various development plans, such as the Five-Year Plans, Annual Development Plans, and Long Term Railway Network Development Plan 2020, which include strategy and investments in the important area of railway safety. 3. The Long-Term Railway Network Development Plan to 2020 (2020 Plan),1 which lays down an ambitious blueprint of railway network development until 2020, envisages that safety of rail transport services shall be ensured by (i) strictly adhering to safety regulations, (ii) improving staff education and technical skills through training, (iii) upgrading technology and modernizing equipment for railway operation and safety, and (iv) strengthening responsibility and accountability for safety in railway transport. 4. The 2020 Plan also envisages that information technology and computerization will cover all facets of railway operation and management—particularly transport safety and operations—because of the typical characteristics of the railway system. It also recognizes that expansion of the railway network and technological upgrading have not been accompanied by investments and development in human resources, and seeks to provide impetus by increased investment support. MOR has adopted a proactive strategy for safety management and adopted initiatives that cover technology, equipment, and human resource development through training and education under the 11th Five-Year Plan. 5. PRC railways have a well established three-level organizational structure (ministry, railway administration, and station) for the management of safety on the railways (Figure A5.1). 6. Within MOR, the supervision of safety is the responsibility of the Safety Supervision Bureau (SSB), which has three divisions. SSB is headed by a director general, and has the following responsibilities:

(i) supervise the execution by railway administrations and related departments of the directions, policies, laws, regulations, and instructions on safety of production issued by the state;

(ii) supervise the implementation of regulations, acts and measures relating to operational safety, non-railway personnel safety and accident treatment;

(iii) supervise maintenance and repair, and periodical repair of all train operation equipment;

1 The 2020 Plan was approved by the State Council in January 2004.

Appendix 5 29

(iv) monitor and check the training, education, and examination of staff directly involved in train operation; urge the relevant department and unit to take effective measures to improve the quality of operation staff;

(v) assist in the preparation and modification of Railway Technical Management Regulations and other codes, regulations, instructions, and the train working diagram;

(vi) prepare regulations for treatment of railway operation accident and train operational safety supervision work; and

(vii) organize the relevant railway entities to carry out investigation and treatment of very large train operation accident and large accidents of a serious nature; and to review and propose follow-up measures in the case of very large or large accidents that are controversial or those that are not properly treated.

7. The three divisions of SSB have the following functions:

(i) General Division: (a) general administration of SSB; (b) carry out analysis of accidents on all railways, including the national railway, joint venture railway, and local railways; and (c) any other matter not covered by the other two divisions.

(ii) Operation Safety Division: (a) carry out investigation, determine cause(s) and responsibility for operational accidents; (b) arrange and oversee training of staff in areas of operation safety; and (c) oversee preventive actions to be taken by railway administrations based on the recommendations made in accident investigations.

(iii) Labor Safety Division: (a) supervise the operational departments and entities of PRC railways with regard to their implementation of national policies, laws, regulations, and instructions on safety; (b) supervise the performance of staff responsible for operational safety; (c) supervise labor and operational discipline relevant for operational safety; (d) organize investigations and determine cause(s) in the case of extra large accidents and any other fatal accident that is considered important, as a special case; and (e) carry out analysis of accidents involving staff.

8. The staff of SSB has expertise in railway operation and safety, including the disciplines of transportation, locomotive, rolling stock, permanent way, and signaling and communications. Staff from any of the three divisions may be specially appointed inspector of safety supervision for participation in investigations of accidents in accordance with the regulations for safety and accident treatment.

30 Appendix 5

9. The second level of safety management is at the railway administration level. Within the railway administration, a safety supervision office is responsible for monitoring safety in the jurisdiction of the railway administration. The safety supervision office has a dual reporting function—it reports to the director general of the RA and submits direct reports to SSB. Following the dissolution of 41 sub-railway administrations in April 2005 as part of the organizational reform, the safety supervision offices in the former sub-railway administration have been reorganized into safety supervision branch offices to monitor the safety functions. Strengthening of the safety supervision branch offices was done by assigning additional staff

Director General

Deputy Director-General

General Division (Chief [1],

Members [2])

Labor Safety Division (Chief [1],

Members [2])

Operation Safety Division (Chief [1], Deputy Chief [2],

Members [4])

Ministry of Railways

Safety Supervision

Bureau

Railway Administration Safety Supervision Office

Safety Supervision Branch Office (one or three offices

under each Railway Administration)

Safety Section at every Station and Depot

Remaining 17 Railway Administrations

have similar setup

Railway Administration

Source: Consultant based on Ministry of Railways Regulations.

Figure A5.1: Safety Organization for Ministry of Railways

Appendix 5 31

from those rendered surplus in the former sub-railway administrations.2 The safety supervision branch offices monitor and supervise the safety functions of railway operation staff in the field units (i.e., stations and depots). 10. The third level of safety management is the field level, where every station and depot has a safety section for monitoring and supervising railway operation safety functions in the field unit. 11. Every year, MOR organizes a National Safety Work Meeting that reviews the work done in the field of safety in the past year and prepares a program of work to be done in the future for enhancing safety. MOR also conducts urgent inspections of railways and related facilities to ensure safe transportation;3 and regularly issues directions to the railway administrations and stations for safety drills, inspections, and undertaking special preventive measures to avoid accidents. 12. The structure for implementing and monitoring safety of railway operations has worked well. Continual improvement in railway operational safety is evidenced by the continuous declining trend in all accident statistics (Table A5). This is indicative of the efficacy of the safety organization. Following the dissolution of the sub-railway administrations, the strengthening of the safety function in the newly constituted safety supervision branch offices was a step in the right direction.

Table A5: Accident Statistics of Railways in the People’s Republic of China Number of Accidents Accident Losses

Year Total Extra Large, Very Large, and Large

Asset in CNY million Loss of life Grievous

Injuries

1990 4,126 64 40.00 166 317 1995 3,010 19 31.58 91 176 2000 827 19 44.15 65 106 2005 1,142 11 34.07 39 59

Source: Consultant based on information from Ministry of Railways. 13. With respect to the handling of accidents, a detailed procedure has been laid down for reporting railway accidents and incidents to various levels of management within the Government and MOR. The procedure4 stipulates that the occurrence of an extra large accident is to be reported to the State Council within 24 hours of its occurrence. Within MOR, the General Division of SSB is responsible for collating statistics and preparing analysis of all accidents on the national, joint ventures, and local railways in the PRC. The regulations5 lay down in detail the procedure and responsibilities for reporting accidents, and require swift measures to be taken for rescue and relief after the occurrence of an accident to minimize losses.

2 About 90% of the sub-railway administration staff was declared redundant. 3 In the summer of 2000, there was a nationwide push for transportation safety after several serious accidents

resulted in loss of life. MOR issued directions to the railway administrations and stations to check rail conditions within their areas carefully, including fire-and-flood control measures along railways; and strict regulation of construction sites and on-the-job safety. MOR issued instructions to stop any overloading of freight and passenger trains and to severely punish those responsible.

4 State Council regulation no. 34, issued in 2000 for extra large accidents and MOR3 (2000) for all other accidents. 5 MOR Regulation No. 3, 1 July 2000.

32 Appendix 5

14. The organizational arrangement for accident rescue and relief is well established (bottom-up approach) and is detailed in Figure A5.2. It starts from the first information report from the field and works upward to the railway administration and then to MOR.

Figure A5.2: Flow Chart of Rescue and Relief after Accident

Source: Consultant based on Ministry of Railways Regulations. 15. The regulations issued by the State Council and MOR detail the procedure for investigation of accidents. In the event of an extra large accident, the provincial government or the relevant department in charge of the State Council (i.e., MOR) should organize an investigation of the accident. In such cases, MOR participates by specially appointing an inspector of safety supervision (from SSB) to participate in the accident investigation group, which includes members from provincial government, public security, and other relevant departments. The investigation of accidents other than extra large is carried out by the railway administrations.6

6 MOR may specifically appoint an inspector of safety supervision to investigate an accident if it is considered

necessary, based on the importance of the accident. However, such an exception is rarely made.

Director of rescue train and rescue

train term leader

Director general of

railway administration and relevant

deputy director general

Director general of Railway Public

Security Department

Director of Safety

Regulation Office of railway administration and division

chiefs of relevant divisions

Relevant stationmasters and chiefs of such units as operation organization,

passenger traffic, locomotive maintenance, way

maintenance, signaling and communications, power supply, water supply, and logistics, as well as relevant medical staff

Train Operation Guard (or driver)

Train Controller in Railway Administration

Control Section Chief on duty in Railway Administration

If necessary, immediately rush rescue train to the site of accident and inform the following to proceed immediately to the site

Appendix 6 33

EXTERNAL ASSISTANCE TO THE RAILWAY SECTOR A. Japan Bank for International Cooperation Loans Period Amount (¥ million) 1. Yangzhou–Shijiusuo Railway Construction 1980–1983 39,710.0 2. Beijing–Qinhuangdao Railway Construction 1980–1983 87,000.0 3. Hengyang–Guangzhou Railway Transportation Reinforcement 1980 3,320.0 3A. Hengyang–Guangzhou Railway Transportation Reinforcement 1984–1987 70,294.0 4. Zhengzhou–Baoji Railway Electrification 1984–1988 69,191.0 5. Datong–Qinhuangdao (east section) Railway Construction 1988–1989 18,410.0 6. Beijing Subway Construction 1988–1989 4,000.0 7. Shenmu–Shouxian Railway Construction 1991–1993 26,985.0 8. Baoji–Zhongwei Railway Construction 1991–1993 29,800.0 9. Hengshui–Shangqiu Railway Construction 1991–1993 23,603.0 10. Nanning–Kunming Railway Construction 1991–1994 57,696.0 11. Fujian Province Zhang Quan Railway Construction 1993 6,720.0 12. Beijing Subway Second Phase Construction 1991–1994 15,678.0 13. Shouxian–Huanghuagang Railway Construction 1996–1997 60,420.0 14. Xian–Ankang Railway Construction 1996–1997 35,039.0 15. Guiyang–Loudi Railway Double Tracking 1996–1997 29,960.0 Total 577,826.0 B. World Bank Loans Approval Date Amount ($ million) 1. Railway I: Construction of a Single Track between Xinxiang and Heze 27 Jun 1984 220.0 2. Railway II: Upgrading and Electrification of Zhengzhou–Wuhan Line 14 May 1985 235.0 3. Railway III: Upgrading and Electrification of the Chongqing–Guiyang Lines 15 Apr 1986 230.0 4. Railway IV: Double-Tracking of the Yueshan–Xiangfan Section 23 Jun 1988 200.0 5. Inner Mongolia Local Railway: Construction of Jining to Tongliao Line 12 May 1989 150.0 6. Railway V: Double-Tracking of the Zhuzhou–Hangzhou Line 24 Sep 1991 330.0 7. Railway VI: Electrification of Double-Track Beijing–Zhengzhou Line, and

Others

25 Mar 1993

420.0 8. Railway VII: Electrification of Wuhan–Guangzhou Line, and Others 1 Jun 1995 290.0 9. National Railway I: Langzhou–Baoji Double Tracking and Upgrading Second

Line and Electrification

29 Jan 2002

160.0 10. National Railway II: Upgrading Electrification of the Zhe–Gan Railway Line 24 Jun 2004 200.0 11. National Railway III Upgrading Electrification of Zhanyi–Lupanshui Railway

Line

23 Jan 2007

200.0 Total 2,635.0 C. Asian Development Bank Loans Approval Date Amount ($ million) 1. 948 Shanxi–Xiaoliu Railway 31 Jan 1989 39.7 2. 1087 Yaogu–Maoming Railway 20 Jun 1991 67.5 3. 1167 Guang–Mei–Shan Railway 25 Jun 1992 200.0 4. 1221 Hefei–Jiujiang Railway 30 Mar 1993 110.0 5. 1305 Jing–Jiu Railway Technical Enhancement 14 Jul 1994 200.0 6. 1439 Dazhou–Wanzhou Railway 4 Jun 1996 100.0 7. 1553 Shenmu–Yanan Railway 29 Sep 1997 200.0 8. 1626 Guizhou–Shuibai Railway 18 Aug 1998 140.0 9. 1748 Hefei–Xi'an Railway 17 Aug 2000 300.0 10. 1850 Ganzhou–Longyan Railway 30 Oct 2001 200.0 11. 2051 Yichang–Wanzhou Railway 16 Dec 2003 500.0 12. 2116 Dali–Lijiang Railway 2 Dec 2004 180.0 13. 2182 Zhengzhou–Xi’an Railway 22 Sep 2005 400.0 14. 2274 Taiyuan–Zhongwei Railway 23 Nov 2006 300.0 Total 2,937.2 D. Asian Development Bank Technical Assistance Approval Date Amount ($’000) 1. 1117 Institutional Assistance to Provincial Railway Operations 31 Jan 1989 450.0 2. 1523 Institutional Strengthening of Guangdong Sanmao Railway Company 20 Jun 1991 965.0 3. 1524 Regional Railway Sector Study 20 Jun 1991 275.0 4. 1720 Institutional Strengthening of Guang–Mei–Shan Railway Company 25 Jun 1992 250.0 5. 1721 Institutional Strengthening of Guangdong Planning Commission 25 Jun 1992 250.0 6. 1861 Strengthening Business and Commercial Practices of the Hefei–

Jiujiang Railway Company and Anhui Province 30 Mar 1993 600.0

7. 2122 Policy Support to the Ministry of Railways 14 Jul 1994 600.0 8. 2578 Institutional Strengthening of Local Railways in Sichuan 4 Jun 1996 400.0 9. 2878 Institutional Strengthening of Local Railways in Shaanxi 29 Sep 1997 400.0 10. 4325 WTO-Policy Reform Support to MOR 2 April 2004 400.0 11. 4701 Railway Passenger and Freight Policy Reform 28 Nov 2005 400.0 12. 4864 Managing Railway Passenger Operations More Efficiently 9 Nov 2006 600.0 13. 4995 Railway Emergency Management System Study Total

30 July 2007 500.0 6,090.0

MOR = Ministry of Railways, WTO = World Trade Organization. Source: ADB estimates.

34 Appendix 7

REFORM AGENDA MATRIX Item 2004 2005 2006 2010 2020 Railways’ Mission: Support sustainable development as the primary transport mode in the People’s Republic of China Objectives (i) Develop the railway network (8 vertical and 8 horizontal

backbones) (ii) Provide users with affordable, safe, fast, reliable, punctual, and

comfortable transportation, by means of sector reforms

Provide users with high-tech services and increase transportation capacity for both freight and passengers to meet unrealized demand, carry out western railway development for poverty reduction, and fulfill the railways’ public service obligations

A highly technologically advanced railway system in terms of service quality, hardware, and software will be established

Major Indicators Operating length (national lines) in km Network density • Route-km per 10,000 m2 of land • Route-km per 10,000 people Employees per route-km

74,000 (60,446)

76.0 0.57 24.5

75,438 (62,200)

78.1 0.58 23.9

77,000 (62,000)

80.2 0.59 23.3

90,000 (68,000)

83.3 0.60 21.9

100,000 (75,000)

93.8 0.66 18.5

Technological Reform (i) Modernize equipment (ii) Develop high-speed passenger

transport services and passenger dedicated lines

(iii) Develop and implement management information system

(iv) Optimize railway assets and increase their turnover

• DMIS implemented

on some major routes

• Passenger train speed increased to 200 km/h on some major routes

• Express passenger services

begin on some major backbones/routes

• Better technical design standards will increase operating speed

• Passenger ticketing fully computerized

• Construction of dedicated passenger lines started

• Major rehabilitation

works on the east–west and north–south backbones carried out

• Passenger train speed increased to 200 km/h on 6,000 km

• Work on increasing passenger train speed to 250 km/h on some major routes started

• Equipment

modernization program will be completed

• 7,000 km of high-speed passenger dedicated lines will be completed

• Traffic control on the major backbones is centralized

• 18 large container terminals will be established

• 12,000 km of

passenger dedicated corridor will be developed

• 20,000 route-km double-decker container services network will be built to link the container terminals

• Automatic train control will lead to better safety

Institutional Reform (i) Separate noncore businesses (ii) Separate government and regulatory

function from commercial function (iii) Separate social infrastructure (iv) Separate passenger services from

freight and infrastructure operation (v) Restructure branch lines (vi) Renew management concept

• 5 major enterprises

were separated in September 2000, and 3 in December 2003

• Separation of hospitals and schools completed

• New management concept

launched after an assessment of asset operating liability system

• Abolishing one tier of railway management (sub-railway administration)

• Separation of noncore

businesses completed by 2007

• Outsourcing of track and train maintenance considered

• Promote construction of joint venture railways

• Separation of social

infrastructure will be substantially completed by 2010

• Productivity equivalent

to that of railways in developed countries will be attained by reducing personnel and streamlining business practices

Social Security Reform (i) Reform the pension system (ii) Reform health insurance (iii) Continue diversified economy program

Social benefit reform (pension and health care) started in 1998 and is completed Diversified economy company program is ongoing; 416,000 redundant personnel were transferred to diversified economy companies

Structural Reform (i) Corporatization (ii) Diversify financing (iii) Increase private sector participation (iv) Reform tariff regime

• First initial public offering was in 1995 • CNY8 billion bonds were issued as part of a total

CNY12 billion railway bonds program • Certain high value-added business segments are

corporatized

• The financing capacity of the sector will be increased by using various modalities, including private sector financing

• Corporatization of branch lines will be completed

• New line tariff policy will be considered for applications

• Intra-modal competition will be introduced and an independent regulatory body established

Regulatory Reform • Railway Law, 1989, was revised in 1999 • Accession to WTO permitted qualified foreign freight operators to obtain a maximum 30-year concession. A full concession for foreign operators is available from 2007 onward

DMIS = dispatch management information system, km/h = kilometer per hour, m2 = square meter, WTO = World Trade Organization. Sources: Asian Development Bank and Ministry of Railways.

Appendix 8

35

LESSONS LEARNED FROM ASIAN DEVELOPMENT BANK-FINANCED RAILWAY PROJECTS

Loan/TA Objectives Major Accomplishments and Lessons Learned Shanxi–Xiaoliu Railway (Loan 948) EA: Shanxi–Xiaoliu Railway Company

(i) Promote efficient and economic transport of minerals and agricultural outputs (ii) Facilitate industrial development in the poor project area (iii) Provide efficient passenger services linking the project area to the national railways

The project was classified “unsuccessful” because of a shortfall in traffic and resulting low economic internal rate of return, poor institutional setup, and operational constraints on the adjacent locally funded section.a The post-evaluation highlighted the need to (i) have a fully functional and committed EA responsible for both construction and operation at the project planning stage, (ii) prepare realistic traffic forecasts, and (iii) ensure adequate institutional setup. However, since post-evaluation, the operating performance has improved substantially because of new management and some physical improvements.

Institutional Assistance to Provincial Railway Operations (TA 1117)

Strengthen the Shanxi–Xi’aohiu Railway Company financial management and accounting, tariff setting, and management information systems

Part 1 of the TA assisted the EA with construction management. Part 2 helped address the areas of concern for improving operation. However, this assistance was not sufficient to overcome problems associated with this project.

Yaogu–Maoming Railway (Loan 1087) EA: Guangdong Sanmao Railway Company

(i) Permit efficient and economic rail transport (ii) Improve connections to the national railway network (iii) Improve transport links to three special economic zones

The PCR concluded that the project was “successful”.b Traffic exceeded forecasts and commercial operations were successful. There was rapid economic growth and substantial social changes in the project area after project completion. Jobs created in tertiary industry helped women improve their social status. The EA was restructured into a joint-stock company. An important lesson was to ensure appropriate capital adequacy for such projects, as 100% debt financing is not financially sustainable.

Institutional Strengthening of Guangdong Sanmao Railway Company (TA 1523)

Computerize financial and operational systems and study ways to introduce market-based reforms to enhance efficiency

The TA supported the establishment of a market-oriented and profit-conscious management. The organizational structure was rationalized, corporate profitability objectives established, and associated management policies implemented. Computerization aided management and financial decision making.

Regional Railway Sector Study (TA 1524)

Assist in railway planning, focusing on local railways in the south and southeast PRC

The TA helped identify railway projects for development of unserved areas. Some have been built.

Guang–Mei–Shan Railway (Loan 1167) EA: Guang–Mei–Shan Railway Company

(i) Permit efficient and economic rail transport within the project area and to other regions (ii) Establish the essential transport infrastructure to develop mining, industry, agriculture, and tourism

The PCR rated the project “successful”.c Commercial operation started 1 year ahead of schedule. Traffic and revenues exceeded forecasts. The railway had a substantial socioeconomic impact.d Incomes and living standards in the project area were raised and poverty reduced after project completion. Employment creation in the service industry increased opportunities for women. Debt-servicing problems resulting from 100% debt financing were addressed by financial restructuring. Based on the successful financial performance, the Guang–Mei–Shan Railway Company raised $510 million through an initial public offering on the New York Stock Exchange in 1996.

Institutional Strengthening of Guang–Mei–Shan Railway Company (TA 1720)

(i) Improve management information and financial systems through computerization (ii) Undertake a study for additional market-based reforms to enhance efficiency and accountability

Finance and marketing functions were strengthened, and computer applications developed to improve management information systems. The TA helped establish the EA as a commercial entity, focusing on corporate and organizational reform, commercial operation, and effective information flow. Transfer of knowledge to other local railways was promoted.

36 Appendix 8

Loan/TA Objectives Major Accomplishments and Lessons Learned Institutional Strengthening of Guangdong Planning Commission (TA 1721) EA: Guangdong Planning Commission

Develop and implement a sustainable monitoring system transferable to other projects and provinces

Socioeconomic evaluation showed that the project facilitated economic development in the project area, including that of tertiary industry, which generated employment and promoted the welfare of rural residents. The income of resettled households was increased and living conditions improved.

Hefei–Jiujiang Railway (Loan 1221) EA: Hefei–Jiujiang Railway Company

(i) Foster economic growth by completing part of the second railway from Beijing to Kowloon (ii) Provide essential transport infrastructure in less developed inland provinces

The PCR concluded that the project was “partly successful” because of lower-than-expected traffic.e Environmental management and resettlement were completed satisfactorily. The lessons learned were: (i) undercapitalization led to high, short-term debt financing; (ii) traffic forecasts need to be prepared considering alternative routes; and (iii) tariffs should consider those on alternative railways. Since 2003, the traffic has increased substantially.

Strengthening Business and Commercial Practices of the Hefei–Jiujiang Railway Company and Anhui Province (TA 1861)

(i) Promote commercial discipline in local railway companies (ii) Examine the feasibility of local railway companies’ diversifying ownership through broader equity participation

The TA helped the railway company improve commercial orientation and knowledge of market-oriented businesses. The railway company was assisted in forecasting financial performance during 1999–2003. The EA was helped in assessing the year 2000 readiness of the project facilities and taking remedial measures.

Jing–Jiu Railway Technical Enhancement (Loan 1305) EA: Ministry of Railways

(i) Enhance operational efficiency of the Jing–Jiu Railway by acquiring modern railway technology and developing human resources (ii) Support MOR in formulating reforms to improve efficiency and commercialize operations

The PCR and PPAR concluded that the project was “successful”.f MOR acquired modern technology and implemented organizational and tariff reforms that improved efficiency. The project helped stimulate economic growth in the project area, particularly in the poverty counties in Jiangxi province. Per capita income increased substantially and poverty incidence fell. This project also highlighted the need to forecast freight traffic more accurately than it did.

Policy Support to the Ministry of Railways (TA 2122)

(i) Recommend organizational arrangements for the commercial operation of the Jing–Jiu Railway (ii) Formulate a tariff policy considering alternative routes

The TA concluded that (i) a separate entity for commercial operation of the Jing–Jiu Railway is not desirable, as it would place the Jing–Jiu Railway at a competitive disadvantage; and (ii) the operation should be integrated with the national network. The proposal for a higher tariff for the north–south corridor, including the Jing–Jiu Railway, was put into effect.

Daxian–Wanxian Railway (Loan 1439) EA: Dawan Railway Company

Provide economic transportation for facilitating economic growth in northern Sichuan to reduce poverty

The PCR concluded the project was “successful”g and resulted in rapid economic growth that has significantly benefited people living in the project area.

Institutional Strengthening of Local Railways in Sichuan (TA 2578) EA: Sichuan Provincial Planning Commission

(i) Corporatize the railway bureau (ii) Promote commercialization, corporate and financial management, market-based tariffs, and human resource development

The TA identified excessive staffing, undercapitalization, and underutilization of assets as problems of local railways in Sichuan. The organizational commitment to meet customer needs was lacking. An action plan to develop the required business environment is under implementation.

Shenmu–Yanan Railway (Loan 1553) EA: Shaanxi Xiyan Railway Company

Promote economic development and reduce poverty in northern Shaanxi province by providing economic transportation

The PCR concluded the project was “successful”h and resulted in rapid economic growth that has significantly benefited people living in the project area.

Institutional Strengthening of Local Railways in Shaanxi Province (TA 2878) EA: Shaanxi Provincial Planning Commission

Convert SLRC into a corporate entity, and help SXRC and SLRC develop financially commercial operations

The study made recommendations for efficient commercial operation of SXRC and SLRC, including corporatization of SLRC. Other areas covered included management information systems, traffic costing, and tariffs. Implementation of the action plan developed under the TA is in progress.

Appendix 8

37

Loan/TA Objectives Major Accomplishments and Lessons Learned Guizhou Shuibai Railway (Loan 1626) EA: Guizhou Shuibai Railway Company

Promote economic growth and create conditions necessary to reduce endemic poverty

The PCR concluded the project was “highly successful”.i The project helped stimulate economic growth in the project area, particularly in the poverty counties. Per capita income increased substantially and poverty incidence fell. This project also highlighted the need to forecast freight traffic more accurately than it did. In land acquisition and resettlement, projections at appraisal were significantly lower than actual figures.

Hefei–Xi’an Railway (Loan 1748) EA: MOR

Promote economic growth in poor provinces to raise living standards and reduce poverty

The PCR concluded the project was “highly successful”.j The project helped stimulate economic growth in the project area, particularly in the poverty counties. Per capita income increased substantially and poverty incidence fell.

Ganzhou–Longyan Railway (Loan 1850) EA: MOR

Promote economic growth in poor provinces to raise living standards and reduce poverty

Project implementation started in 2002 and construction was completed in March 2005. Trial operations on the railway started in April 2005.

Yichang–Wanzhou Railway (Loan 2051) EA: MOR

Promote economic growth in poor provinces to raise living standards and reduce poverty

Implementation of the project started in 2004 and is progressing satisfactorily.

Dali–Lijiang Railway (Loan 2116) EA: WYRC

Promote sustainable economic growth and reduce poverty in poor northwestern part of Yunnan Province

Project implementation started in 2005 and is progressing satisfactorily.

Zhengzhou–Xi’an Railway (Loan 2182) EA: MOR

Promote sustainable economic growth and reduce poverty in poor western part of Henan Province and southeastern part of Shaanxi Province

Project implementation started in 2005 and is progressing satisfactorily.

Taiyuan–Zhongwei Railway (Loan 2274) EA: MOR

Promote sustainable economic growth and reduce poverty in poor western part of Henan Province and southeastern part of Shaanxi Province

Project implementation started in 2006 and is progressing satisfactorily.

EA = executing agency, MOR = Ministry of Railways, PCR = project completion report, PPAR = project performance audit report, PRC = People’s Republic of China, SLRC = Shaanxi Local Railway Company, SXRC = Shaanxi Xiyan Railway Company, TA = technical assistance, WYRC = West Yunnan Railway Company. a ADB. 1998. Project Performance Audit Report on the Shanxi–Xiaoliu Railway Project in the People’s Republic of

China. Manila. b ADB. 1994. Project Completion Report on the Yaogu–Maoming Railway Project in the People’s Republic of China.

Manila. c ADB. 1998. Project Completion Report on the Guang–Mei–Shan Railway Project in the People’s Republic of China.

Manila. d ADB. 1992. Technical Assistance to the People’s Republic of China for Institutional Strengthening of Guangdong

Planning Commission. Manila. e ADB. 2000. Project Completion Report on the Hefei–Jiujiang Railway Project in the People’s Republic of China.

Manila. f ADB. 2000. Project Completion Report on the Jing–Jiu Railway Project in the People’s Republic of China. Manila;

and ADB. 2002. Project Performance Audit Report on the Jing–Jiu Railway Project in the People’s Republic of China. Manila.

g ADB. 2006. Project Completion Report on the Daxian–Waxian Railway Project in the People’s Republic of China. Manila

h ADB. 2006. Project Completion Report on the Shenmu–Yanan Railway Project in the People’s Republic of China. Manila.

i ADB. 2005. Project Completion Report on the Guizhou–Shuibai Railway Project in the People’s Republic of China. Manila.

j ADB. 2007. Project Completion Report on the Hefei–X’ian Railway Project in the People’s Republic of China. Manila. Source: ADB assessment.

38 Appendix 9

DETAILED COST ESTIMATES

Table A9.1: Detailed Cost Estimates by Expenditure Category ($ million)

Total Amounta Financing Plan Item No. Description

Local Currency

Foreign Exchange

Total Cost ADB MOR Total Cost

A. Base Costb 1. Emergency Safety Equipment 19.64 89.49 109.13 89.49 19.64 109.13 2. Installation and Commissioning 4.70 0.52 5.22 5.22 0.00 5.22

3. Consulting Services, Administration, and Training 2.48 1.06 3.54 3.54 0.00 3.54

4. Taxes and Dutiesc 4.55 0.00 4.55 0.00 4.55 4.55 Subtotal (A) 31.37 91.07 122.44 98.25 24.19 122.44 B. Contingencies Price Contingenciesd 2.10 1.46 3.56 1.75 1.81 3.57 Subtotal (B) 2.10 1.46 3.56 1.75 1.81 3.57 C. Financing Charges During Implementation 1. Interest During Implementatione 0.00 13.28 13.28 0.00 13.28 13.28

2. Front-End Fee and Commitment Chargesf 0.00 0.72 0.72 0.00 0.72 0.72 Subtotal (C) 0.00 14.00 14.00 0.00 14.00 14.00 Total Project Cost (A+B+C) 33.47 106.53 140.00 100.00 40.00 140.00

ADB = Asian Development Bank, LIBOR = London interbank offered rate, MOR = Ministry of Railways. Note: Totals may not sum exactly because of rounding. a Includes taxes and duties. b In mid-2007 prices. c Import taxes and duties estimated at 5% of foreign exchanged components. d Price contingency for local currency costs from ADB. Domestic Cost Escalation Factors based on inflation data for PRC (2.2% for 2008, and 3.0%/year for 2009

and thereafter). For foreign exchange components from ADB International Cost Escalation Factors based on Manufacturer’s Unit Value index of exports from the G-5 countries to developing countries (0.8% for 2008 and thereafter).

e ADB interest rate is 5.45% which assumes a 5-year fixed swap rate of 5.05% with a spread of 60 basis points and a rebate on spread of 20 basis points (from ADB Indicative Lending Rate for Loans Under the LIBOR-based Loan Facility as of December 2006).

f Front-end fee of 1% is assumed as waived. Commitment charges based on 0.35%. Source: ADB estimates.

Table A9.2: Detailed Cost Estimate by Financier ($ million)

ADB Government Item Cost $a % of Cost

Categoryb $a % of Cost Categoryb

A. Investment Cost 1. Safety Equipment 109.13 89.49 82.0 19.64 18.0 2. Installation and Commissioning 5.22 5.22 100.0 0.00 0.0 3. Training 3.54 3.54 100.0 0.00 0.0 4. Taxes and Duties 4.55 0.00 0.0 4.55 100.0 Subtotal (A) 122.44 98.25 80.2 24.19 19.8 B. Price Contingency 3.57 1.75 49.2 1.81 50.8 C. Financing Charges During Implementation 14.00 0.00 0.0 14.00 100.0 Total 140.00 100.00 71.4 40.00 28.6 % Total Project Costs 100% 71.40 ADB Share 28.60 Government

Share ADB = Asian Development Bank. a Amount of ADB loan proceeds allocated to the cost category. b The amounts disbursed by ADB for eligible expenditures under a cost category will be subject to the ceiling set by the allocation of loan proceeds

for such cost category. Source: ADB estimates.

Appendix 9 39

IMPLEMENTATION SCHEDULE

1. Bid Preparation and Procurement

2. Equipment Manufacture

3. Equipment Transportation and Installation

4. Training and Capacity Development

5. Trial and Final Acceptance

2011201020092008 2012J 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 J F M A M J J A S A MO N D J O N D

ItemJ J A SF M

Source: Asian Development Bank estimates.

40 Appendix 10

Appendix 11

41

PROCUREMENT PLAN 1. Asian Development Bank (ADB)-financed contract packages are shown in Table A11.1. All international competitive bidding packages will be procured using single stage one-envelope system and ADB will review the documents in advance.

Table A11.1: Contract Packages (ADB financing) Amount ADB ProcurementPackage Description ($ million) Mode System Review Notice Emergency Rescue and Restoration Equipmenta

98.15 ICB One stage one

envelope

Prior Jun 2008

ADB = Asian Development Bank, ICB = international competitive bidding. a Includes installation, commissioning, training, and taxes and duties. Source: Ministry of Railways.

2. ADB is financing one package of consulting services shown in Table A11.2 using quality and cost-based selection.

Table A11.2: Consulting Services (ADB Financing)

Package Description Amount ($ million)

Mode ADB Review RFP Issuance

Consulting Services 0.10 Quality- and cost-based selection

Prior Jun 2009

ADB = Asian Development Bank, RFP = request for proposal. Source: Ministry of Railways. 3. The packaging for equipment will be finalized in the revised procurement plan for 2008. The threshold for procurement is shown in Table A11.3.

Table A11.3: Threshold for Procurement

Procurement Method Threshold ($) ICB Goods NCB Goods Shopping Goods

Equal or more than 1 million Equal or more than 100,000 and less than 1 million Less than 100,000

ICB = international competitive bidding, NCB = national competitive bidding. Source: Ministry of Railways.

4. Threshold for consulting services selection if shown in Table A11.4.

Table A11.4: Selection Method Threshold for Consulting Services

Selection Method Threshold ($) Quality- and cost-based selection (80% technical and 20% financial weightings)

Equal or more than $100,000

Source: Ministry of Railways.

42 Appendix 12

OUTLINE TERMS OF REFERENCE FOR CONSULTANTS A. Introduction 1. The Railway Safety Enhancement Project (the Project) is a priority project included in the Eleventh Five Year Plan of the Government. The Project reflects Asian Development Bank’s (ADB’s) railway sector operational strategy for the People’s Republic of China (PRC), which includes promoting sustainable economic growth by improving the efficiency of railway transport through reducing railway network constraints and enhancing railway safety. The Project will (i) introduce new and modern technology for responding more quickly to emergencies—taking less restoration time, and enhancing safety; (ii) provide capacity building support for handling emergencies more efficiently; and (iii) provide an institutional framework for developing a quick responsive and efficient emergency rescue and restoration system on the PRC railway network. This will help improve safety and reliability; increase mobility; and reduce downtime—all of which will help achieve higher standards of railway safety, staff productivity, and line capacity. The consulting services will assist in strengthening institutional and capacity development functions of the emergency management system on PRC railways. B. Scope 2. The study will (i) review the system of emergency rescue and restoration management in PRC railways; (ii) identify the gaps—particularly in the institutional setup of the emergency management centers, facilities for training, nature of training programs offered, technical literature, quality of teaching material, and quality of trainers; (iii) recommend actions and changes in improving these areas; and (iv) provide training and capacity enhancement programs for emergency management system. The consultants will (i) make use of similar studies undertaken by the Ministry of Railways (MOR), (ii) make use of experience in other railways (international), and (iii) involve active participation of railway management. The consultants will recommend actions and changes that can help MOR in improving the emergency management system for PRC railways. The consultants will be recruited in accordance with ADB’s Guidelines on the Use of Consultants (2007, as amended from time to time). C. Expertise and Cost Estimates 3. About 5 person-months of consulting services will be engaged using the biodata technical proposal procedures based on quality and cost-based selection in accordance with ADB’s Guidelines on the Use of Consultants. The provisions of ADB’s Anticorruption Policy (1998, as amended to date) will be included in all invitation documents and contracts for consultants. The consultants will have expertise in institutional and training aspects relating to railway safety. The loan will finance the services of the consultants. 4. MOR will (i) assign appropriate counterpart staff to liaise with and facilitate the work of consulting services; (ii) provide suitable office accommodation and communications facilities commensurate with requirements; (iii) assist the consultants in scheduling field visits and discussions with field agencies in connection with the study; and (iv) provide all facilities, documentation, and assistance as may be reasonably requested by the consultants to complete the work.

PROJECT PERFORMANCE MANAGEMENT SYSTEM

Monitoring Tool

Major Indicators to be Monitored (Baseline and target figures to be incorporated into PAM)

Monitoring Agency

Accountable Agency

Reporting Frequency Submission Due Date

Viab

ility

Operation Report

• Number of emergency rescue and restoration centers set up • Number of emergency rescue and restoration equipment procured • Number of staff trained • Average rescue time for accidents • Average restoration time for accidents

MOR MOR

Annually (up to 3 years after final acceptance)

APAs AFS

• Audited project accounts • Audited financial statements of MOR • External auditor's checklist CNAO MOR

AFS: same as operation report APA: same as quarterly progress report

Notice • Notice to proceed/Notice of resettlement completion/Notice of provisional and final acceptance of the facilities MOR MOR

Within a reasonable time

Tech

nica

l Fe

asib

ility

Quarterly Progress Report

• Implementation schedule • Contract award • Disbursements • Physical progress by contract • Update of project cost estimate

MOR MOR

Quarterly until the quarter in which physical completion takes place, or the loan account with ADB is closed, whichever is later. Within 3 months from the end of each quarter.

All Midterm Review

• Evaluation of various aspects of project implementation including technical, institutional, economic, and sector performance MOR MOR

In third year from the signing of the Loan Agreement

All PCR

• Evaluation of various aspects of project implementation including technical, institutional, economic, and sector performance MOR MOR

Within 3 months after physical completion

ADB = Asian Development Bank, AFS = audited financial statement, APA = audited project account, CNAO = China National Audit Office, MOR = Ministry of Railways, PAM = project administration memorandum, PCR = project completion report. Source: ADB estimates.

Appendix 13 43

Appendix 14

44

ECONOMIC ANALYSIS A. Introduction and Traffic 1. As the Railway Safety Enhancement Project (the Project) will support the entire People’s Republic of China (PRC) railway network, its analysis requires assessment of system-wide traffic forecasts for passengers and freight over the 20-year (2013–2032) evaluation period. The traffic forecast was based on a two-tier analysis: (i) national transport demand based on historical trends correlating socioeconomic parameters, such as gross domestic product (GDP) and propensity to travel/ship or demand for railway transport; (ii) national and regional railway traffic demand based on commodity-specific analysis for major commodities currently using other railway lines, roads, and inland waterways.

Traffic projections considered expected

economic growth, population increase, tourism development potential, local government development plans, market surveys, and assessments of technical assistance consultants and Asian Development Bank (ADB) missions. The historical annual growth rate for tons hauled by the railway was 3.82% from 1995 to 2005. For purposes of the evaluation, tons hauled are expected to increase at the rate of 4.2% from 2005 to 2020, and 3% per year for 2020–2032. For ton-kilometers (km), the growth rate is forecast at an annual rate of 5.75% for 2005 to 2020, and 4.5% for 2020–2032. The higher rate of increase for ton-km reflects the longer distances for cargoes based on the expansion of the network into the western PRC. Passenger forecasts are slightly higher, with the number of passengers increasing at an annual rate of 7.2% during the period to 2020, and 5% for 2020–2032. For passenger-km, the rates are 6.1% during the period to 2020 and 5.5% for 2020–2032. These forecasts are considered reasonable and in agreement with Ministry of Railways forecasts. B. Economic Evaluation 2. The economic evaluation contains a with-Project scenario that includes the initial investment, and annual fixed and variable operating costs (including regular and overhaul maintenance of equipment). The without-Project scenario is implicit to the analysis. The with-Project scenario is based on the analysis of 25 sets of emergency rescue and restoration equipment and staff training. The with-Project scenario is based on the improved response and restoration times resulting from the project investment, compared to current response and restoration capabilities. 3. Cost. The analysis is based on passenger and freight traffic that would be diverted to bus transport for passengers, and truck and waterway transport for freight—based on the interruption of services in specific railway sections (current average distance for rescue and restoration is an average of 100 km for 175 emergency rescue and restoration centers, which will be downsized to 136 centers with an average distance for response and restoration of 125 km). The project benefits and cost were revalued in economic prices by separating the cost items into tradable materials and equipment, non-tradable materials, labor, and land. The prices were expressed in yuan using the domestic price numeraire with a shadow exchange rate factor of 1.01 for foreign exchange effects. A shadow wage rate factor of 0.67 was used to put an economic value on the wages paid to unskilled labor, but not on wages for skilled labor since no clear surplus of skilled workers exists. 4. Benefits. Economic benefits include (i) user cost savings for freight and passenger traffic; and (ii) time savings for diverted passenger and freight traffic from buses, trucks, and other rail lines. For passenger traffic diverted from road (3.38 million passengers in 2013), the user cost saving (CNY19.60 million in 2013) is the difference in the passenger economic fare between road and rail transport (CNY0.063 per passenger-km). Passenger traffic time savings (CNY0.47 million in 2013) are based on the difference between road and rail transport (CNY0.0015 per passenger-km).

Appendix 14

45

5. For freight traffic diverted from trucks, the economic benefit (CNY139.72 million in 2013) is the difference in shipper economic costs between truck and rail transport (CNY0.1934 per ton-km). For freight traffic diverted from inland waterway, the economic benefit (CNY0.12 million in 2013) is the difference in shipper economic costs between inland waterway and rail transport (CNY0.0007 per ton-km).

6. Conclusion. The economic internal rate of return for the Project is 57.2% (Table A14.1). Sensitivity analysis tested eight scenarios to assess the robustness of the results of the economic analysis (Table A14.2). The initial capital cost would have to be more than 1,154% higher than estimated for the economic internal rate of return to fall below the cutoff rate of 12%. Considering the experience of ADB-financed projects in the railway sector, this switching value is unlikely to occur. The freight benefits would have to decrease more than 100% to make the Project economically nonviable. A 1-year delay in completion does not affect economic viability. Combinations of adverse effects of benefits and costs were also tested. The results showed that the Project would maintain its economic viability under plausible scenarios of variability.

Table A14.1: Economic Internal Rate of Return (constant 2007 economic prices, domestic price numeraire, CNY million)

Costs Benefits

Year Capital

Operation and

Maintenance Total Passenger

Traffic Freight Traffic Total

Net Benefits

2008 (6) 0 (6) 0 0 0 (6) 2009 (31) 0 (31) 0 0 0 (31) 2010 (32) 0 (32) 0 0 0 (32) 2011 (35) 0 (35) 0 0 0 (35) 2012 (6) 0 (6) 0 0 0 (6) 2013 0 10 10 20 140 160 171 2014 0 11 11 22 148 169 180 2015 0 11 11 23 156 179 189 2016 0 11 11 25 168 193 204 2017 0 11 11 26 181 208 219 2018 0 11 11 28 194 223 234 2019 (7) 11 4 30 208 238 242 2020 0 11 11 33 221 254 265 2021 0 12 12 35 233 268 280 2022 0 12 12 37 245 282 294 2023 0 12 12 39 258 297 309 2024 0 12 12 42 270 312 324 2025 0 12 12 45 283 327 340 2026 (7) 12 5 48 301 348 354 2027 0 13 13 51 319 370 382 2028 0 13 13 54 338 392 405 2029 0 13 13 58 357 414 427 2030 0 13 13 61 376 437 451 2031 0 13 13 66 396 461 475 2032 (20) 14 (7) 69 416 485 479

Economic Internal Rate of Return 57.2% Economic Net Present Value @ 12% 902.58( ) = negative. Source: Technical assistance consultant estimates.

Appendix 14

46

Table A14.2: Sensitivity Analysis

Parameter Reference Value

Change By

Revised EIRR

Sensitivity Indicator

Switching Value (%)a

NPV@12% (CNY million)

EIRR 57.2% 902.58 Initial Investment 50% 46.51% 0.09 1,154.45% 863.49 Additional Investment 100% 57.19% 0.00 23,510.50

% 898.74

Annual Fixed and Variable Costs

60% 56.13% 0.05 1,872.81% 873.66

Total Costs 30% 49.61% 0.14 693.14% 863.51 Total Freight Benefits (20%) 51.59% 0.99 (100.63%) 723.19 Total Passenger Benefits (50%) 55.25% 0.15 (664.40%) 834.65 Delay Implementation by 1 Year — 49.89% NPV

declines by 13.37% 781.93

Reduce Benefits by 20%; Increase Costs by 10%

(20%); +10%

48.07% 1.22 (82.21%) 683.00

— = not calculated, ( ) = negative, EIRR = economic internal rate of return, NPV = net present value. a Switching value indicates the percentage change in a variable required for the NPV to become zero. Source: Technical assistance consultant estimates.

Appendix 15

47

SUMMARY POVERTY REDUCTION AND SOCIAL STRATEGY

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:

Safer railway transport will benefit all passengers. The poor will benefit equally or more from the intervention. The links between poverty and accidents are apparent, and the poor are at a disadvantage recovering from physical and the economic losses suffered because of injuries or physical loss of goods. The Project will provide for an efficient and quick restoration system that will help reduce the economic losses.

B. Poverty Analysis Targeting Classification: General intervention What type of poverty analysis is needed?

Enhancing national railway safety does not require an analysis of impacts on poverty. All railway users nationwide will benefit from improved reliability, safer transport, and reduced costs resulting from more rapid responses to railway accidents and natural disasters affecting railway operations.

C. Participation Process Is there a stakeholder analysis? Yes No

Railway safety enhancement does not require a stakeholder analysis. As noted above, all railway users nationwide will benefit from improved reliability, safer transport, and reduced costs.

Is there a participation strategy? Yes No

Railway safety enhancement will positively impact the entire national railway network and all railway users will benefit. Therefore, a participation strategy is not necessary.

D. Gender Development Strategy to maximize impacts on women:

This project is gender neutral.

Has an output been prepared? Yes No

E. Social Safeguards and other Social Risks

Item Significant/Not Significant/None Strategy to Address Issues Plan

Required

Resettlement Significant Not significant None

There are no land acquisition or resettlement impacts. Full Short None

Affordability Significant Not significant None

The safety equipment will have no impact on tariff levels. Yes No

Labor Significant Not significant None

There is no impact on labor. Yes No

Indigenous Peoples

Significant Not significant None

This is a national level project, which will benefit all railway users. Yes

No

Other Risks and/or Vulnerabilities

Significant Not significant None

Yes No