Evaluation Study Reference Number: SAP: PRC 2007-04 Sector Assistance Program Evaluation April 2007 Sector Assistance Program Evaluation of Asian Development Bank Assistance for Roads and Railways in the People’s Republic of China Operations Evaluation Department
Asian Development Bank
CURRENCY EQUIVALENTS
Currency Unit – yuan (CNY)
At Country Operational Strategy
At Country Strategy and Program
At Operations Evaluation
(April 1997) (October 2003) (September 2006) CNY1.00 = $0.1210 $0.1208 $0.1258
$1.00 = CNY8.2965 CNY8.2766 CNY7.9468
ABBREVIATIONS
ADB – Asian Development Bank ADTA – advisory technical assistance COS – country operational strategy CSP – country strategy and program PRC – People’s Republic of China BTOR – back-to-office report EARD – East Asia Department EATC – East Asia Transport and Communications Division EFYP – Eleventh Five-Year Plan, 2006-2010 EIRR – economic internal rate of return EPRS – enhanced poverty reduction strategy FIDIC – Fédération Internationale des Ingénieurs Conseils FIRR – financial internal rate of return GDP – gross domestic product ICAC – Independent Contracts Against Corruption ICB – international competitive bidding LCB – local competitive bidding LJVR – local joint venture railway LPP – Local People’s Procuratorate MCD – municipalities communication department MOC – Ministry of Communications MOF – Ministry of Finance MOR – Ministry of Railways NDRC – National Development and Reform Commission NFYP – Ninth Five-Year Plan, 1996-2000 NTHS – National Trunk Highway System OED – Operations Evaluation Department PCD – provincial communications department PCR – project completion report PPER – project performance evaluation report PPR – project performance report PPTA – project preparatory technical assistance PRS – poverty reduction strategy RRA – regional railway administration RRP – report and recommendation of the President SAPE – sector assistance program evaluation SPC – Supreme People’s Court SPP – Supreme People’s Procuratorate
TA – technical assistance TCR – technical assistance completion report TFYP – Tenth Five-Year Plan, 2000-2005 TOR – terms of reference WTO – World Trade Organization
NOTE
In this report “$” refers to US dollars.
KEY WORDS asian development bank, development effectiveness, people’s republic of china, sector assistance program evaluation, railway, road, transport, sector strategy, value added
Director R.B. Adhikari, Operations Evaluation Division 2, Operations Evaluation Department (OED) Team Leader T. Duncan, Principal Evaluation Specialist, Operations Evaluation Division 2, OED Team Members R. Lumain, Senior Evaluation Officer, Operations Evaluation Division 2, OED C. Roldan, Senior Operations Evaluation Assistant, Operations Evaluation Division 2, OED
Operations Evaluation Department, SE-6
CONTENTS
Page
EXECUTIVE SUMMARY iii MAPS xii I. INTRODUCTION AND BACKGROUND 1 A. Introduction 1 B. Background 1 C. Scope and Objectives 2 D. Evaluation Methodology 3 E. Organization of the Report 4 II. RETROSPECTIVE SECTOR ANALYSIS 4
A. Introduction 4 B. Road Subsector 6 C. Railway Subsector 7
III. ADB STRATEGY FOR SUPPORTING ROADS AND RAILWAYS 9
A. Positioning within ADB Country Strategy and Program 9 B. ADB Sector Strategy and Program 10 C. Comparison with other Donor Support 20
IV. PERFORMANCE OF PROJECTS AND TECHNICAL ASSISTANCE 20
A. Introduction 20 B. Projects 21 C. Technical Assistance 29
V. VALUE ADDED BY ADB OPERATIONS 32
A. Introduction 32 B. Value Added by ADB Projects 32
The guidelines formally adopted by the Operations Evaluation Department (OED) on avoiding conflict of interest in its independent evaluations were observed in the preparation of this report. As the Director General of OED managed ADB’s operations in the People’s Republic of China from 1995 to 2004, he took no part in preparation or review of the evaluation.Approval of this report was delegated to Director, Operations Evaluation Division 2. The consultants who assisted in the preparation of the report were Stein Hansen, Clell Harral, Guangbin Zhao, Hu Fangfang, Wu Guobao, and T. F. Jones, III. Although with the exception of T.F. Jones III, each had previous involvement in ADB-assisted transport projects in the People’s Republic of China, none took part in the evaluation of projects they had been connected with. To the knowledge of the management of OED, there were no conflicts of interest among the persons preparing, reviewing, or approving this report.
VI. OVERALL ASSESSMENT, CONCLUSIONS, LESSONS, 41 AND RECOMMENDATIONS
A. Overall Assessment 41 B. Conclusions 45 C. Key Lessons 46 D. Recommendations 46
APPENDIXES 1. ADB Loans to the People’s Republic of China for Roads and Railways, 48 Approved in 1997–2005 2. ADB Technical Assistance to the People’s Republic of China for Roads 50 and Railways, Approved in 1997–2005 3. Retrospective Analysis of Road Sector, 1997–2005 52 4. Retrospective Analysis of Railway Sector, 1997–2005 62 5. Comparator Assessment 73 6. Evaluation Findings at Project Completion and Postevaluation 76 7. Assessment of How ADB Projects Addressed Poverty Reduction 88 8. Findings from Studies of Poverty Impacts of Road Projects 93 9. Poverty Reduction Contribution of Local Roads Attached to Projects 102 10. Anticorruption System for Infrastructure Construction 110 11. ADB Performance and Client Orientation 115 12. Assessment of Ongoing ADB-Financed Road and Railway Projects 122 13. Performance of Technical Assistance 129 14. Approach to Comparison of Projects With and Without ADB Support 137 15. Performance Assessment and Rating 140 SUPPLEMENTARY APPENDIX (available on request) Poverty Impact of Shenmu-Yanan Railway Project
EXECUTIVE SUMMARY Background This sector assistance program evaluation (SAPE) examines the performance of Asian Development Bank (ADB) assistance for roads and railways development in the People’s Republic of China (the PRC) over the period 1997-2005. It covers the entire period of the 1997 country operational strategy (COS) that ran from 1997 to 2003, together with the first 2 years of the 2003 country strategy and program (CSP) that covers ADB support from 2004 to 2006. During this time, the PRC was ADB’s largest client in terms of lending and technical assistance (TA). Much of the ADB support was for the transport sector, and most of this was for roads and railways. An evaluation of this involvement is, therefore, of strategic relevance not only for future ADB support to roads and railways in the PRC but also for ADB’s country strategy and overall ADB operations. The timing of the SAPE was intended to enable its findings and lessons to influence preparation of the new ADB country partnership strategy (CPS) and program for the PRC in 2007—both as a self-standing evaluation and as an input toward a country assistance program evaluation (CAPE) for the PRC. In 1992, the PRC had the lowest road density in the world relative to area or population and a railway network experiencing severe capacity bottlenecks. Over the past two decades, the PRC implemented huge programs to expand and improve its road and railway transportation systems. Between 1997 and 2005, the road network was expanded from 1.2 million kilometers (km) to 1.9 million km, including construction on the National Trunk Highway System (NTHS), a 35,000 km arterial road network mostly comprised of expressways. The rail network was expanded from 65,970 km to 75,438 km, with capacity augmented by double-tracking and electrification. In both the road and rail subsectors, a feature of the investment programs was the introduction of modern technologies and project management methods. Investment was accompanied by a process of gradual but sustained reform of subsector policies and institutional arrangements, including greater commercial orientation and new approaches to cost recovery. Roads and railways accounted for 27 of the 58 ADB loans to the PRC approved from 1997 to 2005, contributing $6.8 billion (66%) of the total of $10 billion of new ADB lending to the PRC. Some 41 of the 246 TAs approved over the period were for roads and railways. These comprised 15 advisory technical assistance (ADTA) grants and 26 project preparatory technical assistance (PPTA) grants, equivalent to 15% of total TA approvals by value. The share of roads and railways within total ADB support to the PRC also increased over the period. By 2005 in value terms, it accounted for about 82% of new ADB lending and 21% of new TA approvals for the PRC. ADB support for roads was larger than for railways. On average, ADB provided about two loans and three TAs per annum for roads, and about one loan and two TAs for railways. ADB Strategy for Supporting Roads and Railways Positioning within ADB Country Strategy and Program. Over the study period, ADB support to roads and railways was of central importance to its overall objectives and country support strategies to the PRC. Of four major challenges identified by the 1997 COS, two depended significantly upon improving the efficiency and connectivity of transportation. These were identified as priority areas in the Ninth Five-Year Plan (NFYP) and reflected in two of the three overall objectives under the COS: (i) improve economic efficiency, and (ii) promote economic growth to reduce poverty in inland provinces. On the basis that infrastructure bottlenecks impede efficient growth, the COS allocated between half and two-thirds of ADB lending to the PRC in any year to infrastructure in particular for road and rail investments. In all sectors, including transport, the COS emphasized use of market-based approaches to improve
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economic efficiency in sectors supported by ADB. Much of the focus of the COS was retained in the 2003 CSP. By that time, ADB had adopted a poverty reduction strategy (PRS) that established poverty reduction as its overarching goal. Some 84% of the proposed program was to be spent in poor interior regions. Transport was to contribute 61% of lending, focusing mainly on the central and western regions. Roads and railways were important in three of four areas of strategic focus of the CSP. The roads and railways support was again to focus mainly on removing infrastructure bottlenecks, but with increased emphasis on policy and institutional reform to improve cost recovery, governance, introducing competition, improving efficiency, and opening up opportunities for private sector participation. While the COS offered little guidance on the strategy for nonlending assistance, the CSP recognized that nonlending assistance would be increasingly important within ADB support. Since ADB’s resources were small relative to the PRC’s overall investment needs, ADB should focus more on assisting the PRC through knowledge transfer and strategic and policy influence, rather than just focusing on financial transfers alone. The CSP also said that nonlending support, including TA, should concentrate on strategic niches for long-term ADB assistance that had strong Government commitment and ownership. These were closely linked with the overall country level objectives and priorities set by the COS and CSP, and changed little over the period. Link between ADB Strategy and Government Needs. ADB’s strategic priorities for highways were well aligned with the five challenges for roads subsector. Specifically, its focus on the NTHS was consistent with the high priority attached to the NTHS by the Government of the PRC (the Government). The focus on interior provinces and later on central and western provinces also fitted with efforts under the Government’s NFYP and Tenth Five-Year Plan (TFYP), as well as with the ADB PRS. The strategic priority ADB gave to linking the NTHS to a system of local roads and feeder roads was in line with the increased importance the Government attached to improving other parts of road network hierarchy. The initial priority given to supporting technical standards met the need to get things right as it scaled up the NTHS. ADB emphasis on expressway corporatization and commercialization, efficient pricing policies, and alternative financing mechanisms, also fitted well with the Government’s need to determine how to pay for the NTHS investments. ADB was initially somewhat ahead of the Government in attaching priority to road safety and vehicle emissions, and this provided an opportunity to influence areas that received increased Government priority by the second half of the study period. Since ADB support was modest compared with the overall magnitude of the NTHS, it could not address all the major challenges of the road subsector. ADB had relatively little involvement in the issue of gearing up highway construction capacity at the sector level. In practice, the Government was able to expand capacity without outside support. In the railway subsector, ADB strategic priorities were also well aligned with the PRC needs. Its overall focus of building new railways using modern railway technologies addressed needs to increase railway capacity and reduce the persistent gap between demand and supply as quickly and efficiently as possible. ADB priority of improving efficiency and commercial orientation, and its emphasis on restructuring and reforming policy, were well matched to evolving institutional reforms in railways. Consistency between ADB Strategy and Program. In both road and railways subsectors, there was a high level of consistency between ADB’s strategy and the actual program of loans and TAs it provided. ADB recognized the merits of the Government’s well defined long-term programs and remained committed to assisting them throughout the study period. In the road subsector, the ADB lending program focused on financing construction of new tolled, access-controlled expressways under the NTHS. Apart from civil works, road projects included a number of additional features linked to ADB’s subsector strategic priorities. In the road subsector, ADTAs were used to contribute to subsector policy and planning and to support capacity building.
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In the railways subsector, all ADB lending was focused on construction of new railways to extend the rail network to poorer regions. This was consistent with the COS and CSP. Some features were consistently followed by all road projects and embedded in the scope and implementation model adopted for supporting expressways: (i) commercialization, corporatization and private concessioning of expressway management and operations; (ii) pricing and cost recovery; and (iii) inclusion of local roads to increase poverty reduction impact of expressways. The first two were important, especially earlier in the study period when the PRC was still gaining familiarity and confidence with use of commercial approaches. The latter reflected attention ADB gave to further orienting its operations toward poverty reduction particularly immediately before and during the first 2 years of the PRS approved in 1999. Expressways were a challenging case because their poverty reduction impacts are indirect and difficult to quantify. The solution adopted in the PRC—but seldom in other developing member countries (DMCs)—was to attach local roads as these had more tangible, quantifiable poverty reduction impacts, and could be targeted at poor communities. Other special features were added incrementally during the study period. These were (i) axle load testing, (ii) road safety at project and provincial level, (iii) control of vehicle emissions at project and provincial level, (iv) poverty monitoring, (v) inclusion of roadside stations to enhance local development impact, and (vi) support for improving competition and the regulatory framework for transport services. The more recent inclusion of project features on competition and regulation in the transport services industry sought to address transport sector issues at the provincial level. This was an appropriate focus since transport services are regulated by provincial governments. It is also a useful area for ADB support since the efficiency of transport services is an important factor in determining the benefits of transport improvements to users particularly the poor. While it is too soon to judge the performance of these features, the small scope and short duration of the support—mainly consulting services—leaves it open to question whether an effective intervention strategy is being pursued. Four special project features were pursued by all ADB railways projects. These were (i) use of full cost tariffs on project railways, (ii) support for commercial practices in railway companies, (iii) new technology to improve efficiency, and (iv) development of link roads and stations to extend the impacts of railways. The first three were directly linked to ADB’s subsector priorities. By consistently requiring project railways to incorporate full cost tariffs and improved commercial practices, ADB contributed to the gradual change in thinking by the PRC authorities that led, by the end of the study period, to railways being run increasingly along commercial lines. Provision of improved technology was another feature of project design. As ADB support for the Ministry of Railways (MOR) gained momentum, two new themes emerged: (i) development of separate passenger and freight rail corridors, and (ii) introduction of elements of private sector participation by providing container terminals for private logistics operations and outsourcing of ancillary services. These reflect an increasingly sophisticated agenda for railway development and reform under the Eleventh Five-Year Plan (EFYP). Crosscutting and Safeguard Features. A significant crosscutting theme of ADB support for roads and railways was the need to provide safeguards for involuntary resettlement, and adverse project impacts on indigenous peoples and the environment, in accordance with ADB’s safeguard policies. Mitigation measures for HIV/AIDS spread associated with road and railway projects were another important issue to be addressed. Many of the road and rail projects involved land acquisition and resettlement on a large scale as well as environmental and social assessments. Addressing these developmental issues were important which occupied a significant portion of PPTA resources.
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A further strategic objective involving the transport sector is promotion of regional cooperation. ADB’s regional cooperation initiatives have been much appreciated by the PRC Government, both due to the investment opportunities created, and because it has facilitated new avenues for economic cooperation dialogue with neighboring countries (Greater Mekong Subregion and the Central Asia Regional Economic Cooperation). ADB has helped to play the role of investment catalyst, financier and supporter that facilitates forging closer economic ties between the PRC and its neighbors.
Response to Changing Needs. ADB demonstrated good responsiveness and flexibility to adjust its loan and TA program to changing government priorities. In roads and railways, ADB’s subsector priorities provided a fairly comprehensive listing of issues that were incorporated in its support on a project by project basis and through TAs. However, in the roads subsector, there were several areas where ADB could have been more responsive such as toll road operations, tariffs, and axle loadings.
Issues of Program Design
Lending and TA Modalities. Over the study period, the capacity of the PRC’s road and railways institutions increased rapidly. While in 1997 it was appropriate to follow the traditional ADB approach to project preparation (e.g., use of PPTA, loan processing missions, international procurement, and recruitment procedures, etc.), this became less appropriate by the second half of the study period. Several aspects of ADB support strategy might usefully have been refined. Transaction costs could have been reduced by use of innovative lending products and modalities. The allocation to PPTAs could have been rationalized by relying on carefully estimated requirements rather than any pre-determined fixed coefficients or amounts (although with declining trend in later years) allowing additional scope for providing more policy-oriented ADTAs. In some cases, issues could have been addressed more effectively by adopting a subsector focus e.g. for road safety, emission, HIV/AIDS and poverty.
Project Components Financed. During the COS, ADB railways subsector loans mainly financed civil works and procurement of rails. This was appropriate when ADB was assisting local joint venture railways (LJVRs) and initiating support for the Ministry of Railway (MOR). In recognizing MOR’s considerable capacity to carry out civil works, ADB’s 2005 project discontinued financing of civil works to concentrate on advanced railway equipment and technology. In the case of expressways, there has so far been no such adjustment. Since the NTHS has generally been constructed to a high standard, and most of it was carried out without outside assistance using technologies and materials available domestically, it may now be time for ADB to enhance its support package with greater sector and policy focus that might extend the justification for continued financing of expressway civil works.
Poverty Impact Monitoring. ADB required increasingly elaborate monitoring of project benefits and poverty reduction impacts of its roads and railway projects in the PRC. This was initially an appropriate response to the strategic directions set by the PRS in 1999. During the subsequent period, there were growing doubts within ADB about the practical feasibility of such monitoring and growing complaints from the executing agencies (EAs) in the PRC. By 2004, the enhanced poverty reduction strategy (EPRS) formally corrected this part of ADB’s strategy, indicating that project level poverty monitoring of large infrastructure projects was generally not useful and would no longer be required, and refocusing ADB on examining the impact channels for poverty reduction at country and sector level. However, the road and railways projects approved in 2004 and 2005 continued to include elaborate poverty monitoring requirements. This was partly because of the fact that poverty impact monitoring of ADB support at country or sector level would be even more difficult due to the size of the economy or sector relative to ADB support.
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More Efficient Strategic Use of TA. The SAPE found several issues over how strategically and efficiently TA was used. First, the share of TA allocated within the country program for roads and railways was far less than the share of roads and railways in total lending, given that there was an opportunity to make more value adding in terms of innovative ideas for improving sector performance commensurate with its position as the leading outside lender to roads and railways in the PRC. Second, the majority of TA for the two subsectors was PPTA, even though the PRC was increasingly able to prepare projects without much assistance. A significant proportion of the PPTAs went in to (i) addressing environmental and social safeguards, and public health issues; (ii) poverty; and (iii) strengthening economic analysis. By allocating PPTA resources on the basis of carefully estimated project preparation requirements, ADB could have significantly saved TA resources and increased the ADTA it provided for roads and railways. This would have been more in line with the Government’s intentions of using ADB as a source of advice on sector issues and international good practices, and with the CSP aim of developing strategic niches for long term nonlending support. Third, while most road and railways ADTAs addressed important subsector issues, the ADTA program as a whole had certain weaknesses that limited its potential influence and impact in both subsectors. Neither the COS, CSP, reports and recommendation of the President (RRPs), nor TA papers provided an overarching medium-term framework or roadmap to ensure that TAs fit together, linked to lending and advisory requirements, to form a coherent, coordinated set of interventions that are sustained as long as needed to have impact. Such a framework has been identified as a key requirement for effective TA support by successive reviews and evaluations of ADB TA and included in their recommendations and action plans. ADB Staff Capacity. The expansion of the roads and railways program, as well as changes in the types of sector activities supported by lending and TA required ADB to adjust staffing. During the study period, staff expertise was strengthened to be able to support areas such as analysis of poverty impacts, safeguard compliance, and road safety. Two main areas of concern were (i) ADB should have augmented its capacity and range of expertise to serve its railway operations more effectively, and (ii) ADB made only limited use of the potential to improve efficiency and client orientation by transferring responsibilities and staff positions to its PRC Resident Mission (PRCM). Comparison with Other Aid Agency Support. ADB support for roads and railways had much in common with the support provided by World Bank, except that (i) World Bank lending was more diversified between different sectors, with a lower proportion assigned to roads and railways; (ii) World Bank had less TA funding, although it provided in-kind advisory inputs through its staff; and (iii) more of World Bank’s team based in the PRC had a strong transport background. Performance of Projects and Technical Assistance Overall Performance. A distinguishing feature of roads and railways projects in the PRC—which contrasts with many other DMCs—is that they have generally been implemented to a high standard, within or close to their estimated cost, and within or ahead of schedule. In many cases, the projects involved complex construction work, including large numbers of tunnels and bridges often in difficult terrain, and in some cases extensive land acquisition and resettlement. The seven completed PRC road and rail projects approved during the study period have all performed well, and compare favorably with similar ADB-financed projects in other DMCs. Since most of the other road and railways projects approved during the study period are still ongoing, their performance after completion is not yet known. Nevertheless, based on quick review of ADB project documents with executing agencies, the SAPE would consider that there are good prospects that they would achieve a degree of success similar to the seven sample projects
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An assessment of the performance of TA for roads and railways was conducted using survey methods developed for the Operations Evaluation Department’s ADB-wide special evaluation study on TA performance. The overall performance of TAs in the sample was mixed, with ADTAs performing fairly well and PPTAs less satisfactorily. The main problem with PPTAs was that they duplicated the preparatory work already done by the Government without adding much value in technical areas. Value adding mainly was in the area of strengthening economic analysis, poverty analysis, and safeguards compliance preparation. Trickle-Down Effects and Poverty Reduction. The developmental role of the NTHS and railway network expansion has been crucial for the provision of energy and raw materials from inland provinces to the rapidly growing central and coastal provinces and for bringing consumer goods and production input to the inland destinations quicker, more reliably, and at much lower costs than before. While problems of methodological complexity make it difficult to prove empirically, it is likely that investments in the NTHS and railway network development played an important role in this form of poverty reduction through “trickle down.” The investments in establishing the NTHS and developing the railway network have helped to reduce bottlenecks that would have constrained the rate of economic growth. From this perspective, investing in expressways created a climate for workplace investments that facilitated migration from poor, growth-constrained communities. This is likely to have been a highly cost-effective mechanism for poverty reduction, even though it did not feature explicit geographical targeting. Contribution of Local Road Components to Poverty Reduction. To the extent that funds are fungible at the provincial level—even if only within the road transport subsector budget—one could perhaps argue that ADB could contribute more effectively to provincial rural poverty reduction by concentrating its financing on expressway components only. In this way, ADB would contribute to freeing up provincial resources from expressway financing, which could then be used to finance local and other road expenditures in keeping with provincial and county level priorities and plans. This would also be more consistent with ADB’s strategy under the EPRS. Limited assessments of the poverty reduction impacts of the local and link roads components found two things. First, in many cases, county and village roads components generated high traffic growth, which reflected substantial development effects. Second, it was very likely that these roads would have been built even if ADB financing had not been provided—given the sharp increase in Government spending on rural roads under the TFYP and EFYP. Social and Environmental Impacts. Based on the findings of the project performance evaluation reports and project completion reports of seven sample projects, and the opinions expressed by EAs during SAPE fieldwork, it would seem that social and environmental impacts of ADB-financed projects were generally addressed satisfactorily. This included environmental protection and mitigation measures, resettlement and land acquisition, indigenous peoples and road safety. There was little evidence available regarding the outcome of vehicle emission components of projects. These were not monitored or measured. Governance and Anticorruption. All ADB projects contributed to modernizing institutional structures for building and operating roads and railways, and for doing some in a transparent manner along commercial lines. Consequently, these added value in improving sector governance. Over the period, the Government substantially upgraded its anticorruption measures and capacity, and these now appear to be sufficiently rigorous. ADB and Borrower Performance. Based on evaluations of completed projects, Borrower performance was good. This reflects strong capacity, and diligent and timely implementation, on the part of most EAs. The SAPE also conducted a separate survey of ADB performance and client orientation. At the stage of project formulation, EAs were in most cases satisfied with ADB’s performance. The main exceptions were that EAs felt processing and approval of PPTA was a
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source of delay, project processing missions tended to introduce additional features that added complications for project implementation, and ADB sometimes required monitoring indicators that were impractical to them. Most EAs were generally satisfied with ADB’s performance during implementation. Value Added by ADB Operations
The SAPE carried out an assessment of the value added by ADB operations drawing on the findings of a “with and without” survey of ADB-financed and non-ADB financed road and railway projects. These were based on three distinct project areas of (i) finance mobilization; (ii) standard provisions (design standards, construction quality, international competitive bidding, accounting/auditing/reporting, anticorruption measures, and safeguard policies); and (iii) special project features (including full cost tariff, commercialization, link and local roads, poverty impact, public health). The findings of the survey indicate that ADB road and railway projects did add significant value but that some of the special features of projects added less value than was expected in the RRP. The extent of value added generally diminished when the same feature was included in repeated or similar projects—because the Government was quick to assimilate good features within domestic policies and procedures.
Overall Assessment and Conclusions
Overall Assessment. The SAPE’s overall assessment took into account the top-down and bottom-up evaluations carried out separately for roads and railways, and in aggregate. The overall rating of the performance of roads and railways support was successful, which reflected satisfactory ratings in both subsectors.
Conclusions. Over the SAPE period, roads and railways in the PRC underwent a remarkable transformation—both in terms of network expansion and upgrading, and through modernization and reform of policies and institutions. The Government’s programs in both subsectors were well conceived, and there was strong commitment and capacity established to carry them out. By providing development finance from the early stages of these programs, and consistent support and advice, ADB played a valuable role as a trusted development partner to assist the PRC in realizing these achievements. An important part of ADB’s approach was the consistency of its support over the study period. However, by the end of the period—with the NTHS nearing completion and the national railways having grown in capability and sophistication to become worthy of comparisons against international standards—this chapter in ADB support to the PRC was nearing completion. The SAPE survey of value addition showed that, with few exceptions, the standard package of ADB support and most of the special project features were no longer adding much value compared with domestically financed investments. Between the two subsectors more emphasis had gone on to the road subsector relative to the railway subsector during the SAPE period. In the future for ADB to continue to be successful in supporting roads and railways in the PRC, it will have to give attention to identifying areas where there is scope for substantial value addition, and then adjust the types of activities it supports in the subsectors, the way it provides the support, and ensure that it has an appropriate mix of ADB staff expertise. The PRC has massive additional investment requirements for roads and railways for the next 5 to 10 years. The Government is pursuing operational, institutional, and policy improvements to further increase the overall performance and sustainability of transport infrastructures. In this context, ADB can potentially continue to support the PRC in achieving further development of its roads and railways. However, given that there are alternative sources of finance and the road and railway subsectors have increasingly become sophisticated. ADB’s continued relevance as a source of finance and new knowledge will hinge on its ability and responsiveness that match the changing requirements of the clients.
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Key Lessons
The SAPE has shown that impressive development results can be achieved by consistently supporting a sound development plan for sector/subsector over an extended period. It also showed a strong client ownership can lead to successful project outputs and value addition. Assimilation of international good practices in the roads and railways has been quick for the same reasons.
Value addition of ADB assistance was largely in the area of finance mobilization,
introducing standard provisions to strengthen sector/subsector governance, and special features to improve development effects including support to introducing market-based principles in road and railway subsectors, public health, poverty impact.
Rapid economic development and growing financial strength have drastically reduced the
need for external financing of infrastructure projects. Under changing circumstances of this kind, more attention is needed to address the question of value addition in strategic analysis and programming to justify continued financial support for roads and railways in the PRC.
Recommendations
Based on the evaluation findings, the following recommendations are made for consideration by the Management for future ADB support for roads and railways in the PRC as part of the new country partnership strategy and its implementation: Recommendation Responsibility Timing For ADB Consideration 1.
Formulate new focus and priorities for lending assistance to roads and railways sector taking into account the Government priorities and ADB’s experience and resources; in doing so, (i) pursue further policy dialogue with the Government to identify areas for strategic focus, and value addition; and (ii) adopt special features and project components commensurate with project location, related government and ADB priorities.
EARD
As part of road and railways sector roadmaps and CPS preparation and during its implementation.
2. Enhance performance of technical assistance to roads and railways sectors by (i) rationalizing resource allocation for project preparatory technical assistance in relation to carefully estimated requirements and local conditions; (ii) adopting a longer term engagement and increasing allocation for advisory technical assistance to provide state-of-the-art knowledge products and services; (iii) making use of more inputs of high quality domestic consultants; (iv) bringing in world class and PRC experienced international consultants; and (v) providing necessary staff and incentives for project design and supervision excellence.
EARD, COSO During CPS preparation (2007) and its implementation.
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Recommendation Responsibility Timing 3. Increase responsiveness to client concerns by
(i) pursuing further discussion with the Government to explore how to make use of ADB’s new lending products and modalities; (ii) simplifying business procedures to reduce transaction costs associated with ADB project processing and administration procedures; (iii) move toward piloting country systems for environmental safeguard compliance where capacity of executing agencies is evident in line with ADB’s updated safeguards policy, and assisting in strengthening country systems and capacity in other safeguard areas; (iv) attaching local roads, link roads, and detailed poverty monitoring frameworks to expressway projects strictly on a demand-driven basis and in line with ADB’s enhanced poverty reduction strategy; (v) further strengthening the PRCM with transport sector specialist and delegating to it to handle more project related work and advisory services to the clients; and (vi) matching ADB staffing with the main areas it identifies for adding value through roads and railways operations in the PRC.
EARD, BPMSD, RSDD, COSO, SPD
During CPS preparation and implementation (2007-2010).
For Government Consideration
4. Assist in identifying new focus and priorities for ADB road and railways support to enable ADB to offer the PRC value addition. The Government should enter into a dialogue with the ADB to identify which areas of roads and railways should become the focus of ADB value addition through lending and nonlending assistance over the next 3-5 years.
MOF, MOC; MOR, NDRC, Provincial Communications Departments
During CPS preparation (2007) and its implementation.
5. Reduce transaction costs. The Government should take part in further dialogue with ADB to explore how to make use of ADB’s new lending products and modalities and reduce project startup delays and transaction costs associated with ADB project processing and administration procedures, and minimizing commitment fees.
MOF, MOC; MOR, NDRC
During CPS preparation (2007) and its implementation.
ADB = Asian Development Bank; ADTA = advisory technical assistance; BPMSD = Budget, Personnel, and Management Systems Department; COSO = Central Operations Services Office; CPS = country partnership strategy; PRC = People’s Republic of China; EARD = East Asia Regional Department; EPRS = Enhanced Poverty Reduction Strategy; MOC = Ministry of Communications; MOF = Ministry of Finance; MOR = Ministry of Railways; NDRC = National Development and Reform Commission; PRCM = PRC Resident Mission; RSDD = Regional and Sustainable Development Department; SPD = Strategy and Policy Department; TA = technical assistance.
Ramesh B. Adhikari Director Operations Evaluation Division 2 Operations Evaluation Department
Gulf ofTonkin
S o u t h C h i n a S e a
E a s t C h i n a S e a
Yellow Sea
Bohai Sea
Liaoning Expressway Project
Shenyang-Jinzhou Expressway Project
Yunnan Expressway Project
Fangcheng Port Highway
Hebei Expressway Project
Shenyang-Benxi Highway Project
Heilongjiang Expressway Project
Jilin Expressway Project
Shanghai Nanpu andShanghai Yangpu Bridges
Hunan Expressway Project
Jiangxi Expressway Project
GUANGXI ROADS II DEVELOPMENT PROJECT
GUANGXI ROADS DEVELOPMENT PROJECT
HUNAN ROAD IIIDEVELOPMENT PROJECT
HUNAN ROAD IIDEVELOPMENT PROJECT
WESTERN YUNNAN ROADSDEVELOPMENT PROJECT
CHENGDU-NANCHONG EXPRESSWAY PROJECT
CENTRAL SICHUAN ROADSDEVELOPMENT PROJECT
CHONGQING-GUIZHOU ROADS: CHONGZUN EXPRESSWAY
CHONGQING-GUIZHOU ROADS: LEICHONG EXPRESSWAY
CHONGQING EXPRESSWAY PROJECT
HEBEI ROADS DEVELOPMENT PROJECT
SHANXI ROAD DEVELOPMENT II PROJECT
XI'AN URBAN TRANSPORT PROJECT
SHAANXI ROADS DEVELOPMENT PROJECT
NINGXIA ROADSDEVELOPMENT PROJECT
GANSU ROADSDEVELOPMENT PROJECT
SHANXI ROAD DEVELOPMENT PROJECT
CHANGCHUN-HARBIN EXPRESSWAY: HASHUANG EXPRESSWAY
CHANGCHUN-HARBIN EXPRESSWAY: CHANGYU EXPRESSWAY
SOUTHERN SICHUAN ROADSDEVELOPMENT PROJECT
SOUTHERN YUNNAN ROADSDEVELOPMENT PROJECT
Tongjiang
Jiamusi
Harbin
Changchun
Jilin
Siping
Tieling
Shenyang
Benxi
Dandong
Jinzhou
Suifenhe
Manzhouli
Yakeshi
Boketu
Qiqihar
Tianjin
Tangshan
Shanhaiguan
Yingkou
Dalian
Yantai
QingdaoJinan
Shijiazhuang
BEIJING
Shizuishan
Erenhot
Liulin
Qixian
Guyaozi
Tongxin
Luohandong
Fengxiang
Dingxi
Taiyuan
Shuyang
Yuanping
Yinchuan
Qingtongxia
Hohhot
Jining
XinxiangLinfen
HoumaYumenkou
Yanliang
BaojiXi'an
Sanmenxia
LuoyangTongguan Zhengzhou
MianyangNanchong Wanxian
Chengdu
Wuhan
Hefei
Anqing
Xuzhou
Qufu
Lianyungang
Huaiyin
Yumen
Xining
Lanzhou
Ruili
BaoshanLongling
Dali
Yuanjiang
Mohei
Kunming
Chuxiong
QujingWuding
Panzhihua
Xichang
Ya'an
ShimianLugu
Guiyang
Zunyi
Leishendian
Zhaotong
Liuzhou
Guilin
Nanning
Fangcheng
Youyiguan
Baise
Hekou
BeihaiQinzhou
Chongqing
Hengyang
Xiangtan
Yongan
Nanchang
Jiujiang
Changsha
Changde
Jishou
Huayuan
Foshan
GuangzhouHuangpu
Tanxi
Longyang
Shantou
Zhangzhou
XiamenQuanzhou
Fuzhou
Zhanjiang
ZhuhaiKaiping
Haikou
Sanya
Shanghai
Ningbo
Jingdezhen
Wenzhou
Hangzhou
Nanjing
Shenzhen
to Huocheng
to Lhasa
HEILONGJIANG
JILIN
LIAONING
NINGXIA
SHAANXI
SHANXI
HENAN
HUBEISICHUAN
GANSU
HUNAN
JIANGXIFUJIAN
ZHEJIANG
SHANGHAIANHUI
JIANGSU
SHANDONG
HEBEI
INNER MONGOLIA
YUNNANGUANGXI
GUANGDONG
HAINAN
HONG KONG SARMACAO SAR
GUIZHOU
QINGHAI
XIZANG
TIANJIN
CHONGQING
SAR
VIET NAM
LAO PEOPLE'SDEMOCRATIC
REPUBLIC
MYANMAR
MONGOLIA
RUSSIAN FEDERATION
National Capital
Provincial Capital
City/Town
Major Port
Approved 1997--2005
Approved before 1997
Special Administrative Region
Priority Route
Long-Term Route
Provincial Boundary
International Boundary
National Trunk Highway System
Boundaries are not necessarily authoritative.
ADB-FINANCED ROAD PROJECTSIN THE
PEOPLE'S REPUBLIC OF CHINA
100 200 300 4000
Kilometers
N
06-3979 HR
Map 1
40 00'No
40 00'No
20 00'No
20 00'No
120 00'Eo
120 00'Eo
100 00'Eo
100 00'Eo
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
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
XinxiangJiaozuo
Shehe
Hengshui
Fengteng
Dezhou
Tianjin
Huanghua
Shuoxian
Yanzhou
Heze LinyiZhengzhou
Tongguan
Xi'anBaoji
Zhongjiacun
Yan’an North
Hancheng
Suide
Mucun
Shenmu North
Dongsheng
Zhongwei
Yulin
Gantang
LanzhouXining
YinchuanYumen
Qinhuangdao
Bazhou
BEIJING
HohhotJining
Datong
Baotou
Xinfeng
Jinan
Shijiusuo
Lianyungang
Qingdao
Yantai
Yangpingguan Tongbai 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
HeshanLaibin
Sanshui
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
Guangzhou Shantou
Ping Xiang
NanningLitang
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
National Capital
City/Town
Existing Railway
Planned Railway
Approved 1997-- 2005
Approved before 1997
River
Provincial Boundary
International Boundary
Boundaries are necessarily authoritative.
ADB-FINANCED RAILWAY PROJECTSIN THE
PEOPLE'S REPUBLIC OF CHINA
0 10050 150 200 250
Kilometers
N
06-3980 HR
35 00'No
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. INTRODUCTION AND BACKGROUND
A. Introduction
1. This sector assistance program evaluation (SAPE) examines the performance of the Asian Development Bank (ADB) support for roads and railways development in the People’s Republic of China (PRC) over the period 1997-2005. During this time, the PRC was ADB’s largest client, accounting for 19.0% of total ADB lending and 13.2% of technical assistance (TA). Much of ADB’s program in the PRC, and nearly all of its support for the transport sector, was for roads and railways. An evaluation of this support is, therefore, of strategic relevance not only for ADB’s future support for roads and railways in the PRC but also for ADB’s country program in the PRC, and has implications at ADB corporate level for the scale and composition of overall ADB operations. 2. The Operations Evaluation Department (OED) included the SAPE in its 2006 work program so that its findings and lessons would be ready in time to help prepare ADB’s next country partnership strategy (CPS) for the PRC in 2007. This SAPE will also form part of the overall country assistance program evaluation for the PRC, which was likewise included in OED's 2006 work program. The SAPE examines the performance of ADB support for roads and railways over two successive country strategies. It covers the entire period of the 1997 country operational strategy (COS)1 that ran from 1997 to 2003, together with the first 2 years of the 2003 CSP, which covers ADB support from 2004 to 2006.2 B. Background
3. Over the past two decades, the PRC has implemented a large number of programs to expand and improve its road and railway transportation systems. In 1992, it had the lowest road density in the world relative to both geographical area and population. Its railway network was experiencing severe capacity bottlenecks. From 1997 to 2005, the road network grew from 1.23 million kilometers (km) to 1.93 million km. This included construction of a national trunk highway system (NTHS), a 35,000 km arterial road network composed mainly of expressways. By the end of 2005, some 31,900 km of the NTHS had been completed, with the remaining 3,100 km due for completion by 2007. From 1997 to 2005, the rail network was expanded from 65,970 km to 75,438 km, while capacity was augmented by double-tracking and electrification. Investment programs in both roads and railways featured the introduction of modern technologies and project management methods. Investment was accompanied by a process of gradual but sustained reform of subsector policies and institutional arrangements. Reforms included greater commercial orientation and new approaches to cost recovery. 4. Roads and railways accounted for 27 of the 58 ADB loans to the PRC approved from 1997 to 2005, contributing $6.8 billion (68%) of the total of $10 billion of new ADB lending to the PRC. Of the 246 TA projects approved over the period, 41 were for roads and railways. These comprised 15 advisory technical assistance (ADTA) grants and 26 project preparatory technical assistance (PPTA) grants, equivalent to about 15% of total TA approvals by value. Roads and railways' share of total ADB support to the PRC also increased over the period. At the end in 2005, roads and railways accounted for about 82% of new ADB lending and 2% of new TA approvals.3
1 ADB. 1997. Country Operational Strategy Study: People’s Republic of China. Manila. 2 ADB. 2003. People’s Republic of China Country Strategy and Program (2004–2006). Manila. 3 The lending share was 73% for roads and rails during 2001–2005, and in 2006, it was about 53% of the total lending
value in the PRC.
2
5. ADB support for roads was larger than for railways. For roads, ADB provided 20 loans worth $4.85 billion,4 and 27 TA projects worth $17.3 million. For railways, it provided seven loans worth $1.92 billion, and 14 TA projects worth $5.8 million. On average, ADB provided about two loans and three TA projects per annum for roads, and about one loan and two TA projects per annum for railways. Additional details of approved loans and TA projects are in Appendixes 1 and 2. 6. The PRC has massive additional infrastructure investment requirements,5 particularly for roads and railways. From 2006 to 2010, the Ministry of Communications (MOC) has plans to expand the road network from 1.9 million km to 3 million km, including (i) further expansion of the NTHS and other arterial networks to 85,000 km, and (ii) building or improving 1.2 million km of rural roads to improve links between towns and villages. According to the Ministry of Railways' (MOR) railway development plan, the rail network will be increased to 85,000 km by 2010, and to 100,000 km by 2020. Besides expanding the road and rail networks, the Government is pursuing operational, institutional, and policy improvements to further increase the effectiveness, efficiency, and sustainability of transportation. In this context, ADB potentially can continue to play a significant role to support the Government in expanding and improving roads and railways under the new CPS. Because the PRC now has much greater access to domestic and international sources of financing, and because its roads and railways are increasingly sophisticated, ADB’s continued relevance as a source of finance will depend on its ability to provide high-quality services that match the changing requirements of these subsectors. C. Scope and Objectives
7. The objective of this SAPE is to assess the performance (relevance, effectiveness, efficiency, sustainability and impact) of ADB’s support for roads and railways in the PRC over the study period, and to derive lessons for improving current and future support. The SAPE examines six broad questions:
(i) Strategic direction. Did ADB’s strategies for roads and railways provide a sound strategic direction for ADB support, taking into account the PRC’s needs and priorities, other development partners’ support, and ADB’s comparative advantages?
(ii) Alignment of program with strategy. Was ADB’s program of loans, TA, and other sector work aligned with its strategies for roads and railways?
(iii) Performance of program. Were the results of the ADB program effective, efficient, and sustainable?
(iv) Influence of ADB support. Did ADB support contribute more broadly to helping the PRC address its key road and railway needs, priorities, and challenges?
(v) Performance of ADB. Was ADB an effective partner in terms of quality of dialogue, advice and support, responsiveness to country needs, and consistency in following its mandate, objectives, and strategies?
(vi) Lessons. What lessons can be derived from ADB’s road and railway projects in the PRC?
8. The value addition of ADB support for roads and railways is a theme of the SAPE. To the extent that, over the study period, the PRC became increasingly able to prepare, finance, and execute road and railway investment projects without ADB support, the justification for ADB’s continued involvement is contingent on ADB contributing additional value above and beyond the financing of investment projects. Examples of value addition include (i) transfer, dissemination, 4 These financed 18 projects. In two projects, the scope extended across two provinces and separate loans were
required to finance the works in each province. 5 East Asia requires about $200 billion annually for infrastructure investment, of which 80% will be accounted for by
the PRC—ADB, World Bank, and Japan Bank for International Cooperation. 2005. Connecting East Asia: A New Framework for Infrastructure. Manila, Washington, DC, and Tokyo.
3
and adoption of technology and knowledge; (ii) enhancing the design and implementation of ADB-financed projects, for instance by introducing innovative features, safeguards, and anticorruption measures; (iii) spillover influences that enhance non-ADB-financed projects and umbrella programs; and (iv) identifying sector development issues and helping the government address them through reforms, institutional strengthening, etc. Since value addition was not an explicit objective of the 1997 COS, the 2003 country strategy and program (CSP),6 or the individual road and railway projects approved during the study period, the SAPE did not rate the performance of ADB support against the yardstick of value addition. Nevertheless, the SAPE does identify areas where ADB might potentially add (or subtract) value. This could prove a useful input toward formulation of ADB’s transport sector strategy for the next CPS for the PRC in 2007. D. Evaluation Methodology
9. The SAPE was carried out in the PRC and at ADB Headquarters through a combination of studies, interviews, and document review. The main components were:
(i) Retrospective situation analysis of the road and rail subsectors. Literature review and interviews to identify the main policies, programs, priorities, challenges, and issues of the road and railway subsectors in the PRC over the study period (paras. 7[i], 7[iv]).
(ii) Comparator assessment. Literature review and interview program to compare ADB’s strategy for roads and railways with that of the World Bank and the other international financial institutions that assisted roads and railways (para. 7[i]).
(iii) Analysis of strategic fit. Drawing upon the retrospective situation analysis and comparator assessment, this examined (a) how closely ADB’s strategies and priorities match the priorities and challenges facing the PRC in the realm of roads and railways, and whether ADB has a comparative advantage in its priority areas of support; and (b) how closely ADB’s programs were aligned with these strategies and priorities (paras. 7[i], 7[ii]).
(iv) Evaluation of completed ADB projects. As part of the SAPE, in 2006 OED prepared project performance evaluation reports (PPERs) for four completed road projects and one railway project. It also conducted an in-depth review of the project completion report (PCR) for a railway project, and reviewed the reports and recommendations of the President (RRPs) and PCRs for projects approved during the study period, and portfolio indicators and back-to-office reports of review missions for ongoing projects (para. 7[iii]).
(v) Study of poverty reduction impact of railways. Using household survey data available from the Shaanxi Provincial Government, and drawing on methods developed by regional TA 5947,7 a quantitative study was prepared of the poverty reduction impact of the Shenmu-Yanan Railway Project (para. 7[iii]].8
(vi) Existing studies of poverty reduction impacts of road projects. Desk review of previous studies (para. 7[iii]).
(vii) Assessment of the performance of TA. A semistructured questionnaire survey of the executing agencies, project officers, and consultants for all completed policy-oriented ADTA projects and a sample of completed PPTA projects (para. 7[iv]).9
6 In discussing new challenges for ADB in the PRC, the 2003 CSP indicated that “ADB’s task is to select niches where
ADB can add value.” 7 Cook, C. et al. 2005. Assessing the Impact of Transport and Energy Infrastructure on Poverty Reduction. Manila: ADB. 8 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. 9 This used survey instruments developed by the ADB. 2007. Special Evaluation Study on the Performance of
Technical Assistance. Manila.
4
(viii) Survey of ADB performance and client orientation. A semistructured questionnaire survey of the executing agencies for ADB-financed road and railway projects, conducted alongside a with-project and without-project comparison (para. 7[iv], 7[v]).
(ix) Comparison of projects with and without ADB support. A semistructured questionnaire survey of a sample of the executing agencies for ADB-financed projects and a matched sample of executing agencies for domestically financed projects, selected on the basis of similarity in terms of scope, location, and timeframe (paras. 7[iv], 7[v], 8).
10. The SAPE has the following limitations:
(i) It covers public sector road and rail projects but not private sector or multisector projects. ADB has not financed private sector road or railway projects in the PRC, or multisector projects with significant road or rail components.
(ii) Assessment of individual projects focused on projects approved and completed during the study period. This covered five of the 18 road projects and two of the seven railway projects, all of which were approved from 1997 to 1999. A brief review of ongoing projects approved after 1999 was also done.
E. Organization of the Report
11. Chapter II provides a retrospective analysis of the priorities, challenges, and accomplishments in the road and railway subsectors over the study period. This establishes the context of road and railway development in the PRC against which to judge the performance of ADB support. Chapter III examines the suitability of ADB’s strategy for assisting roads and railways taking into account (i) the role of road and railway support within the ADB country strategy, (ii) the strategic fit between ADB support and the sector needs and Government priorities, (iii) the coherence of ADB’s strategy, (iv) how well ADB adapted to changing needs over the study period, and (v) how ADB’s strategy compared with that of the World Bank. Chapter IV assesses the performance of ADB projects and TA for roads and railways in terms of their design and implementation, outcomes, and impacts. Chapter V presents the analysis of value added by ADB operations, drawing on the results of the with-project and without-project comparison of ADB-financed and domestically financed road and railway projects. This provides a basis for considering whether ADB needs to adjust the type of support it provides in order to maintain relevance in the PRC's road and railway subsectors. Chapter VI provides the overall assessment of the performance of ADB support, based on top-down and bottom-up assessments, and presents the overall conclusions, lessons, and recommendations of the special evaluation study.
II. RETROSPECTIVE SECTOR ANALYSIS
A. Introduction
12. This chapter looks back at the priorities, challenges, and accomplishments in the road and railway subsectors in the PRC during the study period. This helps to establish the context for evaluating ADB support in subsequent chapters of this SAPE. Further details of the retrospective sector analysis are in Appendix 3 for roads, and in Appendix 4 for railways. 13. The period 1997–2005 was of historic significance for the development of roads and railways in the PRC. It began with plans for continued growth in road and rail infrastructure investments to address well-known transport bottlenecks that had arisen as a result of a lack of
5
investment in the past.10 Although the Government had stepped up investment over the previous decade, the demand for transport had continued to grow rapidly as a result of economic growth. By 1996, transport investment was about 3% of gross domestic product (GDP). This was a significant increase over the average of 1.3% during the 1980s. However, some studies suggested that a level of 6% would be needed to match the standards of middle income countries (MIC) striving for international competitiveness.11 14. The Asian financial crisis that began in July 1997 had a profound effect on transport investment. Faced with a possible downturn in economic growth, the Government opted to “pump prime” the economy by increasing investment in public works. Much of the additional investment went toward highways, in particular the NTHS. As Table 1 shows, investment in fixed transport assets jumped from $21.1 billion in 1996 to $37.5 billion in 1998. It then continued to rise steadily throughout the period, reaching $69 billion in 2004. As a share of total transport investment, highway investments grew from 63% in 1996 to 72% in 1998, and reached 83% in 2004. The investment share of railways steadily decreased, although the absolute level of railway investment increased slightly over the period. One more point of significance was that the vast majority of transport investment during the study period was financed from domestic sources. By 2004 only 1.5`% was foreign investment. The PRC, therefore, no longer had to rely on international financial institutions such as ADB and the World Bank for investment financing.
Table 1: Investment in Transport Fixed Assets (%)
10 From 1966 to 1994, transport sector investments as a share of gross domestic product (GDP) were less than half
that of other large developing countries. 11 World Bank. 1998. China—Forward with One Spirit: A Strategy for the Transport Sector. Washington, DC.
Year Investment 1996 1998 2000 2002 2004
A. Investment in Transport Fixed Assets ($ billion)a 21.1 37.5 40.5 53.7 69.0 B. Composition of Investment (% of total)
1. By Function 1.1 Ports and Other Coastal Construction 4.4 2.8 2.4 2.9 0.6 1.2 Inland Waterway Construction 4.6 3.1 2.7 2.0 0.9 1.3 Highway Construction 62.6 72.3 70.9 73.4 83.1
1.3.1 Trunk Highwaysb 0.0 34.5 32.3 29.1 30.6 1.3.2 Other Road Networks 0.0 23.7 27.6 32.0 29.9 1.3.3 County and Township Roads 0.0 11.9 9.2 11.1 21.7
1.4 Railways 26.7 20.5 23.3 21.4 14.6 1.5 Others 4.4 2.8 2.4 2.9 0.6
2. By Source of Funds (excluding railways, ports) 2.1 State Budget 12.3 13.4 12.4 16.3 13.4 2.2 Provincial Loans 64.6 68.0 69.7 66.7 67.8 2.3 Foreign Investmentc 7.7 5.1 3.7 2.7 1.5 2.4 Self-Financing and Othersd 15.4 13.4 14.3 14.3 17.4
a Converted from CNY using average annual CNY/$ exchange rates. b Trunk highways are largely the national expressway network. However, a small number of class I and class II highways
are also included. c Mainly international financial institutions including the Asian Development Bank. d This consists of the contribution of provinces, counties, local townships, villages, the private sector, and debt taken on by
the secondary and tertiary levels of government. While hard data on the provincial and tertiary government debt levels for road financing is not available, a rough estimate is that debt represents about 60% of that category of investment, which leads to an overall debt-to-equity ratio of approximately 2:1.
Sources: Ministry of Communications. Statistical Yearbooks; Statistics on Investment in Fixed Assets of China, 1950–2000.
6
B. Road Subsector
15. Over the study period, the PRC authorities faced five main challenges in the road subsector: (i) how much to spend on which road investments, (ii) how to pay for the proposed investments and their maintenance, (iii) what design and maintenance standards to employ, (iv) how to gear up highway construction capacity quickly to undertake a large highway modernization program, and (v) setting government policy to facilitate the most economic use of the highway networks. 16. The focus was on questions (i), (ii), and (iii) when the study period began in early 1997. They were reflected in the subsector priorities of the Ninth Five-Year Plan 1996–2000 (NFYP), which sought to link all cities with populations over 500,000 through the NTHS, expand the secondary road network, and build highways to border crossings. Questions (iv) and (v) resulted from the rapid expansion of highway construction following the Asian financial crisis. 17. As in all countries, there was a need to strike a balance between investment in the different levels of the road network hierarchy, between regions, and among social groups. A large portion of investment was for the NTHS (Table 1), much of which was concentrated on the more economically advanced coastal and eastern provinces where traffic needs were greatest. 18. The NTHS grew rapidly after the Asian financial crisis. In the 7 years prior to 1997, an average of 607 km of expressways was completed each year; in the subsequent 7 years (1998-2004), the average was 4,217 km per year, and preliminary indications were that more than 5,000 km were completed in 2005. 19. By the middle of the study period, increased emphasis was being given to improving the lower levels of the road network. Country and township roads experienced rapid growth from 2000 onward. This reflected the objectives of the Tenth Five-Year Plan 2000–2005 (TFYP), and particularly the Eleventh Five-Year Plan 2006–2010 (EFYP), to reduce inequalities of income through, among other things, improving access to markets and services. During the second half of the study period, increased emphasis was given to improving highway connectivity in the western part of the country. This reflected the Western Development Strategy, which was introduced by the Government under the TFYP. The goal of the strategy was to promote growth and development in the western region and reduce disparities between the West and the more prosperous coastal areas. 20. The question of how to pay for the investments and their maintenance was an issue throughout the study period. The NTHS was about 70% financed through provincial government borrowings against projected toll revenues; the central Government and the provincial government each contributed 15%. Therefore, the central and provincial governments quickly had to develop expertise in tolling and establish institutional arrangements to build and operate toll roads on a commercial basis—mainly through setting up public expressway companies. Other options used were private sector participation through joint venture companies and securitization of existing highways, although these declined toward the end of the study period.12 21. Reliance on borrowing created another problem: debt burden. Some of the expressway companies—particularly in light-traffic central and western areas—may not be able to generate sufficient revenues to service their debt and finance their operational costs. By the end of the study period, it appeared likely that the Government would have to intervene, for example through some form of pooling or cross-subsidy arrangement.
12 Joint ventures mobilized more than $9 billion from private sources, and asset securitization raised another $2 billion.
7
22. By the beginning of the study period, the PRC had established its own highway design and maintenance standards. The NTHS was built fairly uniformly to expressway standard. In lower traffic sections—notably in central and western areas—there might have been an economic case for initially adopting lower geometric standards, although rapid growth of traffic levels eventually would have necessitated expansion. Throughout the study period, there were problems of axle loads exceeding pavement design standards due to illegal overloading. This can lead to premature pavement failure and necessitate costly pavement strengthening and reconstruction works. 23. The rapid development of the NTHS required a massive expansion of the domestic road-design and construction industries. These industries had benefited from competitive bidding experience gained through working with international financial institutions in the 1980s and 1990s. Competitive bidding procedures of that time included exposure to the Fédération Internationale des Ingénieurs Conseils (FIDIC) system of separating client, engineer, and contractor—elements of which were adopted for domestic civil works procurement. 24. Another issue that emerged during the study period was the need to balance financial considerations against economic efficiency when setting toll rates. The reliance on debt financing led to adoption of high toll rates—roughly on a par with those in the United States—in order to generate the revenues needed for debt service. However, due to high toll rates a portion of traffic continued to use the older, congested, non-tolled facilities instead of diverting to the new expressways. A related efficiency issue was that the policy of creating separate toll companies for each section led to large numbers of toll stations, leading to higher time costs for traffic and higher administrative costs for tolling. By the end of the study period, some provinces were beginning to unify their tolling structures, but others had yet to address the issue. C. Railway Subsector
25. During the study period, the PRC authorities faced five main challenges in the railway subsector: (i) how to increase railway capacity to reduce the persistent gap between demand and supply of rail services. as quickly and efficiently as possible; (ii) how to pay for service enhancements and the expansion of railway capacity; (iii) how to modernize institutional structures in line with the move to an efficient socialist market economy; (iv) how to create strong incentives to constantly enhance performance (quality as well as quantity and efficiency) in what would remain, at least for the present time, a state-owned monopoly in the provision of mainline railway operating services; (v) how to lay a foundation for, and begin to introduce, competition in the railway supply and support industries; and (vi) how to lay a basis for the subsequent introduction of competition in mainline railway operations, including the necessary adaptations related to the PRC’s entry into the World Trade Organization (WTO). 26. The first four questions had been on the agenda for two decades, with attention mostly focused on (i) and (ii). Institutional reform issues—as summarized in questions (iii)–(vi)—began to attract more attention under the NFYP, and assumed greater importance after the PRC’s accession to the WTO in 2001. At the beginning of the study period, the focus of railway modernization was on technology, but from 1999 onward the national railways began to introduce far-reaching institutional reforms. By the end of the period, both in terms of technology and institutional practices, the gap between the PRC's railways and international best practice had narrowed considerably. 27. Under the TFYP, the Government planned to develop separate passenger and freight dedicated lines on busy trunk routes, together with other technological improvements such as
8
adoption of advanced communication, signaling, and safety technology—required for increasing train speed to enhance mobility and competitiveness.13 28. In 1997, the utilization and productivity of existing railway assets was already among the highest in the world. The main option for reducing the gap between supply and demand was investing in new infrastructure and equipment. This included replication of existing assets, replacement of existing assets with improved technologies, and expansion of the existing asset base by adding new assets incorporating new technologies. These were pursued steadily over the study period. By 2004, total route km had increased by 16%, electrified track by 35%, and locomotives by 24% for diesel and 81% for electric. Several new high-speed, passenger-dedicated lines had been introduced. 29. Railway investment was financed without government grants or equity contributions. The four main financing sources were (i) a special construction surcharge on freight (this was the largest financing source); (ii) retained profits (the national railways have made a profit each year since 1998); (iii) on-lent sovereign loans (mainly from Japan and international financial institutions, including ADB); and (iv) establishing legally separate provincial and local railway enterprises, with significant financial contributions from provincial governments (local joint venture railways (LJVRs) contributed some 5,480 km of route km from 1997 to 2004). 30. In 1997, at the start of the study period, the national railways were still a vast, monolithic, vertically integrated undertaking employing 3.9 million people.14 For more than a decade the MOR had been receiving advice from international financial institutions on the need for reform, but the pace of reforms had been slow. Then in 1998 and 1999 decisions were taken to move ahead more quickly with reforms. The approach was to concentrate on core transport services. Activities such as railway construction and locomotive and rolling-stock manufacturing were restructured into competitive industries. Many social services were shifted from the national railways to local governments. As a result of these reforms, direct employment was reduced to 2.5 million personnel by the end of 2001.15 31. Another significant aspect of railway reform was the system of performance incentives established through a newly introduced asset operation liability system. Through a system of management contracts, the MOR entrusted the 18 regional railway administrations with railway assets, offering them substantial rewards and considerable autonomy in return for achievement of specific performance targets, particularly profitability. The asset operation liability system played a key role in increasing the commercial orientation of the national railways. 32. The question with which the MOR has proceeded most cautiously concerns introducing competition on mainline railways. Accession to the WTO obligated the PRC to permit competition, including foreign competition. However, introduction of competition is fraught with risks, so the MOR has justifiably been proceeding with caution. It has been studying the experience of other countries, but has yet to decide on a model for competition. Given the high traffic density, there 13 The Government’s TFYP strategy and policies focused 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 existing system 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; (vi) reforming the railway investment and financing system, and encouraging nongovernment investment in infrastructure and related services; (vii) clearly identifying core operations and separate core and non-core transportation businesses, and establishing specialized transportation companies; and (viii) rationalizing and reducing staff.
14 The MOR operates the state-owned national railways as an integrated system. 15 A better measure of employment impact is available from the number of employees engaged in railway transport
activities. This fell from 1.90 million in 1997 to 1.45 million at the end of 2001.
9
could be potential point-to-point competition in corridors served by two or more operators—similar to the model in the United States. As well as considering different models of competition, the MOR also has been considering the option of separating government regulatory functions from rail operations, but a decision has yet to be reached.
III. ADB STRATEGY FOR SUPPORTING ROADS AND RAILWAYS
A. Positioning within ADB Country Strategy and Program
33. Over the study period, ADB’s support for roads and railways was of central importance to its overall objectives and country support strategies in the PRC. 34. Of the four major challenges identified by the 1997 COS, two depended significantly upon improving the efficiency and connectivity of transportation. These were (i) “supporting sustainable growth by reallocating resources toward priority areas such as infrastructure, environmental protection, human resource development and poverty reduction”; and (ii) “ensuring broad-based growth and a relatively egalitarian distribution of its benefits between the coastal and the interior provinces."16 These challenges had been identified as priority areas in the NFYP. They were reflected in two of the three overall objectives established for ADB support under the COS. These were to (i) improve economic efficiency, and (ii) promote economic growth to reduce poverty in inland provinces.17 35. Recognizing that infrastructure bottlenecks impede efficient growth, the COS allocated one-half to two-thirds of ADB lending to the PRC in any year to infrastructure investment. Road and rail investments were expected to feature significantly within this. 36. In all sectors supported by ADB, including transport, the COS emphasized the use of market-based approaches to improve economic efficiency. This included (i) improving policy, legal, and regulatory frameworks; (ii) using pricing mechanisms to provide market-based signals; (iii) encouraging competition and growth of the non-state enterprise or private sector; and (iv) commercializing operators so that they would respond to market forces. 37. Much of the focus of the COS was retained in the 2003 CSP. By that time, ADB had adopted a poverty reduction strategy (PRS) that established poverty reduction as its overarching goal.18 The overall objective for ADB support under the CSP was to “promote pro-poor economic growth by enabling greater access of the poor to the benefits of economic prosperity and opportunity to achieve it.” Some 84% of the proposed program was to be spent in the poor interior regions. Transport was to contribute 61% of lending, focusing mainly on the central and western regions. 38. Roads and railways were important in three of the four areas of focus of the CSP. These were (i) promoting equitable and inclusive growth, (ii) making markets work better, and (iii) fostering regional cooperation.19 Support for roads and railways was again to focus mainly on removing infrastructure bottlenecks, but with increased emphasis on policy and institutional reform to improve cost recovery and governance, introduce competition, improve efficiency, and create opportunities for private sector participation.
16 The other major challenges were (i) creating a stable and efficient macroeconomic environment to foster rapid,
sustainable, and noninflationary growth; and (ii) developing the legal and regulatory framework needed for a market economy.
17 The third COS objective was to enhance environmental protection and natural resource management. 18 ADB. 1999. Fighting Poverty in Asia and the Pacific: the Poverty Reduction Strategy. Manila. 19 The fourth focus area was promoting environmental sustainability.
10
39. While the COS offered little guidance on the strategy for nonlending assistance, the CSP recognized that nonlending assistance would be an increasingly important element of ADB support. Since ADB’s resources were small relative to the PRC’s overall investment needs, ADB should focus more on assisting the PRC through knowledge transfer and strategic and policy influence, rather than through financial transfers alone.20 The CSP also said that nonlending support, including TA, should be aimed at strategic niches for long-term ADB assistance that had strong Government commitment and ownership. This would require ADB to develop improved mechanisms to disseminate findings and lessons to senior PRC leaders, development stakeholders, the private sector, and academia. B. ADB Sector Strategy and Program
1. ADB Strategy and Priorities
40. ADB’s seven priorities in the roads subsector were (i) constructing roads connecting growth centers with hinterland economies; (ii) strengthening and commercializing expressway organizations; (iii) improving highway standards (COS only); (iv) establishing efficient pricing policies; (v) introducing alternative investment financing mechanisms, including private sector participation; (vi) improving road safety and lessening environmental impact (including reducing vehicle emissions); and (vii) integrating the NTHS with a system of feeder roads to provide access for the local population. 41. ADB’s six priorities in the railway subsector were (i) constructing new railway lines in less-developed and poor areas (the COS focused specifically on provincial lines); (ii) increasing capacity on existing routes (COS only); (iii) modernizing railway technology; (iv) improving operational and managerial efficiency and commercializing operations; (v) diversifying sources of investment financing through private sector participation and other methods (COS only); and (vi) improving rail competitiveness by restructuring and reforming policy (CSP only). 42. There was a high degree of consistency in ADB’s strategic priorities for roads and railways over the study period. These were closely linked with the overall country-level objectives and priorities set by the COS and CSP, and changed little over the period. A comparison of priorities in the road and railway subsectors under the COS and CSP is in Table 2.
20 The Government’s decision to establish an annual ceiling of $1.5 billion for ADB lending during the period covered by
the 2003 CSP provided an indication that it no longer required ADB financing but still valued ADB nonlending assistance and recognized that, in order to receive such assistance, it needed to continue receiving a certain level of ADB lending.
11
Table 2: ADB Strategic Priorities for the Roads and Railway Subsectors in the PRC
Country Operational Strategy 1997-2003 Country Strategy and Program 2004-2006
1. Road Subsector (i) Construction of expressways and highways
connecting major growth centers and promoting linkages with hinterland economies
(i) Constructing roads that connect major growth centers and improve access in the western and central regions
(ii) Institutional strengthening to increase the commercial orientation and managerial efficiency of expressway organizations
(ii) Strengthening the corporatization and commercialization of expressway organizations
(iii) Improvement of highway planning, evaluation techniques, and safety standards
(iv) Adoption of appropriate pricing policies to ensure optimum utilization of road transport capacity
(iii) Adopting appropriate pricing policies to ensure optimum use of road transport capacity
(v) Utilization of alternative methods of investment financing, including private sector participation to meet the huge financing requirements of the highway development program
(iv) Using alternative methods of investment financing, including private sector participation
(v) Promoting road safety and vehicle emission reductions
(vi) Promotion of road traffic safety and vehicle emissions reductions
(vi) Addressing traffic safety and environmental issues
(vii) Integration of the network so that the National Trunk Highway System (NTHS) is supported by a system of feeder roads that provide access for the local population to the main economic centers
(vii) Integrating the network so that the NTHS is supported by a system of local roads, particularly those that provide access to poor areas
2. Railway Subsector (i) Expanding the railway system through the
construction of important provincial lines, including those that will indirectly contribute to the reduction of poverty in the less developed inland provinces
(i) Expanding the railway system by constructing new lines in unserved, less-developed, and poor areas
(ii) Increasing the capacity on key routes of the national railway system
(iii) Modernizing railway technology, including use of energy-efficient and faster locomotives, improved telecommunications and signaling, and introduction of computerized reporting and record-keeping
(ii) Modernizing and increasing the capacity on key routes of the national railway system to improve transport efficiency
(iv) Improving the operational and managerial efficiency and commercial orientation of railway companies
(iii) Commercializing railway operations to sustain efficient operations
(v) Diversifying sources of investment financing, including greater private sector participation
(iv) Increasing railway competitiveness in the transport sector by restructuring and by reforming policy
Sources: ADB. 1997. Country Operational Strategy Study: People’s Republic of China. Manila; and ADB. 2003. People’s Republic of China Country Strategy and Program (2004-2006). Manila.
2. Link between ADB Strategy and Government Needs
43. ADB’s strategic priorities for highways were well aligned with the five challenges for the PRC’s highways subsector identified in Chapter II. ADB’s overall focus on the NTHS was consistent with the high priority attached to the NTHS by the Government. By providing support for the NTHS, ADB was able to promote good practices in the process of deciding the composition of investments (although the quantity and choice of investments were generally beyond ADB’s influence). The focus on interior provinces and later on central and western provinces fit in with the Government’s NFYP and TFYP, as well as with ADB’s PRS. The strategic priority ADB gave to linking the NTHS to a system of local roads and feeder roads was in line with
12
the increased importance the Government attached to improving the secondary, tertiary and quaternary road networks. The initial priority given to supporting technical standards was in keeping with the PRC’s need to get these right as it scaled up the NTHS. ADB’s emphasis on expressway corporatization and commercialization, efficient pricing policies, and alternative financing mechanisms also fit in with the Government’s need to pay for the NTHS. ADB was initially somewhat ahead of the Government in attaching priority to road safety and vehicle emissions; this provided an opportunity to influence areas that only started receiving Government attention by the second half of the study period. 44. As Figure 1 indicates, ADB support was modest compared with the overall magnitude of the NTHS. It therefore could not address all the major challenges of the road subsector. ADB had relatively little involvement in the issue of gearing up highway construction capacity at the sector level—apart from the demonstration effect of using international competitive bidding (ICB) on ADB-financed investments. In practice, the Government was able to expand capacity without outside support. Figure 1: Comparison of ADB Roads Lending with Total Investment in Trunk Highways in
the People’s Republic of China, 1998–2004
0
5
10
15
20
1998 1999 2000 2001 2002 2003 2004
$ bi
llions
0%
1%
2%
3%
4%
5%
6%
7%
Trunkhighw aysinvestment
ADB lendingas % of trunkhighw aysinvestment
Source: Operations Evaluation Mission. 45. In the railway subsector, ADB’s strategic priorities were also well aligned with the PRC’s needs. ADB’s overall focus was on building new railways using modern railway technologies. It supported the Government’s need to rapidly increase railway capacity in order to reduce the persistent gap between demand and supply. ADB’s priority of improving efficiency and commercial orientation, and its emphasis on restructuring and reforming policy, were well matched to the PRC’s evolving institutional reforms in railways. Initially, under the COS, ADB focused on modernizing structures and providing incentives by supporting LJVRs (this was the continuation of a previous strategy). The idea was that LJVRs would become models for demonstrating the merits of applying commercial approaches to railways. Later, when the Government signaled its intention to pursue major reform of the national railways, ADB (through the CSP) redirected most of its railway support from LJVRs to the national railways. ADB support in this area included efforts to lay the foundations for introducing competition in railway operations.
3. Consistency between ADB Strategy and ADB Program
46. In both the road and railway subsectors, ADB’s strategy was consistent with the actual program of loans and TA projects it provided. This reflects that in both subsectors the Government had well-defined, long-term investment programs in place that were used as a basis for proposing individual activities for ADB support. ADB recognized the merits of the Government’s programs and remained committed to assisting them throughout the study period.
13
a. Roads
47. In the roads subsector, the ADB lending program focused on financing construction of new tolled, access-controlled expressways under the NTHS. Most of the road projects under the COS and all of those under the CSP were located in the poorer central and western provinces. 48. Besides civil works, RRPs for road projects highlighted a number of additional features linked to ADB’s subsector strategic priorities. These special features of road projects during the study period are summarized in Table 3. Table 3: Special Features Highlighted in Reports and Recommendations of the President
for ADB Road Projects in the PRC, 1997–2005
Approval Year Project Name
Loan No.
Approved Loan Amount ($ million) C
orpo
ratiz
atio
n
Pric
ing
and
Cos
t R
ecov
ery
Link
/Loc
al R
oads
Axl
e Lo
ad T
estin
g
Roa
d Sa
fety
Vehi
cle
Emis
sion
s
Pove
rty
Mon
itorin
g
Roa
dsid
e St
atio
ns
Tran
spor
t Ser
vice
s
1998 Hebei Roads Devt. 1617 167.1a
1998 Chengdu-Nanchong Expressway 1638 250.0a
1998 Changchun-Harbin Expressway 1641/2 233.3a
1999 Southern Yunnan Road Devt. 1691 250.0a
1999 Shanxi Road Devt. 1701 241.1a
2000 Chongqing-Guizhou Roads Devt 1783/4 320.0
2001 Shaanxi Roads Devt. 1838 250.0
2001 Guangxi Roads Devt. 1851 150.0
2002 Southern Sichuan Roads Devt. 1918 300.0
2002 Shanxi Road Devt. II 1967 124.0
2003 Ningxia Roads Devt. 2004 250.0
2003 Western Yunnan Roads Devt. 2014 250.0
2003 Xi'an Urban Transport 2024 270.0
2004 Hunan Roads Devt. II 2089 312.5
2004 Guangxi Roads Devt. II 2094 200.0
2004 Gansu Roads Devt. 2125 300.0
2005 Central Sichuan Roads Devt 2181 600. 0
2005 Hunan Roads Devt. III 2219 208.0
Devt. = development. a Actual loan amount at project completion Note: = significant; = minor. Sources: Asian Development Bank loan documents. 49. Some features were consistently followed by all projects. These were embedded in the scope and implementation model adopted for supporting expressways: (i) commercialization, corporatization, and private concessioning of expressway management and operations; (ii) pricing and cost recovery; and (iii) inclusion of local roads to increase the poverty reduction impact of expressways. Items (i) and (ii) generally involved establishing a separate toll corporation to build and operate the expressway along commercial lines. These were important features, especially
14
earlier in the study period when the PRC was still gaining familiarity and confidence with using commercial approaches. Item (iii) was a requirement from ADB to try to maximize the poverty reduction impact of expressways by including spur links and local roads feeding into the hinterland. This reflected the attention ADB was giving to further orienting its operations toward poverty reduction—this was particularly evident immediately before and during the first 2 years of the PRS approved in 1999. Expressways were a challenging case because their poverty reduction impacts are indirect and difficult to quantify. The solution adopted in the PRC—but seldom in other DMCs—was to attach local roads as these had more tangible, quantifiable poverty reduction impacts, and could be targeted at poor communities. On average, the link- and local-roads component of ADB’s PRC expressway projects accounted for about 5% of base cost. 50. Other special features were added incrementally during the study period. These were (i) axle load testing, (ii) road safety at project and provincial level, (iii) control of vehicle emissions at project and provincial level, (iv) poverty monitoring, (v) inclusion of roadside stations to enhance the local development impact, and (vi) support for improving competition and the regulatory framework for transport services. Some of these features attempted to address issues at the project level, particularly items (i), (ii), and (iii). These were consistent with ADB’s subsector strategic priorities, but were often short-lived and small in scope, so their effectiveness as a strategy repeated over successive projects was questionable. In most cases the support for axle load testing and emission control was limited to procurement of a small amount of equipment for installation on expressways. Road safety support was usually limited to conducting a road safety audit of the project roads—something that was becoming a standard feature of road PPTA projects, and only required a short input for review by a qualified road safety engineer. For ADB to have had more influence on such issues would have required a provincial- or national-level focus, and a sustained commitment over an extended period. 51. The more recent inclusion into projects of features related to competition and regulation in the transport services industry sought to address these issues at the provincial level. This was an appropriate focus since transport services are regulated by provincial governments. It is also a useful area for ADB support because the efficiency of transport services helps determine the benefits of transport improvements to users, in particular the poor. The small scope and short duration of this support—which mainly takes the form of consulting services—means that it is too soon to determine whether an effective intervention strategy is being pursued. Reform of transport services is complex and politically sensitive, and may require a sustained involvement over an extended period. 52. The project features for poverty monitoring and roadside stations again reflected the influence of the PRS. Faced with the difficulty of quantifying the poverty-reduction benefits of expressways, ADB built in other poverty-related features. Increasingly detailed monitoring of poverty impacts may seem worthwhile, but in practice this strategy is questionable because (i) previous studies show that it is difficult and costly to monitor such impacts; there are serious problems interpreting the data collected, and many consecutive years of monitoring are required to distinguish passing effects from genuine impacts (footnote 6); and (ii) executing agencies and PRC authorities resent the extra work involved in such monitoring (Chapter IV). The other special feature—construction of roadside parking areas and stations run by local businesses—was introduced at the end of the study period. It is a small component but may offer a useful enhancement that, if successful, could be institutionalized by the PRC authorities. 53. In the roads subsector, ADTA projects were used to contribute to policy and planning, and to support capacity building. The ADTA projects provided during the study period are shown in Appendix 2. These were closely linked with ADB subsector strategic priorities. National-level TA projects included (i) a study to support the Government’s initiatives to develop models for
15
corporatization, leasing, and securitization of expressways; (ii) a study to provide guidance on the national road safety strategy; (iii) a study of policy reform in road transport; (iv) a study to identify NTHS sections that would best fit ADB’s road subsector priorities; and (v) capacity building in road safety. Other TA projects covered (i) research and planning on the poverty-reduction impact of roads, (ii) support for the Government to formulate and prepare a rural road development strategy to be implemented under the EFYP (2006-2010), (iii) piloting a model for private sector participation in expressways, and (iv) support for implementation of the national road safety program in one province.
b. Railways
54. In the railways subsector, all ADB lending was focused on construction of new railways to extend the rail network to poorer regions. This was consistent with the COS and CSP. Initially, during the COS, ADB continued its earlier strategy of financing new rail links to be built and operated by LJVRs on a commercial basis. LJVRs played an important role in introducing more modern institutional arrangements for railways and expanding the railway network.21 By replicating LJVRs, ADB helped lay the foundation for innovation and privatization. From 2000, after the MOR had decided to move ahead with institutional reforms of the national railways, ADB began financing new links of the national railways, and began engaging in policy dialogue with the MOR on national-level railway reform. 55. The RRPs for railway projects highlighted a number of additional features linked to ADB’s strategic priorities in the subsector. Table 4 summarizes special features of railway projects.
Table 4: Special Features Highlighted in Report and Recommendation of the President for ADB Railway Projects in PRC, 1997-2005
Approval Year Project Name
Loan No.
Approved Loan Amount ($ million) Fu
ll-C
ost T
ariff
Com
mer
cial
izat
ion
New
Tec
hnol
ogy
for
Rai
lway
Ope
ratio
ns
Link
road
s
Dev
elop
ing
Are
a A
roun
d R
ailw
ay S
tatio
ns
Rai
l Saf
ety
Priv
ate
Sect
or
Part
icip
atio
n
Sepa
rate
Pas
seng
er a
nd
Frei
ght C
orrid
ors
1997 Shenmu-Yanan Railway 1553 141.8a
1998 Guizhou-Shuibai Railway 1626 105.0a
2000 Hefei-Xi'an Railway 1748 300.0
2001 Ganzhou-Longyan Railway 1850 200.0
2003 Yichang-Wanzhou Railway 2051 500.0
2004 Dali-Lijiang Railway 2116 180.0
2005 Zhengzhou-Xi'an Railway 2182 400.0
a Actual loan amount at project completion Note: = significant; = minor. Sources: Asian Development Bank loan documents.
21 Over the period 1997–2004, LJVRs added 4,990 route km compared with 3,449 route km added by the national
railways. LJVRs also initiated private sector participation in railways. The ADB-financed Guang-Mei-Shan Railway was listed on the New York Stock Exchange in an initial public offering of $510 million.
16
56. Four special project features were pursued by all ADB railways projects. These were (i) use of full-cost tariffs on project railways; (ii) support for commercial practices in railway companies (e.g., marketing, business development, accounting, and management information systems); (iii) new technology to improve efficiency; and (iv) development of link roads and stations to extend the impacts of railways. 57. Features (i), (ii), and (iii) were directly linked to ADB’s subsector priorities. By consistently requiring project railways to incorporate full-cost tariffs and improved commercial practices, ADB contributed to the gradual change in thinking by the PRC authorities that led, by the end of the study period, to railways being run increasingly along commercial lines. Improved technology was another feature of project design—including introduction of modern signaling, communications, dispatch systems, freight yard operations, mechanized maintenance, and e-governance. Linked to general support for improved technologies, the 2004 and 2005 projects put increased emphasis on rail safety by providing modern safety equipment. 58. Railway projects targeted link roads for the same reasons that expressway projects targeted link roads (para. 49). In the case of railways, this feature was generally limited to considering future use potential when selecting roads for construction access, and involved little additional cost. Again, with parallels to the introduction of roadside stations in the road subsector, railway projects from 2003 onwards included minor support for developing the areas around railway stations in an effort to realize their full potential for economic development and poverty reduction. This was partly influenced by studies confirming that, apart from railways' contribution to economic growth, the localized impact of railway projects was confined to the areas around stations (footnote 7). 59. As ADB support for the MOR gained momentum, two new themes emerged: the development of separate passenger and freight rail corridors, and the introduction of elements of private sector participation (such as the provision of container terminals for private logistics operations and the outsourcing of ancillary services). These reflected MOR’s increasingly sophisticated agenda for railway development and reform under the EFYP. 60. Details of ADTA projects provided for railways are in Appendix 2. Only one ADTA was provided during the first 7 years of the study period—an attached ADTA, approved in 1997, to support institutional strengthening of an LJVR. Use of ADTA gained momentum in the last two years of the study period with two important TA projects—one to assist the MOR with the reform tasks of preparing for competition in railway operations under the WTO, and another to develop reforms to strengthen the position of national railways in the transport market. Through its Private Sector Operations Department (PSOD), ADB also provided an ADTA for transferring best practice models of private sector participation in urban rail projects.
4. Crosscutting Features and Safeguard Provisions
61. An important theme of ADB support for roads and railways was the provision of safeguards to mitigate adverse impacts of involuntary resettlement, on indigenous peoples, and on the environment, in accordance with ADB’s safeguard policies. Many of the road and railway projects involved land acquisition and resettlement on a large scale, with an average of about 18,000 affected persons per project. Also, 10 projects required indigenous people’s development plans, with seven of these approved in 2004 or 2005. All of the projects required environmental impact assessments. HIV/AIDS22 mitigation measures were introduced in road projects during the CSP. Against this background, safeguard compliance tasks absorbed a growing share of PPTA
22 Human immunodeficiency virus/acquired immunodeficiency syndrome.
17
over the study period. The number of covenants increased from about 8 to 10 per loan a decade ago, to about 30 to 40 for loans approved since 2004.23 62. Another strategic objective involving the transport sector is promotion of regional cooperation. ADB’s regional cooperation initiatives have been much appreciated by the PRC Government because they have created investment opportunities and facilitated new avenues for cooperation with neighboring countries. Three of the transport loans approved during the CSP (2004–2006) were located so as to support regional cooperation in the Greater Mekong Subregion and the Central Asia Regional Economic Cooperation.
5. Response to Changing Needs
63. Responsiveness to Changing Government Priorities. ADB exhibited both quick responsiveness and flexibility in this area. The major change in the road subsector was the decision in 1997 to massively accelerate expressway construction under the NTHS. ADB responded by scaling up its lending for the NTHS, such that it became the largest component of the country program for the remainder of the study period. ADB was also willing to modify the choice of individual road projects. For example, ADB modified the expressway project processed in 2005 at the Government’s request.24 In railways, a major change was signaled by the commencement of national railway reforms in the late 1990s. By 2000, ADB had shifted its lending support from LJVRs to national railways, building a relationship with MOR as a trusted partner in the reform initiative. 64. ADB was equally responsive to the increased priority the Government gave to improving roads and railways serving the poor central and western provinces. From 1999 onward, ADB earmarked all road and railway projects for these provinces, with a clear trend toward extending projects further west over the course of study period (Maps 1 and 2). As the recent CSP completion report indicates, the CSP called for 61% of lending to go toward road and railway projects; 84% of ADB lending was to target central and western provinces. In practice, refinements in the lending program during the CSP period meant that roads and railways accounted for 76% of ADB lending, while 90% of lending targeted the central and western provinces (footnote 23). 65. Responsiveness to Sector Issues. In roads and railways, ADB’s subsector priorities provided a fairly comprehensive listing of issues that were to be incorporated into its projects and TA projects. However, in the road subsector there were several areas where ADB could have been more responsive and identified various options to assist the Government. First, given the limitations in terms of economic efficiency of the “one toll road, one toll company” model and the high toll levels applied (para. 24), and the issue of growing debt-service problems among some of the companies in lower-traffic sections (para. 21), ADB might have done more to help the Government review the situation at the subsector level and develop options for addressing the problems.25 Although ADB provided useful ADTA projects in 1997 and 2004, its influence on this issue of toll rate setting was not sustained over the period, and it continued to follow the “one toll road, one toll company” model without modification in each of its expressway loans. Second, in drawing upon its experience with highway development in other DMCs, ADB might have provided more advice to the Government on the need to eventually scale down the expressway development program, as well as adopt lower-capacity design standards for sections where low traffic levels meant that expressway standards were not economically justified. Third, many RRPs referred to the problem of damage to roads caused by vehicle overloading, but ADB made only a
23 ADB. 2006. Completion Report: Country Strategy and Program (2004–2006), People’s Republic of China. Manila. 24 Two projects were changed in 2006. 25 The issue of toll road corporatization has been studied by a staff consultant.
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minor contribution toward addressing the issue. In view of the scale of the Government’s investment under the NTHS, premature deterioration of the NTHS should rank as a major economic issue. While many of the ADB expressway loans provided some equipment for controlling overloading on individual expressways, ADB could have helped the Government develop a more comprehensive response at the subsector level. 66. Flexibility in Use of TA. ADB has demonstrated flexibility to adjust its TA program in response to the Government’s changing needs. Of the 18 road and railway TA projects provided from 2003 to 2005, two large ADTA projects and one PPTA were not originally included in the TA program. Also, compared with the COS, the CSP saw road and railway TA projects each increase from an average of about one per annum to about two per annum. The CSP also used TA to explore options for diversifying into new areas of support. Recent examples include an ADTA on the poverty impact of area-wide networks and an ADTA on rural road development strategy, which examined opportunities for ADB to support improvements of secondary and tertiary road networks.
6. Issues of Program Design
67. Lending and TA Modalities. Over the study period, the capacity of the PRC’s road and railway institutions increased rapidly. While in 1997 it was appropriate to follow ADB’s traditional approach to project preparation—including its use of PPTA, loan processing missions, international procurement and recruitment procedures, and so on—this became less appropriate by the second half of the study period (Chapters IV and V). Several aspects of ADB’s support strategy might usefully have been refined to reduce transaction costs. First, there may have been scope for using sector lending and—at the end of the study period—to try to introduce a multitranche financing facility (MFF).26 While the Government had some reservations about these options—including concerns that they might preempt its approval authority over individual investments—ADB could have made a more concerted effort to convince the Government of their merits in terms of reduced transaction costs and flexibility. Second, the use of PPTA could have been significantly reduced (Chapters IV and V), depending upon the locations and design complexities involved. That could have helped the Government speed up project preparation, and could have freed up TA resources. Third, country systems approaches (using PRC safeguards policies where justified) might have been explored with a view toward simplifying the approach to safeguard compliance while ensuring ADB standards. It is accepted that this latter issue required actions not only on the part of ADB's East Asia Department, but also at an institutional level within ADB.27 68. Project versus Sector Focus. Throughout the study period, ADB support was provided through individual project and TA interventions. Efforts to address sector-level issues were mainly confined to a small number of ADTA projects. As discussed above, this approach limited the extent of ADB’s involvement in addressing these issues. As the PRC established the capacity to handle most project-level issues without ADB assistance, ADB could have shifted more of its staff and TA to the subsector level rather than the project level. 69. Project Components Financed. During the COS, ADB railway loans mainly financed civil works and rail procurement. This was appropriate when ADB was assisting LJVRs and initiating support for the MOR. Recognizing the MOR’s considerable capacity to carry out civil works,
26 ADB introduced MFF in 2005. According to EARD, MFF option was subsequently discussed with the Government on
several occasions. An agreement was reached to pilot MFF in an energy project before considering the same for other potential sectors in 2006. An Issues Paper was prepared to examine sector type lending option for roads and railways.
27 OED has recently published evaluation study of environment, involuntary resettlement, and indigenous peoples related safeguards to provide directional inputs to Safeguard Policy Update being carried out by Regional and Sustainable Development Department. The Board’s Development Effectiveness Committee has already discussed the OED reports. (see www.adb.org/evaluation for further details).
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ADB's 2005 railway project stopped financing civil works and concentrated on financing advanced railway equipment and technology. This important example of ADB responsiveness has led ADB to focus more on aspects of railways where there is potential for ADB to add value. There has yet to be such an adjustment in expressways. Since the NTHS has generally been constructed to a high standard, and since most of it was carried out without outside assistance and utilized technologies and materials available domestically, it may now be time for ADB to consider enhancing its support package with greater sector and policy focus, which might extend the justification for continued financing of expressway civil works. 70. Poverty Monitoring. During the SAPE period ADB required increasingly elaborate monitoring of poverty reduction impacts of its road and railway projects in the PRC. This was initially an appropriate response to the strategic directions set by the PRS in 1999. However, during the subsequent period there were growing doubts within ADB about the practical feasibility of such monitoring, and growing complaints from executing agencies in the PRC. This might usefully have prompted a reassessment of what ADB was demanding in terms of monitoring. By 2004, the enhanced poverty reduction strategy (EPRS) formally corrected this part of ADB’s strategy. The EPRS indicated that project-level poverty monitoring of infrastructure products was generally not useful and would not longer be required, and refocused ADB on examining the impact channels for poverty reduction at the country and sector levels.28 However, the road and railway projects in 2004 and 2005 continued to include elaborate poverty monitoring requirements (para. 80).29 71. Efficient Use of Technical Assistance. There are several issues concerning the strategic direction of TA. First, the share of TA allocated to roads and railways within the country program was far less than the share of lending allocated to roads and railways. Under the CSP, roads and railways received about 19% of TA and about 61% of lending. This may have prevented ADB from making contributions toward sector and policy issues (and gaining associated influence) commensurate with its position as the leading outside lender to roads and railways in the PRC. Second, the majority of TA for roads and railways was PPTA; however, as discussed above, the PRC is increasingly able to prepare projects. During the study period ADB provided PPTA worth $10.7 million for roads and $4.3 million for railways, compared with ADTA worth $6.6 million for roads and $2.0 million for railways (Appendix 2). PPTA accounted for 62% of TA for roads and 68% of TA for railways. By reducing the amount for PPTA, where possible, ADB could have significantly increased—perhaps doubled—the ADTA it provided for roads and railways. That would have been more in line with the Government’s intention to use ADB as a source of advice as well on sector issues and international good practices, and with the CSP aim of developing strategic niches for long-term nonlending support (para. 39). Third, while most road and railway ADTA projects addressed important subsector issues, the ADTA program as a whole had certain weaknesses that limited its impact in both subsectors. Neither the COS, CSP, RRPs, nor TA papers provided an overarching medium-term framework or road map to ensure that TA projects fit together, linked to lending, to form a coherent set of interventions sustained long enough to have impact. The need for such a framework has been identified as a key requirement for effective TA support by successive reviews and evaluations of ADB TA.30 In a country as large as the PRC, where ADB needs to coordinate between project-, provincial-, and national-level interventions, such a framework is essential. As a consequence, some important TA interventions were not built upon. ADB’s 1997 TA on NTHS financing was not followed up until 2004. The 1999 road safety TA was not followed up 28 ADB. 2004. Enhancing the Fight Against Poverty in Asia and the Pacific: The Poverty Reduction Strategy of the
Asian Development Bank. Manila. 29 As noted by EARD, this was partly because poverty impact monitoring at project level was appreciated by ADB
Management and Board, and given the size of the country and sector investment to ADB assistance, poverty monitoring at country and sector levels would have had limited success.
30 ADB. 1997. Review of the Bank’s Technical Assistance Operations. Manila; ADB. 2003. Review of the Management and Effectiveness of Technical Assistance Operations of the Asian Development Bank. Manila; and ADB. 2007. Special Evaluation Study of Performance of Technical Assistance. Manila.
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until 2005. In both of these areas, more or less continuous ADB involvement through ADTA would have been justified, and could have helped raise the level of ADB’s policy dialogue with the Government. 72. ADB Staff Capacity. Expansion of ADB’s road and railway program, as well as changes in the types of subsector activities being supported through lending and TA, required the East Asia Transport and Communications Division (EATC) to adjust its staffing during the study period. During the study period, staffing expertise was strengthened to support areas such as analysis of poverty impacts, safeguard compliance, and road safety. There were two main areas of concern regarding staffing. First, the railway portfolio has grown considerably but the EATC still has only one railway specialist, who must process about one new loan and one to two TA projects each year, and administer up to four ongoing projects and two ongoing ADTA projects.31 (para. 147) At the same time, the MOR’s requirements have become increasingly specialized technically and in terms of reform experience. While EATC reported that program targets were being met, it was also risky to rely the railway sector operations on one expert. It would have been appropriate to recruit an additional railway expert to augment ADB’s capacity and range of railway expertise. A second concern is that ADB has made only limited use of its potential to improve efficiency and client orientation by transferring responsibilities and staff positions to the PRC Resident Mission. C. Comparison with Other Donor Support
73. ADB support for roads and railways had much in common with the support provided by World Bank, except that (i) World Bank lending was more diversified between different sectors, with a lower proportion assigned to roads and railways; (ii) the World Bank had less TA funding, although it provided in-kind advisory inputs through its staff; (iii) whereas ADB supported railways throughout the study period, the World Bank had a gap in railways lending of more than 6 years; and (iv) more of the World Bank’s transport team was based in the PRC.32 The comparison with the World Bank is further explored in Appendix 5).
IV. PERFORMANCE OF PROJECTS AND TECHNICAL ASSISTANCE
A. Introduction
74. This chapter examines the performance of ADB road and railway projects and TA approved during the study period. The main sources of information were: (i) four PPERs and three PCRs for completed projects; (ii) a desk review of the performance of 12 ongoing projects; (iii) an assessment of the performance of TA projects approved during the period, based on a survey of executing agencies, TA consultants, and project officers; (iv) a survey of executing agencies' opinions about ADB’s performance and client orientation; (v) several studies of how projects contributed to poverty reduction, including an assessment of the extent that poverty reduction aspects were incorporated in projects approved during the study period; (vi) a desk review of studies on the impacts of transport projects on poverty reduction; and (vii) a quantitative study of the poverty reduction impact of the Shenmu-Yanan Railway.33
31 During the review period, ADB was served by two highly experienced railway specialists, the first from 1997–2001,
and the second from the second half of 2002 to the present (SAPE 2006). 32 There were some differences in the way the two institutions ran their transport operations. The World Bank
conducted more of its transport work through its country office in Beijing, and located a larger proportion of its PRC transport professionals there. This had the advantage of allowing its staff to be well informed of developments in the subsector, and to have regular dialogue with PRC clients. ADB was less decentralized, continuing to run most of its transport sector activities from its Manila headquarters, where most of its transport team was located.
33 ADB. 2006. Project Copmpletion Report on Shenmu-Yanan Railway Project in PRC. Manila. (Loan 1553-PRC, for $200 million, approved on 29 September 1997)
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B. Projects
1. Overall
75. The seven completed road and railway projects that were approved during the study period have performed well. Two of the five road projects were rated highly successful. The remaining three road projects and both railway projects were rated successful. Ratings for individual evaluation criteria may be summarized as follows: (i) six of the seven projects were rated highly relevant and one was rated relevant, reflecting high government priority, consistency with the COS, and appropriate project design; (ii) four of the five road projects were rated highly effective in achieving their intended outcomes, and the other road project and the two railway projects were rated effective; (iii) based on the estimated economic returns, three of the five road projects were rated highly efficient, and the other two road projects and the two railway projects were rated efficient; and (iv) based on estimated financial returns and policies and practices affecting asset management and maintenance, four of the road projects and both railway projects were rated likely to be sustainable, and one road project was rated most likely to be sustainable. These project performances are impressive. The road projects were particularly outstanding, although the two railway projects also performed satisfactorily. Details of the PPER and PCR findings are in Appendix 6. 76. Table 5 compares the performance of these road and railway projects in the PRC with other completed projects on OED’s ratings database. The message is consistent: the PRC road and railway projects performed well against most comparators. On average they achieved better ratings than ADB road and railway projects in the PRC approved before the study period. Their ratings were on par with ADB-financed projects approved for other sectors in the PRC during the study period. They also performed better than average compared with ADB-financed projects across all DMCs and DMC groupings—partially because none of the PRC road and railway projects were rated partly successful or unsuccessful. Table 5: Comparison of Evaluation Ratings for Road and Railway Projects in the PRC with
ADB-Financed Projects in Other Developing Member Countriesa % of Projects Rated
Item No. of Rated
Projects Unsuccessful Partly
Successful Successful Highly
Successful PRC Road and Railway Projects Approved in 1997–2005
Roads 5 0 0 60 40 Railways 2 0 0 100 0 Total 7 0 0 71 29
PRC Comparators All Sectors Approved in 1997–2005 16 0 0 62 38 Road Projects Approved Before 1997b 12 0 0 100 Railway Projects Approved Before 1997b 5 20 20 60
ADB-Wide Comparatorsc All Sectors Evaluated in 2001–2006 356 4 23 60 13 ADB Road Projects Evaluated in 2001–2006 44 0 5 66 29 Country Group A 11 0 0 64 36 Country Group B1 11 0 0 73 27 Country Group B2 18 0 11 61 28 Country Group C 4 0 0 75 25 ADB Railway Projects Evaluated in 2001–2006 6 0 0 83 20 Country Group B1 1 0 0 100 0 Country Group B2 5 0 0 80 20
ADB = Asian Development Bank, PRC = People’s Republic of China, PCR = project completion report, PPER = project performance evaluation report. a Completed projects for which PCR or PPER have been prepared. b Evaluation ratings of some projects are based on the old guidelines (three-category rating system). c Project and sector loans only. Source: Operations Evaluation Department internal database.
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77. Since most of the other road and railway projects approved during the study period are ongoing, and none have yet been evaluated, their performance after completion is not yet known. Nevertheless, the SAPE considers prospects good that they will achieve a degree of success similar to the seven completed projects. In the case of road projects, the factors that may contribute to success are (i) they generally follow the same model used successfully by the completed projects, (ii) the capacity of executing agencies and other PRC authorities concerned has increased, and (iii) ADB has accumulated considerable experience in the PRC road sector. The main risk factor would be whether the steady shift in the location of projects to poor central and western provinces might lead to greater variance from the original traffic forecasts. In the case of railways, factors that could contribute to success include (i) most of the projects were for mainline railways under the MOR, so some of the capacity limitations of LJVRs are not present; (ii) institutional and policy reforms already introduced by the MOR, including the asset operation liability system, have improved institutional arrangements and incentives for running railways along commercial lines; (iii) railway executing agencies' capacity and familiarity with modern technologies has increased; and (iv) ADB has built up its experience in the PRC road sector. The main risk factor concerns potential difficulties in using new technologies, and joint venture arrangements under the most recently approved projects. The likely success of 12 ongoing projects was reviewed through recent project implementation back-to-office reports and discussions with staff concerned; these confirmed that ongoing projects are progressing well and are likely to be completed on time. (paras 108-109)
2. Implementation and Outputs
78. A distinguishing feature of road and railway projects in the PRC—in contrast to many DMCs—is that they have generally been implemented to a high standard, within or close to their estimated cost, and on or ahead of schedule. In many cases, the projects involved complex construction, including large numbers of tunnels and bridges, often in difficult terrain,34 and in some cases extensive land acquisition and resettlement. All of the seven completed road and railway projects were found to have been built to a high standard by the PPER and PCR missions. Five of the seven projects were completed within or slightly above the cost estimated at appraisal, and three of seven were completed on schedule 35
3. Relevance
79. The PPER and PCR missions (Appendix 6) rated each of the five completed road projects and one of the two railway projects highly relevant. The other railway project was rated relevant. All of the projects were consistent with the Government’s priorities, as expressed in its 5-year plans, and with the Government's subsector programs for the NTHS and railway development. All projects conformed with ADB’s strategic priorities (Chapter III). 80. A further aspect of relevance was that project formulation incorporated features aimed at increasing poverty-reduction impacts. A common feature of expressway projects was the construction of link roads and local roads to extend access to poor areas in the hinterlands, and—in the case of railways—to construct access roads that would later be useful to the local communities. (paras. 49 and 58) Another feature was the inclusion of a component for monitoring poverty reduction impacts. Appendix 7 provides an assessment of how projects approved over the study period have sought to address poverty reduction. It finds that ADB was already putting more emphasis on poverty reduction in 1997. This was stepped up further after approval of the PRS in 1999. The PRC road and railway projects performed well against a series of benchmark 34 More than half the alignment of Dali-Lijiang Railway consists of tunnels and bridges. 35 While actual completion of 4 road projects were delayed, their main expressway components were all completed and
opened to traffic close to or ahead of appraisal targets.
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criteria concerning prior assessment, location factors, avoiding adverse impacts, linkages to poverty-related reforms, integration with other poverty programs, and benefit incidence assessment. There is one main reservation: since the EPRS was approved in 2004, ADB has shifted its strategy away from targeted interventions, and now accepts that infrastructure projects have mainly an indirect effect on poverty reduction. However, the PRC road and railway projects approved in 2005 had not adjusted to this change of strategy—they continued to include special targeted poverty reduction features similar to those built into earlier projects (footnote 27).
4. Outcomes
a. Effectiveness
81. The PPER and PCR missions (Appendix 6) rated four of the road projects highly effective and one road project and two railway projects effective. All of the projects led to improvements in transport efficiency, which in turn facilitated economic growth and reduced poverty. In some cases expressways helped reduce transport costs by one-third. Travel times were shortened. Congestion on adjacent roads was reduced. Road improvements generally led to significant improvements in passenger transport services. In the case of railways, the new rail links opened up previously isolated areas, providing opportunities for expansion of mining and other industrial activities, and creating improved options for passenger transport.
82. In three of the five completed expressway projects and both railway projects, the initial traffic buildup was lower than forecast at appraisal. In the expressway projects, traffic levels generally recovered within 2 to 3 years. It was not clear whether this reflected initial resistance to high toll levels followed by gradual acceptance, but this would seem a possibility. In the case of railways, initial traffic shortfalls were linked to delays in implementation of nearby mining projects. However, the PPER and PCR missions found that these projects were underway and, therefore, should soon raise traffic levels (Box 1).
Box 1: Forecast and Actual Traffic on Expressway Projects A comparison of project completion reports (PCRs) for eight expressway projects financed by ADB (including projects approved before the study period) and 18 financed by the World Bank found that actual traffic was less than forecast in more than half the projects. Although in some cases actual traffic was more than forecast, in overall terms traffic at completion fell short of original forecasts. There were corresponding shortfalls in estimated economic returns.
Earlier projects tended to forecast traffic more accurately than recent projects. This may be linked to the shift of more recent projects to western parts of the country where traffic levels are typically lower and more unpredictable.
In some projects, lower-than-expected traffic may have been partially attributable to the failure to complete missing links in the expressway network. Another factor could have been that fewer vehicles than expected diverted from the old roads because tolls on the new expressway were prohibitively high. Since many of the PCRs were written shortly after the expressways opened, the full impact of corridor improvements may not have been reflected in the traffic volume estimates.
The traffic forecasts in feasibility studies for 20 domestically financed expressway projects were compared with forecasts used in ADB and World Bank project approval documents. Differences between forecast and actual traffic were much more pronounced for the domestically financed projects. In many cases traffic forecasts for domestically financed projects were higher than for ADB and World Bank projects—often because domestic projects assumed a lower toll rate elasticity.
Three project performance evaluation reports (PPERs) have now been prepared for ADB-financed expressways approved during the study period. These suggest that while traffic growth has for the most part been less than forecast in the period immediately following project completion, forecast levels will be reached over the next few years. Each of the PPERs found that traffic growth exceeded or remained close to project completion report estimates. The completion of missing links post-project might have something to do with this. Reduced resistance to high toll levels over time could be another factor.
Sources: ADB PPERs for Changchun–Harbin Expressway, Hebei Roads Development, and Chengdu–Nanchong Expressway; and World Bank. China's Expressways: Connecting People and Markets. Draft report.
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83. One issue that remains a problem is vehicle overloading. ADB has been a driving force in introducing vehicle weight scales at expressway entry points and application of penalties for violations. However, although nearly all the ADB road projects included equipment for these purposes, the extent to which such equipment was used—and hence its effectiveness—depended on the approach to enforcement. This varied, and ADB projects had no means of influencing the situation. Where a concerted effort was made by the provincial authorities to enforce vehicles weight limits—as in the case of Southern Yunnan—there was a marked reduction in overloading.
b. Efficiency
84. The updated estimates of the economic internal rate of return (EIRR) prepared by the PPERs and PCRs were all in the range of 13.1% to 24.0%, with most projects comfortably above the 12% threshold. Many important development benefits were not quantified; had these benefits been quantified, actual economic returns would have been higher. Three expressway projects were rated highly efficient (EIRR exceeding 18%), and two expressways and the two railway projects were rated efficient (EIRR from 12% and 18%).
c. Sustainability
85. The updated financial internal rate of return estimates prepared by the PPERs and PCRs were in the range of 3.4% to 13.4%. Due partly to slow traffic buildup, the two railway projects were at the lower end of this range, as was the Southern Yunnan Roads Development Project. The other four expressways were toward the upper end of the range. Based on the criterion of continued delivery of services and benefits, adequate maintenance of physical infrastructure, long-term institutional capacity, and commitment from key stakeholders, the two railways and four expressways were rated likely to be sustainable, while the Changchun-Harbin Expressway Project was rated as most likely to be sustainable.
5. Impacts
a. Economic Development
86. As envisaged in the 5-year plans, ADB-financed road and railways projects impacted overall economic development by improving transport efficiency and connectivity, and preventing transport infrastructure from becoming an obstacle to sustained growth. The NTHS and expanded railway network have been crucial for providing energy and raw materials from inland provinces to the rapidly growing central and coastal provinces—particularly the urban growth in per capita incomes and new jobs for migrants from rural area and inland provinces with limited population carrying capacities—and for bringing consumer goods and production inputs to inland destinations quicker, more reliably, and at much lower cost than before. Since the financial viability of such investments is risky in many cases—especially for domestic banks without experience in infrastructure lending—ADB involvement has had a development impact beyond what mere lending volume suggests.
b. Poverty Reduction
87. Trickle-Down Effects. Over the study period, the leading mechanism for poverty reduction in the PRC was through creation of better-paid jobs, both in poor areas and areas to which the poor could migrate. While problems of methodological complexity make it difficult to prove this empirically, it is likely that the investments in the NTHS and railway network had an
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important "trickle-down" effect on poverty reduction. A review of existing studies on the link between transport infrastructure and poverty reduction is in Appendix 8. 88. The ability to migrate was influenced by (i) the many jobs created by sustained, rapid economic growth in the PRC, (ii) the emergence of an integrated labor market nationwide, and (iii) workers' access to information about job opportunities from relatives and friends who had migrated earlier. Improving the national transport networks was a major contributor to increased migration from slow-growth, constrained communities. Investments in NTHS and the railway network have helped reduce bottlenecks that would have constrained the rate of economic growth. From this perspective, investing in expressways as a means to create a climate of workplace investments that facilitates migration could be seen as a highly cost-effective way to reduce poverty, even if it contains no explicit poverty reduction component. 89. In the case of railways, which directly influence only the areas around stations (they indirectly influence other areas through economic growth), it is even more difficult to quantify impacts on poverty reduction. As part of the SAPE, a quantitative study was conducted of the poverty reduction impact of the Shenmu-Yanan Railway on households in poor counties near the railway alignment. This compared social and economic indicators for households before and after the opening of the railway, and used a control sample to distinguish changes attributable to the railway. This is included as a supplementary appendix of the SAPE (available on request). The main findings were that (i) the railway had contributed to higher economic growth in the area by supporting the development of mineral resources such as coal and oil; (ii) this had led to a large increase in fiscal revenues, which had in turn increased the capacity to make transfer payments to poor areas; and (iii) as much as 20% of the increase in growth was due to the railway. However, the findings were, at best, tentative since the econometric model was only able to explain about 30% of the data variance. This provides a further illustration of the difficulty of quantifying the poverty impacts of primary transport links. 90. Contribution of Local and Link Roads Components to Poverty Reduction. The PPERs and PCRs for the seven completed projects included limited assessments of the poverty reduction impacts of the local and link road components. This is summarized in Appendix 9. These found two things. First, in many cases, county and village roads had experienced high traffic growth, enabling substantial development effects that often exceeded the appraisal estimates. Second, it was difficult to establish the extent to which poverty reduction effects on local roads were due to the ADB projects. The latter would require establishing a reliable counterfactual to compare against—something that none of the PPERs and PCRs managed. It would also require demonstrating that they would not have been built or upgraded without the ADB project; in many instances it was fairly clear that they would have been built anyway (particularly bearing in mind the sharp increase in Government spending on rural roads under the TFYP and EFYP). Few of the RRPs considered this issue. Only later RRPs considered this issue as part of addressing network issues. 91. A recent special evaluation study on targeted poverty interventions studied the poverty reduction impacts of local-roads components in poor areas with distinctly different sociocultural and natural resources characteristics in Yunnan and Sichuan Provinces.36 It found that in some areas local roads are important for poverty reduction and in others they are not. In areas where the natural resource conditions, population densities and agro-cultural practices create conditions of underutilized agricultural potential, the study found that local-roads improvements could make an important contribution to poverty reduction. In areas without such potential, the study found that migration (and the associated sending of remittances to family members by migrants) was the main mechanism for poverty reduction, and that local roads had little poverty reduction impact. 36 ADB. 2006. Special Evaluation Study on Pathways Out of Rural Poverty and the Effectiveness of Poverty Targeting.
Manila.
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92. The inclusion of local and link roads in expressway projects was repeatedly criticized by executing agencies interviewed for the SAPE. This was because (i) such components are difficult to manage, finance, operate, and maintain because they cut across jurisdictions; (ii) executing agencies have to seek NDRC approval to revise project scope, which can delay project startup; and (iii) the cost of borrowing from ADB’s ordinary capital resources is higher than the cost of borrowing from traditional government sources of funding for rural roads, and such roads cannot generate revenues to repay such a loan. 93. To the extent that funds are fungible at the provincial level—even if it were only within the road transport subsector budget—one could argue that ADB could contribute more effectively to provincial rural poverty reduction by concentrating its financing on expressway components or through a sector-lending approach that would provide flexibility in funding link roads. This would free up provincial resources currently being spent on expressways for local roads, in keeping with provincial- and county-level priorities. This would also be more consistent with ADB’s strategy under the EPRS (para. 80).
c. Social and Environmental Impacts
94. Based on the findings of the PPERs and PCRs for the seven completed projects, and the opinions expressed by executing agencies during SAPE fieldwork, the social and environmental impacts of ADB-financed projects were generally addressed satisfactorily. Environmental protection and mitigation measures were generally implemented as stipulated. For the most part, resettlement and land acquisition was also adequately handled, although in several projects the PPERs and PCRs identified shortcomings in the treatment of compensation. 95. The road safety components of the expressway projects consisted primarily of road safety audits of project designs. In addition, several PPERs and PCRs found that grade separation and improved riding surfaces had reduced vehicular accidents. 96. There was little evidence available regarding the outcome of the projects' vehicle emission components. Emissions were neither monitored nor measured. However, it should be noted that the PRC now follows emission control standards similar to those set by the European Union.
d. Regional Cooperation
97. To underline and supplement the PRC’s regional cooperation efforts, ADB has played the role of investment catalyst, financier, and supporter, facilitating closer economic ties between the PRC and its neighbors. This includes initiatives related to the PRC’s participation in the Greater Mekong Subregion by means of financing of roads and railway projects in Yunnan Province and Guangxi Zhuang Autonomous Region (Loans Nos. 1691, 1851, 2004, 2014, 2094, 2116), where project benefits to a significant extent will derive from improved cross-border trade and traffic possibilities with Greater Mekong Subregion member countries. Expressway investments in the Northeast (Jilin and Heilongjiang, Loan Nos. 1641 and 1642) filled the gap between two earlier ADB-financed expressway sections, thus removing a critical bottleneck and enhancing trade capacity with the PRC’s northeastern neighbors, and provide support for the Tumen River Development Program.(TRDP)37 The third regional cooperation dimension is the Eurasian Landbridge along the Silk Road from Jiangsu Province in the east via Xi’an and central PRC, to the Xinjiang Uygur Autonomous Region, through the Central Asian republics, and on to Europe under
37 With assistance from the United Nations Development Programme, the subregional economic development program
(in northeast Asia around the Tumen river basin) aimed to to assist 5 participating countries to formulate a long-term comprehensive plan for economic cooperation principally in the areas of industrial and trade development. Priority investment proposals identified include road and railway projects.
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the Central Asia Regional Economic Cooperation (CAREC) initiative. PPTA projects in 2005 and 2006 were oriented toward preparing for road investments that will facilitate regional cooperation along the Eurasian Landbridge (on top of project-area development impacts). Another dimension of regional cooperation was the ADB-financed Central Asia Regional Economic Cooperation program that has provided a vehicle for cooperation between the PRC and Central Asia. 98. In addition, several ADB-financed NTHS road projects and capacity enhancing railway projects in central and southwestern provinces (e.g., Loan 2182) have contributed and will continue to contribute directly to facilitating interregional trade and travel by removing transport corridor bottlenecks that impede cross-provincial trade and trade with the large central-eastern and coastal metropolises. These investments have constituted a major share of ADB transport sector investments in the PRC.
e. Anticorruption
99. All ADB projects contributed to modernizing road- and railway-building and operating institutions in a transparent manner along commercial lines. By establishing a company to run an expressway or an LJVR to run a railway, accountability was made clearer and incentives for achieving results were improved. Such measures also improved conditions for rooting out corruption or avoiding it all together. The fact that virtually all of the project executing agencies have achieved financial returns higher than the weighted average cost of capital provides an initial indication of prudent financial management. Two further measures were useful for fighting corruption: (i) requiring an international consultant to review and help certify major contractual documents (including contractor's payment certificates and major variation orders); and (ii) setting up an internal audit unit in the project company. 100. All ADB-financed road and railway projects included anticorruption measures such as anticorruption contracts to be signed by all contractors. Special project audits, which included corruption assessments, were undertaken; none of these audits found any evidence of corruption. 101. During the study period, the Government improved its overall approach to anticorruption, especially in the road and railway subsectors. These issues emerged increasingly in media, and there were a number of high-profile prosecutions of senior highway officials. The Government has established firm anticorruption systems (for prevention, detection, and awareness of corruption), as described in Appendix 10. In addition, all contracts for roads and railways involve the signing of detailed anticorruption declarations by the responsible officials, contractors, subcontractors, and consultants. 102. Through discussions with executing agencies, the MOC, and the MOR, the SAPE clarified that extensive anticorruption measures are in place at the project level. In general, an anticorruption committee is present in each executing agency to take charge of education, training, and project-level anticorruption mechanisms such as establishing a whistleblower mechanism for confidential disclosures. In 2000 MOC began requiring officials and contractors to sign anticorruption provisions (Independent Contracts Against Corruption) (Appendix10); the MOR has similar requirements. 103. Data from the ADB Office of the Auditor General (Integrity Division) show PRC cases (all sectors) account for only 6.3% of total number of corruption allegations filed as of 6 February 2007. While the share of transport projects in this observation was very small, it is difficult to comment on its relative performance in terms of corruption allegations. This is because of the fact that factors like overall financial control system and due diligence both by ADB and EAs, the level of civil society interest and involvement in ADB projects, ADB sector level investments, and awareness of ADB’s policies and accountability mechanisms may influence the incidence of
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corruption allegations. Furthermore, lately ADB has brought about Governance and Anticorruption Action Plan II which calls for risk assessments and mitigation at sector level.
6. Borrower Performance
104. The PPERs and PCRs for the seven completed projects rated borrower performance favorably. In two cases, performance was rated highly satisfactory, and in the remaining five, it was satisfactory. This reflects strong capacity and competent and timely implementation on the part of most executing agencies.
7. ADB Performance
105. The PPERs and PCRs for six of the seven completed projects found that ADB’s performance on project processing and implementation had been satisfactory. The issues most commonly raised concerned (i) in most cases there was insufficient ADB supervision of land acquisition and resettlement; and (ii) changes of project officer, with resulting loss of continuity and institutional memory. The one project rated partly satisfactory had a particularly high rate of staff turnover. SAPE interviews with the MOC, MOR, and provincial executing agencies indicated that the transfer of project administration from ADB headquarters to the PRC Resident Mission had a positive effect on ADB performance through improved project administration. 106. The SAPE conducted a separate survey of ADB performance and client orientation. The findings are in Appendix 11. At the stage of project formulation, executing agencies were in most cases satisfied with ADB’s performance. The main exceptions were that processing and approval of PPTA was a source of delays, project processing missions tended to introduce additional features that complicate project implementation, and ADB sometimes required impractical monitoring indicators. Most executing agencies were generally satisfied with ADB’s performance during implementation. Some said ADB’s procurement procedures were too lengthy and complicated. State-appointed bidding agencies were used to support procurement using ICB, but ADB still required them to seek normal ADB approvals for each procurement step. A common concern was that executing agencies were unable to persuade ADB to approve changes in the loan allocation table. This had prevented some executing agencies from utilizing the full loan proceeds. In most cases, the executing agencies were satisfied with ADB supervision missions during implementation. In a few cases executing agencies criticized the expertise mix within the mission and the ADB’s contribution toward problem solving. In most cases, the executing agencies were satisfied with ADB’s performance in client responsiveness.
8. Performance of Ongoing Projects 107. The 2006 country portfolio review mission (CPRM) confirmed that the road sector portfolio has generally performed well and cited a number of implementation issues in the roads sector that had been addressed during past portfolio reviews. These include (i) start-up delays; (ii) immature project readiness; procurement (prequalification, bidding, low bids, delays in completion); (iii) inaccurate project cost estimate; (iv) loan savings; (v) extension of loan closing date; (vi) consulting services; (vii) institutional arrangements; and (viii) loan covenants. In 2006, prevailing subsector issues considered critical to project implementation included start up delays and subsequent extension of loan closing date38, loan savings and cancellations39. In the railways subsector, CPRM 2006 reported strong commitment and a generally satisfactory capability for 38 Elapsed time from loan approval and effectiveness maintained a similar cycle as before which reflects EA’s intention
to avoid paying loan commitment fees before civil works contracts are awarded. 39 Some projects may have substantial loan cancellations due to loan savings caused by inaccurate cost estimate and
low awarded contract price.
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implementation among EAs. Implementation has often exceeded expectation at appraisal. The EAs generally complied with loan covenants and audited financial statements were found generally acceptable and submitted in timely manner. Lessons from experience highlight the need for (i) adequate EA capacity for project processing and implementation; (ii) realistic traffic forecasts; (iii) review of constraints to traffic on network basis and impact on project viability of the existing and/or planned railway lines and other transportation modes that may compete with project facilities; (iv) financing railway projects with appropriately determined debt-to-equity ratios; and (v) improved quality of monitoring and evaluation reports for land acquisition and resettlements (i.e., more budgeted funds for monitoring and evaluation work). 108. A desk review was conducted of nine road projects and three railway projects to examine how the performance of ongoing projects compared with that of completed projects. This used information available in project performance reports and back-to-office reports. While such information has limitations (for instance, it focuses mainly on monitoring of implementation performance and offers little insight into project outcomes and impacts), the general finding was that the performance of ongoing projects was similar to that of the completed projects. 109. The overall performance of ongoing road and railway projects was rated successful—the same rating achieved by the completed projects. Ongoing road projects were found to be highly relevant, effective, efficient, and likely to be sustainable. This assessment was slightly lower than the performance of completed road projects, which were rated highly relevant, highly effective, highly efficient, and likely to be sustainable. The ongoing railway projects were rated highly relevant, effective, efficient, and likely to be sustainable—the same rating achieved by the completed railway projects. Details of the assessment of ongoing projects are in Appendix 12. C. Technical Assistance
1. Overall
110. The overall performance of TA in the sample was mixed, with ADTA performing fairly well but PPTA less satisfactorily. Of the five ADTA projects, three were rated successful and two partly successful. They were all found to be relevant or highly relevant, reflecting a generally sound approach to ADTA prioritization and selection by the Government and ADB, although with some limitations regarding whether TA designs had a realistic scope in relation to resources provided. Three of the ADTA projects were found to be effective, and two were less effective. The greatest problems were with efficiency: four of the five ADTA projects were rated less efficient. In spite of these limitations, the sustainability of the ADTA projects—in particular the likelihood of having a lasting influence on policies and institutions—was found to be highly likely for one ADTA and likely for two (but less likely for the other two). In the case of PPTA projects, in two of the 11 cases evaluated, TA performance was satisfactory, but in the other nine cases it was less satisfactory. Although the projects linked to the PPTA projects were of high Government priority and consistent with ADB’s strategy, the executing agencies did not always require PPTA support. The PPTA projects generally performed effectively and led to well-designed project loans, but they added comparatively little to the executing agencies' own design and feasibility assessments, and were therefore an inefficient use of TA resources. The time required for processing and approving the PPTA projects and recruiting consultants according to ADB’s guidelines introduced avoidable delays from the executing agencies' perspective. To a certain extent the Government’s internal approval procedures also might have caused avoidable delays in TA approval. 111. Figure 2 compares the performance of the evaluated PRC TA projects against a benchmark set by the special evaluation study on performance of TA, and against the ratings of
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the 110 TA projects evaluated by the special evaluation study. The findings are clear: ADTA performance was slightly below both the benchmark and the average performance of ADTA projects rated by the special evaluation study, while PPTA performance was far below both of these measures. This finding is consistent with the widespread criticism of PPTA that was expressed by executing agencies interviewed for the SAPE.
Figure 2: Rated Performance of Technical Assistance Compared with Benchmarks
Note: A scale of 0–3 was used for rating. For example, highly successful = 3, successful = 2, less successful = 1, and unsuccessful = 0.
ADTA = advisory technical assistance; PPTA = project preparatory technical assistance; SAPE = sector assistance program evaluation; SES = special evaluation study. Source: Sector assistance program evaluation team.
2. Relevance (Priority/Design)
112. The evaluated ADTA projects fell into two categories. The first category addressed subsector issues with high Government and ADB priority, such as expressway corporatization, leasing and securitization, policy reform in road transport; and railway reform requirements linked to WTO membership. The Government generally took a close interest in the prioritization and formulation of these TA projects, and each one was found to be highly relevant. The second category of ADTA projects studied issues of especially high priority to ADB—particularly how to incorporate poverty reduction in subsector operations. The Government sometimes took a lesser interest in these ADTA projects, which were sometimes more supply-driven. These were rated relevant. 113. While all of the proposed projects preceded by PPTA were of high priority, the terms of reference were generally prepared by ADB and focused mainly on satisfying ADB standard requirements and examining special project features that ADB wished to add to the main project. All but one of the 11 executing agencies interviewed found that the scope of the PPTA mainly served ADB's requirements, and was of only limited relevance to their own needs. However, PPTAs can also be utilized for developing a pipeline of projects for ADB financing which was not the case always.
3. Outcomes
a. Effectiveness
114. Each of the five ADTA projects experienced some difficulties in implementation and in achieving intended outcomes—particularly in terms of influencing subsector policy and planning. This was partly due to overambitious scope and timeframes, and partly because TA designs did not give sufficient consideration to how outputs would eventually be used or disseminated.
0
20
40
60
80
100
0 1 2 3Rating
% o
f Sam
ple
TAs Benchmark
ADTA-SESPPTA-SESADTA-SAPEPPTA-SAPE
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Nevertheless, in spite of some delays, three of the ADTA projects were rated effective in achieving their outcomes. For example, the corporatization, leasing, and securitization TA published a useful book that was disseminated widely among provincial expressway executing agencies. On the other hand, two ADTA projects focusing on integrating socioeconomic assessments and poverty considerations in road projects were rated less effective. These were too theoretical, according to executing agencies and consultants. Their outputs were not well integrated into the activities of the provincial-level agencies expected to use them. 115. Nearly all of the PPTA projects achieved their intended outcomes (irrespective of whether the executing agency actually needed them), and all were followed by ADB loan approvals. They were, therefore, rated effective. One case was less effective because the consultants did not have sufficiently specialized expertise in urban transport.
b. Efficiency
116. Resources were used less than optimally in most of the ADTA projects. One common problem was overambitious design (para. 114). If too many tasks were required in the terms of reference, the consultants had insufficient time to satisfactorily complete all tasks. Some executing agencies also felt that consultants were not sufficiently familiar with PRC institutions, and/or that the ADB project officer lacked the expertise to suitably lead the TA. 117. All but one of the PPTA executing agencies said that the TA resources were inefficiently used. Since the executing agencies' original design and feasibility assessments were invariably adopted without revision as the basis for a given loan project, the executing agencies felt that the PPTA projects were either not needed or not on the scale provided. Aspects of inefficiency included (i) delays resulting from processing, approval, and recruitment for the PPTA; (ii) overinflated TA budgets; (iii) international consultants lacking sufficient familiarity with the PRC; (iv) insufficient use of high quality national consultants; (iv) much of the PPTA work could be accomplished by obtaining a good quality translation of the executing agency's feasibility study; (v) overuse of safeguard studies.(see footnote 27); and (vi) sometimes ADB asking PPTA consultants to assist with the drafting of RRPs—a task meant to be undertaken by ADB staff.
c. Sustainability
118. The "sustainability" of ADTA refers to the likelihood of TA outcomes being sustained and having a lasting influence. There was a range of sustainability ratings for the five ADTA projects. Following publication, the corporatization, leasing, and securitization TA had been widely disseminated and was being used by executing agencies. It was rated most likely to be sustainable. The ADTA on WTO railway reform was being treated seriously by MOR and was expected to eventually contribute to proposed reforms being adopted by MOR. A similar situation prevailed for the ADTA on reform of road transport policy. Both of these ADTA projects were rated likely to be sustainable. The ADTA projects on socioeconomic impacts and integration of poverty considerations in network planning were rated less likely to be sustained since initial indications were that the methods developed by the TA projects were not being adopted in domestically financed projects. 119. All of the PPTA projects were rated likely to be sustainable. This was because the projects preceded by PPTA (regardless of what value the PPTA added to the executing agencies' original design and feasibility studies) were of a high standard, with strong executing agencies capable of operating the project facilities soundly, and good prospects of being economically and financially viable.
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V. VALUE ADDED BY ADB OPERATIONS
A. Introduction
120. While the preceding chapters showed that ADB-supported roads and railways in the PRC were generally successful during the study period, they did not determine to what extent this success had to do with ADB. Since the PRC made enormous improvements in its roads and railways, and since these were largely financed and implemented without outside help, it cannot be taken for granted that ADB’s involvement added value. Further questions need to be explored. For example, could the financing that ADB provided have been obtained from other sources? Were the features of ADB-supported activities any different from the other parts of the Government’s large road and railway development programs? Was the quality of investments any better when ADB was involved? Did ADB support have a wider influence on other parts of the road and railway development programs, and on subsector policies and institutions? 121. This chapter presents the results of an assessment of the value added by ADB operations. It draws on the findings of a with project and without project ("with and without") survey of ADB-financed and non-ADB-financed road and railway projects. The survey sought to distinguish (i) whether the typical features of the ADB “project package” added value compared with domestically financed projects; and (ii) whether such value addition changed significantly during the study period, and, if so, how and why? Further details of the approach to the survey are in Appendix 14. B. Value Added by ADB Projects
122. The “with and without” survey was conducted using a semi-structured questionnaire administered through face-to-face interviews with executing agencies. The questionnaire focused on similarities and differences in terms of project identification, preparation, implementation, monitoring, and stakeholder involvement for a sample of ADB-financed projects and comparable domestically financed projects. The sample comprised 14 ADB-financed projects approved during the study period (10 of the 20 expressway projects, and four of the seven railway projects) and 15 non-ADB-financed comparator projects (10 expressways and five railways). These were in six different provinces. In most cases the sample projects had been completed or substantially completed.40 123. The findings of the survey are summarized in Table 6. These indicate that ADB road and railway projects did add significant value but that some of the special features of projects added less value than was expected in the RRP. The extent of value added generally diminished when the same feature was included in repeated projects—because the Government was quick to assimilate good features within domestic policies and procedures. These findings are discussed in more detail in the following sections.
40 The ADB-financed projects in the sample included 60% of the completed road projects and all the completed ADB
railway projects.
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Table 6: Value Added by ADB Projects Compared with Domestically Financed Projects
Value Added Compared with Domestic Projects
ADB Project Feature
At time that feature was introduced
By end of study period Comment on Value Added
A. Roads
Finance Mobilization Mainly in poorer provinces
Standard Provisions
International Competitive Bidding Sound local competitive bidding is sufficient
Accounting, Auditing, Reporting ADB procedures useful, mostly assimilated by end of period
Anticorruption Measures Already have domestic anticorruption measures
Safeguard Policiesa Now largely duplicating domestic laws and policies
Special Featuresb
Design Standards, Construction Quality Initially influential, but no longer
Corporatization Initially influential, scope for refinement of model
Pricing & Cost Recovery Initially influential, scope for initiative on sustainability
Link/Local Roads Link roads are same, local govt. provides local roads
Axle Load Testing Following Government resolution in 2004, testing equipment now being routinely installed and used
Road Safety Domestic projects now have similar features
Vehicle Emissions Domestic projects now have similar features
Poverty Monitoring Helped raise awareness but indicators often impractical
Roadside Stations Integral way to link project area to expressway
Transport Services Prepare provinces for competitive conditions
B. Railways
Finance Mobilization Value added for local railways, not national railways
Standard Provisions
International Competitive Bidding By end of study period ICB used by domestic projects
Accounting, Auditing, Reporting, ADB’s strict procedures useful, but now mostly assimilated
Anticorruption Measures Already have domestic anticorruption measures
Safeguard Policies Now largely duplicating domestic laws and policies
Special Features
Full Cost Tariff This requirement initially useful, now widely adopted
Commercialization Some initial value, now commercialization is widespread
Link roads and Stations Domestic projects also have such construction roads
New Technology for Rail Operations Some ADB contribution but could add more value
Developing Area Around Stations Introduced recently, full potential still to be realized
Rail Safety ADB initially helped MOR to access the latest technology
Private Sector Participation Introduced recently, full potential still to be realized
Separate Passenger Corridors ADB has encouraged this useful initiative of MOR = significant; = moderate.
a Including environment, resettlement, indigenous peoples, HIV/AIDS, and other social safeguards. Source: Sector assistance program evaluation team.
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1. Finance Mobilization
124. The role of ADB financing in leveraging domestic project funding varied from project to project and from province to province, and changed over the course of the study period. What is quite clear for both road and railway projects is that the importance of ADB financing for project approval and start-up is less critical today than it was in 1997. In 1997, domestic commercial banks were skeptical about the traffic forecasts presented by local design institutes and unwilling to take on the financial risks they perceived to be associated with construction and operation of domestically financed transport projects. Today, the domestic banks are more willing to consider transport projects, particularly in the more developed eastern and central provinces, where traffic levels are higher.
125. During the same period, the PRC’s regional development priorities—as expressed in the TFYP and EFYP—have given increased emphasis to financing projects in the poorer western provinces. These provinces have a weaker revenue base and rely more on outside loans for investments. This is posing new challenges for lenders and borrowers. Lower traffic levels mean that projects often have lower financial returns and higher risks, and require longer-term lending. Domestic commercial banks are still hesitant to finance these projects. However, interviewed executing agencies and implementing agencies said that domestic commercial banks were more willing to lend to ADB-financed projects. The banks were said to value ADB’s strict procedures for appraisal, processing, and administration of projects. 41
126. Such leveraging impacts appear to be more typical of expressway projects and local railways than national railway projects. Expressways and local railways are set up as relatively autonomous local corporations at the provincial level. In the case of national railways, most of the decisions and priorities are set centrally by the MOR in coordination with the NDRC. When the MOR raises the public investment contribution and decides that a project is to go ahead, the financial risk for a domestic bank is much reduced, and the potential leveraging contribution of an ADB loan is similarly reduced.
127. Even though ADB financing is small relative to the PRC’s total financing requirement for transport investment, ADB lending helps build confidence that has a spin-off effect on the willingness of domestic banks to participate in projects to be financed entirely from domestic sources. As a result, ADB can claim a greater influence on leveraging complementary domestic commercial funding.
128. ADB’s detailed scrutiny of proposed projects relieves the domestic commercial banks of much analytic and bureaucratic work (loan transaction costs) that they are not geared up for, and which in itself would have rendered them unable to offer financing for TFYP and EFYP western development projects. From this perspective, ADB adds value in the form of “free rides” for the project officers and Board of Directors of the domestic commercial banks.
129. The Ministry of Finance confirmed that ADB financing also may enable some planned road and rail projects to start earlier than would normally be possible. The ADB funding and leveraged domestic bank financing free up road and railway budgets that can be allocated for other road and railway investments.
130. However, under the TFYP and EFYP, there has been a significantly increased allocation of domestic investment finance for infrastructure in the western provinces. Assuming that this is sustained, ADB’s value added in finance mobilization in these provinces is likely to diminish. ADB should prepare for the eventuality that within 5 to 10 years, depending on the province, the western provinces will start to gain more access to commercial financing and rely less on ADB.
41 As observed by EARD, ADB’s role in leveraging financing remains highly relevant (more so in the Western regions)
given the increased scruinity by NDRC for investment projects. Also, leveraging investments from other development partners – e.g. French, German, local banks, and private investors─is very high with ADB participation in a project.
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2. Standard ADB Project Provisions
131. Procurement and Consultant Recruitment. While procurement of civil works and equipment for domestically financed road and railway projects generally follows local competitive bidding (LCB), for ADB projects the standard requirement has been ICB. Use of ICB is intended to secure international competition, on a transparent basis, so that clearly specified and defined goods and services can be reliably obtained through efficient, fair and transparence proceedures at competitive prices.
132. In the road subsector, most expressway executing agencies and implementing agencies complained that, in practice, the implementation of ICB fell short of expectations. They complained that ADB insisted upon selection of the lowest responsive bid, whereas this was generally not the approach used under their domestic procurement procedures. Often when contractors for ADB projects were selected on the basis of lowest responsive bid, the executing agency claimed that it had to devote considerably more time and resources to managing the contractor to ensure adequate performance. Executing agencies said that the contractors often underpriced their bids and then resorted to frequent requests for contract variations. Such problems sometimes caused delays.42
133. Most expressway executing agencies and implementing agencies would prefer LCB. This view was also supported by the MOC. In part this was based on the alleged transaction-cost complications discussed above. In addition, the MOC and the executing agencies feel that ICB is redundant for highway projects since there is very little, if any, technology, equipment, engineering and operating skills needed that are not available in the PRC today at highly competitive terms. ADB continued to insist on ICB when not a single ICB contract for an ADB-financed expressway project was awarded to a foreign bidder during the study period. Under these circumstances the executing agencies alleged that, ICB may simply raise transaction costs and lengthen timeframes. While the general approaches of ICB remain appropriate from procurement principles of economy, fairness and transparency—and the dissemination of these approaches among expressway executing agencies was a useful element of ADB value added during the early part of the study period—transaction costs and timeframes could be reduced in the future by selecting among domestic bidders only. This is, of course, an ADB-wide issue, which requires consideration at the institution level. 134. However this is not correct and it needs to be appreciated that for ADB financed contracts local procurement procedures need to be acceptable to ADB. Accordingly, these local procurement procedures can not significantly differ from ICB procedures which are considered international best practice subscribing to the principles of economy, efficiency, fairness and transparency. Time savings under local procurement procedures from a reduced bid preparation will only be minimal, i.e. ICB 42 days versus LCB 30 days. 135. Unlike in the road subsector a large number of ICB contracts in the railways subsector were contracts for the supply of equipment and machinery for which international participation and competition took place. The use of ICB was therefore better appreciated than in the road subsector. Accordingly the MOR, as well as provincial railway executing agencies for ADB projects, said that ICB provided access to the more advanced technologies available internationally. It also was used to introduce new forms of procurement, such as turnkey contracts. ICB also provided a systematic method for bid evaluation and selection. Where
42 There are likely to be a variety of reasons why a contractor may underprice its bid, such as taking on risks of various
kinds, extent of competition, the desire to gain entry into a new market, and the desire to retain staff during a business slowdown.
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prequalification, bidding documents, and specifications were of a satisfactory standard, ICB was considered the best approach to procurement. 136. Since the MOR has considerable technical capacity to draw upon and had used ICB successfully on ADB projects before, it had little difficulty conducting the preparatory aspects of ICB. The experience of using ICB for ADB-financed projects had helped the MOR and provincial railway executing agencies appreciate the merits of ICB. The MOR now uses ICB regularly for domestically funded projects, and has introduced its own ICB guidelines influenced by experience gained through ADB-financed projects. It now appears that the MOR and provincial railway executing agencies have built up enough capacity to use ICB when appropriate. While ADB should continue to use ICB for future railways project, it will be needed merely to remain on par with domestic projects, and will not be a source of additional value added. 137. Accounting, Auditing, Reporting, and Reviews. ADB applies a well-tested set of implementation arrangements, procedures, and project reviews to secure efficient, effective, transparent, and orderly project implementation and disbursements. In the early part of the study period these helped improve upon the methods being used by executing agencies. However, by the end of the period, the most useful elements had been incorporated into domestic procedures, and there was little further value addition by ADB. 138. Regarding project monitoring, a relatively widespread criticism from executing agencies was that ADB’s monitoring indicators were less relevant and suitable than those used for domestically financed projects. This was particularly the case for railway projects. Too often, ADB indicators had been selected hastily during project processing missions, and without giving sufficient attention to the practical requirements of data collection. The executing agencies considered ADB’s project monitoring indicators a burden, with little or no value added. 139. All the executing agencies and implementing agencies interviewed said that strict domestic systems for combating corrupt practices were now well established, including whistle-blower protection. The special audit required by ADB projects added little value in this context, and there were no instances where the special audit identified corruption. 140. Safeguard Policies. Executing agencies and implementing agencies were asked if ADB safeguard policies differed from those applied in domestically financed projects, and if they had added value in the form of better overall project performance and impact. Half of the executing agencies said that ADB safeguards differed; the other half said they did not. Only one out of 15 executing agencies and implementing agencies said that ADB safeguards had improved the project performance and impact. 141. Regarding the individual safeguard components of ADB loans, there was a consensus among executing agencies and implementing agencies that ADB’s environmental impact assessment requirements no longer add value. The domestic environmental impact assessment requirements were said to be sufficiently rigorous. 142. All projects during the study period included resettlement plans. Of the executing agencies and implementing agencies interviewed, a little more than half said that ADB resettlement policies differed from those used for domestic projects; the remainder said there was no difference. Most executing agencies and implementing agencies felt that ADB’s resettlement plan did not add value. However, many said that ADB monitoring of resettlement plan implementation sometimes helped ensure more timely payment of compensation compared with domestically financed projects (see also para. 67 and related footnote).
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143. An indigenous peoples’ development plan (or ethnic minorities development plan) was relevant for only half of the ADB-financed projects in the “with and without” sample. About three-quarters of the executing agencies and implementing agencies said that the plan for the ADB projects was different from that for domestically financed projects, and a third felt that the ADB plan was a little better. However, some executing agencies and implementing agencies also said that ADB’s plans had been poorly conceived and added little value. This was particularly so in areas where the population comprised numerous different ethnic groups—which did not fit with the idea of a single majority group together with small and vulnerable minority groups that seemed to lie behind ADB’s approach to indigenous peoples. 144. Components to Mitigate HIV/AIDS in Highway Projects. Almost all executing agencies said that these components complicated project implementation, while adding no value compared with domestic projects. Prevention of diseases (including HIV/AIDS) and accidents fall under jurisdictions other than expressway executing agencies. Fairly comprehensive domestic health measures and disease prevention information was already in place, including actions to mitigate HIV/AIDS threats at construction sites. Some executing agencies said the domestic measures differed from ADB’s, while other executing agencies said they were similar but had been developed independently of ADB support. It was also noted that issues like HIV/AIDS would have to be addressed at the sector and central level through policy dialogue to improve interagency coordination and compliance.
3. Special Features of ADB Projects
145. As discussed in Chapter III, all ADB-financed road and railway projects contained special features. Some were already in place in 1997 for both road and railway projects. These included link- and local-roads components, corporatization and commercialization of provincial railways, and systems for tolling and full-cost tariffs. Others were introduced during the study period, including road safety (from 1998), axle load control measures (1999), and vehicle emissions controls (from 1999). 146. The feedback from the interviewed executing agencies was that the special features often complicated implementation of the project while they were meant to address special issues associated with projects. Sometimes these features led to division of the responsibility for financing, implementation, or monitoring between several different ministries and agencies. 147. Executing agencies and implementing agencies said that while many of the special features covered important issues, ADB had limited in-house expertise to make much contribution through its staff. This problem was particularly important in the area of railway engineering and operations. A related issue here is one of the capacity of a single staff to accomplish a large and growing workload, and bearing in mind the complexity of railway projects43. If the ADB project teams had been more skilled, ADB could have added more value. 148. In many cases, executing agencies and implementing agencies said that the special features added value when they were introduced, but that this added value gradually eroded as these features were mainstreamed into domestic project design and implementation. This success made many special features redundant. There is a need to (i) remove features that have already been mainstreamed, and (ii) identify new project features capable of adding value.
43 During the review period, ADB was served by two highly expreinced railway specialsitsts, the first from 1997-2001,
and the second from the second half of 2002 to the present. East Asia Department, however, noted that nothing was missed or unattended by not having additional railway sector experts. See also Para 72.
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a. Roads
149. Highway Design Standards and Construction Quality. At the beginning of the study period, ADB projects added value by supporting the establishment of improved highway design standards and construction quality. However, MOC and road project executing agencies said that domestic highway design standards have now been established, and that PRC design institutes and engineers now adhere to international standards of design and construction quality. ADB-financed projects and domestically financed projects now differ little in terms of highway design, standards, and construction quality. Project implementation procedures likewise differ little. ADB projects therefore no longer add value in these areas. 150. Highway Commercialization and Corporatization. Training and capacity building support for the establishment and efficient operation of expressway enterprises was a feature of all 18 ADB-financed road projects during the study period. This special feature of ADB expressway projects provided expressway operators with valuable lessons and experience in setting up and managing road companies and collecting revenue for sustainable road management. 151. However, the proliferation of individual expressway companies, where each company is financially responsible for its own loan servicing—has become myopic and suboptimal. The “one toll road, one toll company” approach has increased time costs by increasing the amount of toll stops and inflating toll collection costs. It has also meant that there is no mechanism for assisting expressways facing debt-servicing problems caused by initial traffic shortfalls. Rather than promoting further proliferation of individual expressway companies, ADB by the latter part of the study period could have added more value by encouraging the development of province-wide expressway companies or other umbrella arrangements. 152. Highway Pricing and Cost Recovery. Provincial executing agencies said that the pricing and cost-recovery procedures used by domestically financed projects and ADB-financed projects were similar. There was some transfer of knowledge and experience from ADB-financed projects to domestically financed projects, especially in the early part of the study period. This was an area of clear value added arising from special features of ADB projects and TA. Effective pricing and cost-recovery methods were vital to ensuring the overall financial sustainability of the NTHS, and to avoiding the risk of expressway companies with lower traffic levels defaulting on their commercial loans. This was an area where there was untapped potential for ADB to have a positive influence and add further value. ADB influence has been limited in this area because it continued to address pricing and cost-recovery on an individual project basis. Addressing this issue on a sector or provincial-level basis would have added more value. 153. Link Roads and Local Roads Attached to Expressway Projects. The executing agencies provided a range of answers to the question of whether including link and local roads added value to ADB-financed expressway projects. The majority said that link-road components were similar in ADB-financed and domestically financed projects; therefore, ADB did not add value in this regard. On the other hand, local-roads components of ADB projects differed from domestically financed projects in that such roads were specifically intended to connect to poor towns and villages. 154. Inclusion of all-weather local roads to serve the poorest communities in the project area became a feature of ADB support early in the study period. This was meant to add value by increasing the poverty reduction impact of ADB expressway projects. However, the potential for this was limited as only about 5% of project cost was typically assigned to local and link roads,
39
and in some cases this was financed from the government counterpart contribution rather than from the additional resources provided by the ADB loan. 155. The survey of executing agencies, and interviews with MOC and MOF have not provided full clarity as regards to the additionality of ADB-supported local roads to poverty villages. A couple of executing agencies claimed that the foreign funding of local roads indeed added to the total funding committed to rural roads, especially early in the study period, and therefore helped reduce poverty. However, the large majority of executing agencies claimed that these roads were already included in the provincial and country budgets and would have been built anyway. Given the EFYP's greatly increased focus on local roads, this will surely be the case in the coming years. 156. Most executing agencies said that ADB’s insistence on including local roads in expressway projects complicated implementation of the projects without adding much value. Expressways and local roads came under different jurisdictions and were normally funded from different budgets. Local roads could not be financed through toll revenues unless some of the expressway toll revenue was earmarked for repaying the cost of the local roads. Executing agencies would prefer that ADB concentrated on financing the expressway component, since that would simplify institutional arrangements, administration, and repayment. They said that local-roads programs should be managed and financed directly by provincial and country authorities in accordance with their existing plans. 157. ADB’s preoccupation with including local roads in expressway projects is based on the argument that such roads contribute to poverty reduction. As discussed above, most local roads would have been built anyway. Moreover, ADB has failed to recognize that poverty reduction in the PRC tends to be driven by job creation in urban areas, which provides opportunities for migrants from poor areas to find better paid jobs (i.e. poverty reduction by means of trickle-down effects). However, the rate of rural migration in the PRC is closely linked to enhanced capacity to transport people and goods. From this perspective, expressway loans contribute greatly to poverty reduction. In addition, job creation in the PRC depends to a large extent on continued economic growth—which is also partially dependent on developing the NTHS to reduce transport bottlenecks. 158. Road Safety, Axle Load Controls, and Vehicle Emission Controls. These are now included in all ADB road projects in the PRC. Almost all executing agencies said that such features in ADB projects did not differ markedly from domestic projects. Of the few that said the ADB measures were different, only half credited the ADB features with adding value. 159. One factor that complicates implementation of highway projects is the sharing of jurisdiction in traffic safety, emission controls and axle load controls among various ministries and agencies that rarely communicate with each other to find joint solutions for controlling emissions, overloading, and traffic safety hazards. 160. ADB can add value by continuing to support road safety, axle load controls, and emission controls. However, instead of adding these to individual expressway projects administered by single executing agencies, it should develop a rolling, medium-term program of ADTA projects that bring together the various ministries and agencies to address these problems in a coordinated manner. There is scope for ADB to transfer best practice experience from other countries. 161. Competition Framework for Transport Services and Developing Roadside Stations. In two recent ADB-financed projects, plans were developed to improve competition in the transport services industry and establish roadside stations to encourage local entrepreneurial
40
activities benefiting from proximity to the expressway. According to executing agencies and implementing agencies, about half of the domestically financed projects had similar features, but these were not influenced by the ADB-financed projects. However, it is too early to draw conclusions about whether these features of ADB projects add value.
b. Railways
162. Full Cost Railway Tariffs. The national railways have undergone massive structural reforms during the past two decades. Among the most prominent changes has been restructuring the tariff schedules to reflect full-cost recovery and generate enough revenue to repay loans. Throughout the 1997–2005 study period, all seven ADB loans included covenants requiring full-cost tariffs for the project line. Earlier in the study period, ADB's insistence on full-cost tariffs played a useful role in helping ensure that railway investments were run according to sound financial principles. By the end of the period, full-cost tariffs were the norm for all railway projects, with or without ADB financing. 163. Commercialization of Railway Companies. All railway projects advocated commercialization. ADB-financed LJVRs helped demonstrate the benefits of operating railways in a commercial manner. By the late 1990s, when MOR embarked on major reforms of the national railways, all new railways followed commercial approaches and this aspect of ADB projects no longer added much value. 164. Railways Link Roads and Stations. Whether a railway project is ADB-financed or domestically financed, it requires construction roads linking the site with the nearest all-weather road. After project completion such roads are turned over to local governments, which are given responsibility to manage and maintain them as local roads. This process has taken place independently of ADB lending, and for all railway projects. MOR and railway executing agencies and implementing agencies did not think that ADB financing affected the quantity of link roads and local stations. 165. At the outset of the study period, social concerns and poverty reduction were not important factors in siting link roads for domestically financed projects. Partly as a result of ADB insistence that these link roads and stations be built to serve poor communities, MOR established guidelines for this purpose in 2004. Since then, cooperation between MOR and local communities seems to have improved the siting and maintenance of these roads. Now that this is institutionalized, ADB provisions for link roads no longer add value compared with domestic projects. 166. New Technology for Railway Efficiency and Safety. Since 2000, four ADB-approved railway projects in the PRC have included advanced technology for signaling, communications, safety equipment, transport and dispatch management information systems, mechanized track maintenance, and freight and container yard operations. Investing in such advanced technology has been a high priority of MOR, and most likely these are investments that MOR would have implemented independently of ADB loans. However, MOR and several railway executing agencies and implementing agencies said that ADB loans added value by providing a channel for improved access to technologies, equipment, and international expertise. There is scope for this channel to add even more value, but to do so ADB will need to bring on additional and more specialized railway experts. Another ADB contribution in this area has been the piloting of new technology on ADB-financed projects. If proven successful, the technology is later replicated in other projects, including domestically financed projects. 167. Separate Passenger and Freight Corridors and Private Sector Participation. Under the TFYP, the Government decided to develop separate passenger and freight corridors on busy
41
routes. ADB played a useful confidence-building role in supporting the concept of separate corridors, since this has considerable potential for improving rail efficiency. The presence of ADB financing also encouraged private investors to take part in such projects for the first time in the PRC. It is likely that ADB’s involvement in such projects will continue to add value for several years, but as confidence builds up ADB will have to find new ways of adding value on these corridors.
VI. OVERALL ASSESSMENT, CONCLUSIONS, LESSONS, AND RECOMMENDATIONS
A. Overall Assessment
1. Rating Method
168. The overall assessment presented in this chapter was based on top-down and bottom-up assessments of TA performance. The approach was developed using the OED guidelines for country assistance program evaluations44. The top-down assessment examined ADB’s strategic positioning in the road and railway subsectors (Chapters II and III) contribution to development results i.e. value addition, and ADB’s performance and client orientation in managing and implementing the program (Chapter IV). The bottom-up assessment considered the relevance, effectiveness, efficiency, sustainability, and impact of lending and non-lending operations, focusing mainly on projects and TA that were approved and completed during the study period and rapid assessment of the ongoing projects (Chapter IV). The overall rating took into account the top-down and bottom-up ratings. The assessment was carried out separately for the road and rail subsectors, and in aggregate.45 The performance assessment and rating is presented in detail in Appendix 15.
2. Top-Down Assessment
a. Strategic Positioning
169. The assessment of strategic focus in Chapter III found that in both subsectors ADB’s strategic positioning was sound. The Government attached high priority to the road and railway subsectors and had well conceived plans for developing them. These plans were closely matched by ADB’s COS and CSP and by the subsector strategies that it pursued, and ADB’s actual programs of lending and TA followed these strategies. Toward the latter part of the study period there may have been scope for refining some aspects of strategy, including the type of lending modalities, the PPTA-ADTA mix, and the amount and continuity of ADTA. 170. The rating for strategic positioning in both the road and railway subsectors, and in aggregate, was high. Table 7 summarizes the basis of this rating.
44 ADB. 2006. Guidelines for the Preparation of Country Assitance Program Evaluation Reports. Manila. 45 The combined rating for the road and railway subsectors took into account the relative quantity of loans and TA
projects for each subsector.
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Table 7: Strategic/Subsector Positioning Rating
Subsector Rating Commentary
Road 8 High. ADB allocated a large portion of lending under the COS and the CSP to supporting the Government’s plans to rapidly build the NTHS. This was a very high Government priority. Given the NTHS' enormous scale it required consistent support over a period of many years—ADB recognized this and was unfaltering in its support. By the end of the study period, the NTHS was approaching completion—an immense accomplishment. ADB was also generally consistent in pursing priorities, features, and an overall approach that fit both the needs of the subsector and the priorities of the COS and CSP. This included concentrating most road support on expressways serving the poor central and western provinces.
Railways 8 High. Under the COS, ADB began by following a well-conceived strategy of supporting LJVRs, which contributed to expanding the rail network and demonstrating the merits of running railways along commercial lines. When MOR began to embark on significant reforms in the late 1990s ADB quickly responded by starting to provide what became an extended sequence of support for national railways. ADB’s subsector priorities were fully consistent with the needs of the subsector and the overall COS and CSP priorities. This included focusing railway investments on the poor central and western provinces. During the CSP period, ADB deepened the extent of its support for reform of national railways through ADTA, and made an appropriate strategic shift by ceasing to finance civil works (MOR has less need for ADB support in this area) and focusing ADB financing on advanced railway technology and equipment.
ADB = Asian Development Bank, ADTA = advisory technical assistance, COS = country operational strategy, CSP = country strategy and program, PPTA = project preparatory technical assistance, TA = technical assistance. Note: 8 = high, 6 = substantial, 4 = modest, 0 = negligible Source: Sector assistance program evaluation team.
b. ADB Performance and Client Orientation
171. This concerns the processes that underlie ADB’s effectiveness in discharging its responsibilities as a development partner, including (i) the quality of ADB’s support for lending and nonlending services; (ii) the responsiveness of the support to the Government’s needs; (iii) undertaking its mission in a manner consistent with fostering client ownership, improved client capacity, client satisfaction, and good corporate governance; (iv) the quality of the partnership between ADB and other development partners, the Government and civil society groups; and (v) operating in a matter generally consistent with ADB’s mandate, policies, and strategies. 172. ADB provided strong support for the Government’s road and railway programs throughout the period. It was consistent with this support for almost a decade—with no major changes in approach. In providing such steadfast support, ADB made an important contribution as a valued development partner. The SAPE survey of ADB performance and client orientation found that executing agencies were generally satisfied with ADB’s performance at the main stages of project processing and administration, and PPERs and PCRs rated ADB's performance satisfactory in nearly all cases. Toward the latter part of the study period, as the PRC's capacity in many aspects of roads and railways became stronger, ADB could have been more receptive to concerns and issues raised by MOC, MOR, and executing agencies—for example, inefficient use of TA, particularly PPTA projects. 173. The rating for ADB's performance and client orientation in both the road and railway subsectors, and in aggregate, was good. Table 8 summarizes this assessment.
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Table 8: ADB Performance Rating
Sector Rating Commentary
Road 6 Substantial. ADB was consistent in its approach over the period, and its performance and client orientation was generally satisfactory. Toward the end of the period through ADTA it began exploring possible new areas for ADB support, which was appropriate as the NTHS was approaching completion. In some cases, ADB could have been more responsive to the issues raised by executing agencies, including concerns about the value of attaching local and link roads to expressway projects, and overuse of ICB when there had been no instance of an international bidder winning an ADB-funded expressway civil works contract. ADB could have done more to align its staffing expertise with its subsector priorities, so as to increase the quality of its contribution, and further its dialogue on sector issues with the Government and executing agencies.
Railways 6 Substantial. ADB was consistent in its approach to assisting LJVRs and then in its support for MOR, and developed a good working relationship with MOR that led to a deepening of its involvement in reform issues. In view of the expansion of its railway program, and the increasingly sophisticated support requirements of MOR, ADB should have recruited additional railway experts and minimize risk of overdependence on one railway expert in East Asia Department.
ADB = Asian Development Bank, DMC = developing member country, EA = executing agency, TA = technical assistance, DMF = design and monitoring framework, TOR = terms of reference, QCBS = quality and cost-based selection. Note: 8 = high, 6 = substantial, 4 = modest, 0 = negligible Source: Sector assistance program evaluation team.
c. ADB’s Value Added/Contribution to Development Results 174. The impact of value added by ADB for road and railway projects were identified in detail in Table 6 covering the following three main features in the road subsector: (i) finance mobilization; (ii) standard provisions such as the introduction of ICB, accounting, auditing and reporting; anticorruption measures; and safeguard practices; and (iv) special features such as design and quality standards, pricing and cost recovery, link and local roads, axle load testing, road safety, vehicle emissions, poverty monitoring, roadside stations and transport services. The main features for rail were the same but the subfeatures were somewhat different, including a greater emphasis on new technologies. These are rated in Table 9. This rating again demonstrates that features designed to add value are very significant in the early stages of subsector work, but decline substantially later on as both national and provincial governments incorporate such features into their own projects. Overall, the rating is between significant and moderate.
Table 9: ADB Value Added Performance Compared with Domestic Projects
Assessment Rating Criteria Roads Railways Road and Rail Combined
At Introduction
Period End At Introduction
Period End At Introduction
Period End
Finance Mobilization
3.0 2.5 3.0 2.0
Standard Provisions
2.8 1.3 2.5 1
Special Features 2.6 1.1 2.1 1.4 Overall 2.6 1.1 2.4 1.4 2.6 1.2 Note: 3 = significant; 2 = moderate; 1 = insignificant. Source: Sector assistance program evaluation team.
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175. ADB contributions to development results are significant. ADB projects contributed to the development of roads and railways, which facilitated movement of goods from and to inland provinces and across the border, producing trickle-down effects on economic growth and poverty reduction in local areas. Both local and expressway traffic growth reflected substantial development. Traffic on expressways was sometimes initially lower than forecast, but tended to catch up with forecasts over time. It was noted that traffic on local and link roads grew rapidly. Social safeguards have been and probably will remain an important component of ADB’s project financing and technical assistance. Benefit and poverty reduction monitoring was very important, particularly during the late 1990s. However, it was difficult to prove the positive impacts of this empirically, especially immediately after project completion, as such benefits can take many years to gestate. ADB assistance also contributed to long term and sustainable changes in the development of roads and railways through supporting policy and institutional reforms and capacity building for better sector governance. Appendix 15, Table A15.2 provides the assessment and performance rating of ADB contribution to development results.
d. Overall Top-Down Rating
176. Based on the ratings in both subsectors of highly successful for strategic and /or subsector positioning, and successful for both ADB performance and ADB contributions to development results, the overall top-down rating in both subsectors is successful.
3. Bottom-Up Assessment
177. The evaluation of the sample projects and TA in Chapter IV provided the basis for the bottom-up assessment. This evaluated the performance of every loan and TA approved and completed in the study period. The finding was that overall ADB support for both roads and railways was successful. Road projects approached the "highly successful" rating. Primarily because of the poor performance of PPTA, which accounted for the majority of road and railway TA, the overall rating for TA was partly successful in both sectors. Table 10 summarizes the bottom-up rating for the road and railway subsectors, according to the criteria of relevance, effectiveness, efficiency, sustainability, and impact. Appendix 15, Table A15.2 details the bottom-up rating for loan and TA projects on the road and railway subsector according to the five-point evaluation criteria.
Table 10: Bottom-Up Assessment
Item Relevance
(scale of 0-3) Effectiveness (scale of 0-6)
Efficiency (scale of 0-3)
Sustainability (scale of 0-6)
Impact (scale of 0-6)
Overall Rating Description
1. Roads 2.6 5.6 2.6 4.0 4.0 18.8 Successful 2. Railways 2.6 4.0 1.8 4.0 4.0 16.4 Successful 3. Roads and
Railways 2.6 5.1 2.4 4.0 4.0 18.1 Successful
TA = technical assistance. Note: Aggregate bottom-up sector performance is considered highly successful if the total score is equal to or greater than 20; successful if the total score is between 16 and 19; partly successful if the total score is between 11 and 15; and unsuccessful if the total score is 10 or less. Source: Sector assistance program evaluation team.
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4. Overall Assessment
178. The overall rating of the performance of roads and railways support was successful. This reflected the aggregate top-down and bottom-up ratings of successful in both subsectors.Appendix A15.4 presents the performance ratings for top-down and bottom-up assessments
Table 11: Summary of Overall Assessment
Item Roads Railways Overall Top-Down Assessment Successful Successful Successful Bottom-Up Assessment Successful Successful Successful Overall Rating of ADB Road and Railway Support Successful Successful Successful ADB = Asian Development Bank. Source: Sector assistance program evaluation team. B. Conclusions
179. The conclusion of the SAPE is that ADB support for roads and railways in the PRC was successful. Over the study period roads and railways in the PRC underwent a remarkable transformation—both in terms of network expansion and upgrading, and in terms of modernization and reform of policies and institutions. The Government’s programs in both subsectors were well conceived, and there was strong commitment and capacity to carry them out. By providing development finance and consistent support from the early stages of these programs, ADB played a valuable role as a trusted partner in supporting the PRC to realize these achievements. 180. An important part of ADB’s approach was the consistency of its support over the study period. However, by the end of the period—with the NTHS almost completed and the national railways approaching international standards in terms capability and sophistication—this chapter in ADB’s support to the PRC was nearing completion. The SAPE survey of value addition showed that, with few exceptions, the standard package of ADB support and project features was no longer adding much value compared with domestically financed investments. Between the two subsectors more emphasis had gone on to the road subsector relative to the railway subsector during the SAPE period. For ADB to continue to be successful in supporting roads and railways in the PRC, it should give more attention to areas where there is scope for substantial value addition. This will involve adjusting the types of activities it supports, the way it provides the support, and ensuring the input of a good mix of ADB staff expertise. 181. The PRC has massive additional investment requirements for roads and railways for the next 5 to 10 years. The Government is pursuing operational, institutional, and policy improvements to further increase the overall performance and sustainability of transport infrastructures. In this context, ADB can potentially continue to support the PRC in achieving further development of its roads and railways. However, given that there are alternative sources of finance and the road and railway subsectors have increasingly become sophisticated. ADB’s continued relevance as a source of finance and new knowledge will hinge on its ability and responsiveness that match the changing requirements of the clients.
46
C. Key Lessons
182. The SAPE has shown that impressive development results can be achieved by consistently supporting a sound development plan for sector/subsector over an extended period. It also showed a strong client ownership can lead to successful project outputs and value addition. Assimilation of international good practices in the roads and railways has been quick for the same reasons.
183. Value addition of ADB assistance was largely in the area of finance mobilization, introducing standard provisions to strengthen sector/subsector governance, and special features to improve development effects including support to introducing market-based principles in road and railway subsectors, public health, poverty impact.
184. Rapid economic development and growing financial strength have drastically reduced the need for external financing of infrastructure projects. Under changing circumstances of this kind, more attention is needed to address the question of value addition in strategic analysis and programming to justify continued financial support for roads and railways in the PRC. D. Recommendations
185. Based on the evaluation findings, the following actions are recommended as directional inputs to formulating future ADB support for roads and railways in the PRC. Recommendation Responsibility Timing For ADB Consideration 1.
Formulate new focus and priorities for lending assistance to roads and railways sector taking into account the Government priorities and ADB’s experience and resources; in doing so, (i) pursue further policy dialogue with the Government to identify areas for strategic focus, and value addition; and (ii) adopt special features and project components commensurate with project location, related government and ADB priorities.
EARD
As part of road and railways sector roadmaps and CPS preparation (2007) and during its implementation.
2. Enhance performance of technical assistance to roads and railways sectors by (i) rationalizing resource allocation for project preparatory technical assistance in relation to carefully estimated requirements and local conditions; (ii) adopting a longer term engagement and increasing allocation for advisory technical assistance to provide state-of-the-art knowledge products and services; (iii) making use of more inputs of high quality domestic consultants; (iv) bringing in world class and PRC experienced international consultants; and (v) providing necessary staff and incentives for project design and supervision excellence.
EARD, COSO During CPS preparation (2007) and its implementation.
3. Increase responsiveness to client concerns by (i) pursuing further discussion with the Government to explore how to make use of ADB’s new lending
EARD, BPMSD, RSDD, COSO,
During CPS preparation and implementation (2007-
47
Recommendation Responsibility Timing products and modalities; (ii) simplifying business procedures to reduce transaction costs associated with ADB project processing and administration procedures; (iii) move toward piloting country systems for environmental safeguard compliance where capacity of executing agencies is evident in line with ADB’s updated safeguards policy, and assisting in strengthening country systems and capacity in other safeguard areas; (iv) attaching local roads, link roads, and detailed poverty monitoring frameworks to expressway projects strictly on a demand-driven basis and in line with ADB’s enhanced poverty reduction strategy; (v) further strengthening the PRCM with transport sector specialist and delegating to it to handle more project related work and advisory services to the clients; and (vi) matching ADB staffing with the main areas it identifies for adding value through roads and railways operations in the PRC.
SPD 2010).
For Government Consideration
4. Assist in identifying new focus and priorities for ADB road and railways support to enable ADB to offer the PRC value addition. The Government should enter into a dialogue with the ADB to identify which areas of roads and railways should become the focus of ADB value addition through lending and nonlending assistance over the next 3-5 years.
MOF, MOC; MOR, NDRC, Provincial Communications Departments
During CPS preparation (2007) and its implementation.
5. Reduce transaction costs. The Government should take part in further dialogue with ADB to explore how to make use of ADB’s new lending products and modalities and reduce project startup delays and transaction costs associated with ADB project processing and administration procedures, and minimizing commitment fees.
MOF, MOC; MOR, NDRC
During CPS preparation (2007) and its implementation.
ADB = Asian Development Bank; ADTA = advisory technical assistance; BPMSD = Budget, Personnel, and Management Systems Department; COSO = Central Operations Services Office; CPS = country partnership strategy; PRC = People’s Republic of China; EARD = East Asia Regional Department; EPRS = Enhanced Poverty Reduction Strategy; MOC = Ministry of Communications; MOF = Ministry of Finance; MOR = Ministry of Railways; NDRC = National Development and Reform Commission; PRCM = PRC Resident Mission; RSDD = Regional and Sustainable Development Department; SPD = Strategy and Policy Department; TA = technical assistance.
48 Appendix 1
ADB LOANS TO THE PEOPLE'S REPUBLIC OF CHINA FOR ROADS AND RAILWAYS, APPROVED IN 1997–2005
Project Completion
Report
Project Performance Evaluation Report
No. Loan No. Project Name
Loan Amount
($ million)
ADB Approval
Date Location Year
Circulated Rating
Year
Circulated Rating
A. Roads
1. 1617 Hebei Roads Development 180.00 Jun-98 Hebei Province 2005 HS 2006 HS
2. 1638 Chengdu-Nanchong Expressway 250.00 Nov-98 Sichuan Province, Chongqing Municipality
2004 S 2006 S
3. 1641 Changchun-Harbin: Hashuang Expressway 170.00 Nov-98 Heilongjiang Province 2004 S 2006 HS
4. 1642 Changchun-Harbin: Changyu Expressway 220.00 Nov-98 Jilin Province 2004 S 2006 HS
5. 1691 Southern Yunnan Road Development 250.00 Jun-99 Yunnan Province 2006 S
6. 1701 Shanxi Road Development 250.00 Sep-99 Shanxi Province 2006 S
7. 1783 Chongqing-Guizhou Roads Devt (Leichong Expressway)
120.00 Nov-00 Chongqing Municipality, Guizhou Province
8. 1784 Chongqing-Guizhou Roads Devt (Chongzun Expressway)
200.00 Nov-00 Chongqing Municipality, Guizhou Province
9. 1838 Shaanxi Roads Development Project 250.00 Aug-01 Shaanxi Province
10. 1851 Guangxi Roads Development 150.00 Oct-01 Guangxi Zhuang Autonomous Region
11. 1918 Southern Sichuan Roads Development (Xichang-Panzhihu)
300.00 Sep-02 Sichuan Province
12. 1967 Shanxi Road Development II 124.00 Dec-02 Shanxi Province
13. 2004 Ningxia Roads Development 250.00 Sep-03 Ningxia Hui Autonomous Region
14. 2014 Western Yunnan Roads Development 250.00 Oct-03 Yunnan Province
15. 2024 Xi'an Urban Transport 270.00 Nov-03 Shaanxi Province
16. 2089 Hunan Roads Development II 312.50 Sep-04 Hunan Province
17. 2094 Guangxi Roads Development II 200.00 Oct-04 Guangxi Zhuang Autonomous Region
18. 2125 Gansu Roads Development 300.00 Dec-04 Gansu Province
19. 2181 Central Sichuan Roads Development 600.00 Sep-05 Sichuan Province
20. 2219 Hunan Roads Development III 208.00 Dec-05 Hunan Province
Appendix 1 49
Project Completion
Report
Project Performance Evaluation Report
No. Loan No. Project Name
Loan Amount
($ million)
ADB Approval
Date Location Year
Circulated Rating
Year
Circulated Rating
B. Railways
1. 1553 Shenmu-Yanan Railway 200.00 Sep-97 Shaanxi Province 2006 S
2. 1626 Guizhou-Shuibai Railway 140.00 Aug-98 Guizhou Province 2005 HS 2007 S
3. 1748 Hefei-Xi'an Railway 300.00 Aug-00 Anhui, Henan, Hubei, Shaanxi provinces
4. 1850 Ganzhou-Longyan Railway 200.00 Oct-01 Fuijian Province, Jiangxi Province
5. 2051 Yichang-Wanzhou Railway 500.00 Dec-03 Hubei Province, Chongqing Municipality
6. 2116 Dali-Lijiang Railway 180.00 Dec-04 Yunnan Province
7. 2182 Zhengzhou-Xi'an Railway 400.00 Sep-05 Henan Province, Shaanxi Province
Subtotal: Roads 4,854.5
Subtotal: Railways 1,920.0
Total 6,774.5
HS = highly successful, PS = partly successful, S = successful, U = unsuccessful. Source: ADB Operations Evaluation Department internal database and various reports and recommendation of the President.
50 Appendix 2
ADB TECHNICAL ASSISTANCE TO THE PEOPLE'S REPUBLIC OF CHINA FOR ROADS AND RAILWAYS, APPROVED IN 1997–2005
TCR
No. TA No. TA name Source
Amount ($'000)
Year of Approval
Year of Financial Closure
Implement- ation Period
(yrs) Type
Loan No. (if TA
Attached)
Year of Circ-
ulation Rating A. Roads 1 2777 Chengdu Nanchong JSF 600.0 1997 1999 2.1 PPTA 2. 2846 Changchun-Harbin Expressway JSF 600.0 1997 2000 2.7 PPTA 3. 2952 Corporatization, Leasing, and Securitization
in the Road Sector JSF 1,000.0 1997 2003 5.8 ADTA 2003 S
4. 3033 Shanxi Expressway JSF 570.0 1998 2000 2.4 PPTA 5. 3039 Yunnan Road Environmental and Social
Analysis TASF 150.0 1998 2000 2.0 PPTA
6. 3086 Regional Road Sector Study JSF 1,185.0 1998 2003 4.5 ADTA 2001 GS 7. 3102 Chongqing-Guizhou Expressway JSF 1,000.0 1998 2001 3.1 PPTA 8. 3220 Guangxi Highway Development JSF 540.0 1999 2002 3.0 PPTA 9. 3248 Shanxi and Shaanxi Roads TASF/J
SF 792.0 1999 2003 3.8 PPTA
10. 3341 Capacity Building in Traffic Safety, Planning and Mgt
JSF 600.0 1999 2004 4.2 ADTA 2003 HS
11. 3546 Southern Sichuan Roads Development JSF 800.0 2000 2003 2.8 PPTA 12. 3569 Jiangsu Highway Build-Operate-Transfer
Project JSF 555.0 2000 2004 3.5 ADTA
13. 3642 Western Yunnan Roads Development JSF 770.0 2001 2004 3.6 PPTA 14. 3776 Ningxia Roads Development JSF/
Italy 600.0 2001 2004 2.6 PPTA
15. 3929 Hunan Roads Development Italy 600.0 2002 2004 1.9 PPTA 16. 3900 Socioeconomic Assessment of Road Projects TASF 250.0 2002 2005 3.1 ADTA 2004 S 17. 4119 Guangxi Roads Development II TASF 500.0 2003 2005 2.2 PPTA 18. 4211 Gansu Roads Development TASF 500.0 2003 PPTA 19. 4274 Central Sichuan Roads Development TASF 700.0 2003 PPTA 20. 4322 Poverty Impact of Area-Wide Road Networks PRCF 1,000.0 2004 ADTA 21. 4351 Policy Reform in Road Transport TASF 500.0 2004 ADTA 22. 4384 Hunan Roads Development III TASF 500.0 2004 PPTA 23. 4592 Heilongjiang Road Network Development TASF 500.0 2005 PPTA 24. 4639 Western Roads Development TASF 800.0 2005 PPTA 25. 4650 Evaluating Poverty Impacts of Transport
Projects TASF 150.0 2005 ADTA
Appendix 2 51
TCR
No. TA No. TA name Source
Amount ($'000)
Year of Approval
Year of Financial Closure
Implement- ation Period
(yrs) Type
Loan No. (if TA
Attached)
Year of Circ-
ulation Rating 26. 4671 Rural Road Development Strategy TASF 350.0 2005 ADTA 27. 4698 Road Safety Improvement TASF/
GRSP 1,000.0 2005 ADTA
B. Railways 1. 2799 Guizhou Shuibai Railway JSF 400.0 1997 1999 2.0 PPTA 2. 2878 Inst. Strengthening of Local Railways in
Shaanxi JSF 400.0 1997 2000 3.1 ADTA 1553 2006 PS
3. 3251 Hefei-Xi'an Railway JSF 665.0 1999 2000 1.1 PPTA 4. 3486 Ganzhou-Longyan Railway JSF 750.0 2000 2003 2.7 PPTA 5. 3867 Yichang-Wanzhou Railway TASF 250.0 2002 2003 1.4 PPTA 6. 3983 Strength the Involuntary Resettlement
Practices in the Yichang-Wanzhou Railway TASF 250.0 2002 2005 2.9 PPTA
7. 4129 Dali-Lijiang Railway TASF 500.0 2003 PPTA 8. 4255 Ensuring Safeguard Practices TASF 150.0 2003 ADTA 2051 9. 4325 World Trade Organization-Policy Reform
Support to the Ministry of Railways TASF 400.0 2004 ADTA
10. 4340 Xi'an-Zhengzhou Railway TASF 500.0 2004 PPTA 11. 4455 Support to Ethnic Minorities Development
Plan TASF 150.0 2004 ADTA
12. 4577 Taiyuan-Zhongwei Railway TASF 500.0 2005 PPTA 13. 4657 Railway Development TASF 500.0 2005 PPTA 14. 4701 Railway Passenger & Freight Policy Reform
Study TASF 400.0 2005 ADTA
C. Multimodal Transport and Sector Development 1 3907 Xi’an Urban Transport Spain/Ital
y 750.0 2002 2005 2.9 PPTA
2. 4724 Application of Public-Private Partnerships in Urban Rail-Based Transportation Project
TASF 500.0 2005 ADTA
Total Roads 17,262.0 Total: Railways 6,315.0
ADTA = advisory technical assistance, GRSP = Global Road Safety Partnership; HS = highly successful, JSF = Japan Special Fund, PPTA = project preparatory technical assistance, PS = partly successful, S = successful, TA = technical assistance, TASF = technical assistance special fund, U = unsuccessful. Source: Central Operations Services Office internal database.
52 Appendix 3
RETROSPECTIVE ANALYSIS OF ROAD SECTOR, 1997-2005 A. Introduction 1. This appendix looks back at the main achievements, issues, and challenges faced by the road subsector during the study period from 1997 to 2005. B. Key Issues in the Road Sector 2. The overarching challenge facing the People’s Republic of China’s (PRC’s) highway authorities at the beginning of 1997 was: how best to expand capacity, relieve bottlenecks, and modernize the PRC’s existing very limited highway system to better serve the PRC’s rapidly growing economy and evolving agricultural and industrial structure? To facilitate an understanding of the various facets of that challenge, it is here disaggregated into the following five questions:
(i) How much to spend on which road investments? (ii) How to pay for the proposed investments and their maintenance? (iii) What design and maintenance standards to employ? (iv) How to gear up highway construction capacity quickly to undertake a large
highways modernization program? (v) How can government policy facilitate the most economic use of the highway
networks? 3. As of the beginning of 1997, the first two questions had dominated the policy agenda for years, while the third question was also perennially on the agenda. The Government's Ninth Five-Year Plan, 1996-2000 (NFYP) established three overall priorities that clearly reflected the above challenges: (i) to construct the National Trunk Highway System (NTHS) of expressways linking all cities with a population of more than 500,000, (ii) to build secondary roads to reduce poverty and promote rural development, and (iii) to build highways to border crossings. 4. At the beginning of the NFYP, few could have imagined that the Asian financial crisis of July 1997 would unleash a series of events that would lead within a year to a doubling of the budget for highway construction, thrusting a fourth challenge to the forefront. The decisions taken in 1997 dominated actions throughout the rest of the NFYP and the entire Tenth Five-Year Plan, 2000-2005 (TFYP). With rapid expansion of the highway network, the associated questions of efficiency and sustainability came to the fore as the Government began focusing on its fifth challenge.1 5. It remains to be seen to what extent these five challenges will remain central to the road subsector over the next 10 years, but indications from the Ministry of Communications (MOC) suggest that they will remain priorities as long as MOC continues to obtain support from the Ministry of Finance (MOF) and the provincial and local governments that have financed the largest share of investment over the past 15 years. A summary of key milestones in the evolution of developments with respect to these five challenges over the period 1997–2005 follows below.
1 Under the TFYP, the road subsector strategy initially focused on constructing two north–south routes (one along the
eastern seaboard, and one inland) and two east–west routes as part of the NTHS, to open up the more remote western parts of the country by providing good expressway access. This was supplemented with a massive investment program to develop 125,000 kilometers (km) of provincial highways and rural roads connecting to the NTHS, with a view to contributing to regional and social balance. Traffic safety and environmental preservation were listed as priority areas. The Government made it a priority to introduce and have in place a traffic safety law by 2004 and vehicle emission standards comparable to European Emission Standards by 2004 or 2005.
Appendix 3 53
C. How Much to Spend on Which Road Investments? 6. In the context of the many problems competing for attention and resources, the logical first question facing PRC highway planners when they drew up the NFYP concerned what priorities—and how much budget—to assign to the competing demands. For example, for trunk highways linking the PRC’s major cities, should emphasis be given to serving the booming eastern provinces, or to linking the poorer western provinces to the eastern markets and the rest of the world? How much priority should be given to tertiary roads to link rural areas with local market centers? How much resources should go toward capital renewal and better maintenance of the limited existing networks, which were showing signs of deterioration? 7. Economic theory indicates that maximum benefits will be achieved when investment in each of the competing activities is carried to the point where the marginal return of additional investment is equal in each activity. That does not take into account distribution of benefits. Typically government planners, and ADB, will also consider poverty reduction, environmental protection, and other social objectives. The PRC planners undoubtedly weighed all of these and other factors in fixing the key parameters for the NFYP and TFYP, but planning models are far from perfect; no political process can resolve all competing demands simultaneously, and circumstances change across the years so that adjustments become necessary. 8. While annual funding for county and township roads increased ten-fold between 1992 and 1996—from CNY1.7 billion to more than CNY17.6 billion ($2.1 billion)—this was only a modest beginning, given the magnitude of that task. Vastly greater increases in highway investments were to come 2 years later in the wake of the Asian financial crisis in 1997. The PRC leadership must have perceived the sudden Asian downturn as both a threat and an opportunity—a threat to PRC’s own rapid growth (which had already been slowing over the preceding 5 years), but an opportunity to gear up ongoing efforts to tackle PRC’s severe infrastructure deficit (through large-scale "pump-priming" public works investments).2 9. Table A3.1 shows the outcome in terms of annual growth of the highway system by class of technical standards. Table A3.2 presents the same information by administrative classification. 10. Regarding the regional distribution of investments over this period, it is well known that, as in earlier years, a large percentage of the total road investments over the period 1997–2005 was focused on the coastal provinces, whose ready access to ocean ports provided the gateway to world markets and fueled the PRC’s phenomenally successful export-led development strategy after economic reforms began in 1978. It would be surprising if investment allocations were otherwise, for it was in the busy eastern provinces where the economic buildup was most rapid, the bottlenecks most costly, and hence the return to highway capital highest, at least in the initial years. This also corresponds with economic results over the years, in which gross domestic product (GDP) per capita has risen much faster in the coastal provinces, followed by the central provinces, with the western provinces—which are furthest from markets—lagging further behind.
2 The minister of finance estimated in 2000 that the counter-cyclical effects of the massive increase in infrastructure
construction, particularly roads, raised the PRC’s GDP by a full two percentage points over what it would otherwise have been.
54 Appendix 3
Table A3.1: Road Length by Technical Classification (kilometer and percent change)
Expressway, Class I to Class IV Highways Sub-
Year Total Subtotal Expressway Class I Class II Class III Class IV Standard
Roads
1980 888,250 521,134 0 196 12,587 108,291 400,060 367,116 1985 942,395 1990 1,028,348 741,104 522 2,617 43,376 169,756 524,833 287,244 1991 1,041,136 764,668 574 2,897 47,729 178,024 535,444 276,468 1992 1,056,707 786,935 652 3,575 54,776 184,990 542,942 269,772 1993 1,083,476 822,133 1,145 4,633 63,316 193,567 559,472 261,343 1994 1,117,821 861,400 1,603 6,334 72,389 200,738 580,336 256,421 1995 1,157,009 910,754 2,141 9,580 84,910 207,282 606,841 246,255 1996 1,185,789 946,418 3,422 11,779 96,990 216,619 617,608 239,371 1997 1,226,405 997,496 4,771 14,637 111,564 230,787 635,737 228,909 1998 1,278,474 1,069,243 8,733 15,277 125,245 257,947 662,041 209,231 1999 1,351,691 1,156,736 11,605 17,716 139,957 269,078 718,380 194,955 2000 1,679,848 1,315,931 16,285 25,219 177,787 305,435 791,206 363,916 2001 1,698,012 1,336,044 19,437 25,214 182,102 308,626 800,665 361,968 2002 1,765,222 1,382,926 25,130 27,468 197,143 315,141 818,044 382,296 2003 1,809,828 1,438,738 29,745 29,903 211,929 324,788 842,373 371,090 2004 1,870,661 1,515,826 34,288 33,522 231,715 335,347 880,954 354,835 2005 1,930,543 1,591,791 41,005 38,381 246,442 344,671 921,293 338,752
Average Annual Growth Rate
1980-1990 1.5% 3.6% 29.6% 13.2% 4.6% 2.8% -2.4% 1990-1995 2.4% 4.2% 32.6% 29.6% 14.4% 4.1% 2.9% -3.0% 1995-2000 7.7% 7.6% 50.0% 21.4% 15.9% 8.1% 5.4% 8.1% 2000-2005 2.8% 3.9% 20.3% 8.8% 6.7% 2.4% 3.1% -1.4% 1990-2005 4.3% 5.2% 33.8% 19.6% 12.3% 4.8% 3.8% 1.1%
Source: China Highway and Waterway Transport Statistical Yearbook. Average annual growth rate is calculated. Note: The step between 1999 and 2000 is because of road network census in 2000.Source: China Highway and Waterway Transport Statistical Yearbook. Average annual growth rate is calculated.
Note: The large increase between 1999 and 2000 is because of road network census in 2000.
Appendix 3 55
Table A3.2: Road Length by Administrative Classification (km) (kilometer and percent change)
11. In more recent years—as reflected in the objectives of the TFYP and particularly the Eleventh Five-Year Plan, 2006–2010 (EFYP)—the growing inequalities of income, both across regions and rural-to-urban, have been viewed as socially unacceptable. Prominent among the various remedial measures being taken are those to reduce the economic distance to markets. Large investments are being allocated for both highways and railways to link the western provinces to the eastern provinces, and increased road investments are also being made to link rural areas to the national transport networks as well as local markets. In fact, by 2001, the first year of the TFYP, the tide had turned, as the share of funds allocated in that year was slightly greater for “other road networks” than for the “trunk highways,” and during the first 4 years of the TFYP, the share of “county and township roads” in the rapidly growing total investments in highways more than doubled, resulting in a four-fold increase in absolute terms (to CNY15.4 billion in 2004). D. How to Pay for the Proposed Investments and Their Maintenance? 12. In contrast to the United States—which in 1956 adopted a pay-as-you-go development scheme for its interstate highway system, which limited its rate of development to the revenues
Year Total National Provincial County Township Special
1980 888,250 1985 942,395 1990 1,028,348 107,511 166,082 340,801 370,153 43,801 1991 1,041,136 107,238 169,352 340,915 379,549 44,082 1992 1,056,707 107,542 173,353 344,227 386,858 44,727 1993 1,083,476 108,235 174,979 352,308 402,199 45,755 1994 1,117,821 108,664 173,601 364,654 425,380 45,522 1995 1,157,009 110,539 175,126 366,358 454,379 50,607 1996 1,185,789 110,375 178,129 378,212 469,693 49,380 1997 1,226,405 112,002 182,559 379,816 500,266 51,762 1998 1,278,474 114,786 189,961 383,747 536,813 53,167 1999 1,351,691 117,135 192,517 398,045 589,886 54,108 2000 1,679,848 118,983 212,450 461,872 800,681 85,861 2001 1,698,012 121,587 213,044 463,665 813,699 86,017 2002 1,765,222 125,003 216,249 471,239 865,635 87,096 2003 1,809,828 127,899 223,425 472,935 898,300 87,269 2004 1,870,661 129,815 227,871 479,372 945,180 88,424 2005 1,930,543 132,674 233,783 494,276 981,430 88,380
Annual Average Growth Rate
1980-1990 1.5% 1990-1995 2.4% 0.6% 1.1% 1.5% 4.2% 2.9% 1995-2000 7.7% 1.5% 3.9% 4.7% 12.0% 11.2% 2000-2005 2.8% 2.2% 1.9% 1.4% 4.2% 0.6% 1990-2005 4.3% 1.4% 2.3% 2.5% 6.7% 4.8%
Source: China Highway and Waterway Transport Statistical Yearbook. Average annual growth rate is calculated. Note: The step between 1999 and 2000 is because of the road network census in 2000.
Source: China Highway and Waterway Transport Statistical Yearbook. Average annual growth rate is calculated. Note: The large increase between 1999 and 2000 is because of road network census in 2000.
56 Appendix 3
raised from user taxes (primarily fuel taxes), 90% of which were routed through the federal government’s Highway Trust Fund—the PRC chose not to impose a fuel levy,3 not to limit highway development to immediately available funding, and not to have its central government involved with the vast majority of the funding for its highway networks.
13. Instead, the PRC embarked on an accelerated program for highway development funded largely (approximately 70%) by borrowing against projected toll revenues, with the borrowing undertaken by the provincial and local governments (through various special purpose vehicles, because direct borrowing by these levels of government was prohibited).4 Of the overall highway investment expenditures (including not only expressways, but also lower classes of highways), the central government budget provided about 15% of total costs, and the remaining 15% was covered by contributions from the provincial and local governments.5 14. Extensive Efforts Have Been Made to Engage the Private Sector.6 About 1–5% of highway investment expenditures was provided as equity by private investors (both domestic and foreign). From 1990 to 2000 there were more than 80 cooperative joint-venture road projects (concentrated mainly in the coastal provinces) between Hong Kong China, developers and provincial or municipal authorities. These mobilized some CNY75 billion (more than $9 billion) from private sources. In addition, since 1996 asset securitization (sale of equity in existing toll highway companies) raised another CNY16 billion ($2 billion) through the listing of eight 3 Although a fuel tax was authorized by the new road law in 1998, it has not so far been implemented, perhaps partly
because the fuel tax would, conflictingly, be collected centrally, and would take the place of the road maintenance fee, which is collected by the provinces.
4 These debt obligations may be viewed as at least implicitly government-guaranteed, whether at the central, provincial, or local level, but the exact magnitude of borrowing is unknown, causing considerable apprehension about the ability of these governmental entities to service their debts if traffic and revenue projections fall short of expectations. This has been a common problem across many economic sectors in China, where huge portfolios of nonperforming loans have required the central government to inject some $260 billion to shore up bank finances emanating from bad loan write-offs since 1998. “Special Report on China’s Banking Industry: A great big banking gamble” The Economist (29 October 2005). See also A. Batson, “Chinese Cities Pile Up Debt to Build Roads,” Wall Street Journal (15 June 2006).
5 The Government contributions are based largely on two road user taxes, the road maintenance fee (actually an annual license fee) and the vehicle purchase fee (a one-time excise), neither of which is closely related to road use. Some 20% of the road maintenance fee is reportedly used for road construction rather than maintenance.
6 ADB has provided a series of technical assistance projects to provide support in this area, including ADB. 1997. Technical Assistance to the People’s Republic of China for Corporatization, Leasing, and Securitization in the Road Sector. Manila (TA 2952-PRC, for $1 million, approved on 17 December); RSC-C51814 Toll Road Corporatization Strategy (April 2006); and ADB. 2000. Technical Assistance to the People’s Republic of China for the Jiangsu Highway Build-Operate-Transfer Project. Manila (TA 3569-PRC, for $555,000, approved on 12 December).
Box A3: Comparing the PRC and the US Models of Financing Highways
“The rapid development of the PRC road network system has required significant financial resources over the past 20 years. On average the expenditure has grown rapidly from just over 1% in 1995 to the current level of 3.5% of GDP (between 1997 and 1998 it doubled). However, the Central Government’s share of this investment has been maintained at about 15% over that period or, by 2005, about 0.5% of GDP. The expenditure on the trunk road system over the past five years from all sources has averaged 1.16% of GDP. By comparison, between 1950 and 1985, when the US was creating the 85,000 km of the Interstate Expressway System, the 75% Federal Government contribution ranged from 1.3% (1960) to 3.3% (1980) of the national GDP. By 1980 when many of the urban bypasses were being built in the US, the percentage of GDP represented by the total expressway program from all sources was about 3.66% [Based on the fact that the Federal Government contribution represented 90% of the total investment.].” PRC = People’s Republic of China, GDP = gross domestic product, US = United States. Source: World Bank. China's Expressways: Connecting People and Markets. Draft report.
Appendix 3 57
expressway development companies on the domestic stock exchanges and five in Hong Kong, China. The absolute magnitude of private finance is thus significant—and large relative to that achieved in any other emerging economy—but the total has been a small fraction of the total funding committed to road investments in the PRC over this period. Moreover, after an initially promising start in the first half of the 1990s, private investment has reportedly declined in recent years, as various Hong Kong, China participants have sought to withdraw, selling out even existing interests, at least partly because of perceived regulatory risks. 15. One major constraint on private finance has been the disinterest of institutional lenders (such as insurance companies and pension funds) in providing long-term debt to support road development in the PRC in the absence of a government guarantee. The amount of equity available for this type of venture has a finite limit (a function of the expected rate of return on equity, which is itself heavily dependent on the availability of debt leveraging). In the absence of a well-structured legal and regulatory framework, most mainland companies do not have access to sources of long-term domestic funds from institutional investors (such as insurance companies) and are not able to raise adequate domestic financing from domestic banks. Only a few major Hong Kong, China developers with large project portfolios and relatively low credit risks have been able to issue corporate bonds in the United States. 16. Private finance has largely comprised equity via a wide array of legal structures, including a few build–operate–transfer projects, but more often ex post securitization, cooperative joint ventures, equity joint ventures, leasing, operating and maintenance concessions, and bond issues (both domestic and international). As best one can determine from the available information, private sector financiers have generally not shouldered the critical ex ante risks: acquisition of rights-of-way, project construction, and initial traffic and revenue build-up. Thus, private sector management has generally not participated in (and certainly has not normally controlled) decision-making with respect to the key issues of where, when, and to what standard to construct the roads. Those decisions, and associated risks, have normally been left to government (central, provincial, and/or local), and it is clear that, while many expressways have proven to be profitable investments, the expressway system as a whole has been expanded well beyond what would have been possible had primary reliance been placed on private ownership and finance—and probably well beyond the level that would be justified by more broadly defined economic or social benefits. 17. Such heavy reliance on borrowing to finance past highway development (particularly since 1998) has created a debt burden that will likely constrain financing options for future developments—at least until traffic and revenue forecasts are realized, allowing the debt burden to be serviced and demonstrating that returns on equity are commensurate with the risks for such massive investment projects. In time it will almost certainly become clear that mistakes have been made. Lessons drawn from these mistakes will provide guidance for future investments. These lessons should also clarify circumstances when greater public participation is warranted to attract private investors. 18. The prospects of obtaining private finance to extend and expand the capacity of the expressway networks in high-income coastal provinces, where traffic and revenue forecasts are robust, are good. However, the central and especially the western provinces—despite being prioritized by the Government—are unlikely to attract comparable levels of private finance in the absence of substantial public participation. 19. One possible approach to this familiar problem in network development is to pool mature, profitable toll-road projects with proposed new projects so that the debt service capacity of the former group helps cover the costs of the latter, at least during the initial development period (and possibly beyond to service financially unprofitable but socially necessary objectives). A particular problem in
58 Appendix 3
the PRC from this perspective is the fragmentation of owner–operator responsibilities for toll roads. Organizational structures for toll roads evolved differently from province to province, but a common structure was “one toll road, one toll company”—i.e., a multiplication of separate companies in a fragmented structure in each province. More recently, there has been a movement (including in Guangdong, Henan, and Jiangsu provinces) to bring all of the different companies under a single expressway management or holding company, improving the prospects for integrated development, including cross-subsidies among the various parts of the system as necessary. 20. For the poorer provinces, the issue is more difficult. There is a danger that they may have built highway networks that they cannot afford to maintain based on their present revenue streams. Figure A3.1 maps estimated road maintenance fees received in 2004 against a common road maintenance norm of 2.5% of asset value per annum. One option for the national Government—which has contributed on average 15% to development of the NTHS across the various provinces—would be for MOC to now impose a levy on the profitable segments of the network and use that levy to cross-subsidize those non-profitable segments of the network that are nonetheless socially desirable—e.g. the trunk routes connecting the western provinces to the east.
Figure A3.1: Capacity of Provinces to Raise Revenues Required for Maintenance
E. What Design and Maintenance Standards Should be Employed? 21. Modern techniques for highway planning and management, including the Highway Development and Management model and derivative programs, including pavement management systems, have by now been widely disseminated in the PRC. Feasibility studies—which, inter alia, search for the least costly technical solution as well as requiring net benefits in each case at least equal to the expected social rate of return—were commonly prepared for all major highway investments after 1990. Road databases have also increasingly been built up to enhance the value of such tools in maintenance management and in considering strategic-choice issues such as the design strength of pavement, and the priority of maintenance and rehabilitation versus capacity expansion of existing networks, or new construction to extend networks.
Henan
Jiangxi
AnhuiHunan
HubeiYunnan
GuizhouChongqing
Sichuan
Guangxi
Qinghai
Xinjiang
TibetNingxia
Inner Mongolia
Gansu
Shaanxi
Shanxi
Hebei
Tianjing
Beijing
Jilin
Heilongjiang
Liaoning
Shandong
Hainan
Zhejiang
Jiangsu
Shanghai Fujian
Guangdong
$0
$100
$200
$300
$400
$500
$600
$700
$800
$0 $100 $200 $300 $400 $500 $600 $700 $800Maintenance Cost ($ million) using Asset Value Based Norms
Roa
d M
aint
enan
ce F
ees
(US$
m)
1.5% of Road Asset Value
2.5% of Road Asset Value
Adequate Funding
Inadequate Funding
Marginal to Inadequate
Funding
World Bank. China's Expressways: Connecting People and Markets. Draft report. Source: World Bank. China’s Expressways: Connecting People and Markets. Draft report.
Appendix 3 59
22. However, this review has turned up no evidence to indicate that PRC decision makers engaged such tools in systematic analyses to arrive at their fundamental decision to give first priority to developing NTHS and other arterial networks (and to develop fully half of those networks to expressway standards) ahead of the secondary, tertiary, and quaternary networks—a decision that shaped the principal thrust, content, and scale of the PRC’s massive highway development program after 1992, and particularly after 1997. The decision to give priority to NTHS, and subsequently upgrade the system to a national expressway network, may simply have been a political decision taken at high levels, with the scale subsequently influenced by macroeconomic countercyclical objectives. 23. It is likely that a comprehensive quantitative analysis would demonstrate a significant degree of premature, excessive investment in the geometric standards embraced in the national expressway network. It is probable that more attention to detailed, incremental cost–benefit analysis would have yielded somewhat higher returns to capital in the development of the trunk highway system. However, one must recognize that highway traffic growth in the PRC has generally been high. Over the period 1998-2005, passenger traffic (measured in passengers per km) grew annually by 6.6% and freight (measured in tons per km) by 6.8%. There are well-known difficulties and extra costs of upgrading capacity, subsequently including traffic disruption and an elevated risk of accidents. These place practical limitations on the prospects for savings through expressway development in a phased manner. 24. It must also be noted that just 10 years ago, traffic flow conditions on many highways in the PRC still dated back to the “pre-modern” era—i.e., they contained a wide mix of traffic, including animals, animal carts, pedestrians, bicycles, and tractors along with motorized vehicles. This led to low travel speeds and high accident rates. Today, traffic flow on intercity highways in the PRC has radically improved. There are far more newer vehicles (especially cars, to but a lesser extent trucks also), but nonmotorized traffic has been separated from expressways—and to some extent from lower networks—through access control. 25. Pavement Design Practices. There appears to be a significant mismatch between axle load design targets and actual axle loads plying the roads in the PRC today. Pavement failures seem to be higher than would be expected in such a relatively new system. Of course, as in any country, one observes many vehicles with axle loadings well in excess of the statutory limits. In a competitive road transport industry such as that in the PRC today, the trucking operator who does not load his vehicle to the maximum will soon be out of business.7 As in most countries, the nearly universal practice of overloading generates increased infrastructure costs, as well as increased costs of enforcing axle load limits. 26. The PRC is currently paying many billions of dollars in premature strengthening and reconstruction for what is either (i) an error of design, and perhaps partly of construction; or (ii) a failure of enforcement. This problem needed to be addressed earlier in order to minimize premature strengthening and reconstruction works both for the existing expressway network and the $225 billion of planned new expressways. One option might have been to design pavement to correspond to actual axle load spectra. This would have had several disadvantages, notably: (i) permitting higher axle loads would require upgrading of the entire expressway network at a massive cost; (ii) by treating present excessive axle loads as a norm, it might encourage even more excessive axle loading; and (iii) highway designers might be reluctant to be held responsible for encouraging illegal practices. The other option, which would seem preferable, is to 7 What is often overlooked in highway engineering is that the economy’s farmers, manufacturers, and other buyers of
road freight services capture most of the benefits in the form of reduced transport costs. Due to competition in the trucking industry, tariffs rarely rise above the costs of the marginal producer, and the lower costs are captured by the buyers not the sellers.
60 Appendix 3
tighten up enforcement. Indications are that the PRC authorities have become stricter in enforcing speed limits and other traffic rules. Since many expressways now have axle-weighing equipment (in some cases linked integrally to toll collection), it would seem possible for PRC authorities to step up enforcement of axle load limits. Research on how to strengthen axle load enforcement might be piloted as part of an ADB-financed project, and could be complemented by research on vehicle weights and dimensions. F. How to Gear Up Highway Construction Capacity Quickly to Undertake a Large
Highways Modernization Program? 27. Highway expenditures more than doubled from 1995 to 1997 and doubled again from 1997 to 1998. This required a massive expansion of the road design and construction industry. It seems likely that the augmentation of capacity came mainly from cross-sectoral realignments, probably to a large extent from design institutes and construction enterprises from the railways sector (not from augmentation by international contractors). 28. The PRC highway contractors and their supervisors had serious problems with construction quality from 1987 to 1990. During those years, foreign consulting firms—notably those recruited for ADB and World Bank projects on the basis of international competition—made substantial contributions in introducing competitive practices and improving design and (particularly) supervision of highway construction. However, the foreign firms' important contribution had largely been exhausted by the mid-1990s. The most lasting, and important, contribution was the transfer of international experience with competitive markets, including the system developed by Fédération Internationale des Ingénieurs Conseils (FIDIC) for separating the client, the engineer, and the contractor. 29. Many formidable obstacles had to be overcome, but the problem-solving capacities of the PRC’s civil works industry rose to meet the challenge. The extent of network expansion and the generally high standards of construction provide a clear indication that much of the civil works industry today is sophisticated and competitive. However, it should also be recognized that this exists alongside a substantial residual industry of public construction enterprises that remain burdened with obsolete technology and organizational structures. 30. No major public works program, let alone one as large as the PRC’s highway development program since 1997, can be accomplished without a high degree of problem-solving capacity. ADB records show that many problems had to be overcome. The ultimate outcome reflects something far different. Today, the leading PRC highway design institutes and construction firms are competing successfully with the world's best in international markets. Indeed, PRC engineers can take credit for a number of "firsts" in building highway bridges (including the world’s longest cable-stayed bridge and the longest reinforced concrete box arch bridge). Nonetheless, as in every country, construction quality remains a persistent challenge;8 following the collapse of some bridges in 1999, new laws were passed placing lifetime responsibility on designers and contractors for faulty design or construction.
8 For example, in the most costly highways project in United States’ history, the recently completed Boston “Big Dig”
project, which rerouted much of the city of Boston’s highway traffic underground, the recent collapse of a tunnel ceiling resulted in a traffic fatality and has shutdown much of the facility while independent engineers have been brought in for a complete reassessment of the structural integrity of the system.
Appendix 3 61
G. How Can Government Policy Facilitate the Most Economic Use of the Highway Networks?
31. Two aspects of the present organizational structure and pricing of highway infrastructure create substantial impediments to its efficient utilization: (i) high tolls on all national expressways and Class I highway networks, and on some Class II networks; and (ii) fragmentation of ownership and operation of the toll network. 32. High tolls have caused important operational problems, the most significant of which has been substantial traffic diversion, reducing both the financial and economic rates of return, as many older, non-tolled facilities have continued to carry heavier traffic than the newer facilities. Highway tolls in the PRC are roughly on a par with tolls in the United States (Figure A3.2), even as average incomes remain substantially lower so that the cost relative to GDP per capita is much higher. Indeed, PRC tolls are the highest in the world relative to average income (Figure A3.3). This is a significant problem that has led to more financing being required to make up for the traffic and revenue deficit period. This problem should attenuate over time as total traffic volumes increase along with motorists' incomes and the associated value of travel time. Figure A3.2: International Toll Rates Figure A3.3: Affordability of Tolls
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Sources: World Bank. China's Expressways: Connecting People and Markets. Draft report; World Bank data. 33. Fragmentation of ownership and operation of the toll network has also caused other operational inefficiencies—e.g., more than 300 toll stations were reported in place in Guangdong Province alone in 2001. Such excessive segmentation has significantly increased construction and operation costs, causing road users much unnecessary delay and magnifying the risks for investors and lenders. Guangdong and other provinces have been working to unify administrative structures, which will reduce the necessity for so many tolling stops, reduce collection costs, and reduce traffic disruption. At least in some cases it will also allow for pooling of revenues to facilitate future financing opportunities.
62 Appendix 4
RETROSPECTIVE ANALYSIS OF RAILWAY SECTOR, 1997-2005 A. Introduction 1. This appendix looks back at the main achievements, issues, and challenges faced by the railway subsector during the study period from 1997 to 2005. B. Key Issues in the Railways Sector 2. The key challenges facing the railway sector of the People’s Republic of China (PRC) at the beginning of 1997 can be summarized in the following six questions:
(i) How technically to increase railway capacity to reduce the persistent gap between demand and supply as quickly and efficiently as possible?
(ii) How to pay for the service enhancements and the expansion of railway capacity? (iii) How to modernize institutional structures in line with the move to an efficient
socialist market economy? (iv) How to create strong incentives for enhancing performance (quality as well as
quantity and efficiency) in what would remain at least until the present time a state-owned monopoly in the provision of railway mainline operating services?
(v) How to lay a careful foundation for, and begin to introduce, competition in the railway supply and support industries?
(vi) How to lay a careful foundation for the subsequent introduction of competition in mainline railway operations, including the necessary adaptations related to the PRC’s entry into the World Trade Organization?
3. These were hardly new questions in 1997—indeed, the first four items had been issues for two decades, but attention was focused on questions (i) and (ii). Institutional reform issues—as summarized in questions (iii)–(vi)—began to attract more attention under the Ninth Five-Year Plan, 1996-2000 (NFYP), after the move to a socialist market economy was well advanced, and assumed greater importance after PRC’s accession to the World Trade Organization (WTO) in December 2001, early in the Tenth Five-Year Plan, 2001-2005 (TFYP). Under the TFYP, the Government strategy for question (i) included development of separate, dedicated passenger and freight lines on busy trunk routes, together with other technological modernizations (including advanced communication, signaling, and safety technology required for increasing train speed and enhancing mobility and competitiveness).1 4. All six of these challenges remain important today, but the PRC has made considerable progress with each one. The cumulative development of the railway sector since 1980, and increasingly since 1997, has been profound—both physically and, most recently, institutionally. 5. Technological and organizational modernization have been major driving forces throughout this period. The fact that the PRC’s railways were in many respects technologically well behind the world’s most advanced railways and structured along outmoded organizational
1 The Government’s TFYP focused 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 existing system 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 reform to increase autonomy and accountability; (vi) reforming the railway investment and financing system, and encouraging nongovernment investment in infrastructure and related services; (vii) clearly identifying core operations and separate core and non-core transportation businesses; and establishing specialized transportation companies; and (viii) rationalizing and reducing staff.
Appendix 4 63
lines meant that conditions were ripe for rapid modernization—provided that the PRC was prepared to take advantage of the opportunities for transfer of technology and the lessons from international experience reflecting best practices in organizational structures. Take advantage it did, in an orderly, step-by-step manner, typically first testing an innovation in a limited segment of the system, then evaluating system results over time before risking a system-wide implementation. The national railway2 had by no means caught up technologically by 1997 (25% of its locomotives were still steam engines), and at that point the drive for institutional modernization had only just begun. 6. Thus, in 1997, the time was ripe for rapid gains. This is still the case today, but the gap with respect to both technological frontiers and international best practice in institutional structures is narrowing. There are further dramatic gains to be captured in the next 10 or perhaps 15 years. By then, if sound policies and substantial investments continue, railways in the PRC will have largely exploited the gains to be had from transfer of existing technology and institutional structures, and will be at the very front ranks of the world’s most modern railways. After that point, further technological progress will be constrained by the boundaries of existing technology and driven by the need to conduct research to push the frontiers of knowledge. 7. A brief summary overview highlighting the key milestones in the evolution of developments with respect to these six challenges over the period 1997–2005 is provided below, including two tables of statistics. C. How Technically to Increase Railway Capacity to Reduce the Gap between
Demand and Supply as Quickly and Efficiently as Possible? 8. Measures to increase railway capacity were of two types: (i) investments in new infrastructure and equipment, and (ii) improving productivity of existing assets. Since the utilization and productivity of existing infrastructure and equipment was already high, the burden of increasing capacity fell primarily on increased investments. In 1997 there was still a high degree of labor redundancy, but subsequent measures to address that issue were primarily labor saving and did not significantly enhance (or reduce) transport capacity. 9. Large-scale investments, chosen carefully, were necessary to enhance railway capacity. Conceptually, these investments could be classified into three groups:
(i) routine replication of physical assets (e.g., wagons, double-tracking, construction of parallel lines) with only limited, if any, technological enhancement;
(ii) replacement and/or major upgrading of existing assets with newer or more suitable technologies (e.g., electrification of traction, new signaling systems, new communication and information systems, larger capacity wagons; and, for selected corridors, combined line, traction, rolling stock, and loading/unloading improvements in a multi-pronged move to enhance overall corridor performance standards, either heavy haul freight or higher speed passenger services);
(iii) expansion and/or improving of the existing asset base by adding new assets incorporating new technologies, as in point (ii) above (e.g., new high speed passenger line such as the 459-km Zhengzhou-Xi’an Project, which reduces inter-city travel time from 8 hours to 3 hours.
10. All three types of investments were important in 1997–2005, but available data does not distinguish between these investment categories. Available data is as yet fragmentary for the 2 The Ministry of Railways operates the state-owned integrated system.
64 Appendix 4
TFYP, but is sufficient to reveal overall results in physical terms, and reveal the capital costs of such investments through the year 2004, as shown in Table A4.1. 11. In addition to capacity-enhancing investments, improved work organization and incentives for increased output also came into play. While implementation of many of these measures may have required some new investments, or was made possible by prior investments, conceptually the productivity enhancements can be distinguished from the investments themselves, i.e., additional benefits were captured because of new ways of organizing work and/or enhancing incentives. A primary example of such capacity enhancing organizational measures was the assets operation liability system, which, after pilot testing in four less-complex regional administrations, was implemented throughout the national railway system in 2004. The assets operation liability system is further discussed in section F (para. 23).
A
ppendix 4 65
Table A4.1: PRC Railway Statistics, 1996–2004
Item 1996 1997 1998 1999 2000 2001 2002 2003 2004
Ratio 2000/ 1996
Ratio 2004/ 2001
Ratio 2004/ 1996
A. Physical Measures 1. Infrastructure Route (km) 64,931 65,970 66,429 67,394 68,650 70,158 71,889 73,002 74,408 1.06 1.06 1.15 National Railways 56,678 57,566 57,584 57,923 58,656 59,079 59,522 60,446 61,015 1.03 1.03 1.08 Local Railways 5,210 5,339 4,927 4,776 4,813 4,817 4,716 4,814 4,869 0.92 1.01 0.93 Joint Venture Railways 3,044 3,064 3,918 4,696 5,181 6,262 7,651 7,738 8,524 1.70 1.36 2.80 2. National Railways: Double Track (2 or more parallel tracks) (km) 18,423 19,046 19,673 20,925 21,408 22,264 23,058 24,650 24,908 1.16 1.12 1.35
Percent (%) 33 33 34 36 37 Electrified (km) 10,082 12,027 12,984 14,025 14,864 16,868 17,409 18,758 19,303 1.47 1.14 1.91 Percent (%) 18 21 23 24 25 Track with Diesel Operation 29,190 30,940 33,974 36,859 39,497 40,446 1.35 Percent (%) 52 54 59 64 67 69 Railway Track (km) 117,618 119,989 121,068 123,084 124,831 126,851 99,437 101,067 1.06 0.80 0.86 Automatic Block Track (km) 15,254 17,344 17,564 17,969 18,318 18,845 20,682 21,920 22,724 1.20 1.21 1.49 Percent (%) 13 14 15 15 15 3. Equipment Locomotives (number) Diesel (number) 8,944 9,583 10,004 10,121 10,355 10,598 10,752 10,778 11,135 1.16 1.05 1.24 Percent (%) 58 63 66 70 72 Electric 2,678 2,821 3,111 3,344 3,516 3,976 4,298 4,584 4,849 1.31 1.22 1.81 Percent (%) 17 18 21 23 24 Steam 3,781 2,931 2,061 1,015 601 381 109 94 82 0.16 0.22 0.02 Percent (%) 25 19 14 7 4 3 1 1 1 Freight Wagons 443,893 437,686 439,326 436,236 439,943 449,921 446,707 503,868 520,101 0.99 1.16 1.17 Percent (%) over 60 Tons capacityC 81 92 94 95 95
66
Appendix 4
Item 1996 1997 1998 1999 2000 2001 2002 2003 2004
Ratio 2000/ 1996
Ratio 2004/ 2001
Ratio 2004/ 1996
Passenger Coaches (number) 33,778 34,346 34,246 34,535 35,989 37,214 37,942 38,972 39,766 1.07 1.07 1.18 Sleeper Fully Cushioned (number) 1,692 1,849 1,926 1,975 2,055 2,430 2,421 2,621 3,049 1.21 1.25 1.80
Percent (%) 5 5 6 6 6 Coach Fully Cushioned 720 764 750 756 764 1.06 Percent (%) 2 2 2 2 2
Sub total NFYP
B. Investments (CNY millions) 1. Capital Construction 36,839 38,764 56,242 55,646 50,992 49,610 62,352 53,862 53,155 238,483 1.07 1.44 by MOR 32,381 34,498 49,040 48,905 45,864 44,910 57,649 210,688 by Local Governments and Enterprises in Joint Venture 4,458 4,266 7,202 6,741 5,308 4,700 5,765 27,975
Construction Investment by Type
Railways in service 14,320 14,496 25,906 28,882 26,027 109,631 Percent (%) 39 37 46 52 51 225 New railways 19,844 21,196 27,124 23,402 22,489 114,055 Percent (%) 54 55 48 42 44 243 Industry Construction 845 1,075 1,254 1,146 869 5,189 Percent (%) 2 3 2 2 2 11 University and College 497 442 480 503 467 2,389 Percent (%) 1 1 1 1 1 2. Equipment Upgrading Expense for Transport Equipment 7,656 9,359 9,389 10,204 10,650 12,560 47,258
Projects Controlled by MOR 1,302 1,560 1,327 987 1,014 6,190 Projects Controlled by Regional Administrations 6,354 7,799 8,062 9,217 9,636 41,068
Locomotives and Rolling Stock Procurement 12,217 12,523 11,937 9,768 13,548 15,740 17,552 16,766 17,832 59,993 1.13 1.46
A
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1996 1997 1998 1999 2000 2001 2002 2003 2004
Ratio 2000/ 1996
Ratio 2004/ 2001
Ratio 2004/ 1996
C. Employment by National Railways
Employees (‘000) 3,895 3,858 3,435 3,422 2,567 2,536 0.66 Staff (‘000) 3,355 3,342 3,179 3,191 2,486 2,485 2,488 2,285 2,165 0.74 0.87 0.65 Staff by Trade (million) Railway transport 1,926 1,899 1,607 1,557 1,537 1,453 1,488 1,534 1,552 0.80 1.04 0.81 Industry 379 369 343 349 57 0.15 Construction 407 396 406 408 90 0.22 Wholesale, Retail Trade and
Catering 13 16 26 26 25 1.92
Scientific Research Polytechnic Services 11 11 14 14 9 0.82
Education, Health, Sports, and Social Welfare 255 257 239 240 179 0.70
D. Traffic Passengers Originating (millions) 936 919 930 977 1,018 1,017 1,017 936 1,073 1.09 1.06 1.15
Passenger Kilometers (billions) 332 354 369 405 442 464 480 478 571 1.33 1.23 1.72 Average Trip Distance (km) 355 386 397 414 433 456 472 511 532 1.22 1.17 1.50 Tons Originating (millions) 1,617 1,619 1,532 1,569 1,655 1,786 1,869 1,998 2,178 1.02 1.22 1.35 Ton Kilometers (billions) 1,292 1,305 1,226 1,258 1,334 1,425 1,508 1,648 1,829 1.03 1.28 1.42
Average Haul Distance (km) 799 806 800 802 806 798 807 825 840 1.01 1.05 1.05
Km = kilometer, MOR = Ministry of Railways, NFYP = Ninth Five-Year Plan, CNY = yuan. Sources: For 1996–2001 Ministry of Railways, “CR Facts Chinese Railways” (April 2002); subsequent years from other Ministry of Railways sources.
68 Appendix 4
D. How to Pay for Service Enhancements and the Expansion of Railway Capacity 12. Financing for the above investments came from four main sources:
(i) retained profits from the normal revenue collections of the national railway; (ii) a special construction levy collected as a surcharge on the normal freight tariff,
an earmarked tax imposed in 1991 made available by the Ministry of Finance only for railway construction, in effect a revenue to the national railway from freight operations, and the largest source of capital finance.
(iii) sovereign state loans originating from bilateral sources (particularly Japan),3 or multilateral financial institutions (notably Asian Development Bank and the World Bank), which were onlent by the state to the Ministry of Railways (MOR); and
(iv) establishing provincial and local railway enterprises; these were legally separate from the mainline national railway system, although some had limited ownership participation by MOR. Most were wholly owned by provincial and local governments and other investors, including some that have since achieved a significant share of private ownership through ex post securitization (e.g., Guang-Mei-Shan Railway in Guangdong Province).
13. Conspicuous in its absence from this list is government grants or equity contributions. The PRC's national railway system is one of the few state-owned railways in the world that is financially self supporting. Since 1986, there has been an economic contract between MOR and the Government that provides for MOR to finance all of its operating and capital expenditures through internally generated funds and borrowings, and service all debt. MOR normally pays significant taxes to the government, although it does not always pay a dividend to the government on the state’s earlier equity investment.4 Taxes paid by the national railways in 2004 amounted to some CNY12.4 billion ($1.5 billion). 14. While the national railway had made a profit on transport operations in earlier years (1986–1992), over the period 1993–1997 they lost money because of the Government reluctance to approve tariff increases in the face of rapid inflation throughout the PRC economy—the consumer price index rose 15–24% per annum from 1993–1995—and also because of slowing growth—in part due to increasing intermodal competition and lost market share. By 1998 the national railway’s transport operations returned to profitability thanks to reduced operations costs (including reductions in staff that year of 423,000 workers, or 11% of the workforce), general price deflation, and tariff increases that were finally allowed. They have made a profit since and are projected to remain profitable, with continuing large-scale labor force reductions contributing significantly to cost savings. Table A4.2 shows amounts invested and sources of finance for the 5-year period 1998–2002. The largest share (57%) of investment finance during that period came from internally generated funds, including the construction surcharge (after paying taxes on earnings) and depreciation.
3 Japan was the largest source, but other bilateral credits, particularly trade credit facilities, were made available
from a wide array of the world’s leading railway equipment exporters, including Austria, Canada, France, Germany, the United Kingdom, and the United States.
4 If sovereign guarantees given by the PRC are on-lent to MOR without imposition of a market-based fee for the guarantee by the State, this would constitute a subsidy element, but it would be small relative to the taxes paid by the national railways.
Appendix 4 69
Table A4.2: Ministry of Railways Sources and Applications Statement, 1998-2002
(CNY million) Five-Year Annual Average Sources 1998 1999 2000 2001 2002 Amount % Earnings Before Interest 1,265 4,166 5,129 3,128 2,978 3,333 Depreciation 12,379 12,735 15,982 19,853 22,320 16,654 Earnings Before Interest and Depreciation
13,644 16,901 21,111 22,981 25,298 19,987
Construction Fund After Tax 35,701 36,287 37,212 38,815 38,152 37,233 Total Internal Sources 49,345 53,188 58,323 61,796 63,450 57,220 57.0 Loans 44,658 30,847 28,938 26,011 29,865 32,064 31.9 Other 9,741 12,217 10,211 11,941 11,428 11,108 11.1 Total Sources 103,744 96,252 97,472 99,748 104,743 100,392 100.0 Applications Capital Investments 60,310 51,725 54,278 60,540 63,179 58,006 Equipment Replacements 8,117 7,712 6,745 8,507 10,716 8,359 Total Capital Investments 68,427 59,437 61,023 69,047 73,895 66,366 72.3 Debt Service 20,200 22,688 26,048 22,366 30,236 24,308 26.5 Transfers to Government 985 1,091 1,151 1,200 1,180 1,121 1.2 Total Applications 89,612 83,216 88,222 92,613 105,311 91,795 100.0 Net Cash Flow 14,132 13,036 9,250 7,135 (568) 8,597 Self-Financing Ratio 0.43 0.51 0.53 0.57 0.45 49.8 Debt-Service Ratio 2.4 2.3 2.2 2.8 2.1 2.4 Source: Audited financial statements as reported by the World Bank. 2004. PRC Second National Railways Project.
Washington, DC (28 May, p. 68). 15. According to the “Mid- and Long-Range Development Plan,” approved "in principle" by the State Council in January 2004, the investments envisaged over the 15-year period 2006–2020 will total more than CNY1.6 trillion ($200 billion) or an annual average of about CNY100 billion ($12 billion), constituting an approximately 70% increase over the national railways’ investment expenditures (including equipment replacements) over the 5-year period 1998–2002. This figure has since increased dramatically, judging from the statement by MOR at the recent ADB Regional Workshop on Private Sector Participation in Asian Railways on 14 June 2006. MOR indicated that total railway investment in the Eleventh Five-Year Plan, 2006–2010 (EFYP) is now expected to reach CNY1.25–1.5 trillion, or approximately $38 billion per year, more than double that in the TFYP. Acceleration of infrastructure investment plans on this scale is not uncommon in the PRC’s recent history. As will be discussed below, investment in national highways was doubled in 1 year, from about $13 billion per year in 1997 to more than $27 billion in 1998 and has since risen to approximately $40 billion per year. 16. Local joint venture railways (LJVRs) have been an important source of investments in expanding the PRC’s railway system over the past 20 years. Indeed, as shown in Table A4.1, LJVRs appear to have added some 5,480 of route kilometers (km) over the period 1997–2004
70 Appendix 4
while the national railways added only 4,337 km.5 Statistics on the financial magnitudes of the investments in LJVRs are available only for the period 1996–2002, as shown in Table A4.1, and reflect only finance from local governments and enterprises; MOR made additional investments in some LJVRs. While total capital construction by MOR over this period amounted to CNY247.4 billion ($29.8 billion), local government and enterprises are reported to have invested CNY33.5 billion ($4.1 billion), or an additional 13.5% on top of the investment by MOR. Data on the additional investments in rolling stock and other equipment for LJVRs is not available. 17. Whatever the precise numbers, it is abundantly clear that the local and joint venture railways have been an important force for development of feeder rail networks, extending the network to provide access to many areas that previously had no access to modern transport. Even more importantly, they have pioneered institutional innovations, including the introduction of private sector finance. E. How to Modernize Institutional Structures in Line with the Move to an Efficient
Socialist Market Economy? 18. In 1997, the national railway was still a vast, monolithic, vertically integrated undertaking employing some 3.858 million people in an obsolete organizational structure. The national railway produced not only transport services but also constructed the infrastructure and manufactured the locomotives, wagons, coaches, and other machines that were used to produce transport services as well as schools, medical services, and housing for its staff. Moreover, the national railway was an integral component of, and indistinguishable from, MOR. 19. Because railways in most other countries had already undergone organizational transformations, there was a wide array of international experience to provide the national railway with insight into the pros and cons of different organizational models in deciding its own course. The management of the national railway, characteristically, chose a proven model, adapted after some pilot testing to the PRC’s special circumstances: a focus on core transport services, separation of non-core functions, and introduction of competition in procurement of goods and services that it formerly produced internally. The manufacture and supply of locomotives, wagons, and coaches were separated and restructured as competitive industries. Railway construction and many maintenance functions underwent similar restructuring. Responsibility for many social services (education, health services, and recreational facilities) have been shifted to local governments. 20. This major organizational restructuring is reflected in the employment data in Table A4.1. Direct employment by the national railway was reduced by 1.322 million, from 3.858 million in 1997 to 2.536 million in 2001. However, many of those no longer employed by the national railway are still employed through competitive contracts system (para. 25). They are performing the same or similar functions, not only supplying the national railway system but also in many cases supplying other buyers. A better measure of the employment impact on the national railways is the number of employees engaged in railway transport activities, which declined by 446,000 over the same period, from 1.899 million to 1.453 million. By separating non-core functions, management of the national railways can now concentrate on core transport functions, while profiting from competition among suppliers and a substantially reduced wage bill.
5 Some of the additions to joint venture railways could merely reflect low-volume branch lines deliberately turned
over (i.e., abandoned) by the national railways to local enterprises; others might reflect absorption of preexisting "local railways," which the statistics in Table A4.1 show to have declined by 341 route km. The available data do not clarify to what extent this might be the case.
Appendix 4 71
21. Despite reforms during the TFYP (2001–2005), the national railway remain integrated with and indistinguishable from MOR. F. How to Create Strong Incentives for Enhancing Performance in a State-Owned
Monopoly in the Provision of Railway Mainline Operating Services? 22. Motivating efficient behavior is a challenge for management of any large-scale enterprise, and doubly so in an organization that has a substantial civil-service character, with limited prospect of reward for strong performance (or punishment for substandard performance). As already noted, the national railway was a labor-redundant organization—surely one of the world’s largest employers in 1997, with lifetime employment taken for granted across many generations. The process of restructuring, separating and introducing competition among the suppliers of non-core goods and services—a process which began seriously in 1998 and was largely completed by the end of 2000—constituted shock therapy, a first crucial and enormous step toward achieving greater productivity of labor, with a pronounced effect on the "bottom line" in an economy where wage costs have been and surely will continue rising rapidly. That such a vast transformation was largely accomplished in only 3 years6 provides an indication of the seriousness of purpose of the national railway management. They were able to proceed on such a scale only with the blessing and resolute support of top political leadership. This undoubtedly sent a strong message across the remaining cadres of management, as well as to blue collar employees, that a new era had arrived. 23. The introduction of the assets operation liability system was the beginning of the second major part of the institutional reform process. After a period of experimentation with management and compensation methods, in which the scheme was calibrated and shown both to be feasible and to help improve operational and financial performance, it was extended to all 15 (now 18) regional railway administrations (RRAs). The assets operation liability system is a system of management contracts between MOR and the regional administration, by which MOR entrusts assets, offers substantial rewards, and grants management autonomy to the RRA in return for commitments to specific performance targets, particularly profitability. The 18 RRAs are engaged in a closely monitored benchmark competition, with clear management incentives (rather than physical targets), both positive and negative, to encourage profitability. The best performing managers receive significant financial and other incentives, while poor performers are quickly removed. 24. The emphasis on profitability has also encouraged the management of the national railway to separate some 100 low-volume branch lines encompassing some 7,800 km. One anticipates that at least some, perhaps most, of these lines were taken over by local companies, possibly industrial enterprises who are major users and could operate them at lower costs. Others may have been entirely supplanted by major advances in the PRC’s highway network.
6 The transfer of 826 educational institutions and 208 hospitals was not completed until 2004, but specific numbers
of employees involved in the transfer have not been made available.
72 Appendix 4
G. How to Lay a Careful Foundation for, and Begin to Introduce, Competition in the Railway Supply and Support Industries?
25. To assist with the transition, MOR provided seed capital loans and initial contracts to establish 5,800 small- and medium-sized enterprises outside MOR, employing some 416,000 former national railway employees to supply equipment, other goods, and services to MOR. Beyond that initial assistance, the newly established or newly independent enterprises were expected to compete on an equal footing with other suppliers in meeting the needs of MOR, or to find a livelihood elsewhere in the market economy. H. How to Lay a Careful Foundation for the Subsequent Introduction of Competition
in Mainline Railway Operations? 26. As has been well-demonstrated in other countries, it is difficult to unbundle railway infrastructure and train operations without seriously disrupting the performance of the railway system. However, it is usually difficult to introduce competition without such an unbundling, as the railway infrastructure in most countries constitutes a "natural monopoly" in the sense that one enterprise can serve the entire market more efficiently than two or more enterprises. If the railway is not an important component of the country’s transport system, as in many Asian, African, and Latin American countries, the probability of failure is not of great consequence. However, if the railway system is a vital component of the transport system—as in the PRC—the introduction of competition is fraught with grievous risks. Consequently, it is entirely appropriate that the PRC has approached this issue with considerable caution, notwithstanding the obligation to permit competition, including foreign operators, which it accepted upon accession to the WTO. 27. The PRC has been closely studying the experience of other countries on this issue. Since 2004, ADB has been supporting these efforts with a major technical assistance. In 2005, the PRC sent a delegation to the United Kingdom to investigate firsthand the approach taken by that country. It appears that MOR has rejected the UK model of setting up the infrastructure operator as a separate, independent, privately owned entity. It is not yet known how MOR will decide to go about introducing competition. 28. Given the existing density and the proposed future density of the PRC’s rail networks, it would appear feasible to introduce point-to-point competition in the many corridors that could be served by two or more infrastructure-cum-carrier companies—i.e., the US rather than the European model of competition. 29. As regards separation of regulatory and operating functions, the PRC has been considering the option of separating governmental regulatory functions from rail operations, with the possibility that MOR would back away from direct management of operations and remain at arm's length, transferring autonomy to the national railway. However, a decision has not yet been reached on this issue.
Appendix 5 73
COMPARATOR ASSESSMENT A. ADB and World Bank Lending Programs Before and After 1997
1. As shown in Table A5.1, Asian Development Bank (ADB) and the World Bank each provided substantial lending for railways and highways in the People’s Republic of China (PRC) during the study period from 1997 to 2005, as well as in earlier years. In both transport modes ADB has overtaken the World Bank in terms of both the number of loans and total amount lent. 2. Lending for railways and highways contributed 68% of ADB’s new lending to the PRC during the study period, and reached 82% in 2005. The World Bank lending to the PRC—like its technical assistance (TA) activities—was not so heavily concentrated in the transport sector, but instead dispersed more widely across the various economic sectors.
Table A5.1: ADB and World Bank Loans to PRC for Highways and Railways
Subsector ADB IBRD/IDA
No. of Loans
Total Lending ($ million)
Average Loan
($ million) No. of Loans
Total Lending ($ million)
Average Loan
($ million) Highways Prior to 1997 12 1,517 126 18 3,352 186 1997-2005 20 4,855 243 14 2,830 202 Railways Prior to 1997 6 717 120 8 2,235 279 1997-2005 7 1,920 274 2 360 180
ADB = Asian Development Bank, PRC = People’s Republic of China, IBRD = International Bank for Reconstruction and Development, IDA = International Development Association. Note: Excludes all urban transport and road components in rural development projects. Source: Operations Evaluation Mission. B. Institutional Location of Road and Railway Operations
3. The World Bank has decentralized most of its transport operations and staffing to the PRC resident office, supplemented by staff on mission from headquarters and other resident offices in the region. This helps World Bank staff remain well-informed about sector issues and development, and enables quick responses to client requests and regular dialogue with client representatives. ADB has only decentralized to a modest extent; most of its transport activities and staffing are still based in Manila, and most operational work conducted through missions to the PRC. C. Lending Operations
4. ADB and World Bank had similar objectives for their support for the roads sector, focusing on supporting the Government's implementation of the national trunk highway system—with increasing emphasis on poverty reduction, social safeguards, institutional strengthening to increase commercial operation and managerial efficiency, enterprise reform, mobilization of nongovernment finance, and cost-recovery and pricing issues. The World Bank provided 14 loans for $2.83 billion, compared with 19 ADB loans for $4.69 billion. Their projects
74 Appendix 5
had similar scope in terms of physical infrastructure being financed. The main difference was that the World Bank, unlike ADB, did not insist on the inclusion of local roads with expressway projects. 5. While ADB provided seven loans for railways during the study period, the World Bank support for railways was rather dormant. After providing eight railway loans from 1984 to 1995, a period of 6.5 years passed with no new railway lending. The World Bank has since provided two national railway loans, the first for $160 million in 2001 and the second for $200 million in 2004. A third project has been appraised and is scheduled for negotiation in the second half of 2006. 6. In railway lending, there has been a degree of product differentiation between ADB and World Bank projects in the PRC. This has been advantageous for both the institutions and their clients. In the early part of the study period, ADB continued its previous strategy of financing local joint venture railways (LJVRs). This provided an important model for demonstrating the merits of operating railways along commercial lines. On the other hand, the World Bank has focused almost entirely on lending to MOR, with the intention of supporting MOR to adopt system-wide reforms. 1 Both ADB and the World Bank can claim to have made some contribution to the change in thinking that led MOR to pursue substantial reforms. Given the enormous size of the national railways, the significant challenge of reforming them, and the relatively small size of ADB and World Bank support, ADB’s decision to begin providing support to MOR has complemented rather than duplicated the World Bank support. 7. ADB and the World Bank tend to support transport in different geographical areas of the PRC. There were ADB and World Bank transport operations in 21 different provinces during the study period, but they only worked in the same province in two cases (Guangxi and Hebei). D. Technical Assistance
8. There is a big difference between ADB and the World Bank in the scope and magnitude of technical assistance provided for roads and railways in the PRC. This partly reflects the different business models of the two institutions. The World Bank has an in-house delivery model and retains a large professional staff to carry out in-depth analysis and advisory activities for clients. ADB has an outsourced business model and retains only a limited number professional staff, instead contracting out much of its analytic work to consultants. Comparisons of the two institutions that only consider TA resources can therefore be misleading. 9. In the past, the World Bank provided substantial technical assistance, both through consultants under grant funding, and through its own staff specialists. Over much of the study period, the World Bank’s road and railway program had very limited access to grant financing, so its ability to offer technical assistance using consultants was minimal.2 Although it included loan-financed TA consulting services in some of its loans, the Government has been reluctant to draw down such funds. 3 However, World Bank staff have still provided significant in-kind
1 The one exception was a $150 million loan for the Inner Mongolia Local Railway Project in 1989. 2 The principal exception is an ongoing $100,000 analytical and advisory activity study China’s Expressways:
Connecting People and Markets. 3 More than $4.1 million of loan funds were earmarked for eight TA projects under World Bank’s two most recent
railway projects, but MOR has chosen not to utilize those funds.
Appendix 5 75
assistance, but on a reduced scope and scale. 4 This assistance has focused on policy, institutional restructuring, and financing issues. The World Bank has also used its own budget to sponsor study tours abroad and visits by the World Bank railway advisor for dialogue with MOR on railway restructuring issues. 10. In contrast, ADB’s large grant-financed TA program now dominates TA activities in the transport sector. While much of this is used for project preparatory technical assistance (PPTA), ADB’s nine large advisory technical assistance (ADTA) projects during the study period considerably exceeded what the World Bank provided. These ADTA projects have extended ADB’s influence on important subsector issues such as policies in the road transport industries; alternative methods for organizing, managing, and financing toll roads; and the impact of World Trade Organization accession on both railway and highway transport. However, with few staff members based permanently in the PRC, it is questionable whether ADB has fully capitalized on the advantage offered by some of its most important TA projects, 5 and there have been instances where it seems that the World Bank is making better use of the outputs of ADB-financed TA. 11. In railways, the separation of regulatory policies and rail operations is a prerequisite to private sector participation—which will be vital for future sector expansion. Both ADB and the World Bank are providing technical assistance in this important area. The TA activities are closely coordinated; serve to keep the respective staff members of the two banks as well as MOR, MOC, and other Government officials active in the policy dialogue; and promote a healthy diversity of views that seems to be welcomed by the PRC authorities.
4 For example, Bullock, R. “Financing Rail Sector Development in China” Analytical Advisory Activity Report.
Washington, DC: World Bank (June 2005); and Amos, P. and R. Bullock. 2006. China: Managing the Economic Interfaces in Multi-Operator Railway Environments -- Review of international approaches prepared for the Ministry of Railways China (26 June).
5 Notably including: TA 2952, Corporatization, Leasing, and Securitization in the Road Sector (1997); CPCS Transcom, Ltd., Lea International, Ltd., and CHELBI Engineering Consultants, Inc., The New Frontier: Investing in Toll Roads (2003); RSC –C51814, J. Lee, “PRC: Toll Road Corporatization Strategy Discussion Paper” (April 2006); TA 4351, “Policy Reform in Road Transport” (November 2005); TA 4322, Poverty Impact of Area-Wide Road Networks” (2004); TA 3341, Capacity Building in Traffic Safety, Planning and Management (1999), and TA4698, Road Safety Improvement (2005).
76 Appendix 6
EVALUATION FINDINGS AT PROJECT COMPLETION AND POSTEVALUATION A. Introduction 1. As part of the sector assistance program evaluation (SAPE), the Operations Evaluation Department (OED) prepared project performance evaluation reports (PPERs) for the three road projects and one railway project for the People’s Republic of China (PRC) that were approved and completed during the study period from 1997 to 2005. Each of the projects was approved in 1997–1999. The four road PPERs included an assessment of the contribution made by attaching a local-roads development component to the expressway project.1 The SAPE also conducted in-depth reviews of project completion reports (PCRs) for two road projects and one railway project.2 These loans were also approved before 2000. On this basis, postevaluation and project completion findings were examined for the following seven projects, as shown in Table A6.1.
Table A6.1: Sample of Projects Evaluated
Subsector/Project Loan No. Net Loan Amount
($ million) Approval
Year Source A. Roads 1. Hebei Roads Development 1617 180 1998 PPER 2. Chengdu-Nanchong Expressway 1638 250 1998 PPER 3. Changchun-Harbin 1641/1642 390 1998 PPER 4. Southern Yunnan Road Development 1691 250 1999 PCR 5. Shanxi Road Development 1701 250 1999 PCR B. Railways 1. Shenmu-Yanan Railway 1553 200 1997 PCR 2. Guizhou-Shuibai Railway 1626 140 1998 PPER PCR = project completion report, PPER = project performance evaluation report. Source: Sector assistance program evaluation team. 2. The PPERs and PCRs rated each project, and each main project component, in terms of relevance, effectiveness, efficiency, and sustainability. A scale of 0–3 was used,3 with the overall rating weighted as follows: 20% for relevance, 30% for effectiveness, 30% for efficiency, and 20% for sustainability. B. Overall Project Assessment 3. Two of the five road projects were rated highly successful overall.4 The remaining three road projects and both railway projects were rated successful. The ratings by evaluation criteria are summarized in Table A6.2.
1 ADB. 2006. Project Performance Evaluation Report on the Hebei Roads Development Project. Manila; ADB. 2006.
Project Performance Evaluation Report on the Chengdu-Nanchong Expressway Project. Manila; ADB. 2006. Project Performance Evaluation Report on the Changchun-Harbin Expressway Project. Manila; and ADB. 2007. Project Performance Evaluation Report on the Guizhou-Shuibai Railway Project. Manila (draft).
2 ADB. 2006. Project Completion Report on the Southern Yunnan Road Development Project in the People’s Republic of China. Manila; ADB. 2006. Project Completion Report on the Shanxi Road Development Project in the People’s Republic of China. Manila; and ADB. 2006. Project Completion Report on the Shenmu-Yanan Railway Project in the People’s Republic of China. Manila.
3 For example, highly successful = 3, successful = 2, less successful = 1, and unsuccessful = 0. 4 The Changyu Expressway component of the Changchun-Harbin Expressway Project was rated highly successful,
while the Huashang Expressway component was rated successful.
Appendix 6 77
4. A common explanation of these positive ratings was that the projects were part of a well-defined long-term investment program assigned high priority in the Government’s Ninth Five-Year Plan (NFYP), 1996–2000. The Government had already gained experience in the design and implementation of similar projects, and the Asian Development Bank (ADB) also had gained experience in supporting such projects in the PRC. Another common factor was strong implementation performance by competent and dedicated provincial executing agencies. The assessment of the executing agencies' performance shows that they had the capability to implement projects that meet ADB requirements.
Table A6.2: Summary of Postevaluation and Project Completion Ratings of Road and Railway Projects Approved and Completed in 1997–2005
Subsector/Project Loan No. Relevance Effectiveness Efficiency Sustainability
Overall Rating
A. Roads 1. Hebei Roads
Development 1617 Highly
relevant Highly effective
Highly efficient
Likely Highly successful
2. Chengdu-Nanchong Expressway
1638 Highly relevant
Highly effective
Highly efficient
Likely Successful
3. Changchun-Harbin 1641/ 1642
Highly relevant
Highly effective
Efficient Most Likely Highly successful
4. Southern Yunnan Road Development
1691 Highly relevant
Highly effective
Efficient Likely Successful
5. Shanxi Road Development
1701 Highly relevant
Effective Highly efficient
Likely Successful
B. Railways 1. Shenmu-Yanan Railway 1553 Highly
relevant Effective Efficient Likely Successful
2. Guizhou-Shuibai Railway 1626 Relevant Effective Efficient Likely Successful Sources: ADB project completion reports and project performance evaluation reports. C. Relevance 5. Six of the seven projects were rated highly relevant, with the other project rated relevant. The basis for these ratings is that the projects were fully consistent with Government priorities and ADB strategic priorities at the time of approval, and that the projects were well formulated to achieve their objectives.
1. Roads 6. The Hebei Roads Development Project approved in June 1998, which formed part of the Beijing-Tianjin-Shanghai economic corridor, was consistent with the priority Government attached to upgrading the National Trunk Highway System (NTHS). While the project area was situated in the more developed coastal region, poverty in rural areas remained high. This was the first ADB-financed project in the PRC to include a poverty reduction component by integrating the expressway with the nearby road network. The local-roads component was based on a careful analysis of the causes of poverty in the area, and reinforced by successful application of participatory rural appraisal surveys (for example, to identify which local roads in the project area would have greatest poverty reduction impact). This project was rated highly relevant for both the expressway component and the county connector and village-roads component.
78 Appendix 6
7. The Chengdu-Nanchong Expressway Project, approved in November 1998, was also rated highly relevant for its expressway civil works and county-road upgrading components, and relevant for its institutional strengthening component. Project relevance was assessed from the perspective of the NFYP priorities and the role of the project in the NTHS, and in the context of ADB's 1997 country operational strategy (COS) and sector strategy for the COS period, including removal of transport bottlenecks, enhancing transport network capacity, improving access to officially designated poverty counties and villages, strengthening the capacity of the provincial communications department, and acting as a catalyst in the corporatization of expressway agencies and creating conditions for attracting private sector investments. 8. The two sections of the Changchun-Harbin Expressway Project, approved in November 1998, were rated highly relevant. Relevance was assessed in relation to NFYP priorities, inclusion in the NTHS, the Government’s Northeast Regional Transport Network Development Strategy, and in the context of the 1997 COS and sector strategy for the COS period at the time of appraisal. This included a focus on transport bottlenecks removal, enhanced transport network capacity in the selected northeast region, improved connection to and from that region, and improved access to officially designated poverty counties and villages. 9. The Southern Yunnan Road Development Project, approved in June 1999, was rated highly relevant in the PCR dated February 2006. This rating took account of the project’s location in a poor western part of the PRC, the inclusion of feeder roads to improve access for poor, isolated communities in the project area, and the project’s strategic role as part of integration within Greater Mekong Subregion, as well as consistency with the 1997 COS, the NTHS, and the geographic priorities of the Tenth Five-Year Plan, 2000–2005 (TFYP). 10. The Shanxi Road Development Project, approved in September 1999, was also rated highly relevant by the PCR dated September 2006. It had high priority in the NFYP and TFYP, was included under the NTHS, was important for facilitating regional development (from Mongolia to Viet Nam), and was designed to reduce poverty and transport bottlenecks in the project area. The project was also in line with the 1997 COS.
2. Railways 11. The PCR for the Shenmu-Yanan Railway Project found that the project rationale and design were sound. The project was needed to open up the economic potential of the northern part of the province, particularly for mining, and was a high priority project of the Government. The project was rated highly relevant. 12. The Guizhou-Shuibai Railway Project (Loan 1626), approved in August 1998, was designed to harness the unutilized coal resources in Guizhou, which at the same time is one of the poorest provinces in the PRC, located inland and with poor access to the rapidly growing coastal areas. The project was a high priority component of the Guizhou provincial transport plan under the NFYP, and ADB’s decision to support it was fully in line with the PRC’s priorities and the COS. Overall, the project was rated relevant. Project formulation and design was founded on assumptions that were not adequately tested at appraisal and have so far not materialized (e.g., assumed gestation periods of coalmines and project risks which revolved around traffic to be generated by the coal mines), and as a result, the railway civil works component was rated relevant. The smaller subcomponents for service- and access-road construction, computerization, and institutional development were rated highly relevant.
Appendix 6 79
D. Effectiveness
1. Roads 13. The PPER of the Hebei Roads Development Project shows that most of the expected impacts and outcomes indicated in the project framework were realized. The long delay in the completion of the expressway component was due to associated electrical and mechanical works. This was outside the control of the project and had no impact on the timing and quality of the outcomes. The expressway itself opened ahead of schedule. The economic growth and poverty reduction impacts were impressive. Both the expressway and connector- and local-roads outcomes have been achieved, and the process for institutional capacity building in corporatization and operation of expressway agencies has been established. All of the agreed outputs were delivered, including comprehensive on- and off-the-job training; establishment and upgraded operation and maintenance systems, and establishment of monitoring and evaluation methodologies—including for environment factors. Resettlement compensation was provided, and all environmental mitigation measures were fully observed. The PPER’s only critical comment was that the poverty component with ADB-financed connector roads could have been more intensive. In conclusion, it rated the project highly effective, with the expressway component rated highly effective and the county connector- and village-roads component rated effective. 14. The Chengdu-Nanchong Expressway Project was rated highly effective. Its expressway civil works component and the county-roads-upgrading components were both rated highly effective (90% in the overall rating), while institutional strengthening was rated effective (10% in the overall rating). The originally stated outcomes were achieved for both the expressway component and the county-roads improvements. Control of overloaded vehicles on the expressway was currently adequate, and traffic safety had improved markedly on both the expressway and the old highway, where congestion was reduced and speeds significantly increased. Reductions in travel times and transport costs had stimulated economic growth and income opportunities in the project area as measured by the performance indicators adopted for this project. The county-road improvements had proved very effective in terms of all performance indicators adopted for the project. Institutional strengthening was rated effective primarily because a full investigation and firm plan to attract private investment had only just begun, and further restructuring of the expressway company might have been necessary to entice private investment. Otherwise, the PPER concluded that the training provided by the project had helped the provincial communications department and the Executing Agency implement the project in accordance with advanced technical standards, employing a pool of qualified staff trained in expressway operations and maintenance. The Executing Agency had also carried out construction supervision and quality-control in accordance with internationally accepted practices. The development benefits from the project were expected to increase for the people in the project area in 2007 upon expected completion of the Suining-Chongqing link, which will provide improved access from both Chengdu and Nanchong to Chongqing. County road access improvements had led to substantial savings in travel times and costs, thus stimulating new employment opportunities and diversification of economic activities. Resettlement was carried out and compensated for in a satisfactory manner and the project had significant environment impacts. 15. The PPER rated both expressway sections of the Changchun-Harbin Expressway Project highly effective. The outcome assessments rated the project expressway civil works, promotion of corporate governance in commercial expressway operations, and environmental mitigation and other safeguard measures highly effective, whereas encouragement of private sector participation in highway construction and financing and capacity building activities in
80 Appendix 6
support of Heilongjiang Provincial Communications Department and Jilin Provincial Communications Department were rated effective. Expressway civil works outcomes and outputs were all effectively achieved in both provinces (average vehicle operating costs dropped by more than a third, traffic volumes increased impressively), and the complementary investments vastly improved the connectivity of enterprises and the general public to efficient transport services. Increased involvement of private operators in road maintenance and service stations was observedm, along with the use of modern toll collection methods that matched the volume of traffic to be serviced. Capacity building and training was relevant and successful so that staff now were familiar and confident with modern management tools and up-to-date standards of engineering design, construction, environment, and operation and maintenance for highways. All recommendations of the environmental impact assessment were fully incorporated into project design and implemented effectively. All resettlement activities and compensation payments were completed successfully and in accordance with the ADB-supported Land Administration Law (effective January 1999). However, the expressway corporations had yet to gain greater commercial and managerial autonomy. Toll revenues here, as elsewhere in the PRC, were deposited at special accounts and their use was regulated by the provincial finance department. The project also suffered from a lack of expert advice on competitive bidding procedures. This resulted in implementation delays and cancellation of part of the ADB loan. Traffic safety and vehicle overloading were two activities that would have merited more attention in the form of assistance from external experts. 16. For the Southern Yunnan Road Development Project, the planned outcomes were achieved as scheduled—much improved road access in the project area and, through that, reduced poverty, economic growth, and facilitation of Mekong Subregion trade and economic integration. As has been seen on other expressways, traffic buildup was initially slower than forecast at appraisal, but quickly picked up later. The expressway relieved the previously congested parallel highway so that its users benefited from considerable time and operating costs. Transport services (both passenger and freight) improved significantly and real bus prices decreased. Poverty was reduced in some poor areas as a result of changing crop patterns made possible by the improved access and transport services in poor areas (despite bus services to poor villages remaining unprofitable). A concerted effort to reduce overloading by forcing overloaded trucks to unload at three newly installed weigh stations along the highway corridor has reduced overloading to 5–10% of trucks using the expressway. Active efforts to improve traffic safety have resulted in a significant drop in the fatality rate as well as the overall rate of traffic accidents. The project has succeeded in mobilizing nongovernment financing for construction and operation of expressways in Yunnan, but it continues to look for ways to raise additional sources of financing and revenues and encourage private sector initiatives. The Executing Agency has established management, evaluation, inspection, and accountability systems, and its staff members have participated in technical training. The PCR considered the project highly effective. 17. The PCR for the Shanxi Road Development Project rated the project effective. The project was completed and opened to traffic ahead of schedule and at lower cost than the appraisal estimate. As with many other ADB-financed expressway projects in the PRC, traffic volume was initially below the appraisal estimates, but it recovered and ended up only slightly below the appraisal estimates. The poverty reduction and development effects were as anticipated. The expressway and the improved local roads provided substantial time savings that enabled people to realize economic and noneconomic benefits. These were monitored for comparison with a control sample in the “without project" case. According to indicators monitored, road safety and vehicle emissions improved and congestion on the old road was much reduced. The Implementing Agency was established as a separate company under the
Appendix 6 81
Company Law of the PRC and was autonomous from the provincial communications department. This autonomy provided incentives for the Implementing Agency to implement the project efficiently and manage and operate the expressway better. Training financed by the project has contributed to this performance.
2. Railways 18. The PCR for the Shenmu-Yanan Railway Project rated the project effective because it (i) provided a cost-effective mode of transport for both industrial (e.g., mining and petroleum) outputs and people in the area; (ii) enabled economic growth and reduction of endemic poverty through increased employment and higher income levels; (iii) made transportation of freight and passengers safer (particularly in winter); and (iv) facilitated the delivery of health, education, communications, and other public services to the rural poor. The updated traffic forecasts were lower than the appraisal forecasts, but were sufficient for the project to be economically viable. 19. The Guizhou-Shuibai Railway Project by and large achieved its expected outcome according to the PPER. Traffic (both freight and passenger) is growing and is substantial and the opening of the railway made it possible to open new coal mines. However, the PPER found that the computerized management information system and the financial accounting systems were delayed and put in place rather late, and the commercialization indicators and targets envisaged at appraisal had not been fully achieved as of project completion. The project was rated effective, with the railway and equipment component (counting for 65% in the overall rating) and the service-, access-, and link-road construction component (15% in the overall rating) both rated effective; and the delayed computerization of management information and financial accounting systems (10% in the overall weighting) and institutional development (10% in overall weighting) components both rated less effective. E. Efficiency 20. An apparent weakness of every RRP, PCR, and PPER was that while they carried out sensitivity tests for the estimated economic internal rate of return (EIRR) and financial internal rate of return (FIRR) with regard to percentage increases in factors such as traffic volume, construction costs, and some benefits, there was no discussion about how the toll level affected traffic flow on both project expressways and alternative existing highways. The less the difference in time and operating cost savings on the toll road compared with the toll-free parallel road, the more likely it is that many road users will choose the toll-free road when the toll rate is high. In other words, the cross elasticity is sensitive to how close substitutes the two roads are. In addition, overall travel demand also influences the EIRR and the FIRR. Since there was no analysis of whether travel demand was price elastic or price inelastic in these projects, no information was provided about the optimal toll rate from an EIRR and FIRR perspective.
1. Roads 21. The PPER for the Hebei Roads Development Project rated both the expressway and the connector- and local-roads components efficient. The PPER estimated the EIRR to be 21.2%, compared with an appraisal estimate of 21.5%, and 19% estimated by the PCR. For connector roads, it was necessary to distinguish between what had been originally included in the appraisal and what ADB ended up financing. The average EIRR for the connector roads financed by ADB was 18.8%, while that of Government-financed connector roads was 15.6%, with a recalculated overall EIRR for the five county connector roads of 17.7%. Additionally, there were significant unquantified socioeconomic benefits to beneficiaries in the project area in the form of per capita income growth, transformation and diversification of industry, development of enterprises, expansion of trade, increased tourism, changes in sources of income and
82 Appendix 6
employment patterns (including in agriculture), and improved access to education and health services. All of the above improvements were documented by means of monitored indicators. 22. The Chengdu-Nanchong Expressway Project was also rated highly efficient in the PPER for the expressway civil works component and the county-road-upgrading component, whereas the institutional strengthening component was rated efficient. Thus, the project was rated highly efficient overall. The expressway component was reestimated with an EIRR of 24%, compared with 24.9% in the appraisal and 15.8% in the PCR (which had overinflated capital-cost estimates and which had not fully taken account of the benefits of reduced congestion on existing road sections). The county-road component (five road sections) was reestimated to have an EIRR of 25% even without including other producer surplus benefits (since data was not available). The institutional strengthening component helped the Implementing Agency implement the project in a professional manner in line with international standards. The training was effective and should have lasting value, not the least because the trained staff continued to work for the provincial communications department, the Implementing Agency, and other agencies. However, the PPER reported that progress was slow in the areas of institutional reform and governance. A number of actions to attract private sector investment were identified, but there was no evidence that these actions had been carried out. 23. The PPER for the Changchun-Harbin Expressway Project rated the project efficient.5 This was based on a rating of highly efficient for the expressway (65% of weighting) and county-road-upgrading (25% of weighting) components. The institutional strengthening component (10% of weighting) was rated efficient. Like many of the other expressway projects, traffic initially built up more slowly than forecast at appraisal. The PPER estimated an EIRR of 14.8% for the Heilongjiang section, and 18% for the Jilin section, compared with appraisal estimates of 15.2% for the Heilongjiang section and 21.5% for the Jilin section. The two main explanations of this were lower-than-estimated initial traffic volumes and overloaded axles (which raise maintenance costs). 24. For the Southern Yunnan Road Development Project, the PCR reestimated the EIRR to be 16.8%, which was slightly below the appraisal EIRR of 17.4%. Slower traffic buildup and higher costs were the immediate explanations for the divergence. Actual tolls were lower than expected at appraisal, and considered affordable by road users. The expressway was rated efficient. 25. The PCR for the Shanxi Road Development Project rated it highly efficient. The reestimated EIRR was 21.6%, which exceeded the appraisal estimate of 19%. The improved performance was due to reduced construction costs, since overall benefits did not differ much from the appraisal estimates.
2. Railways 26. The PCR for the Shenmu-Yanan Railway Project rated it efficient. The updated EIRR was 13.1% compared with 17.3% at appraisal. The reduction was due to slower traffic buildup and shortages of railway wagons. 27. The PPER for the Guizhou-Shuibai Railway rated the project and each of its four components efficient. Although project development—especially traffic—varied significantly compared with the appraisal and mining benefits came on stream later than anticipated, these were counterbalanced to a great extent by significant benefits accruing from network improvements. These benefits wee underestimated by the appraisal mission, which focused 5 The Changyu expressway section is rated highly efficient, while the Huashang expressway section is rated efficient.
Appendix 6 83
mainly on the mining development benefits. The project has fortuitously supplied supplementary capacity to relieve the heavily congested main west-east route. This unexpected, cost-reducing impact (this traffic accounts for 53% of total project railway traffic) largely offset the shortfall in benefits from coal traffic. The PPER reestimated the EIRR to be 17.4%—compared with 18.0% at appraisal and 20.8% in the PCR. The risks associated with reliance on a single commodity for traffic should have been incorporated in the appraisal assumptions, but were not. F. Sustainability
1. Roads 28. The PPER of the Hebei Roads Development Project rated the sustainability of both project components likely. It noted that the expressway was well-maintained and that ongoing improvements aimed at reducing overloading and improving traffic safety were being given priority. Therefore, there was plenty of reason to assume that the project would last its full economic life. High economic growth in the area was expected to secure the revenue stream and cash flow needed to service the ADB loan and finance sustainable operation of the project, but since the toll revenue goes to the provincial government (which then allocates it to an annual operating expense budget), the expressway management office was still dependent on provincial budgetary decision making and not given autonomy to operate as a corporation. The recalculated FIRR was 13.4% as compared to a weighted average cost of capital of about 4.6% per annum. The expressway management office appeared well-qualified and sufficiently staffed for its task. The county connector roads and village roads were also judged likely to be sustained, and the PPER observed that the quality of the civil works on these was good. It was observed that some village roads were in need of minor maintenance. The maintenance budget for county connector roads and village roads comes from the national government, the city finance budget, the county finance budget, and donations from farmers who also undertake some routine maintenance. 29. For the Chengdu-Nanchong Expressway Project, the expressway component (a vital road link for Sichuan Province) was assessed as likely to be sustainable. The FIRR was recalculated at 7.3% using updated traffic forecasts, revised post-2005 toll rates, and actual and projected operating costs. That figure was slightly higher than the PCR estimate, but below the appraisal estimate. However, sensitivity testing suggests that this is a robust project. It was off to a slow start financially, but is expected to exhibit stable and sound financial performance from 2009. Routine maintenance appears to work well, and a plan for periodic maintenance has been prepared and budgeted. The comprehensive range of maintenance equipment and facilities procured under the project should secure sustainability. The sustainability of the county-road component, on the other hand, was assessed less likely because of under-funding in relation to expected traffic growth. However, the county roads were constructed in accordance with sound standards and were well-maintained. The sustainability of institutional strengthening was considered likely in the PPER, even though the Implementing Agency had not yet succeeded in attracting funding from nongovernment sources to increase equity and improve the current capital structure. Overall, sustainability was thus rated likely. 30. The sustainability of the Changchun-Harbin Expressway Project was rated most likely to be sustainable. The recalculated FIRR was 11.1% for the Hashuang Expressway component and 12.4% for the Changyu Expressway component as compared with a weighted average cost of capital of 6% per annum. Robust financial returns driven by substantial traffic growth underpin the long-term viability of both expressways. Human and financial resources are available to manage the operation and maintenance of the toll roads, and pavement management systems
84 Appendix 6
are in place to schedule maintenance interventions at optimal times. Institutional strengthening activities under the project were assessed as most likely to be sustainable. 31. For the Southern Yunnan Road Development Project,6 the FIRR was recalculated in the PCR at 4.1%, compared with 8.0% at appraisal. This sustainability reduction was explained by (i) higher costs, (ii) significantly lower toll rates, and (iii) lower initial traffic volume than expected. However, the PCR confirmed that the Executing Agency was strongly committed to the project and had adjusted its organizational structure appropriately. The Executing Agency was able to provide road maintenance services (including measures to stabilize soils and prevent landslides) and funds to keep the project roads in good condition. The provincial communications department and local governments were committed to the development and maintenance of the feeder road network. Therefore, the PCR concluded that the project was financially viable and likely to be sustainable. 32. For the Shanxi Road Development Project, the PCR found that toll revenues were lower than estimated at appraisal because of lower traffic volume and toll rates. The FIRR was recalculated in the PCR at 8.1%, compared with 9.3% at appraisal, but the FIRR appeared robust and the project sustainability was rated as likely. Implementation was carried out using sound engineering technologies, and the Implementing Agency's technical capacity for expressway maintenance was solid and likely to remain that way. The provincial communications department and local governments were likewise committed to the development and maintenance of rural road networks, and all rural road networks visited by the PCR mission were well maintained.
2. Railways 33. The PCR for the Shenmu-Yanan Railway Project rated the project likely to be sustainable. Although traffic was less than forecast at appraisal, the FIRR of 4.2% was still higher than the weighted average cost of capital. The Executing Agency was well managed and financially sound. 34. The PPER rated the Guizhou-Shuibai Railway Project likely to be sustainable. The recalculated FIRR was 3.4%, compared with 6.8% at appraisal and 4.2% in the PCR. The FIRR of the Project was below the weighted average cost of capital. On the positive side, restructuring the railway company has improved operations and is expected to improve profitability and sustainability. The railway is technically sound and adequate maintenance and operating policies are in place. There is strong government ownership and commitment to the project. Demand for rail services is expected to intensify as the Government plans to increase coal production significantly in the medium term. Development of larger and more efficient mines is underway along with establishment of other industrial operations. All four project components were rated likely to be sustainable. G. Performance of ADB, Executing Agencies, and Implementing Agencies
1. ADB Performance
6 ADB. 1999. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the
People’s Republic of China for the Southern Yunnan Road Development Project. Manila (Loan 1691-PRC, for $250 million, approved on 24 June).
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a. Roads 35. ADB performance on the Hebei Roads Development Project was assessed as partly satisfactory by the PPER due to the frequent change of (six officers administered the project over 5 years). This resulted in a lack of institutional memory and continuity, and each new project officers had to go through a learning curve. This was not efficient project management. ADB also provided only limited support to the resettlement process because of staff constraints. However, it is worth noting that the PPER concluded that the resettlement process was nonetheless implemented and monitored satisfactorily. ADB also was careless in storing project records; the records of the rather demanding project benefit monitoring could not be found. 36. The PPER for the Chengdu-Nanchong Expressway Project rated ADB performance as satisfactory in formulating and supervising the project—except for the resettlement component, where ADB supervision was found to be inadequate. The PPER criticized ADB for not including a resettlement specialist in one or more of the missions, and said that a specialist road engineer should also have been included. Transfer of the project to the PRC Resident Mission was welcomed by the Executing Agency because it significantly facilitated implementation. The Executing Agency also suggested that in future projects ADB should limit its use of international consultants to specialist tasks on a short-term basis, and that ADB should align its poverty reduction policy in projects more closely to the latest PRC policies (such as those of the Eleventh Five Year Plan, 2006–10). 37. The PPER for the Changchun-Harbin Expressway Project rated ADB's performance as satisfactory in formulating and supervising the project. However, for the resettlement and land acquisition component ADB supervision and monitoring of implementation was found to be inadequate. 38. ADB performance under the Southern Yunnan Road Development Project was satisfactory. The concept of a highway corporation responsible for project implementation and operation was introduced during preparation, adopted, and proved to be an efficient vehicle for highway design, implementation, and operation. ADB review mission coverage appears adequate given that the Project progressed with minimal initial delays, timely and thorough monthly progress reports, and was of good quality. The Government project completion report also acknowledged ADB client responsiveness and noted that ADB support laid a solid foundation for project success. It cited ADB’s timely approval of works variations and equipment procurement and indicated that review missions succeeded in resolving problems and difficulties during project implementation. In terms of areas for improvement, the executing agency (EA) pointed out that ADB asked for many reports but did not give sufficient feedback in return. EA staff also thought that the inception mission could have been more comprehensive and could have explained reporting requirements more thoroughly. At the same time, ADB did not identify resettlement problems or issues that resulted from a lack of local government financing. These could have been detected and resolved by the missions if a resettlement specialist had participated in some missions. 39. The performance of ADB under the Shanxi Road Development Project is satisfactory. ADB loan review missions provided effective advice to Shanxi Qilin Expressway Company Limited (SQEC) on project implementation and procurement matters. SQEC appreciated the assistance provided by every mission but would have preferred dealing with the same project officer throughout project implementation for easier coordination and consultation (i.e., six different project officers were assigned to the Project during its 7-year life). While a high turnover of project officers did not affect overall project implementation, it may have contributed
86 Appendix 6
to the failure of SQEC to seek ADB’s prior approval of the expressway design change to six lanes.
b. Railways 40. The PCR for the Shenmu-Yanan Railways Project rated ADB performance satisfactory. Project formulation and appraisal was satisfactory except that (i) traffic estimates were somewhat overstated; and (ii) there was no clear definition of link roads in the appraisal or by the PPTA consultants, making it difficult to verify whether the roads were constructed or being maintained. During implementation, ADB performed generally satisfactory except that monitoring of resettlement activities appeared inadequate. The Project was completed on time with no delay in procurements and disbursements of funds. On the other hand, resettlement compensation was less than was set forth in the resettlement plan. This was not identified discovered until late in implementation. The selected monitoring organization had little experience in monitoring land acquisition and resettlement activities, which partly explains why this issue was not discovered earlier. 41. he Guizhou-Shuibai Railway Project, ADB’s performance was rated satisfactory. The project had been satisfactorily formulated although the justification based on coal demand was too simplistic. The PPER also noted that ADB should have been much more active in monitoring the implementation of the resettlement activities since it affected many more people than originally envisaged.
2. Executing Agency and Implementing Agency Performance
a. Roads 42. The PPER for the Hebei Roads Development Project rated the performance of both the Executing Agency and Implementing Agency as satisfactory, since they responded well to the project’s needs and ADB’s requirements. Environmental mitigation measures were observed, resettlement was addressed properly and with limited ADB supervision, ADB guidelines for procurement were followed, project implementation proceeded smoothly, training of Hebei Provincial Communications Department staff members facilitated their adoption of and ability to implement project activities and ADB project features, and loan covenants were generally adhered to. 43. On the Chengdu-Nanchong Expressway Project borrower performance was rated satisfactory. The project was implemented in a timely and efficient manner. Only the lack of attention to monitoring of resettlement implementation prevented the PPER from giving it a higher score. The provincial communication department also showed determination in its handling of corrupt practices (although the case in question was unrelated to this project). 44. Borrower performance under the Changchun-Harbin Expressway Project was rated satisfactory. The project was implemented in a timely and efficient manner. What precluded a more positive assessment was the Jilin Executing Agency’s overly tight implementation schedule, which in turn resulted in the relaxation of competitive bidding procedures. There were also organizational weaknesses in project management for the Heilongjiang section that led to unrealistic cost estimates for that component. 45. For the Southern Yunnan Road Development Project, the PCR rated borrower performance highly satisfactory. The Yunnan Provincial Communications Department was
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familiar with ADB procedures and practices from a previous expressway project while the Yunnan Yuan Mo Expressway Corporation (YMEC), the executing agency, was well staffed during project implementation. YMEC was extremely cooperative with ADB at all stages of project design and implementation and proved itself to be highly efficient and well–organized entity. The Project was implemented with due concern for construction quality without sacrificing speed. No particular procurement issues have arisen except for a lengthy tender evaluation process. Environmental protection measures complied with requirements. However, land acquisition was a protracted process because of lack of local government funding and the need to acquire significantly more land than initially expected because of design considerations in precipitous terrain where slope protection was especially difficult. 46. For the Shanxi Road Development Project, borrower performance was satisfactory. The Project was implemented in a timely and efficient manner with internal project controls set in place to ensure effective use of funds. Project management during construction was highly efficient. The internal audit unit had been established and domestic funds were mobilized on time, with no fund shortages occurring during project implementation. Environmental impact assessment and environmental monitoring had been in compliance with PRC regulations and ADB safeguards policy. Land acquisition and resettlement were on time and to the satisfaction of those affected. The Shanxi Qilin Expressway Company Limited (SQEC) is assessed to have the capability and capacity to manage FIDIC-based contract systems and both construction and maintenance were in line with international standards. Construction quality was effectively managed using ISO9000 system. Considering that the design was changed to six lanes, contract variations were well controlled. Engineering capacity for expressway maintenance is very good while expressway traffic management, operation, and administration capacity is satisfactory. On the other hand, expressway traffic information collected was found to be neither centralized nor well-maintained. SQEC does not process toll revenue and do not collect traffic data—a key information for expressway operation—and utilize these for planning expressway operations. In respect to the local roads component, the rehabilitation and management of rural roads were well managed, even though local governments, which have limited resources, were responsible for this component.
b. Railways
47. For the Shenmu-Yanan Railways Project, borrower performance was satisfactory. the staff of Shenmu Xiyan Railway Company (SXRC), the executing agency, were well experienced in project implementation and railway operations and management, and the project management office staff was considered reasonably diligent and dedicated to the successful and timely completion of the Project. During implementation, SXRC generally made timely decisions and actions. However, periodic reporting, submission of project accounts and preparation of the EA’s PCR were late. Although the Project was completed at the end of 2003 (the start of commercial operation), the PCR was not submitted until January 2006. 7 Monitoring and control of land acquisition and resettlement activities was less than satisfactory. 48. On the Guizhou-Shuibai Railway Project, the Executing Agency's performance was rated satisfactory. The Executing Agency implemented the project diligently and efficiently, resulting in completion of civil works ahead of schedule. On the negative side, there was a lack of attention to resettlement monitoring and a failure to adhere to a loan covenant. 7 Following payment in full of ADB’s loan in 2003, the EA did not submit any reports such as project accounts, final
reports on environmental impacts and monitoring of resettlement activities, and PCR. A consultation mission in October 2005 resolved the issue of non-submission of reports and the EA submitted their PCR within 3 months of the mission.
88 Appendix 7
ASSESSMENT OF HOW ADB PROJECTS ADDRESSED POVERTY REDUCTION A. Role of Poverty Reduction in Project Design 1. The evaluation of the Asian Development Bank (ADB) road and railway projects in the People’s Republic of China (PRC) has to take into account changes in ADB’s role and objectives. Growth was the overarching goal of ADB interventions prior to the country operational strategy (COS), 1997–2003. The COS retained economic efficiency as the number one goal, but expanded the growth objective to incorporate poverty reduction by “promoting economic growth to reduce poverty in inland provinces.” 2. With the approval of ADB’s poverty reduction strategy (PRS) in 1999, ADB sought to improve the orientation of its operations toward poverty reduction. For the next few years, it did so mainly by targeting interventions toward poor households, and by concentrating more attention on social development and governance. In 2004, ADB reviewed the PRS, and approved the enhanced poverty reduction strategy (EPRS). In the case of infrastructure, interventions including roads and railways, the EPRS required ADB to examine the broad channels for poverty reduction at the country and sector levels, but downplayed the former strategy of targeted interventions since it was found to be impractical. 3. The following assessment uses a set of benchmark criteria to examine how well the design of ADB road and railways projects in the 1997–2005 study period addressed poverty reduction. The benchmarks applied are:
(i) Benchmark 1. Did the project gather evidence and design approaches to address the causes of poverty?
(ii) Benchmark 2. In choice of site and design, did the project explicitly address poverty reduction?
(iii) Benchmark 3. Did the project design seek to reduce possible adverse impacts on poor people?
(iv) Benchmark 4. Was the project linked to poverty-focused policy reforms and institution building?
(v) Benchmark 5. Was the project designed as part of a package of integrated projects and programs? Did the design consider and address the possibility that the project might crowd out other poverty reduction projects?
(vi) Benchmark 6. Did the project background data establish the extent to which the situation of the poor in general, and that of the target groups in particular, could be assessed?
(vii) Benchmark 7. Were assessment of poverty impact and benefit incidence carried out?
4. The assessment divides the study period into three subperiods to take into account changes in (i) from 1997 to 1999, covering the period prior to approval of the PRS; (ii) from 2000 to 2004, covering the period of the PRS and prior to approval of the EPRS, and (iii) 2005, when the EPRS replaced the PRS. 5. It is important to note that the benchmark assessment examines whether the report and recommendation of the President (RRP) included features relevant for poverty reduction in the design of a project. It does not consider whether those features added value compared with a “without project” case, whether they complemented or complicated existing implementation and funding arrangements for the executing agency and the other PRC authorities concerned, or the
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outcomes of project features. Those issues are examined by other parts of this sector assistance program evaluation. 6. Initially, a brief review was conducted of the RRPs for the PRC road and railway projects approved in the period immediately before 1997. This was to clarify how ADB treated poverty reduction in project design before it adopted poverty reduction as its overarching objective. The review examined whether poverty reduction was (i) a formally stated secondary objective, (ii) included as an issue but not a formal objective, or (iii) not included at all. Unsurprisingly, in view of the above historic background on how poverty reduction became operationalized in ADB, none of the four road projects approved in 1995–1996 referred to poverty reduction as a formal objective, and only mentioned it as an issue. The beneficiaries listed in the RRPs were limited to road users. B. How Poverty Reduction was Addressed in RRPs from 1997 to 1999 7. The RRPs for projects approved during the first 3 years of the COS (1997–1999, which corresponded to the period immediately prior to approval of the PRS), were assessed in relation to the seven listed benchmarks. A rating scale of 0–3 was used.1 The results are in Table A7.1. The five road projects were on average rated satisfactory in relation to benchmarks, with two projects close to highly satisfactory. In contrast with the pre-1997 period, poverty reduction was explicitly listed as an issue in all five of the road projects, and formally as a secondary objective in two. The road projects included considerable lengths of local and service roads to facilitate access to the expressway from within the project influence area. In the case of railways, both projects achieved a satisfactory score, with one scoring close to highly satisfactory.
Table A7.1: Benchmark Assessment of Roads and Railways RRPs, 1997–1999
Project Year Loan No. BM 1 BM 2 BM 3 BM 4 BM 5 BM 6 BM 7
Average Scorea
A. Roads 1. Hebei Roads Development 1998 1617 3 3 2 3 2 3 3 2.71 2. Chengdu-Nanchong Expressway 1998 1638 2 2 2 2 1 3 3 2.14 3. Changchun-Harbin Expressway 1998 1641/2 2 2 2 1 2 2 1 1.71 4. S. Yunnan Road Development 1999 1691 2 3 2 2 3 3 3 2.57 5. Shanxi Roads Development 1999 1701 1 3 2 0 2 3 3 2.00 B. Railways 1. Shenmu-Yanan 1997 1553 3 3 2 2 2 2 0 2.00 2. Guizhou-Shuibai 1998 1626 3 3 2 2 2 3 3 2.57
BM = benchmark, RRP = report and recommendation of the President. a Unweighted average. Source: Sector assistance program evaluation team. C. How Poverty Reduction was Addressed in RRPs from 2000–2004 8. Following approval of the PRS in 1999, all road projects approved from 2000 to 2004 were located in the PRC’s poor central and western provinces. Poverty reduction was explicitly listed as an issue in each of these RRPs, and special project features were included to increase the poverty reduction impacts. The benchmark assessment of the 11 road and four railway project is in Table A7.2. 1 For example, highly satisfactory = 3, satisfactory = 2, less satisfactory = 1, and unsatisfactory = 0.
90 Appendix 7
9. The benchmark scores for 2000–2004 improved upon those for 1997–1999. With an average overall benchmark score of 2.52, the road projects scored between satisfactory and highly satisfactory. On average, the four railway projects were even closer to highly satisfactory (2.82). Explicit poverty reduction features were included. Special project features were designed in the context of existing national or provincial plans and programs, and with regard to some key policy reforms. Close dialogue and coordination with the World Bank was highlighted in the RRPs. 10. It is interesting to note in relation to benchmark 5 that there was little attempt in any of the RRPs to claim that the special project features were genuinely additive. In the case of the local-roads components, most RRPs showed that ADB was financing a minor foreign exchange component of a larger local-roads package already defined and budgeted within the provincial roads development plan. There was no ex ante “crowding out” analysis. The special features for addressing HIV/AIDS in projects close to the PRC’s western border were also presented as supplements to Government initiatives already in place. The majority of the RRPs explicitly listed the various components of provinces' other (i.e. not having to do with roads) poverty reduction programs and described how the ADB road project features were adjusted to these.
Table A7.2: Benchmark Assessment of Roads and Railways RRPs, 2000–2004
Project Year Loan No. BM 1 BM 2 BM 3 BM 4 BM 5 BM 6 BM 7
Average Score a
A. Roads 1. Chongqing-Guizhou Road Development 2000 1783/4 3 3 2 2 2 3 3 2.57 2. Shaanxi Roads Development 2001 1838 2 2 3 3 2 2 3 2.43 3. Guangxi Roads Development 2001 1851 2 3 2 3 2 2 3 2.43 4. South Sichuan Roads Development 2002 1918 3 3 3 2 2 3 3 2.71 5. Shanxi Roads Development II 2002 1967 2 2 3 2 2 2 2 2.14 6. Ningxia Roads Development 2003 2004 3 3 3 2 2 3 3 2.71 7. West Yunnan Roads Development 2003 2014 3 3 2 3 2 3 3 2.86 8. Xi’an Urban Transport 2003 2024 1 1 2 2 2 2 2 1.71 9. Hunan Roads Development II 2004 2089 3 3 3 3 2 3 3 2.86 10. Guangxi Roads Development II 2004 2094 2 3 3 3 2 3 3 2.71 11. Gansu Roads Development 2004 2125 3 3 3 3 2 2 2 2.57 B. Railways 1. Heifei-Xi’an 2000 1748 3 3 3 2 2 3 3 2.71 2. Ganzhou-Longyan 2001 1850 3 3 3 3 2 3 3 2.86 3. Yichang-Wanzhou 2003 2051 3 3 3 3 2 3 3 2.86 4. Dali-Lijiang 2004 2116 3 3 3 3 2 3 3 2.86
BM = benchmark, RRP = report and recommendation of the President. a Unweighted average. Source: Sector assistance program evaluation team. D. How Poverty was Addressed in RRPs in 2005 11. Following approval of the EPRS in 2004, ADB adjusted its PRS to become more country-specific, with less targeting of interventions. The country strategy and program (CSP) was to demonstrate how ADB’s overall assistance would contribute to poverty reduction, and individual lending and nonlending interventions were no longer expected to be targeted directly to the poor. The EPRS stated that ADB’s comparative advantage was in the area of assisting poverty reduction indirectly, rather than through targeted interventions.
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12. The rationale for such an adjustment in strategy was echoed in the Operations Evaluation Department’s 2006 special evaluation study on “Pathways out of Rural Poverty and the Effectiveness of Poverty Targeting.” This provided strong support for this new perspective on how ADB could best support the PRC’s initiatives to develop the country’s western regions. It showed the importance of widening the scope of the CSP from site-specific individual projects in poor western areas to a broader national perspective. When appropriate, it also considered support for the creation of sustainable jobs in urban areas. Such jobs can provide opportunities for poor rural migrants coming from areas where the limitations for further farming intensification have been reached or exceeded. 13. The shift from a project-based to a country-assistance focus on poverty reduction under the EPRS has the following possible implications for ADB lending:
(i) There may be a need to reconsider ADB’s geographic targeting of assistance to the central and western provinces. While these are the poorest provinces, some 80% of the population reside in other parts of the country, and there are large pockets of low income rural and urban households nationwide.
(ii) Each project intervention does not need to target the poor, or be designed and configured to benefit poor communities directly. In some instances, efforts to target interventions to poor households may have complicated project design and compromised more cost-effective means of ensuring that services are made accessible to the poor (e.g., ADB insistence on including rural-roads components, which may have forced poorer municipalities to borrow for the provision of rural roads, rather than having these financed from their own resources or from central government grants). ADB’s comparative advantage is in assisting poverty reduction indirectly, and that comparative advantage should be exploited.
(iii) Poverty reduction should be monitored as an integral part of the CSP, rather than at the level of each individual project (except for projects that are classified as household targeted interventions).
14. The benchmarking of the three road and railway projects approved in 2005 is in Table A7.3. There is no sign of the projects being designed and monitored differently from a poverty reduction perspective than those approved during the 2000–2004 period. On the contrary, they have been designed and pursued just like the earlier projects. This could well be a result of the projects being identified and prepared for approval in 2003 and 2004 while the “old” PRS was the guideline for project design. The average benchmark score for the three approved projects is 2.57. Based on the principles and requirements of the PRS, this would be highly satisfactory. However, with the EPRS shift from a “bottom-up” to a “top-down” strategy for poverty reduction in ADB interventions, most of those seven benchmarks no longer provide a suitable basis for such poverty impact project assessment. In practice, a new set of project design principles needs to be instilled in road and railway projects to change from the “bottom-up” approach, and a new set of benchmarks would be needed to evaluate these.
92 Appendix 7
Table A7.3: Benchmark Assessment of Roads and Railways RRP in 2005
Project Year Loan No. BM 1 BM 2 BM 3 BM 4 BM 5 BM 6 BM 7
Average Score
A. Roads 1. Central Sichuan Roads
Development 2005 2181 2 3 2 3 2 2 1 2.14
2. Hunan Roads Development III 2005 2219 3 3 3 3 2 3 3 2.86 B. Railways 1. Zhengzhou-Xi’an Railway 2005 2182 2 3 3 3 3 3 2 2.71
BM = benchmark, RRP = report and recommendation of the President. Source: Sector assistance program evaluation team.
Appendix 8 93
FINDINGS FROM STUDIES OF POVERTY IMPACTS OF ROAD PROJECTS 1. This appendix reviews the available evidence from the People’s Republic of China (PRC) and other studies of relevance regarding documentation of poverty reduction impacts of physical infrastructure and, in particular, road development. The main technical assistance (TA) projects that this overview draws from are (i) TA 3900 (Asian Development Bank [ADB] 2004), Volumes I and II: Socioeconomic Assessment of Road Projects; (ii) TA 4650 (ADB 2005), Evaluating Poverty Impacts of Transport Projects (still ongoing); (iii) regional technical assistance 5947 (C. Cook, et al [2005]), Assessing the Impact of Transport and Energy Infrastructure on Poverty Reduction; (iv) G. Wood (2006) for the World Bank: PRC: China Expressway Retrospective Study; (v) Special Evaluation Study (May 2006), Pathways Out of Poverty and Effectiveness pf Poverty Targeting, OED, ADB; and (vi) S. Hansen (2006), State of the Art Study—The Long-term Effects of Assistance to the Power Sector, Draft Report prepared for Norad, Norway. 2. Infrastructure as an Engine of Growth and Poverty Reduction? Before addressing the focal challenges of documenting the economic, social development, and poverty reduction impacts of road projects, it is useful to briefly outline the impacts of major infrastructure investments in general. The reason for this approach is that recent reviews have shown that the impacts of one type of infrastructure (e.g., roads) on economic development, poverty reduction indicators, and other welfare measures can be significantly enhanced by coordinated investments in complementary infrastructure (e.g., telecommunications and power). Furthermore, it is becoming increasingly clear that unless the initial infrastructure investments (e.g., a new or rehabilitated road) is properly operated and maintained, the poverty and development benefits will soon vanish (see e.g., S. Hansen [2006]). 3. Such empirical research has taken place mostly during the last two decades. The first such studies caused substantial academic debate for methodological reasons. J.M. Antle (1983) 1 used aggregate agricultural production data for 1965 from 47 developing and 19 developed countries and included infrastructure to explain differences in agricultural productivity across countries. Not surprisingly, he found that infrastructure (in that study defined in gross domestic product [GDP] terms per unit of land) had a strong positive impact on agricultural productivity in all categories of countries. Antle followed this up with a similar study on India (J.M. Antle 19842) and came to the same conclusion. 4. The econometric methods adopted for these studies, however, suffered from severe shortcomings in design, and therefore did not really answer the fundamental question of impacts. For one, the data used were such that one might equally likely have estimated the impact of output on public infrastructure capital. Secondly, it is possible that, due to common trends in infrastructure and output, the correlation between output and capital stock was driven by a common time trend, and not by any underlying relationship between the two variables. 5. However, later studies have done much methodologically and empirically to improve our understanding of such impacts and the direction of cause and effect. R. Ahmed and M. Hossain (1990)3 measured the aggregate effects of village-level infrastructure (measured as a composite index) on a number of welfare and level-of-development indicators in Bangladesh and found 1 Antle, J.M. 1983. Infrastructure and Aggregate Agricultural Productivity: International Evidence. Economic
Development and Cultural Change, 31 (3):609–619. 2 Antle, J.M. 1984. Human Capital, Infrastructure, and the Productivity of Indian Rice Farmers. Journal of
Development Economics, 14(1/2):163–181. 3 Ahmed, R. and M. Hossain. 1990. Development Impact of Rural Infrastructure. IFPRI Research Report 83.
Washington, DC.
94 Appendix 8
that infrastructure development increased agricultural production by as much as 32%, and increased household incomes by 33%. In addition, they found such investments to be pro-poor since the landless and smallholder farmers garnered a larger share of incomes from better infrastructure. 6. H. Binswanger et al (1993)4 did a similar impact analysis in India but disaggregated for each type of infrastructure and found that the availability of electricity tended to increase farmers’ investments in irrigation pumps, investments in roads tended to increase bank expansion in rural areas, and all public infrastructure works tended to increase fertilizer demand. 7. Starting in 1999, S. Fan, et. al. started a series of International Food Policy Research Institute (IFPRI) studies that included India5 and PRC.6 These included infrastructure as a component of public spending on agricultural research and development, irrigation, rural infrastructure such as roads and electricity, and rural development. By analyzing state-level data, they estimated the impact of different public expenditures on poverty reduction and found—in the case of India—that government expenditures on roads had the largest impact on poverty reduction, as well as having a significant impact on productivity growth. This finding on the relative impacts and roles of different types of infrastructure corresponds closely to what G. Foley (1999)7 reported in his review of the partial impacts of electrification. 8. For the PRC, Fan et al (2002) and (2005) has conducted significant and useful statistical research comparing how different types of investment affect economic growth and poverty reduction by region. More recently, Fan et al (2005) compared the economic impact of investment in expressways with investment in local roads. The 2002 study highlights the hierarchy of beneficial impacts of different infrastructure and industry sectors on the poor. The relative ranking of public investment in terms of GDP return on investment and direct impact on poverty rank roads no lower than third after agricultural research and development, and education.
9. It is also worth noting that this multisector comparative econometric analysis concludes strongly that for all expenditure categories poverty reduction per yuan spent is many times higher in Western provinces than elsewhere in the PRC. 10. Dong8 found a strong output response by the PRC farm households to a change in public expenditures when analyzing the effects of village-sponsored infrastructure and social services.
4 Binswanger, H.P., S.R. Khandker, and M. P. Rosenzweig. 1993. How Infrastructure and Financial Institutions
Affect Agricultural Output and Investment in India. Journal of Development Economics, 41 (2): 337–366. 5 Fan, S., P. Hazell, and S. Thorat. 1999. Linkages Between Government Spending, Growth and Poverty in Rural
India. Research Report 110. Washington, DC: IFPRI. 6 Fan, S., L. Zhang, and X. Zhang. 2002. Growth, Inequality and Poverty in Rural China: The Role of Public
Investments. Research Report 125. Washington, DC: IFPRI; and Fan S., and C.C. Kang. 2005. Road Development, Economic Growth and Poverty Reduction in China. Research Report 138. Washington, DC: IFPRI.
7 Foley, G. 1999. Rural Energy in Developing Countries. Final report of a study commissioned by Norad. 8 Dong, X. 2000. Public Investment, Social Services and Productivity of Chinese Household Farms. Journal of
Development Studies, 36,(3), 100–122.
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Table A8.1: Impact of Public Investment in Poverty Reduction
Sector Number of Poor Reduced per CNY10,000
Public Investment by Province
Coastal Central Western Average Rank Agricultural Research and Development
1.99 4.40 33.12 6.79 2
Irrigation 0.55 0.77 4.06 1.33 6 Roads 0.83 3.61 10.73 3.22 3 Education 2.73 5.38 28.66 8.80 1 Electricity 0.76 1.65 6.17 2.27 4 Telephone 0.60 1.90 8.51 2.21 5 Poverty Loan 0.88 0.75 1.49 1.13 7
Source: S. Fan et al. 2002. Growth, Inequality, and Poverty in Rural China. Washington, DC: IFPRI (page 69). 11. S. Chowdhury and M. Torero,9 in one of the most carefully structured econometric studies of infrastructure impacts so far, established on the basis of Bangladeshi household data that households living in a village connected to a paved road earn a higher proportion of their income, on average, from nonfarm activities compared with households living in villages not connected to paved roads. Similarly, the availability of electricity or public telephones may also boost the prevalence of nonfarm activities. Other types of infrastructure have no significant effects on their own, but positive complementary effects result when more than one form of infrastructure is available; e.g., electricity only has a positive effect when combined with access to roads or telephones. This is consistent with other results from the Bangladesh study, as well as the findings reviewed by G. Foley for Norad (footnote 7). 12. Economic growth is endogenous. This means that growth levels are driven by the public expenditures—including infrastructure investments—but at the same time, public expenditures are driven by economic growth. In a recent study, Lumbila10 showed that countries with more developed infrastructure see a disproportionately greater impact of infrastructure on foreign direct investment (FDI), domestic investment, and growth. 13. At the same time, countries with underdeveloped infrastructure see no statistically significant impact of infrastructure investment on growth. In other words, not only can a lack of infrastructure be an impediment to more investment, but it can also be one of the dimensions of the so-called "poverty trap," whereby a critical mass of infrastructure is needed to convince investors to make the decisions leading to sustained growth. This suggests that there are critical and interlinked infrastructure threshold levels that have to be reached before one can trace the growth and poverty reduction impacts of infrastructure investments. For example, most African countries have yet to reach such infrastructure threshold levels, and understanding this helps to explain why it has been difficult to detect any significant correlation between infrastructure
9 Chowdbury, S., and M. Torero. 2005. Urban-Rural Linkages in Bangladesh: Impact of Infrastructure and the Food
Value Chain on the Livelihoods and Migration of Landless Households, Women and Girls in the Northwestern Region. Mimoe, IFPRI, Washington DC.
10 Lumbila, K.N. 2005. What makes FDI Work? A Panel Analysis of the Growth Effects of FDI in Africa. The World Bank, Africa Region Working Paper Series 80. Washington, DC.
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provision and growth in Africa. Institutional capacity constraints and infrastructure market distortions raise those threshold levels even further. 14. In sum, most papers that have attempted to seriously model the role of infrastructure in economic growth have found strong indications of its importance A comprehensive review based on national macroeconomic data for the 1960–1997 period clearly shows that adding and/or improving infrastructure is linked to higher growth rates, and that there are only exceptional cases where this correlation is not observed.11 15. The clear message from this research is that there will be no growth and no significant poverty reduction without major infrastructure improvements. This observation has led to counterfactual growth impact studies of what is the macroeconomic cost of not investing in infrastructure. Esfahani and Ramirez12 estimated that had Africa had East Asia’s growth rate in telephones per capita (5% in Africa versus 10% in East Asia) and in electricity generation (2% in Africa versus 6% in East Asia), Africa’s per capita growth rate would have been almost 1% higher. Others did a similar country-by-country counterfactual comparison for 21 African countries with South Korea as the comparator. That study showed that the average per capita growth rate would have been slightly more than 1% higher—see Calderon and Serven.13 16. These findings are in line with the diverse body of international empirical evidence, which points to public infrastructure having a significant positive impact on output and on the poverty-related outcome variables studied. For example, it has been estimated that increasing infrastructure investments by three to four percentage points of GDP increases poverty reduction effects (i.e., reduce poverty) by 0.6–1% annually, Besley and Burgess.14 However, such studies on developing economies are limited, mainly because there is a lack of comparable data on infrastructure stocks and outcome variables covering a sufficiently long timeframe. 17. Recent studies of the “engines of growth” show convincingly that during the 1970–1990 period, more than 50% of the variation in growth per capita was explained by institutional variables.15 Perhaps the most important finding was that any support to infrastructure in poorly governed countries will require a strong commitment to bring about the necessary institutional changes. In this context, it is important to take into account that while construction works may take a long time to complete, it takes much more time to undo faulty institutional arrangements. Solid institutional arrangements are thus vital to ensuring the long-term viability of any infrastructure investment. This link between infrastructure impacts and institutional reform has often been underestimated in the past. 18. Impacts of Transport Infrastructure Projects on Poverty Reduction. The recent multi-country (PRC, India, and Thailand) ADB study “Assessing the Impact of Transport and Energy Infrastructure on Poverty Reduction”, C. Cook et al (2005), not only takes into 11 Estache, A. 2005. What do we know about Sub-Saharan Africa’s Infrastructure and the Impact of its 1990s
Reforms? Draft working paper, version 4, May 24. 2005, The World Bank and ECARES, Universite Libre de Bruxelles.
12 Esfahani, H.S, and M. T. Ramirez. 2003. Institutions, Infrastructure and Economic Growth. Journal of Development Economics, 70,443–477.
13 Calderon and Serven. 2004. The Effects of Infrastructure on Growth and Income Distribution. Policy, Research Working Paper No. WPS 3400. Washington, DC: World Bank.
14 Besley, T., and R. Burgess. 2003. Halving Global Poverty. Journal of Economic Perspectives, Volume 17, 3, pp.3–22.
15 Naude, W., and W. Krugell. 2003. Foreign Direct Investment in Africa: The Importance of Institutions. Paper prepared for the international NEPAD conference, Port Elisabeth, 22–23 October 2003.
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consideration its primary field studies commissioned in the three countries, but also reviews empirical findings from literature and research on the topic worldwide, and on that basis reaches the following key conclusions of relevance to this review: 19. Transport infrastructure investments have benefited the poor as well as the nonpoor. There is insufficient evidence to reject the hypothesis that the nonpoor benefit more than the poor from public goods transport investments. Poor people welcome the reduced transport costs that result from competition in the transport industry. Reduced transport costs mean reduced costs of inputs to both their farm and nonfarm activities, reduced prices and increased selection of consumer goods, and reduced sensitivity to transport costs and time when marketing their own produce. Poor people near the poverty line are mobile and express demand for transport services. They share equally in the qualitative benefits of improved access to health, education, social and community services, increased safety and security, and access to information. 20. However, transport improvements are less likely—in the short run—to benefit the poorest of the poor. The poorest of the poor tend to be chronically poor for reasons that are not linked to the availability of transport services. This group constitutes a rather small portion of the poor in the PRC. Their mobility is so limited beyond their household, that the challenges of meeting their demands for a better life will be more effectively met by non-transport measures. 21. For the chronic poor, village road improvements may produce net negative effects on welfare. Such people include those who are essentially captive to their household or village (e.g., due to physical handicaps), and those whose livelihoods depend on activities that may be displaced by the transport improvements. In addition, the less productive among the local producers may suffer, since they will be exposed to competition from outside suppliers. Expanding the scope of road improvement projects to include components that target these vulnerable groups could facilitate the process of decision-making toward a project acceptable to all affected parties. 22. Transport improvements are, frankly speaking, not a cost-effective way to address problems facing the chronic poor. Project experience from several countries suggests clearly that households that do not report benefits from transport improvements fit the socioeconomic profile of chronic poor, typically suffering from disabilities, chronic disease, low education levels, and high dependency ratios. Nonetheless, short-term transport benefits may materialize for such households in the form of improved access to education, health care, and social services, which may then pave the way for better income opportunities in the future. 23. Transport planning for poverty reduction must take into account that poverty is not so much a village as a household phenomenon. There are poor households in well-off communities, and well-off households in poor and disadvantaged communities. Experience shows that bringing transport to a community initially creates benefits for the relatively rich households, while enabling some of the poorer ones to move out of poverty. The extent to which transport investments bring economic benefits to a household depends on the assets the household can mobilize to take advantage of the improved opportunity. Consequently, even though everyone benefits from the new or improved roads, the perception may still be one of growing social inequity. 24. An important observation in this context is that the poor who do not move out of poverty immediately can also benefit significantly. They may not travel or transport goods themselves, but they will nevertheless benefit from improved access to jobs, consumer goods, and inputs to
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whatever they are engaged in producing. Measuring poverty reduction by looking at the number or percentage of people being lifted above an official poverty line can thus be rather misleading. 25. Transport creates opportunities to increase the productivity of the poor. Consistently, transport improvements are seen as having the most significant impacts on the incomes of the poor in communities where they are not captive and indebted to middlemen and monopolistic transport service operators. And even in such places, improved access to markets and employment could reduce such intra-community dependencies. Increased opportunities for employment in nonfarm enterprises appears to be the dominating effect; this also applies to landless poor, so long as they do not have a chronic physical handicap. 26. The provision of a road alone does not determines who benefits and the extent of those benefits. Equally important is the quality and reliability of the services provided. Since competition in transport services in the PRC tends to be stiff, it is likely that improved transport infrastructure and transport services will benefit the users (including the poor) in the form of lower prices, increased frequently of service, and shorter travel times. This again impacts positively on the local investment climate and the preparedness of community households to take more risks and invest in equipment and new production lines (including higher value and perishable crops) that could enhance incomes considerably. 27. Time savings are of great importance to the poor, especially to time-deprived women. Their time is worth much more than their estimated opportunity cost of labor. Improved transportation generates time savings that provide for more time spent on the farm, household work, or participation in health care, education and/or community activities, and expands the radius within which they can seek off-farm employment opportunities. The value of such time savings have traditionally been ignored in manuals for project preparation.
28. Cost-Effective Pathways Out of Rural Poverty in the PRC—the Role of Road Investments. 16 Based on fieldwork and extensive interviews in poor areas with distinctly different sociocultural and natural resource characteristics in Sichuan and Yunnan provinces, this OED study found, unsurprisingly, that the real impact of infrastructure investment on poverty reduction varies across regions, depending on local conditions in the particular area.
29. In areas with limited natural resources for agricultural expansion (i.e., where the population carrying capacity of soils and water is virtually exhausted), people escape from poverty through the migration of younger family members to the cities or other provinces with better job opportunities. In such areas (e.g. in parts of rural Sichuan Province), the lack of good local infrastructure such as rural roads and expressways does not stop people from migrating out of their villages, as long as they can find better job opportunities in the outside world where they have social connections. It is the ability to migrate that determines the extent to which they are able to escape poverty and contribute with remittances back to their origin.
30. This ability to migrate is due to (i) the many jobs created by the sustained rapid economic growth in the PRC, (ii) the emergence of an integrated labor market nationwide, and (iii) easy access to information about job opportunities arising from having relatives and friends outside the village and province who migrated earlier.
31. There is at best tenuous evidence to suggest that expressways (running through poor provinces) and/or local roads increase the incidence of poor households rising out of poverty.
16 ADB. 2006. Special Evaluation Study on Pathways Out of Rural Poverty and the Effectiveness of Poverty
Targeting. Manila.
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But one must clearly acknowledge that expressways—in particular the National Trunk Highway System (NTHS)—have had a strong indirect impact on poverty reduction because of the critical role they have played in removing bottlenecks to the sustained high rate of economic growth in the PRC. This growth is the underlying factor that creates new jobs in the coastal and central areas of the country, thus making large-scale migration possible. From this perspective, investing in expressways as a means to create a climate for workplace investments that facilitates migration from poor, growth-constrained communities could be an extremely cost-effective poverty reduction method, even if it contains no explicit, geographically placed poverty reduction component.
32. In areas where the natural resource conditions, population densities and agro-cultural practices combine to suggest a considerable underutilized carrying capacity of the land, the poverty reduction impacts from improved rural roads and reliable year-round transport can be significant. For example, in rural areas of Yunnan Province with high potential for developing commercial crops, improved rural-road access enabled poor households to rise from poverty by growing and marketing such crops.
33. In these areas, the improved rural-road network meant that commercial firms were more willing to sign contracts with farmers to purchase their produce. Such firms have a choice between locations, and communities that lack good road access usually end up they losers because doing business in these communities means higher transport costs, higher travel times, and more uncertain access.
34. Where to Improve Roads to Achieve Cost-Effective Poverty Reduction. The answer to this question is complex and elusive. S. Fan et al (2002) sought answers to the question by subdividing in the PRC GDP and poverty impacts by region. The eastern coastal area of the PRC is more urbanized and has better access to coastal shipping. Trading has always been a strong characteristic of the coastal provinces. Conversely, the central and western provinces have traditionally been difficult to access. The analysis showed the highest GDP impact of roads was in the central provinces, which logically benefited the most from the improved accessibility afforded by the new toll road system.
35. The direct impact of roads on poverty reduction is also impressive and shows that the Government’s consistent policy of improving access to a strong hierarchy of roads remains a viable and necessary development strategy. What is less clear is what role the toll-road system fills in that strategy. As the focus of attention shifts to the western provinces, rightly, the residual obligation to continue the development of the system in the eastern and central provinces will fall increasingly on the private sector.
36. Their more recent research (footnote 7) targeted the difference between funding expressways and funding local roads. It assessed the differential impact of that investment on both rural- and non-rural GDP, disaggregated by geographic areas of the PRC. It found that the GDP return from investment in rural roads was significantly higher than the equivalent investment in higher-standard roads. As noted in the report:17
For the country as a whole, the marginal benefit–cost ratio for high-quality roads was 1.45 in 2001. The southwest region has the highest return, followed by the central region, which are two relatively poor regions in PRC. The lowest returns occurred in the northwest and the south. The returns to low-quality roads are much higher. The average return to low-quality roads was 6.37 yuan for each yuan invested in PRC in 2001. This is more than four times larger than the return
17 Fang, S., and C.C. Kang. 2005. Road Development, Economic Growth and Poverty Reduction in China. Research
Report 138. Washington, DC: IFPRI (page 51).
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to investment in high-quality roads. The southeast region has the highest return, followed by the south and southwest, whereas the lowest return occurs in the northwest.
37. Rural-road upgrading is needed in all provinces as such roads improve access to markets and employment—both of which are more plentiful in the south, particularly in the southeastern provinces where the impact is highest. 38. Furthermore, the 2005 S. Fan model points out that the gross increase in economic activity nationwide is higher with expressways, the cost effectiveness of expenditures on roads is much higher for local roads because they cost much less. The ratio of effectiveness of investment in rural roads in the northern and southwestern provinces is 5 to 10 times greater than the comparative investment in expressways. While this does not in itself argue for less investment in expressways, it does highlight the need to continue to aggressively focus on local roads.18 39. “For high-quality roads, every million yuan invested raises 13 rural poor above the official poverty line. Again, low-quality roads are much more beneficial, raising 161 rural people out of poverty for every million yuan invested. For both high-quality and low-quality roads, the poverty impacts are largest in the southwest and northwest regions when the official poverty line is used. However, when Xi'an and Sheng’s poverty line is used, the number of rural poor helped is much larger: For each million yuan invested in high and low quality roads, 50 and 821 rural poor, respectively, are raised above the poverty line. These effects are about four times larger than those estimated using the official poverty line. For high-quality roads, the largest impact is found in the southwest, followed by the northwest and the north. For low-quality roads, the largest impact also occurs in the southwest followed by the north, and then the central and southeast regions.19” 40. The above review of empirical experience from ADB- and World Bank-funded projects supplemented by a comprehensive review of independent research (which for the most part supports the conclusions and recommendations reached in the ADB projects), can perhaps be summarized as follows:
(i) The net economic impact in terms of poverty alleviation from road transport investment improves as the investment moves toward the western provinces in the PRC—by a factor of 10 over investment in the eastern provinces. However, in terms of return to the rural economy, investment in the central provinces has a higher impact than an equivalent investment in the eastern or western provinces.
18 Both the 2002 and the following 2005 studies are based on a rigorous analysis of the available PRC statistics using
a series of simultaneous equations that include: Agricultural GDP per worker, Terms of trade (measured as agricultural prices divided by a relevant non-agricultural GNP deflator), chemical fertilizer use per worker, GDP per worker, rural illiteracy rate, percentage of total cropped area that is irrigated, capital stock per worker, arable land per agricultural worker, nonfarm GDP per worker, capital stock per worker in the rural nonfarm sector, agricultural research stock per worker, rural electricity consumption per agricultural worker, length of high-quality roads per agricultural worker, length of high-quality roads per nonfarm worker, length of high-quality roads per worker, length of high-quality roads per urban worker, length of lower-quality roads per agricultural worker, length of lower-quality roads per nonfarm worker, length of lower-quality roads per worker, length of lower-quality roads per urban worker, percentage of rural population below poverty line, average years of schooling of rural population 15 years and older, number of rural telephone sets per agricultural worker, average years of schooling of general population 15 years and older, urban GDP per worker, gini coefficient of per capita expenditure for urban residents, urban capital stock per worker, percentage of urban population below poverty line, percentage of urban population in total population.
19 Fan, S. et al. 2005. Road Development, Economic Growth and Poverty Reduction in China. Research Report 138. Washington, DC: IFPRI (page 53).
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This is likely due to the fact that in the western provinces, the rural economy is largely self-contained at subsistence levels. In addition, historical data does not reflect a high degree of linkage to the national grid.
(ii) More recent work on the same theme using more recent and more comprehensive sets of data shows that the overall economic returns from high-quality roads are highest in the central and southwestern provinces, and from low-quality roads in the southeast, south, and southwest.
(iii) When comparing high-quality and low-quality roads, the difference in the cost of construction compared with the economic return shows much higher returns from low-quality roads in terms of poverty reduction.
(iv) In examining the spillover effect of investment in one province on other provinces, road investment in the central provinces provides both a push and a pull effect on the adjacent western and eastern provinces, and results in the best overall net economic effect. While investment in the eastern and western provinces tends to stay largely in the east and west, investment in the central provinces benefits all regions.
(v) Since expressway investments to build the NTHS have contributed critically to the PRC's very high sustained economic growth rates—and as a result growth in jobs in the fastest growing provinces and cities—many of the rural poor, who have minimal opportunities to escape poverty at home, have been escaping poverty by migrating. As they do so they provide important cash contributions to their families back home. From this perspective, expressway construction and establishment of the NTHS have been very important growth stimulants, and quite likely a highly effective indirect means of poverty reduction.
(vi) The strong poverty reduction effects of local roads also must be acknowledged. However, poverty reduction cost-effectiveness by means of rural roads is not a universal solution. Before prioritizing such investments in a localized area, one must carefully establish the underlying causes of the observed poverty, and from such understanding determine if and when—and in what context—rural roads investment (upgrading and/or new roads) is the best way to proceed.
102 Appendix 9
POVERTY REDUCTION CONTRIBUTION OF LOCAL ROADS ATTACHED TO PROJECTS A. Introduction 1. This appendix reviews evidence from project implementation, completion, and post-evaluation reports on the performance of the link- and local-roads components attached to Asian Development Bank (ADB) road and railway projects in the People’s Republic of China (PRC). The main sources used were project performance evaluation reports (PPERs), project completion reports (PCRs), and back-to-office reports. B. Findings of Evaluation Reports 2. The PPER 1 for the Hebei Roads Development Project, approved in 1998, had the following comments on poverty reduction effects:
(i) At the onset, the Executing Agency did not really recognize the importance of the proposal to include access roads linking to expressways. The provincial communications department now appreciated the long-term benefits of this approach and indicated that succeeding expressways will be built with connector roads.
(ii) Project implementation was complicated because of the mixing of a commercial portion (expressway) and an economically viable, but noncommercial, village access roads, and county roads within the same project. Most village roads were also quite short and could have been or were actually built using government funds. The same applied to county connector roads. It was therefore not easy to attribute improved local access to ADB intervention since the Government would have built them anyway.
(iii) Development and poverty reduction effects of the connector and village roads could have been further advanced by means of coordination with complementary poverty reducing infrastructure investments and non-investment actions by other provincial and local agencies, but this had not been considered by the project.
(iv) Expressway benefits extend beyond the immediate project area. Apart from positive resettlement outcomes, direct impacts on the poor appear limited. Majority of expressway users comprise inter-province and/or city traffic. At the same time, local traffic use the upgraded parallel national highway. On the other hand, indirect effects were significant as the expressway provided a catalyst for economic transformation in key growth centers and social development. In addition to supporting increased traffic volumes and reduced travel times and costs in project areas, the expressway contributed to the National Trunk Highway System (NTHS) and national economic growth. Local project communities benefited from improved connectivity to areas with dynamic growth (in terms of outside employment, trade, and commerce).
(v) The connector and village roads generated positive socioeconomic impacts. “Before” and “after” household surveys revealed increased incomes generated locally and from migrant remittances, more diverse sector activities (diversification of industry, development of enterprises, increased tourism, changes in income sources and employment patterns), and improved social services development (access to education and health services) as a result of more reliable year-round road access for local communities.
1 Circulated November 2006.
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3. The PPER 2 for the Chengdu-Nanchong Expressway Project, approved in 1998, concluded the following regarding ADB’s value-added in terms of poverty reduction:
(i) A separate ADB special evaluation study on “Pathways out of Rural Poverty and the Effectiveness of Poverty Targeting,” based on discussions with local government officers, contends that the county-roads component (the key poverty reduction component of the project, which was completed ahead of schedule) were built without use of ADB funds. It furthermore argued that support for local roads would be more likely to be effective if de-linked from expressways so that a more thorough job can be done.
(ii) Because of the dominating role of the provincial rural-roads upgrading and investment in the project area—implemented independently of the ADB-financed expressway project during this same period (1998–2005)—it was very difficult to quantify the direct benefits of ADB projects.
(iii) The project expressway is strategically important in both the NTHS and the larger Sichuan expressway network. There were few immediate benefits along the expressway because of the effect of access-control restrictions (e.g. farm tractors are prohibited from using the expressway). Indirect benefits were evident in terms of (a) increased bus services to and from towns served by expressway interchanges, providing a faster, safer, and more comfortable journey; (b) development of businesses (particularly in Nanchong) and tourist attractions, which contributes to employment and prosperity; and (c) an increase in fixed investments.
(iv) The improvements in county-road infrastructure resulted in a tremendous increase and improvement in transport services supply, which again led many farmers to risk the changeover to higher-profit but more perishable crops such as fruits, vegetables, and nuts. These development changes were observed in the form of significant rural per capita income increases from 1998 to 2005, and in the form of corresponding growth in the travels of these people.
(v) What appears obvious is that the expressway component financed in part by ADB, and the county roads upgraded and built in parallel, have reinforced each others’ development benefits.
4. The PPER3 for the Changchun-Harbin Expressway Project (including two separate loans for the Hashuang Expressway and the Changyu Expressway), approved in November 1998, concluded the following regarding ADB’s “value added” in terms of poverty reduction:
(i) The project expressway is strategically important to both the NTHS and Northeast Regional Transport Network Development Strategy to (a) connect major areas of economic growth, (b) foster regional and international trade, and (c) provide better access to less-developed and disadvantaged areas. Indirect effects and benefits will continue to grow, especially when the link to Vladivostok in the Russian Federation is completed.
(ii) Few immediate benefits were identified, as the use of the expressways is limited by access-control restrictions (e.g., farm tractors are prohibited from using the expressway). Indirect benefits were evident, including (a) increased bus services from towns served by expressway interchanges, providing faster, safer, and more comfortable journeys, and faster and cheaper freight delivery; (b) development of business in project areas, which increased demand for employment and contributed to general prosperity; (c) an increase in agricultural
2 Circulated November 2006. 3 Circulated December 2006.
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production and rural incomes; and (d) an increase in fixed investments and gross domestic product (GDP).
(iii) The project included a modest component for upgrading access roads. It had been proven that such components vastly improve the connectivity of enterprises and the general public to efficient transport services. However, this was not an explicit poverty reduction component.
(iv) The relocated households were now all in better condition because the expressway improved access to urban employment and new business opportunities. Journey times had been reduced by 50%, and the frequency of bus services had increased as a result of the project. Since the opening of the expressway in 2001, the project areas in the two provinces had experienced higher growth rates than in their respective provinces as a whole.
(v) Farmers found that reduced transport costs had helped raise farm-gate prices, and this had raised rural per capita annual income for the 45,000 residents by CNY200.
5. The PCR4 for the Southern Yunnan Road Development Project, approved in June 1999, with toll-road operations launched at the end of 2004, concluded the following regarding ADB’s value-added in terms of poverty reduction:
(i) Per capita income in the project area increased faster than in the province as a whole. During 1999–2003, the average annual GDP per capita for Yunnan Province grew at 6.2% per annum, compared with 20.1% in Mojiang county and 8.4% in Pu’er and Yuanjiang counties (three counties through which the expressway passes). A new city is being developed in Mojiang county near the expressway. External trade between Yunnan and its three neighboring counties has grown rapidly. In the absence of the expressway and local feeder roads, such high growth rates might not have been possible.
(ii) The expected benefits envisaged at appraisal in relation to poverty reduction and social and economic development were realized as follows: (a) reduced transportation costs have benefited local residents; (b) residents along the road have increased their incomes by supplying the project with labor, materials, and services during construction; (c) some poverty alleviation and social projects located in poor villages along the expressway were facilitated by the expressway, resulting in increased incomes and income diversification among poor and nonpoor households; and (d) access to economic and social facilities and services has been improved, and will have a long-term impact on development.
(iii) The project also supported regional cooperation in the Greater Mekong Subregion. The 147 kilometer (km) Yunnan Yuan Mo expressway formed part of a Greater Mekong Subregion initiative to provide a direct link between Chiang Rai in northern Thailand and Kunming in Yunnan Province.
(iv) The project played a catalytic role in the Government’s ongoing poverty reduction and social development efforts and in the development of Western region. From 1999 to 2004, the Government implemented a number of activities in the project area aimed at poverty reduction to complement the project’s poverty reduction and social impacts. 5 In 2000, and independent of the project, the Yunnan
4 Circulated February 2006. 5 These activities included (i) improving infrastructure, such as water, electricity, roads, and irrigation facilities; and
social services, such as medical facilities; (ii) providing financing and training for cash-crop production and livestock development; (iii) encouraging the formation of seasonal job opportunities and providing information about such opportunities; (iv) providing training for employment in urban areas; and (v) development of biogas as energy source.
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Provincial Poverty Alleviation Office identified 148 target village committees in the project area for these activities The Government supported each target village committee with CNY600,000 in poverty alleviation activities during 2001–2005. As a result of these concerted efforts, the absolute incidence of poverty was reduced from 61% at appraisal in 1999 to 23% at project completion in 2004. Average annual income per capita for farmers increased by 32% in 12 towns and townships along the expressway from 2000 to 2004.
(v) Positive social impacts under the project included (a) increased employment and income through sales of local materials during project construction and operation, (b) increased labor mobility, (c) enhanced agricultural development induced by lower transport prices for inputs and better access to markets, (d) enhanced tourism, and (e) upgraded local community development.
(vi) Because of transportation improvements, markets have become more efficient and the trading and shipping of wild mushrooms and fruit grown by the poor has expanded. Furthermore, given the need to transport produce from farms to the expressway interchange areas where large trucks collect and transport such produce, new local businesses involving small truck delivery services between farmers and collection points at interchanges have developed. Given the reduced costs of transport and better access to markets, farmers have increased their production of cash crops such as tea, tobacco, and fruit.
(vii) The local governments and the Executing Agency put a great deal of effort into the resettlement and rehabilitation of affected households by using other local government programs for rural infrastructure, poverty reduction, and livelihood training. Most of those affected are now better off than they were before because of the support from local governments and the opportunities generated by expressway construction and operation.
(viii) During project implementation, particular attention was paid to improving the lives of ethnic minorities in the project area. Local governments supported ethnic minorities in increasing the planting of cash fruit trees such as longan fruit trees and coffee through micro-credit schemes and special funds. Training courses were provided to local farmers to enhance their ability to adopt technologically advanced farming methods.
(ix) During the construction of civil works, priority was given to employing members of affected ethnic households. Those employed were paid CNY500 to CNY600 per person-month, which was much more than they would have earned from farming.
(x) Positive social impacts under the project included (a) increased employment and income through sales of local materials during project construction and operation, (b) increased labor mobility, (c) enhanced agricultural development induced by lower transport prices for inputs and better access to markets, (c) enhanced tourism, and (d) upgraded local community development.
6. The PCR6 for the Shanxi Road Development Project, approved in September 1999 and completed in December 2005, concluded the following regarding ADB’s value-added in terms of poverty reduction:
(i) The construction of the project expressway and the upgrading of rural roads improved road transport in the project area. More efficient and economical transport was evident in a reduced transport-related price index in the area. This helped raise per capita GDP in the project area to above the provincial average.
6 Circulated September 2006.
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In Shanxi province, annual per capita GDP increased from CNY5,230 in 1999 (20% lower than the national average in 1999) to CNY10,741 in 2004 (1% higher than the national average in 2004). At least some of the economic growth in Shanxi province can be attributed to the project-influenced area. The project also contributed to development of the industrial structure of the project area. The GDP contribution of primary industry decreased to 9.2% in 2004, from 15.6% in 1999. The GDP contribution of secondary industry increased to 57.9% in 2004, from 49.3% in 1999.
(ii) The economic growth resulted in positive socioeconomic impacts. Project contributions to socioeconomic development in the project area included: providing employment opportunities, improved social services, and faster, safer, and more comfortable access to markets. Since its completion, the project expressway has been a catalyst for economic growth in the project area as it provides improved access to markets, employment opportunities, and social services. Socioeconomic conditions in the project area have improved and the project’s poverty reduction objectives have been met.
(iii) At the same time as the construction took place, local municipalities and county governments invested significantly in complementary poverty reduction measures. The funds were mainly used to construct basic farmland infrastructure: build small irrigation works and country roads, provide drinking water for people and livestock, and provide technical training and popularize practical agricultural techniques.
(iv) The upgrading of provincial roads connecting interchanges improved access for people and goods particularly for the poor areas in the project-influenced areas. The provincial communications department and local governments were committed to funding the relevant prefecture and county communications bureaus for the development and maintenance of rural road networks, irrespective of ADB’s engagement in rural roads.
(v) The construction of the project provided local people with more job opportunities. Largely because of improved transport in the project area, the economic growth rate is higher than the provincial average. With faster and safer transport, farmers could afford to switch to riskier produce of a perishable nature—but with the possibility of much higher returns on investments in land and equipment. The gap between project area GDP and provincial GDP was reduced after the road was completed.
(vi) People interviewed by the Operations Evaluation Mission expressed their satisfaction with the land acquisitions and resettlement arrangements related to the expressway.
7. The PCR 7 for the Shenmu-Yanan Railway Project, approved in September 1997, concluded the following regarding poverty reduction effects:
(i) Socioeconomic conditions in the project areas have improved and the project’s poverty reduction objectives were met. The project contributed to socioeconomic development in the project areas by providing safe, low-cost, more comfortable transportation facilities to larger markets and improved access to better employment opportunities and social services (health care). After the completion of the project, railway transportation stimulated local economies and provided better access to employment opportunities and social services.
7 Circulated August 2006.
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(ii) During implementation (1997–2003), per capita incomes in the project area increased by nearly 300%. This had a positive effect on poverty reduction in the project area. Before the project, the percentage of the population living below the poverty line (CNY625 per person per year) in the project area was about 20%. In 2004, it was less than 10%.
(iii) The project has benefited Shenmu county, where the project railway terminal station is located. GDP in Shenmu in 2000 was CNY2.3 billion and ranked 67th among all the counties in Western China. In 2005, Shenmu’s GDP reached CNY8 billion, placing its economy fifteenth among all counties in Western China, and first among the counties in Shaanxi Province. Within the Shenmu county area, the Shenfu Economic Development Zone has four industrial parks. By 2005, a total of CNY18.5 billion had been invested in 153 projects in this zone, and the value of gross industrial output reached CNY1.8 billion. About 6,500 people have been employed thus far to work in this zone. Most of these projects would not have been possible without the project railway line.
(iv) Little evidence was found to support the idea that provision of construction roads and other link roads had extended the socioeconomic influence of the project. Most of these roads were adjacent to the railway alignment, having been selected mainly to provide access for construction work and, where possible, giving attention to try to serve identified population centers and traffic flows. After project completion, these roads were transferred to the local government for public use.
8. The draft PPER 8 for Guizhou-Shuibai Railway Project, approved in August 1998, concluded the following regarding poverty reduction effects:
(i) The project crosses one of the poorest areas in the PRC. It had two main types of direct socioeconomic impacts: improved transport for communities directly served by the railway and the service, access, and link roads; and indirect impacts related to economic growth for a wider impact area. The project also had an impact on two vulnerable groups in the project impact area: (a) households living below the poverty line, and (b) ethnic minorities.
(ii) The railway is strategically important in the context of both the Ninth Five-Year Plan and the Guizhou Province transport plan. It was expected that the indirect effects and benefits of cost-effective transport will continue to grow, in particular during 2007–2010 when several large coal mines are expected to come into production.
(iii) In the case of the railway component, there have been few immediate benefits along most of the railway alignment, mainly because only six of the planned 13 railway stations are operational. Faster and cheaper travel has reduced the cost of freight delivery; the benefits of this are gradually being passed down to the people in the project area.
(iv) During railway construction, more than 4.19 million person-days of local labor were employed. Direct benefits to users of the service, access, and link roads constructed as part of the project are difficult to quantify. The service and access roads to various parts of the project were built by the Executing Agency to give civil works contractors access to the project site. These roads were later turned over to local villages for use in transporting agricultural products from villages to markets, and transporting goods from markets to villages.
8 Dated 26 February 2007 (Draft for interdepartmental review).
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(v) Indirect benefits have arisen through development of businesses (establishment, growth, and expansion of industries), which have increased the level of employment and income-generating opportunities. During 1997–2004, in the three counties and districts traversed by the railway, GDP increased by an average of 13.2%, while per capita GDP increased by an average of 11.2%. Rural per capita income increased by an average of 5.5%, and poverty incidence in Liupanshui municipality as a whole fell.
(vi) During implementation (1997–2000), net per capita income in the project area increased by 28.4% and the proportion of the population living below the poverty line decreased from 46% in 1998 to 21% in 2003. Within the same period, per capita rural net income in the PRC as a whole increased by only 7.8%.
(vii) The project also provided a large number of employment opportunities to the local population. According to a recent household questionnaire survey, about 40% of the households in the project-influenced area had benefited from project employment as unskilled laborers. As envisaged in the RRP, the project does not appear to have had any negative impacts on the ethnic minority population in the project area. Ethnic minorities, who were among the persons affected by land acquisition and resettlement, appear to have fared relatively well. A household survey undertaken in 2006 indicated that the average incomes of both Hans (the majority group) and ethnic minorities had increased by at least 90% over 1997–2005.
(viii) The PCR found that resettlement, although much larger in scope than envisaged, has generally been carried out satisfactorily. Although the Operations Evaluation Mission confirmed these findings, it found that both ADB and the Executing Agency should have devoted more attention to resettlement supervision.
C. Conclusions 9. In many cases, the evaluations found that local and overall development effects had been substantial and exceeded the appraisal assessments, irrespective of whether the particular county- and village-road components were financed by ADB funds or by local funds. 10. However, it is difficult to interpret this information. First, it has proven extremely difficult to establish the extent to which the poverty reduction effects of local-roads components (attached to expressway projects) are attributable to ADB projects. Doing so would require demonstrating that these local roads and links would not have been built or upgraded without the ADB project (i.e., that ADB did not “crowd out” these roads from other rural development plans and programs). 11. It would furthermore be of interest to document the extent of ADB’s influence on the choice of supplementary county, village, and connector roads, and whether ADB's influence declined over the 1997–2005 study period because of the dramatic increase in Government prioritization of rural-roads development in the Tenth Five-Year Plan, 2000–2005 and the Eleventh Five-Year Plan, 2006–2010. 12. None of the RRPs or evaluations quantitatively addressed the “crowding-out” issue. However, some of the PPERs and PCRs did raise the possibility. While this was not emphasized in RRPs, the connector roads, county roads, and village roads are generally included within the ambitious development plans for provincial, county, and connector roads approved by the provincial planning and reformation commission. Those plans, in turn, are coordinated with the NTHS plan approved by the National Development and Reform Commission.
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13. To the extent that funds are fungible at the provincial level—even if it were only within the road subsector budget—one could perhaps argue that ADB could contribute more effectively to provincial rural poverty reduction by concentrating its financing on expressway components. In this way, ADB would free up provincial resources to finance other local road expenditures in keeping with provincial and county-level priorities and plans. 14. Usually road projects plan to use ADB funds for one section of the NTHS. In most cases, before the ADB project preparatory technical assistance report was prepared, the domestic feasibility study report had been approved by the State Development and Reform Commission (NDRC). That meant that the project scope had been confirmed. When ADB later asked the executing agency to put more local roads into the project—thus changing the project scope—the executing agency had to seek renewed approval from NDRC. However, it was difficult for an executing agency to get approval from NDRC without significantly delaying project startup. In addition, ADB’s requirements made it difficult to manage the local roads because these roads extended the project scope beyond the executing agency's jurisdiction, requiring the active involvement of provincial and country authorities, which may have already had comprehensive plans in place for improving local roads. These were among the reasons why executing agencies were not satisfied with the local-roads components. 15. This issue was also referred to in the conclusions of the completion report for the 2003 country strategy and program (CSP).9 While the report found that the performance of the road projects implemented during the current CSP period was satisfactory, it also identified several factors that have constrained the effectiveness of ADB assistance to roads. In particular it referred to the problem of mixing commercially viable components (expressways) and developmental or societal components (rural roads, HIV/ADS10 awareness, etc). This problem complicated the financing and implementation of projects. It also noted that, in many cases, rural roads, health, education, and other social development activities could have been financed by local governments, using their own resources, much more cheaply than through borrowing from ADB's ordinary capital resources. 16. Another factor that made it difficult to isolate the poverty reducing impact of road investments on local communities was the fact that other provincial infrastructure upgrading programs (e.g., power, telecommunications, agricultural extension services, education, health services, water, and sanitation) were being implemented simultaneously, either independently of the roads, or as a result of the road improvement being implemented. Thus, it was difficult to establish a reliable counterfactual—none of the PCRs or PPERs were able to do so.
9 ADB. 2006. Completion Report: Country Strategy and Program (2004–2006), People’s Republic of China. Manila. 10 Human immunodeficiency virus/acquired immunodeficiency syndrome.
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ANTICORRUPTION SYSTEM FOR INFRASTRUCTURE CONSTRUCTION A. General 1. The People’s Republic of China (PRC) Government now has in place a highly sophisticated anticorruption system. The anticorruption system in the PRC emerged in three phases. The first phase consisted of an anticorruption campaign, which identified some cases of corruption and raised awareness of the issues. In the second phase, leadership began to emphasize and promote anticorruption by setting an example. The third phase involved the introduction of an institutionalized system of anticorruption, giving institutions the responsibility for prevention and self-monitoring. 2. There have been three broad trends in the development of the anticorruption campaign: (i) from small case-by-case anticorruption efforts to more intensive, large-scale measures; (ii) from independent anticorruption efforts by agencies on their own, to strengthening coordination between different agencies, integrating the anticorruption resources, and mobilizing the masses to participate in anticorruption activities; and (iii) from investigation of corruption to giving increased attention to punishment and prevention. B. The PRC Anticorruption System 3. The state organs responsible for the various complementary actions required to fight corruption are:
(i) the State Council; (ii) the Supreme People’s Court (SPC); (iii) the Supreme People’s Procuratorate (SPP); (iv) the General Anti-Embezzlement and Bribery Administration, set up under the
SPP, and (v) local anti-embezzlement and bribery administrations, which were setup under the
Local People’s Procuratorate (LPP). 4. Their responsibilities are divided up as follows:
(i) The State Council. Ministries and agencies under the State Council, such as the Ministry of Finance, Ministry of Construction, Ministry of Communications (MOC), Ministry of Railways, Ministry of Water Resources, Ministry of Information Industry, General Administration of Civil Aviation, and National Audit Office, are responsible for anticorruption work in infrastructure construction—either across the Government or within their ministry.
(ii) SPC and Local People’s Court. Their main anticorruption responsibility is to take charge of criminal trials for corruption, bribery, and related economic crimes. The Second Criminal Court under the SPC conducts such trials. Local People’s Courts are responsible for the trial work within their precinct.
(iii) SPP and LPP. According to clause 163 and 164 of the Criminal Procedural Law, the SPP is mainly responsible for the investigation of corruption and bribery cases involving PRC nationals. LPPs are responsible for the investigation work within their precinct under the guidance of SPP. SPP and LPPs are also responsible for dealing with reports of criminal activities, such as embezzlement and bribery, and conducting the work of reporting in all prosecution bodies in the country.
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(iv) The General Anti-Embezzlement and Bribery Administration. This agency organizes, coordinates, and leads the investigation of serious criminal cases of bribery and embezzlement.
5. The Government organs engaged in implementation of anticorruption measures include the Ministry of Foreign Affairs, State Development and Reform Commission (NDRC), Ministry of Education, Ministry of Science and Technology, Ministry of Public Security, Ministry of Finance, Ministry of Personnel, Ministry of Land and Resources, Ministry of Construction, Ministry of Communication (MOC), Ministry of Railways, Ministry of Water Resources, Ministry of Information Industry, Ministry of Commerce, General Administration of Civil Aviation, and National Audit Office. 6. Those actively charged with anticorruption actions are the NDRC, Ministry of Public Security, Ministry of Finance, Ministry of Construction, MOC, Ministry of Railways, Ministry of Water Resources, Ministry of Information Industry, General Administration of Civil Aviation, Ministry of Commerce, and National Audit Office. Their respective responsibilities regarding anticorruption activities in infrastructure are:
(i) NDRC. It institutes measures for inviting public bidding and tender of infrastructure construction associated with the Ministry of Construction, MOC, and Ministry of Railways, and thus prevents corruption in infrastructure construction projects.
(ii) Ministry of Public Security. According to clause 163 and 164 of the Criminal Procedural Law, it is mainly responsible for the investigation of corruption and bribe cases involving non-national or international staffs. Local public security agencies are responsible for the investigation work within their precinct under the leadership of the Ministry of Public Security.1
(iii) Ministry of Finance. It supervises financial transactions and central budget grants for investment projects financed by the central government, monitoring the implementation of fiscal and tax policies and laws and regulations for investment projects financed by the central government; identifies the main problems in the management of fiscal revenues and expenditures; proposes policy suggestions on strengthening fiscal management; and administers resident offices of fiscal supervision commissioners.
(iv) Infrastructure agencies. The main infrastructure construction management agencies, such as the Ministry of Construction, Ministry of Railways, MOC, Ministry of Water Resources, Ministry of Commerce, General Administration of Civil Aviation, and Ministry of Information Industry, are responsible for instituting the agencies regulations and rules related to anticorruption, and supervising major projects to prevent corruption. Provincial and local infrastructure construction management agencies are responsible for preventing corruption in construction projects within their precinct.
(v) National Audit Office. This agency plays an important role in preventing corruption. Its duties include auditing projects on behalf of international organizations and foreign governments, and auditing and supervising major projects. Local audit offices are responsible for the audit work within their precinct.
1 The Ministry of Public Security is the functional organization under the State Council in charge of public security
work nationwide. Public security departments are set in provinces and autonomous regions; metropolitan public security bureaus are set in direct municipalities; public security bureaus or divisions are assigned to cities and prefectures; subbureaus are set in subregions of cities; public security bureaus are set on counties under the leadership of their respective local governments and superior public security agencies.
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7. The ruling Chinese Communist Party has also established a set of strict and comprehensive anticorruption regulations and institution systems that apply to all levels of Chinese Communist Party organs, leadership, and party members. C. Laws and Regulations for Anticorruption in PRC 8. The Government has established comprehensive anticorruption legislation and regulation systems. There are special clauses for anticorruption in the Bidding Law, Criminal Law, and Contracts Law, which define bribery and prescribe the liability and punishment for the perpetrators of corruption. There are about 200 laws and regulations related to infrastructure management from perspectives of design, construction market management, construction, bidding management in the project design, construction and supervision, construction quality management, corruption-free administration, and auditing. Half of these laws and regulations have relevant clauses for anticorruption. Corruption in infrastructure construction is monitored through these laws and regulations.
1. PRC Bidding Law 9. According to the Bidding Law, the related roles and responsibilities of the executing agency when seeking to award a contract through bidding is as follows:
(i) Article 22 requires information secrecy. The executing agency cannot disclose any information provided by bidders to others. If the executing agency sets a base price, this must not be disclosed.
(ii) Article 52 requires that the executing agency should be liable if it took illegal actions. If the executing agency discloses the bidding information to others, it will be subject to economic, administrative, or criminal punishment. If this action impacts the bidding result, the bidding is void.
(iii) Article 55 forbids the executing agency from negotiating with the bidder for the bidding price and scheme before the bidding result open. If the executing agency breaks this rule, it will be liable, and the successful bid will be void if this action affected the bidding result.
10. According to the Bidding Law, the related roles and responsibilities of the executing agency are as follows:
(i) Article 32 forbids the bidder from colluding over the bidding price with other bidders, supplanting other bidders, or impairing the legal rights of the executing agency or other bidders. It forbids the bidder from winning the bidding through bribery of the executing agency or members of the bid evaluation committee.
(ii) Article 33 sets the rules for the executing agency that the bidders cannot quote a price lower than the cost price, and cannot bid for one project in the name of another bidder.
(iii) Article 52 requires that the bidder shall take liability if it acted illegally. If bidders collude with each other or with the executing agency, or if the bidder wins the bidding through bribery of the executing agency or of evaluation committee members, the successful bid is void, the bidder will be subject punishment, and in serious cases the bidders bidding qualification will be cancelled for 2 years, or its business license withdrawn, If the action constituted a crime, the bidder will face criminal liability.
(iv) Article 54 sets the rules for the economic and legal liability of the bidder if it cheats in the bidding.
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11. According to the Bidding Law, the related roles and responsibilities of the evaluation committee members are as follows:
(i) Article 37 requires that the evaluation work is the responsibility of the evaluation committee formed by the executing agency according to the Bidding Law. Economic and engineering specialists must make up at least two-thirds of the committee, and they should have more than 8 years of relevant experience. This article also prescribes that the people with conflicts of interest with the bidders cannot be part of the evaluation committee; if they have already been appointed they will have to be replaced. The evaluation committee membership is kept secret until the bidding result has been finalized.
(ii) Article 44 sets the rules for the evaluation committee members to prevent corruption: An evaluation committee member cannot contact bidders privately, receive a bidder’s property and benefit, or disclose any information related to the evaluation process.
(iii) Article 56 states that evaluation committee members shall be liable for any illegal actions they take. If an evaluation committee member discloses information about the bidding process, and/or receives a bidder’s property, the member will be punished by having his or her qualification revoked for life, and be subject to economic or criminal punishment as applicable.
12. According to the Bidding Law, the related roles and responsibilities of the bidding agency are as follows:
(i) Article 50 sates that the bidding agency shall be liable if it took illegal actions. If the bidding agency discloses information about the bidding process, or colludes with the executing agency and bidder to impair the benefit of the State and Commonality or someone else, the bidding agency and its director will receive economic punishment, and in serious cases the bidding agency’s qualification will be cancelled. The bidding agency will also be liable for criminal acts. The successful bid will be void if this action affects the bidding result.
13. According to the Bidding Law, if the national staff who has the administration supervising duty practice favoritism and embezzlement or malpractices, and if this constitutes a crime, the national staff will take criminal liability, if not, administration punishment will be begotten.
2. MOC Notice on Strengthening Independent Contracts Against Corruption in the Construction of Communications Infrastructure
14. Rules on Use of the Independent Administration Against Corruption in the Communication Infrastructure Construction Area are issued by MOC. In order to strengthen construction in the field of communication infrastructure, ensure the efficiency and quality of engineering construction, ensure safety, and ensure the effective utilization of construction funds, MOC has issued the Notice on Independent Contracts Against Corruption in the Communication Infrastructure Construction Area.2 15. Article 1 of MOC 516 Notice stipulates that before startup, all new projects for which feasibility study reports have been approved by NDRC or MOC, and the construction is conducted by national construction enterprises, and the Project Corporation is subject to communication departments, the Project Corporation must sign an Independent Contracts
2 Ministry of Communications. 2000. Notice of Independent Contracts Against Corruption in the Communication
Infrastructure Construction Area (No. 516 Notice in 2000), 29 September.
114 Appendix 10
Against Corruption (ICAC) declaration with the contractor and the supervision agency at the same time the project engineering contract is signed. 16. Article 2 of MOC 516 Notice specifies the content of the ICAC. The content states that the action must be implemented by the two contracted parties for independent administration against corruption according to the laws, regulations and policies; rights, obligation and liability for each party during the independent administration; the liability while in breach of faith, the supervision agency for the contract implementation, and the monitoring method, criterion and schedule. 17. Article 3 stipulates that ICAC signing must be expressed clearly in the bidding document. 18. Article 4 stipulates that the content of the ICAC must be checked and accepted together with the checking and accepting for engineering work. If no ICAC is signed, it will be regarded as a defect when checking and accepting the engineering work. 19. The ICAC was extended to cover the entire country after the MOC 516 Notice was issued. Many local communication departments issued the detailed rules based on the MOC 516 Notice. For example, the Chongqing Municipalities Communication Department (MCD) issued rules to use an ICAC citywide on 25 December 2000. This rule requires that for all new projects, the implementing agency and the contractor and the supervision agency must sign an ICAC when they sign the engineering construction contract. The ICAC goes into effect at the same time the construction contract goes into effect. The detailed rule issued by Chongqing MCD has more extensive application scope than MOC 516 Notice, and includes all the communication infrastructure projects funded by NDRC, MOC, Chongqing MCD, and enterprises of the Chongqing MCD. The rule issued by Chongqing MCD also stipulates that if the successful bidder signs a subcontract with a subcontractor, the contractor must also have an ICAC with the subcontractor.
3. Audit Laws 20. Article 23 of the Audit Laws requires that the Audit Organ shall audit and monitor the implementation and the final accounts of the State Budget utilized to the construction projects. This refers mainly to major state infrastructure construction projects. Corruption can be prevented effectively and corrected in due course through an annual audit. 21. Article 49 of the Audit Laws establishes the role of the auditor, who shall not have a relationship with the audited agency or the audited proceedings.
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ADB PERFORMANCE AND CLIENT ORIENTATION A. Introduction 1. A survey-based assessment was conducted of the Asian Development Bank’s (ADB’s) performance in preparing and implementing projects, and its client orientation. This was structured around four activities in the project cycle: (i) formulation of projects, including use of project preparatory technical assistance (PPTA) and advisory technical assistance (ADTA); (ii) implementation of projects and ADTA; (iii) ADB supervision missions for projects and ADTA; and (iv) ADB administration of projects and ADTA. 2. The survey was carried out mainly through face-to-face interviews, although in some cases questionnaires were completed directly by respondents. The respondents comprised (i) executing agencies and implementing agencies, PPTA and ADTA consultants, and ADB project officers for ADB-financed road and railway projects approved in the study period from 1997 to 2005. To conduct the interviews with the executing agencies and implementing agencies, field visits were conducted in six provinces—Shaanxi, Yunnan, Guizhou, Hunan, Heilongjiang, and Jilin. Details of the survey respondents are in Table A11.1.
Table A11.1: Respondents of Survey of ADB Performance and Client Orientation
Subsector/Activity Executing Agencies Consultants Project Officers
A. Roads
Projects/PPTA 11 10 4 ADTA 5 6 6
B. Railways Projects/PPTA 9 1 1 ADTA 1 0 0
Total 26 17 11
ADTA = advisory technical assistance, PPTA = project preparatory technical assistance. Sources: Sector assistance program evaluation field studies.
3. Since the study period went back 10 years, in some cases the individuals interviewed from executing agencies and implementing agencies were not those who had been involved at the beginning of the project or technical assistance (TA). Nevertheless, they were generally well-informed about the project or TA and offered interesting insights into ADB’s performance. B. Formulation
1. Projects (including PPTA) 4. Elapsed Time From Fielding of PPTA to Loan Effectiveness. Eleven of the 20 project executing agencies said elapsed time was “just right.” However, eight executing agencies said it was “too long”—the longest elapsed time being 3 years. These executing agencies said that ADB financing led to delayed startup as a result of (i) ADB’s complex and time-consuming procedures; (ii) the requirement to use international competitive bidding (ICB) instead of local competitive bidding (as used in domestically financed projects); (iii) stringent safeguard requirements; and (iv) more complex implementation, financing arrangements, and State
116 Appendix 11
approval requirements arising from ADB’s requirement to attach local roads and other add-on components. There was no suggestion that elapsed time had changed over the study period. 5. Among the responding consultants, three said that the elapsed time was “just right,” while five did not know. One said “too long,” and two said “too short” on the basis that more time would have been needed to address all of the terms of reference (TOR). Each of the four project officers said that the elapsed time was “just right.” 6. Whether ADB Loan Fact-Finding and Appraisal Missions Had the Expertise and Experience to Satisfactorily Manage the Technical Requirements of Processing. Fourteen of the 17 executing agencies, 10 of the 11 consultants, and all four project officers who responded to this question answered “yes.” Only three said “no”—all of whom were involved in recent road project PPTA initiatives and thought that the ADB mission needed to have more technical expertise. 7. Length of Fact-Finding and Appraisal Missions and Contribution to Project Quality. All executing agencies, consultants (except one), and project officers said that the length of fact-finding and appraisal missions was “just right,” and that the missions helped improve the quality of the project scope and implementation arrangements. 8. Whether the Missions Introduced Further Requirements or Conditions that led to Implementation Problems, including Delays. Fourteen of the 17 executing agencies, six of the 11 consultants and all project officers said that the ADB missions had not introduced such conditions. However, five consultants and one executing agency answered this question in the affirmative. The latter group reported that ADB processing took too long, but that the lost time was made up during implementation thanks to thorough project preparation (except for two recent road projects where the executing agencies said the requirements sought by the missions detracted from the project implementation arrangements—e.g., by insisting on monitoring indicators that did not fit the project). 9. Whether Missions Took Full Account of Preexisting Implementation Arrangements and Institutional Responsibilities for the Main Project Component when Formulating Implementation Arrangements. All consultants and project officers said that the mission so. While most (12) of the executing agencies concurred, and explicitly stated that comprehensive technical preparatory efforts facilitated procurement and prevented delays in construction duration, a notable minority of four said that the mission failed to do so. Three of these four executing agencies worked on projects approved since 2004. They said that ADB procedures added burden to implementation by including components that did not fit with the main project components. 10. Adequacy of Arrangements the Missions Formulated for Monitoring of Environmental and Social Safeguards. The degree of satisfaction was mixed. While all project officers said these were “very satisfactory,” only one consultant out of 11 gave such a high rating, and none of the executing agencies did. The majority of consultants (seven) rated the arrangements “satisfactory”, as did 13 of the 17 executing agencies. No consultant was dissatisfied with the arrangements, but three executing agencies were. These were the same executing agencies that worked on the recently approved projects mentioned in para. 9. They said that the PRC’s national environmental impact assessment and resettlement plan requirements were of international standard, and that it was a waste of time and resources that ADB should review and approve of these again.
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11. Suitability of the Missions’ Choice of Project Performance Monitoring and Evaluation Indicators, Taking Into Account the Work Involved in Updating Them During Implementation and the Use Made of Them by ADB. Again each project officer said these were very satisfactory. All 11 consultants said they were satisfactory, along with most of the executing agencies (12 of 17). However, four executing agencies said they were unsatisfactory. Two of these were executing agencies that worked on the recent road projects mentioned in para. 9, and one worked on a recent railway project. The two road executing agencies said the indicators were too detailed, making data collection difficult. They also complained that the fees for the work of collecting such data had not been included in the project budget. Some of the executing agencies criticized ADB for not adopting the PRC's already existing safeguard systems, thus forcing the executing agencies into time-consuming and costly duplicate safeguard monitoring and reporting.1 12. Whether ADB Missions Formulated Appropriate and Realistic Loan Conditions and Covenants. All executing agencies and project officers said the missions had done so. None of the consultants had a view on this issue.
2. ADTA 13. Whether ADB Loan Fact-Finding and Appraisal Missions had the Expertise and Experience to Satisfactorily Manage the Technical Requirements of Processing. Four of the six executing agencies and four of the six project officers said the missions had the necessary expertise and experience. Only one executing agency and one consultant—working on two different ADTA projects—said they did not. Lack of relevant project expertise was the source of dissatisfaction in both cases. Since the ADTA formulation relied heavily on such expertise, this was a significant weakness. The other executing agencies, project officers, and consultants had no view on this issue. 14. Length of Fact-Finding Mission and Contribution to Project Quality. All responding executing agencies, consultants, and project officers said the time was “just right,” and all of the executing agencies and project officers said the mission improved the quality of the project scope and implementation arrangements. However, two of the consultants disagreed. One said there was only one mission and that was for the tripartite meeting at the end of the ADTA. The other said the project officer had an unrealistic view of the priorities and scope of the ADTA.2 15. Whether the Missions Introduced Further Requirements or Conditions that Led to Implementation Problems, including Delays. Three of the six executing agencies that responded, two of the six consultants, and five of the six project officers said the missions did not. One executing agency answered that the mission did. The other executing agencies, project officers, and consultants did not expressed a view. 16. Whether Missions Took Full Account of Preexisting Implementation Arrangements and Institutional Responsibilities for the Main Project Components when Formulating Implementation Arrangements. All executing agencies and project officers and one consultant said that the missions did so. One consultant said ADB did not seem to understand the relationship between the Ministry of Communications (MOC) and the provinces—the ADTA 1 In the words of one executing agency: “ADB should adjust the map to the terrain and not the terrain to its standard
map.” 2 The project officer reportedly wished to give more attention to project monitoring and the development of a project
information system, but these were seen as peripheral to the ADTA and detracting from the key task of developing a new methodology to use in designing projects.
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assumed that MOC could implement the TA, whereas in reality only provinces and consultants working for provinces were in position to do so. The consultant’s view was that this was not adequately considered in the TOR or in the TA implementation arrangements. C. Implementation
1. Projects (including PPTA)
17. Process of Obtaining ADB Approval for Project Procurement. All but two executing agencies said the process was satisfactory. The two—executing agencies for a recent railway and a recent road project—said the process was too long and complex. Some executing agencies said there was scope for simplifying the procedures for selecting and use of Government-approved bidding agencies, particularly since these had a high level of competence. The eight consultants that had an opinion on this issue were satisfied with this process. Of the four responding project officers, two were very satisfied, one was satisfied, and one had no opinion. 18. Process of Obtaining ADB Approval for Civil Works and Equipment Supply Contract Administration Matters under the Project. There were varying responses. One executing agency and two project officers said this was very satisfactory, while most executing agencies (11 out of 16 responding) and one project officer said it was satisfactory (no consultants had views on this matter). However, five executing agencies said it was unsatisfactory. They had different reasons, but a common denominator was their view that the process was too long, too rigid, and too complex. The ADB process of first approving an institute to handle the bidding process, but then still requiring ADB approval of individual procurement activities, was seen as inefficient. They also were unhappy about the loan allocation table in the loan agreement, which set the percentage of financing to be provided for different project components (e.g., civil, equipment, consulting services, etc). Once signed, this became binding. Later on it was common to find that a change was needed in the percentages; this was generally difficult to obtain because this required ADB Board approval. In some cases, this situation made it impossible for the executing agency to draw down a substantial portion of the loan proceeds—even though it wished to use them. Some executing agencies said that ADB’s system of accepting the lowest responsive bid could be costly because the lowest bidder often had more problems during implementation and required much closer supervision. There were also problems of having to incur delays while awaiting ADB approval of contract variations. Executing agencies found these practices to be very rigid, with high transaction costs. 19. Process of Obtaining ADB Approval for Recruitment of Consulting Services Financed from the Loan. Two project officers said this was highly satisfactory. Fourteen of the responding executing agencies and one project officer said it was satisfactory, and two executing agencies said it was unsatisfactory. 20. Process of Obtaining ADB Approval of Contract Administration Matters for Consulting Services Financed from the Loan. Again, two project officers said this was highly satisfactory; fourteen of the responding executing agencies, one project officer, and two consultants said it was satisfactory; and two executing agencies said it was unsatisfactory. 21. Process of Obtaining ADB Approval of Compliance with ADB’s Environmental and Social Safeguard Policies. Most executing agencies (12 out of 14 responding) said this was satisfactory, although two said it was not. All of the consultants said it was satisfactory (except
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two who did not know). Two project officers said it was very satisfactory and two said satisfactory. 22. Whether There Were Significant Delays in Loan Effectiveness and Project Implementation Attributable to ADB. Thirteen out of 15 executing agencies said there were no such delays. None of the project officers reported any such delays, and the consultants did not know. 23. Other Significant Transaction Costs Attributable to ADB. Twelve of the 15 responding executing agencies and three of the four project officers said there were none. None of the consultants had an opinion on this. However, one project officer said there were significant transaction costs and so did three executing agencies. The executing agencies were dissatisfied at having to pay commitment fees for not drawing down loan proceeds, blaming their failure to do so on delays caused by ADB’s requirement to use ICB. They also expressed dissatisfaction with how long it took ADB to approve loans, and said that this reduced ADB’s competitiveness compared with using domestic commercial banks.
2. ADTA
24. The responding executing agencies said they were highly satisfied with the implementation of the ADTA projects. The project officers had no comments. Two consultants (domestic and international for the same TA) complained that requests for approval were not acted upon by ADB in a timely manner,3 and that ADB procedures created an excessive administrative burden that reduced the time they had available for work on the ADTA. D. ADB Supervision Missions
1. Projects (including PPTA)
25. Number, Duration, and Professional/Technical Skill Mix of Supervision Missions. Nineteen of 20 executing agencies and all of the consultants and project officers said the number and duration were “just right.” Seventeen out of 19 responding executing agencies and the two project officers said the skill mix was satisfactorily for supervision purposes. One consultant said it was not, and that more technical expertise was required. 26. How Well the Supervision Missions Contributed to Solving Implementation Problems. Fifteen of the 19 responding executing agencies, all 11 responding consultants, and all project officers said this was satisfactory. Two executing agencies were very satisfied. The other two executing agencies—again, of recent projects—were not satisfied. They had of course also been critical of other aspects of ADB performance.
2. ADTA
27. Number, Duration, and Professional/Technical Skill Mix of Supervision Missions. All executing agencies and project officers said this was “just right.” One consultant said the same, but two disagreed on the basis that they had received only one supervision mission, which was limited to a single meeting with the project officer. They also complained that project
3 They also said (i) documentation was misplaced and had to be resent a number of times; and (ii) some variation
order requests were ignored or delayed, and when they were finally considered the situation had changed (e.g., staff had already been deployed).
120 Appendix 11
outputs were reviewed remotely from Manila, with little technical input offered (although they welcomed some of the comments on the draft consultant report structure and recommendations. 28. How Well the Supervision Missions Contributed to Solving Implementation Problems. All project officers, one executing agency, and one consultant said this was very satisfactory. The other executing agencies said it was satisfactory. Two consultants said it was unsatisfactory. One said that after the tripartite meetings, an aide memoire was concluded by ADB and the executing agency. After receiving this, the consultant was obliged to write to ADB and the executing agency pointing out the areas where the consultant was unable or not required by the TOR to undertake certain tasks which were included in the aide memoire. E. Project Administration and Client Orientation by ADB
1. Projects (including PPTA)
29. ADB’s Speed of Making Decisions on Requests to Solving Problems During Implementation. This was said to be satisfactory by the responding project officers, 18 of the 20 responding executing agencies, and seven of the 10 consultants. Three consultants said it was not satisfactory. 30. Adequacy of ADB Assistance when Needed to Solve Problems During Implementation. All consultants, all project officers and all but three executing agencies rated this assistance satisfactory. The three executing agencies—once again, of recent projects—said ADB assistance was unsatisfactory. 31. ADB’s Speed of Response when its Assistance was Needed to Solve Problems During Implementation. This was rated satisfactory by all consultants and project officers, as well as by all responding executing agencies. 32. ADB’s Degree of Flexibility in Interpreting its Policies and Procedures During Project Implementation. The majority of the executing agencies said this was satisfactory, as did all project officers and the three consultants who responded. However, five of the 20 executing agencies—including the executing agencies that were likewise critical of issues mentioned above—said it was not satisfactory. 33. Continuity of ADB Staff Involvement During Implementation of the Projects, Including for the Responsibilities of Mission Leaders, Procurement Matters, Consultant Recruitment, and Environmental and Social Safeguards. All executing agencies and project officers said this was satisfactory. In the case of one road project, the consultant said there had been a change of project officer shortly after commencement, but concluded that this had benefited the project in the end. 34. Overall Administration Performance. On balance, all executing agencies, project officers, and consultants rated ADB’s performance in administering the projects as satisfactory—although with some room for improvement.
2. ADTA
35. ADB's Speed of Making Decisions on Requests to Solving Problems During Implementation. This was considered highly satisfactory by one responding project officer, one
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executing agency, and one consultant; and satisfactory by two project officers, one executing agency, and one consultant. The remaining three executing agencies said ADB’s speed was not satisfactory but did not elaborate. Two consultants also said it was not satisfactory. 36. Adequacy of ADB Assistance when Needed to Solve Problems During Implementation. Two executing agencies said this was highly satisfactory, and one executing agency said it was satisfactory. Two said it was unsatisfactory, but provided no further explanation. Among the project officers, one indicated highly satisfactory, and two said satisfactory. Among consultants, one said highly satisfactory, two said satisfactory, and one said unsatisfactory. 37. ADB’s Speed of Response when its Assistance was Needed to Solve Problems During Implementation, and its Flexibility in Interpreting its Policies and Procedures During Project Implementation. These were said to be satisfactory or highly satisfactory by all executing agencies and project officers. Half the consultants said the speed of response was unsatisfactory. 38. Continuity of ADB Staff Involvement During Implementation of the Projects, Including for the Responsibilities of Mission Leaders, Procurement Matters, Consultant Recruitment, and Environmental and Social Safeguards. All but one project officer, all but one executing agency, and all but one consultant said continuity was highly satisfactory or satisfactory. In one case, three different staff members had been project officers for the ADTA at different times. This had contributed to a lack of commitment from ADB to the outcome of the project, and a lack of follow-up to ensure that recommendations were acted upon. 39. Overall Administration Performance. On balance, all executing agencies, project officers, and consultants rated ADB’s performance in administering ADTA as satisfactory and one from each respondent group rated it highly satisfactory. Interpretation: ADB has performed fairly well, but there is room for improvement in areas identified by the survey. 40. One general point made by consultants was that the prospects of executing agencies taking up ADTA results and recommendations would be improved if the project officers were able to commit more time to TA activities, particularly at the early stages. They also suggested that ADB be ready to follow up with additional technical assistance to maintain the momentum—for example to support training so that approaches developed in an ADTA are mainstreamed within the client organization. Without such follow-up from ADB, provincial communications departments were unlikely to acquire and use the new methods developed by ADTA. That could potentially limit the effectiveness of the ADTA significantly.
122 Appendix 12
ASSESSMENT OF ONGOING ADB-FINANCED ROAD AND RAILWAY PROJECTS 1. Of the 25 road and railway projects approved during the 1997–2005 study period, seven had been completed by the time the sector assistance program evaluation (SAPE) was being prepared (five road and two railway projects) and 18 were still ongoing (13 road and five railway projects). To supplement the SAPE assessment of completed projects, which was based on the findings of project performance evaluation reports (PPERs) and project completion reports (PCRs), a further desk review was conducted of a sample of ongoing projects. This consisted of all ongoing projects with physical progress of 50% or more by end-December 2006. On this basis, nine ongoing road projects and three ongoing railway projects were reviewed. The review was based on information available in back-to-office reports of review missions, and data from project performance reports (PPRs) as of end-December 2006. 2. The overall performance of the ongoing road and railway projects was rated as likely to be successful. Table A12.1 summarizes the rating of ongoing projects according to the criteria of relevance, effectiveness, efficiency and sustainability, and compares these ratings with the ratings of completed projects based on the findings of PPERs and PCRs. Table A12. 1: Comparison of Performance Ratings for Completed and Ongoing Projects
Evaluation Criteria Ongoing Projectsa
Performance Rating Completed Projectsb Performance Rating
A. Roads 1. Relevance Highly relevant Highly relevant 2. Effectiveness Effective Highly effective 3. Efficiency Efficient Highly efficient 4. Sustainability Likely (to be sustained) Likely (to be sustained) 5. Impact — Significant Overall Successful Highly successful B. Railways 1. Relevance Highly relevant Highly relevant 2. Effectiveness Effective Effective 3. Efficiency Efficient Efficient 4. Sustainability Likely (to be sustained) Likely (to be sustained) 5. Impact — Significant Overall Successful Successful — = not applicable. a Based on desk review of back-to-office reports and project performance reports for nine ongoing road and
three railway projects. b Based on the project performance evaluation report and project completion report ratings for five road and
two railway projects. Source: Sector assistance program evaluation team.
3. The overall rating for ongoing projects of likely to be successful was the same as the rating of completed projects. Within the individual rating projects there were some differences between ongoing and completed road projects. Ongoing road projects were found to be highly relevant, effective, and efficient, and likely to be sustainable. This was slightly below the ratings for completed road projects, which were rated highly relevant, highly effective, highly efficient, and likely to be sustainable. Both ongoing and completed railway projects were rated highly relevant, effective, efficient, and likely to be sustainable. The slightly lower ratings of ongoing road projects compared with completed road projects reflects the limited data available to the desk review (especially regarding project outcomes and impacts) and the early stage of project progress. It may also be influenced by the predominance of projects in the western or inner regions.
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4. As of December 2006, the PPRs for the sample of ongoing road and railway projects indicated that in all cases implementation progress was rated either satisfactory or highly satisfactory, and the likelihood of meeting development objectives was rated satisfactory. This is shown in Table A12.2. 5. As of end-December 2006, the Hunan III Road Development Project was classified in the “at risk” category because of a delay in loan signing and effectiveness. Since 2002, another eight projects were classified at different times in the “at risk” categories. These were the Guangxi Road Development Project, the Central Sichuan Road Development Project, the Southern Sichuan Road Development Project, the Hunan II Road Development Project, the Shanxi II Road Development Project, the Western Yunnan Road Development Project, the Xi’an Urban Transport Project, and the Dali Lijiang Railway.
124 Appendix 12
.
Project Loan Number and Project Name Impact/ Implementation Progress
Outcome Progress (%) Revised Original Relevance Effectiveness Efficiency Sustainabilitya OverallA. Road Projects 3.0 3.0 3.0 2.0 2.81783 Chongqing-Guizhou RD (Leichong Expressway) ] S S 98 126 96 0.78 1.02 3.0 3.0 2.0 1.0 2.31784 Chongqing-Guizhou RD (Chongzun Expressway) ] S S 99 126 96 0.79 1.03 3.0 3.0 2.0 1.0 2.31838 Shaanxi Roads Development S S 98 116 88 0.84 1.11 3.0 2.0 2.0 2.0 2.21851 Guangxi Roads Development S S 90 129 83 0.70 1.08 3.0 3.0 2.0 2.0 2.51918 Southern Sichuan Roads Development S S 74 77 83 0.96 0.89 3.0 2.0 2.0 1.5 2.11967 Shanxi Road Development II S S 94 87 1.08 2.0 2.0 2.0 2.0 2.02004 Ningxia Roads Development S S 52 57 0.91 2.0 2.0 2.0 1.5 1.92014 Western Yunnan Roads Development S S 67 72 0.93 3.0 2.0 2.0 1.5 2.12024 Xi'an Urban Transport S S 61 67 0.91 2.0 2.0 2.0 1.5 1.9
Average 81 95 0.86 2.7 2.3 2.0 1.6 2.1
B. Railway Projects 1748 Hefei-Xi'an Railway S S 99 119 96 0.83 1.03 3.0 2.0 2.0 2.0 2.21850 Ganzhou-Longyan Railway S HS 98 100 91 0.98 1.08 3.0 2.0 2.0 2.0 2.22051 Yichang-Wanzhou Railway S HS 58 47 1.23 3.0 2.0 2.0 1.5 2.1
Average 3.0 2.0 2.0 1.8 2.2
Loan Number and Project Name WACCAppraisal Midterm Appraisal Midterm
A. Road Projects 1783 Chongqing-Guizhou RD (Leichong Expressway) ]1784 Chongqing-Guizhou RD (Chongzun Expressway) ] 5.6 4.7 4.5 15.71838 Shaanxi Roads Development 8.7 7.31851 Guangxi Roads Development 9.0 8.4 4.6 16.41918 Southern Sichuan Roads Development 5.5 4.01967 Shanxi Road Development II 7.6 3.72004 Ningxia Roads Development 7.1 5.02014 Western Yunnan Roads Development 6.0 4.12024 Xi'an Urban Transport
Average 7.1B. Railway Projects 1748 Hefei-Xi'an Railway 7.0 6.51850 Ganzhou-Longyan Railway 6.4 3.42051 Yichang-Wanzhou Railway
Average 6.7EIRR = economic internal rate of return, FIRR = financial internal rate of return, HS = highly satisfactory, PPR = project performance report, RD = roads development, S = satisfactory, WACC = weighted average cost of capital.a For projects with physical progress of less than 75%, sustainablity is assessed at between likely and less likely to be sustained.Note: The rating values for ongoing projects are likely to improve as project completion nears or is achieved and more data on project achievements and impacts become available.Sources: Project performance reports and various project review mission back-to-office reports.
15.814.4
15.1
17.818.715.417.2
16.3
20.016.216.2
Index (PPI)RevisedOriginal
AppraisalFIRR
Performance Rating Values
Table A12.2: Performance of Sample of Ongoing Road and Railway Projects
Elapsed LoanPeriod (%)
PPR Ratings (end 12/06)
EIRR
Project Progress
Appendix 12 125
6. Table A12.3 describes the assessment of the nine ongoing road projects covered by this desk review.
Table A12.3: Assessment of Performance of Sample of Ongoing Road Projects Item Rating Remarks Relevance 3 Highly relevant. All nine projects were accorded high priority by the
Government and were consistent with ADB’s subsector strategy in the 1997 COS and the 2003 CSP. ADB applied a generally consistent approach on all eight road development projects. In addition to civil works, several special features embedded in the scope and implementation model adopted for supporting expressways in the PRC were consistently followed. Corporatization, cost recovery, link and local roads, and road safety were features in all eight projects. Axle load testing was a feature in all but the Shanxi II Road Development Project while vehicle emissions was a special feature in five projects and to a minor extent in two other projects. Poverty monitoring was featured in all projects following the two Chongqing–Guizhou loans in 2000. Regional cooperation was a distinct positive element of the Guangxi and Western Yunnan road projects because of their links with the Greater Mekong Subregion. In the case of the Xi’an Urban Transport Project, it was the first ADB transport project to involve a large number of implementing agencies in addition to the traditional agencies for resettlement, poverty, and environment. It is also considered among the largest and most complex ADB-financed projects ever in terms of resettlement. The Xi’an Urban Transport project incorporated several ADB features for road projects in the PRC, including axle load testing, road safety, vehicle emissions, and the recent transport services. Project designs were generally satisfactory. PPRs for all nine road projects indicate satisfactory performance in terms of adherence to the project design. Only one project required a major change in scope. Available BTORs do not indicate any major issues over the adequacy of designs. Variations in some projects were necessary to enhance construction design (including some missed in the original design);and were found justifiable. Some observed design changes included changes in the local-roads component, including an increase in number and replacement of some local roads with those of higher priorities. In the case of the Xi’an Urban Transport Project, some proposed replacements in subprojects were due to the inclusion of priority subprojects that will enhance project efficiency and optimize benefits. An ADB review mission cited the need for a construction risk analysis to prepare a risk mitigation plan because of the complex geological and topographical terrain traversed by the project. For the Shanxi II Road Development Project, the BTOR of a review mission described changes in construction methods, use of longer piles, a change in underpass design, and the need for a special wind-monitoring station near a cable-stayed project bridge that is subject to strong wind, with abrasive sand content and extreme temperature.
Effectiveness 2 Effective. An assessment of the likely effectiveness of ongoing road projects is constrained by the stage of physical progress and the quality of assessment data available, and the absence of data on outcomes and impacts. Since on average the implementation progress for the ongoing projects was only about 81% based on PPR data as of end-December 2006, the rating value has a downward bias in favor of a more conservative assessment of “effective”. While five of nine projects are nearly completed, a number of projects have not commenced operations—and therefore offer limited information on likely outcomes impacts. Nevertheless, all ongoing projects are expected to achieve
126 Appendix 12
Item Rating Remarks their purpose. Five projects with project progress of at least 90% are considered to be either “effective” or “highly effective.” Based on present data, a “highly effective” rating is likely for both Chongqing-Guizhou projects (which were reported to be well implemented) and the Guangxi Road Development Project (where updated traffic data indicate average traffic higher than appraisal due to robust socioeconomic development in the area). On the other hand, a rating of at least “effective” is likely for the Shaanxi Roads Development Project given that the latest traffic forecast was 27% lower than appraisal because direct trans-provincial traffic were not able to fully utilize expressway due to non-completion of adjoining expressway in Shanxi province at the onset.
Efficiency 2 Efficient. Five of the nine ongoing projects indicate generally timely implementation progress. This is particularly so for those approved from 2002–2003. Based on the ratio of project progress to elapsed loan period from PPR data at end December 2006, four projects with 50–75% physical accomplishment had an average project progress index value of about 0.93, indicating timely progress.a Similarly, the Shanxi Road Development II Project, approved in 2002, was slightly ahead of schedule and reported a project progress index of 1.1. On the other hand, four projects approved from 2000–2001 with progress of at least 90% had an average project progress index value of 0.78, meaning they would likely need revised completion dates. Some project cost estimates and financing plans for ongoing projects were generally within or close to appraisal estimates. In the Shanxi Road Development II Project, contract cost were lower than expected, but overall civil works expenditures remained within target because contract awards savings were offset by an unplanned increase in materials costs because of changes in construction methods and designs. In some projects, there were proposals to increase the local-roads component without additional ADB financing; in another there was a proposal to use loan savings for this purpose. In the case of the Guangxi Road Development Project, project costs increased for various reasons: (i) engineering variations to enhance safety and expressway efficiency; (ii) design changes (after detailed design) which was not available at appraisal; (iii) construction of new components that enhance project efficiency and benefit the local community; (iv) additional relocated households and land acquisition requirements, (v) additional complementary roads to maximize project benefit; and (vi) additional equipment costs to address the issue of overloaded vehicles. The estimated average EIRR (combined expressway and local-roads components) is about 17% for eight of the nine ongoing projects. In most cases this is based on the appraisal estimate. EIRRs for two projects were reestimated at midterm review, and had an average EIRR of about 16%. These returns were slightly below the appraisal estimates (about 18%) because of higher-than-expected capital costs and/or changes in other evaluation parameters. However, they remained well above the 12% threshold for ADB projects.
Sustainability 2 Likely to be Sustained. As with assessing effectiveness and efficiency, assessing sustainability for the ongoing road transport projects is constrained by the stage of physical progress and the quality of available assessment data. BTORs show that ADB review missions continue to discuss issues on sustainability: (i) administrative responsibility for local roads, (ii) setting of toll rates, (iii) equipment and systems for controlling overloaded vehicles, (iv) compliance with financial loan covenants such as debt-to-equity ratio, (v)
Appendix 12 127
Item Rating Remarks debt service and working ratio; (vi) traffic flow on expressways O&M practices; and (vii) technical issues. In the case of the Shanxi Road Development II Project, the effective wind resistance of a cable-stayed project bridge needed to be verified and measured to strengthen the structure. No major issues were cited in BTORs that would adversely affect the ability of any project to last its designed economic life. Among five projects with physical progress higher than 90%, three were assessed likely to be sustainable while two were considered less likely to be sustainable. The average FIRR (at appraisal or midterm) for the first three projects was about 7.8%, compared with 4.7% for the latter two. The remaining four projects were all considered (at this time) to be between likely and less likely to be sustainable given that physical progress was still in the 50–75% range, and they were located in poor and/or western regions. Of those four remaining projects, three had resulted in an average FIRR of about 6% at appraisal. The recalculated FIRRs at midterm review for four projects indicate a downward trend. The FIRR for the four loans averaged 6.8%, as compared with 7.8% at appraisal.
Overall 2 Successful. Based on present project data and country experience, the standard evaluation criteria of relevance, effectiveness, efficiency, and sustainability will likely yield an overall assessment rating of successful or higher for each of the nine ongoing road transport projects. The overall rating is successful.
ADB = Asian Development Bank, BTOR = back-to-office report, COS = country operational strategy, CSP = country strategy and program, PRC = People’s Republic of China, EIRR = economic internal rate of return, FIRR = financial internal rate of return, O&M = operation and maintenance, PPR = project performance report. a Project progress in relation to elapsed loan period. An index value of 1 could be considered to reflect generally
timely progress. Source: Sector assistance program evaluation team. 7. The desk review indicated that the three ongoing railway projects are likely to be successful. The projects were rated highly relevant, effective, efficient, and likely to be sustained. Table A12.4 describes the assessment of ongoing railway projects.
Table A12.4: Assessment of Performance of Sample of Ongoing Railway Projects
Item Rating Remarks Relevance 3 Highly Relevant. All three ongoing railway projects are highly relevant. They
were considered high priority projects by the Government and were consistent with ADB’s subsector priorities in the 1997 COS and 2003 CSP. Four special project features were pursued by ADB in all railway projects: full-cost tariff, commercialization, new technology for operations, and link roads. Project designs were generally satisfactory. As of end-2006, all three railway projects are rated satisfactory in terms of the impact and outcome criterion of the PPR. Similarly, the three rail projects indicate satisfactory performance in the category of changes in scope, with no project requiring a major change in scope—available BTORs do not indicate any design issues that significantly and/or adversely affected formulation.
Effectiveness 2 Effective. Two of the three projects were substantially complete while physical progress on the third was about 60% as of end-2006. The PPRs reported implementation progress in two as highly satisfactory; progress in the third was
128 Appendix 12
Item Rating Remarks satisfactory. Findings of ADB review missions do not indicate any major issues that will adversely affect the achievement of project purpose. Overall, all three ongoing projects are likely to be effective in achieving project purpose.
Efficiency 2 Efficient. The project progress indexes of all three projects indicate generally timely implementation progress. The most recent BTORs reported that the total costs for each project were expected to be within the appraisal estimates and the Ministry of Railways has assured full availability of counterpart funds. The average EIRR for the Hefei-Xi’an and Ganzhou-Longyan railways, which are both substantially complete, is 15.1%.
Sustainability 2 Likely to be Sustained. As in the case of the road projects, data limitations make assessment of sustainability of ongoing projects difficult. The Hefei-Xi’an and Ganzhou-Longyan railways, which are substantially complete, are likely to be sustained. They have an average FIRR of about 6.7%, which is above the calculated weighted average cost of capital. Two of the three active railway projects are nearing completion and have a satisfactory chance of achieving sustainability. Thus, they are rated likely to be sustainable at this time.
Overall 2 Successful. Based on present project data and country experience, the standard evaluation criteria of relevance, effectiveness, efficiency, and sustainability will likely yield an overall assessment rating of successful or higher for the three ongoing railway projects. The overall rating is successful.
ADB = Asian Development Bank, BTOR = back-to-office report, COS = country operational strategy, CSP = country strategy and program, EIRR = economic internal rate of return, FIRR = financial internal rate of return, PPR = project performance report. Source: Sector assistance program evaluation team.
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PERFORMANCE OF TECHNICAL ASSISTANCE A. Introduction 1. As part of the sector assistance program evaluation (SAPE), an assessment was conducted of the performance of the Asian Development Bank (ADB) technical assistance (TA) for roads and railways in the People’s Republic of China (PRC). This included advisory technical assistance (ADTA) and project preparatory technical assistance (PPTA).1 Survey instruments and methods were based on the “bottom-up” approach developed by an ADB-wide special evaluation study of the performance of technical assistance.2 A scoring system of 0–3 was used for rating purposes.3 This involved conducting questionnaire-based interviews with the executing agencies, TA consultants, and project officers responsible for each TA. B Available Data 2. The assessment examined a sample of TA approved in 1997–2005. After removing TA projects that were beyond recall, unfinished, or where intended respondents could not be reached,4 it comprised five ADTA projects and 11 PPTA projects as shown in Table A13.1. As well as the survey questionnaires, the assessment drew upon technical assistance completion reports (TCRs) and back-to-office reports.
Table A13.1: Evaluated Sample of Road and Railways Technical Assistance
Subsector/Technical Assistance TA Type TA No. Year Approved A. Road 1. Corporatization, Leasing, and Securitization in the
Road Sector ADTA 2952 1997
2. Socioeconomic Assessment of Road Projects ADTA 3900 2002 3. Poverty Impact of Area-Wide Road Networks ADTA 4322 2004 4. Policy Reform in Road Transport ADTA 4351 2004 5. Shanxi and Shaanxi Roads PPTA 3248 1999 6. Southern Sichuan Roads Development PPTA 3546 2000 7. Xi’an Urban Transport PPTA 3907 2002 8. Central Sichuan Roads Development PPTA 4274 2003 9. Heilongjiang Road Network Development PPTA 4592 2005
B. Railways 1. WTO-Policy Reform Support to the Ministry of Railways ADTA 4325 2004 2. Hefei-Xi’an Railway PPTA 3251 1999 3. Yichang-Wanzhou Railway PPTA 3867 2002 4. Strengthening Involuntary Resettlement Practices in
Yichang-Wanzhou Railway PPTA 3983 2002
5. Dali-Lijiang Railway PPTA 4129 2003 6. Xi’an-Zhengzhou Railway PPTA 4340 2004 7. Taiyuan-Zhongwei Railway PPTA 4577 2005
ADTA = advisory technical assistance, PPTA = project preparatory technical assistance, TA = technical assistance, WTO = World Trade Organization. Source: Sector assistance program evaluation team.
1 The Ministry of Railways requested inclusion of project preparatory technical assistance (PPTA) in the evaluation. 2 ADB. 2007. Special Evaluation Study on the Performance of Technical Assistance. Manila. 3 For example, 3 = highly satisfactory, 2 = satisfactory, 1 = less satisfactory, 0 = unsatisfactory. 4 ADB. 1998. Proposed Technical Assistance to the People’s Republic of China for the Regional Road Sector Study.
Manila (TA 3086-PRC, for $1.19 million, approved on 13 October); and ADB. 1999. Technical Assistance to the People’s Republic of China for Capacity Building in Traffic Safety, Planning, and Management. Manila (TA 3341-PRC, for $600,000, approved on 14 December).
130 Appendix 13
C. Advisory Technical Assistance 3. Overall. Three of the ADTA projects in the sample performed satisfactorily, but two performed less satisfactorily. The ADTA projects rated highest for relevance and lowest for efficiency. A summary of the overall ratings is in Table A13.2. Further elaboration on ADTA performance is provided below.
Table A13.2: Rated Performance of Sample of Five ADTA projects for Roads and Railways Approved in 1997–2005
% of Rated Advisory Technical Assistance
Evaluation Rating Relevance Effectiveness Efficiency Sustainability Overall Highly Satisfactory 60 0 0 20 0 Satisfactory 40 60 20 40 60 Less Satisfactory 0 40 80 40 40 Unsatisfactory 0 0 0 0 0
ADTA = advisory technical assistance. Source: Sector assistance program evaluation team. 4. Relevance. This refers to the extent that ADB’s nonlending operations in the two respective subsectors (i) had a focus consistent with the country’s development needs, priorities, and capacities, and with ADB’s country and sector strategies (Chapter III of main text); (ii) were in line with ADB’s comparative advantages; (iii) achieved critical mass, were balanced across objectives, selective, and focused; (iv) were harmonized with support of other development partners; (v) were based on sound diagnostic analysis and took account of past lessons and experiences in the country; and (vi) were appropriately designed to achieve intended outcomes. 5. The ADTA “Corporatization, Leasing, and Securitization in the Road Sector” was approved in late 1997, started in early 2000, and completed in September 2003. 5 It was assessed by ADB in the TCR of June 2003, and by one of the consultants and the project officer in the SAPE survey of ADB TA performance in 2006. Based on these reports—and taking into account the importance of corporatization, tolling, and financing models for the development of the National Trunk Highway System (NTHS); the subsector priorities in the 1997 country operational strategy (COS); and the Government’s priorities—the TA was rated highly relevant. 6. The ADTA on Socioeconomic Assessment of Road Projects was approved in August 2002, started in November 2002, and completed in June 2004.6 It was assessed by ADB in the TCR of August 2004, and by the Executing Agency, one of the consultants, and the project officer in the SAPE survey of ADB TA performance in 2006. Based on these reports—and taking into account the subsector priorities in the 2003 country strategy and program (CSP), the Government’s priorities, and the six assessment dimensions listed above—the TA was rated relevant.
5 ADB. 1997. Technical Assistance to the People’s Republic of China for Corporatization, Leasing, and Securitization
in the Road Sector. Manila (TA 2952-PRC, for $1 million, approved on 17 December). 6 ADB. 2002. Technical Assistance to the People’s Republic of China for Socioeconomic Assessment of Road
Projects. Manila (TA 3900-PRC, for $250,000, approved on 12 August).
Appendix 13 131
7. The ADTA on Poverty Impact of Area Wide Road Networks was approved in 2004, started in November 2004, and completed in May 2006.7 It was assessed by the Executing Agency, the consultants, and the project officer in the SAPE survey of ADB TA performance in 2006. No TCR was available. Among the consultants' comments affecting the relevance assessment was that many items included in the terms of reference (TOR) were not central to the main thrust of the TA, and would have been better left to other TA projects. Second, the TA required development of a project monitoring system. However, a number of these already existed within the provinces and a central system will not be used. Furthermore, this item was not central to the main thrust of the TA. Based on these completed questionnaires—and taking into account the subsector priorities in the CSP, the Government priorities, and the six assessment dimensions listed above—the TA was rated relevant. 8. The ADTA on World Trade Organization (WTO) Policy Reform Support to the Ministry of Railways (MOR) was approved in early April 2004, started in early March 2005, and is to be completed in 2007.8 It was assessed by the Executing Agency and the project officer in the SAPE survey of ADB TA performance in 2006. Based on these responses—and taking into account subsector priorities in the CSP and the PRC’s priorities under the Tenth Five-Year Plan (TFYP) and Eleventh Five-Year Plan (EFYP)—the rating was highly relevant. 9. The ADTA on Policy Reform in Road Transport was approved in late June 2004, started in April 2005, and completed in September 2005. ADB received the final report in December 2005.9 The TA completion date was extended twice to facilitate publication of the final report and the TCR is scheduled for 2007. The TA was assessed by one of the consultants and the project officer in the SAPE survey of ADB TA performance in 2006. Based on these reports—and taking into account the subsector priorities in the CSP and the PRC’s priorities under the TFYP and EFYP—the rating was highly relevant. 10. Effectiveness. This refers to the extent that ADB’s nonlending operations in roads and railways (i) were successful in contributing to outputs and outcomes in support of the PRC’s goals and objectives for each subsector, (ii) achieved the intended results defined by the 1997 COS and 2003 CSP, and (iii) achieved the outcomes defined in the design and monitoring frameworks of the individual projects and TA. 11. An important difference when comparing the effectiveness of an ADTA with the effectiveness of an investment project is that outcomes and outputs from investment projects are linked: Soon after the outputs are in place, one can begin to measure the degree to which outcomes have been achieved. With ADTA, this is not so easy because most ADTA projects deal with policy reforms and changes that will be effective only if the client takes genuine ownership of the reform and ADTA recommendations. Thus, the best way to achieve stated outcomes may be to invest more time in ensuring client ownership of the recommended actions. There may be conflicting stakeholder interests requiring patient negotiations before a solution can be found, and rushing to meet a preset deadline (which might be more acceptable in an investment project) often proves counterproductive as it results in reform measures being abandoned or weakened. The following assessment of effectiveness tries to take such considerations into account.
7 ADB. 2004. Technical Assistance to the People’s Republic of China for Poverty Impact of Area-Wide Road
Networks. Manila (TA 4322-PRC, for $1 million, approved on 26 March). 8 ADB. 2004. Technical Assistance to the People’s Republic of China for World Trade Organization Policy Reform
Support to the Ministry of Railways. Manila (TA 4325-PRC, for $400,000, approved on 2 April). 9 ADB. 2004. Technical Assistance to the People’s Republic of China for Policy Reform in Road Transport. Manila
(TA 4351-PRC, for $500,000, approved on 24 June).
132 Appendix 13
12. The ADTA on Corporatization, Leasing, and Securitization in the Road Sector (footnote 5) was found to be effective. This was despite considerable delays and extensions, and owed a lot to ADB’s flexibility regarding extensions and changes in scope during implementation. This was a pioneering ADTA that provided important clarifications regarding interministerial coordination and dialogue between PRC agencies. It analyzed the merits and weaknesses of alternative corporatization, leasing, and securitization models that could be of relevance and interest to different provincial communications departments (PCDs). During implementation, it became clear that effectiveness could only be achieved with countrywide dissemination of the results in the form of a widely circulated, user-friendly publication to potential executing agencies and implementing agencies. Such a publication was eventually prepared. The use of local consultants helped establish ownership of the outcomes, and helped make the expressway executing agencies more self-sufficient and knowledgeable in choosing the form of expressway corporation suitable to the location in question (without requiring further technical assistance from ADB). 13. For the ADTA on Socioeconomic Assessment of Road Projects (footnote 6), the Executing Agency was the Institute of Comprehensive Transport. During project preparation and implementation, there were internal problems between the Executing Agency and the Government agency that had identified the need for the ADTA. These problems were due to differences of opinion on the Executing Agency's role in the ADTA. The Executing Agency was not yet ready for such a theoretically advanced TA to develop analytical tools to predict the direct and indirect effects of roads, predict linkages between the investment and the flow of benefits to the poor, and strengthen the baseline socioeconomic assessment framework to effectively monitor these linkages. The international and national consultants were rated satisfactory by the project officer carrying out the tasks defined in the TOR. However, the consultant complained that the TOR was unrealistic and too ambitious given the original budget and timeframe. Fieldwork on an ADB-financed expressway project enhanced the applicability of the proposed monitoring framework. The outputs of the TA met the requirements under the TOR, and the quality of the output was satisfactory and essential for future reference. Having provided an analytical tool by which to quantify the direct and indirect effects of roads, and having then designed the monitoring framework and indicators to effectively monitor the impacts, the TA was considered successful by the project officer. However, the local consultants had intimate knowledge of the Ministry of Communications (MOC) and provincial executing agencies and implementing agencies, and they said that ADB had not effectively secured involvement of other government agencies necessary for the successful completion of the TA. They also said that the ADTA had not done enough to improve the capacity of the Executing Agency. Hence, the TA was rated less effective. 14. The ADTA on Poverty Impact of Area-Wide Road Networks (footnote 7) was also a rather theoretical exercise, by which ADB funded the initiation of a mathematical optimization model whereby the user (an expressway Executing Agency charged including rural roads in the investment program so as to connect to poor local villages and communities) could select rural road links from a planned network to maximize an objective function defined in such a way that the analyst can decide how much weight to give to reaching poor communities versus prioritizing economic return on the overall road investment package. The software has been developed, is user friendly, and is working. Its operational feasibility has been demonstrated in Baise prefecture in Guangxi province on an expressway project. The relevant skills have been transferred to those involved in these pilot projects. However, there were some problems. Some items in the TOR were not central to the main purpose of the TA, notably the development of a computerized information system at MOC for use by the provinces. In practice, none of the provinces will use this system. Second, the TOR required development of a project monitoring system. Again, a number of these exist at the provincial level, so a central system will not be
Appendix 13 133
used. A subsequent PPTA in the exact area of the pilot is not using the methodology developed. This seems a pity and is the responsibility of ADB. MOC was willing to test the methodology on another PPTA, but required ADB agreement to do so. It is in this context that the Executing Agency said that it would alter the policy recommendations after the completion of the ADTA in order for these to be accepted by the Government. 15. While the MOC was fairly positive about the effectiveness of the ADTA on Poverty Impact of Area-Wide Road Networks, interviews with provincial executing agencies and local consultants knowledgeable about PCDs suggested that executing agencies will not adopt and use this model unless they are forced to. In other words, despite holding several workshops and conferences involving MOC, provincial-level ownership has not been established. A further concern is that the optimization model is somewhat shortsighted. It excludes the possibility that an equal number of poor could be lifted out of poverty at lower unit costs by promoting roads, which also reduce poverty (through economic growth). In conclusion, despite the positive opinions expressed by the project officer, Executing Agency, and TA consultant, it seems unlikely that this effort will achieve a lasting improvement in the methods actually used in road planning. The TA is, therefore, rated less effective. 16. The ADTA on WTO Policy Reform Support (footnote 8) was designed to help MOR review potential impacts of the PRC’s accession to the WTO, assess MOR’s preparedness to address these impacts, and recommend actions and policy reforms to meet these challenges so as to enhance the competitiveness of railway transport. MOR indicated that this was a unique and important study, and was satisfied with the TA design. However, it was less satisfied with the approach to skills transfer to Executing Agency staff. The training on WTO accession issues was too short. It was also not satisfied that the ADTA had failed to provide recommendations for policy reform. Effectiveness was reduced as a result of the consultants not fully understanding the needs of MOR and failing to communicate satisfactorily with MOR officers. The project officer, on the other hand, reported that the consultant performance was satisfactory, and that the consultants raised the capacity of the Executing Agency. However, the project officer did indicate that the timeframe for the ADTA was too short to achieve all of its objectives. There were, therefore, differences in the views of the project officer and Executing Agency about effectiveness. Nevertheless the TA initiated a structured analysis and debate in MOR and the PRC government on accession impacts, and this is an important outcome. It is rated effective. 17. Regarding the ADTA on Policy Reform in Road Transport (footnote 9), the Executing Agency’s responses were somewhat ambiguous about the suitability of the policy recommendations. It said that these recommendations had been useful and would have important long-term impacts, but it also said that they would have to be revised to be acceptable to the Government. The consultants said the TA would have benefited from more field time, and that skills transfer—which was mainly done through workshops—would have been more effective had the TA been more integrated with MOC’s own reform program. As for outcomes, the consultants said it may be some time before provincial agencies are authorized to implement some of the more significant reforms recommended. Overall, the ADTA was rated effective. 18. It is worth noting a general finding of the assessment of effectiveness that for all sample ADTA projects, the executing agencies and consultants confirmed that an internal action plan was developed to incorporate the work of the TA into the ongoing work of the Executing Agency and that the ADTA could be regarded as a step in a more general reform program that would require further assistance in future.
134 Appendix 13
19. Efficiency. This is a measure of how well resources were used by the TA in achieving its intended outcomes. 20. The ADTA on Corporatization, Leasing, and Securitization (footnote 5) suffered from problems in the way it was originally conceived, designed, arranged, and administered by ADB. This primarily reflected a failure to adjust to the new challenges that emerged as the project developed, and unrealistic initial assumptions regarding budget and time schedules. The TA's actual closing date was 1 year and 9 months after the original plan. The TA was rated less efficient. 21. As regards the ADTA on Socioeconomic Assessment of Road Projects (footnote 6), the fieldwork for testing the project-related methodology was delayed by 8 months and was completed 14 months behind schedule. The original 5-month schedule was unrealistically short. The TA consultant did not think that ADB helped sufficiently to position the consultant effectively in the Executing Agency or to facilitate TA completion. ADB supervision was limited by insufficient knowledge about technical aspects of the TA. Overall, the TA was rated less efficient. 22. For the ADTA on Poverty Impact of Area-Wide Road Networks (footnote 7), ADB was efficient in positioning the consultant effectively in the Executing Agency and in facilitating completion of the ADTA. However, the TA consultants said the TA was underfunded and the timeframe was too short, particularly because of the peripheral tasks included in the TOR (para. 7), and that this detracted from work on the main tasks. Overall, this TA was rated less efficient. 23. While acknowledging the importance of the ADTA on WTO Policy Reform Support (footnote 8) and the urgent need for clarifying conclusions and reform recommendations, the Executing Agency assessment of the performance of the consultant and ADB was lukewarm. The TA was rated less efficient. 24. The Executing Agency found the ADTA on Policy Reform in Road Transport (footnote 9) to have been efficiently conducted. The consultants praised ADB for excellent client orientation during project implementation, speed of making decisions on requests for approval (such as for procurement and recruitment of consulting services), problem solving and flexibility during implementation, and continuity of ADB staff involvement. The main drawback was that implementation efficiency was affected an unrealistically low budget . Overall, the TA was rated efficient. 25. Sustainability. This criterion examines the likelihood that the outcomes achieved by the TA will be sustained in future. Determinants of sustainability may include (i) human, institutional, and financial resources; (ii) policies, procedures, and financial structures; (iii) markets and regulatory conditions and risks of change; (iv) political will and support; and (v) agency management support. 26. In the ADTA on Corporatization, Leasing, and Securitization, even though training and skills transfer were less than necessary, the TA outputs were of good quality and well-linked to the road subsector strategic issues under the Ninth Five-Year Plan (NFYP) and TFYP. Through its wide dissemination throughout the PRC, the TA was made available to executing agencies who were able to use it in considering corporatization, leasing, and securitization options. The sustainability of the TA is rated most likely. 27. For the ADTA on Socioeconomic Assessment of Road Projects, the consultant and the project officer said that the TA did not seek to transfer skills to the Executing Agency. At the
Appendix 13 135
present stage of development and PCD capacity and competence in the PRC’s western provinces, it is unlikely that PCDs and expressway executing agencies at their own initiative and cost will take on the tasks and hire experts to follow the procedures and analyses developed by this ADTA. Its sustainability was, therefore, rated less likely. 28. Regarding the ADTA on Poverty Impact of Area-Wide Road Networks, although it has not been long since the model was made operational and demonstrated to a wider audience of PCDs, so far take-up by executing agencies for use in PPTA projects without ADB participation has been disappointing. Based on interviews with a series of PCD representatives, the sustainability of the changes that such methodology would imply for the planning and selection of local roads in expressway projects without ADB finance is doubtful. The sustainability of the TA was rated less likely. 29. For the ADTA on WTO Policy Reform to the MOR, the PRC’s accession to the WTO makes reform of the railway sector unavoidable, as the PRC is now obligated to provide a basis for competition in the railway industry. The most important reform proposals put forward by ADTA 4325 will, therefore, be taken up. The sustainability of the TA was, therefore, rated likely. 30. As regards the ADTA on Policy Reform in Road Transport, while MOC expressed optimism that the recommendations would be implemented, the consultant feels that MOC may need more time to be convinced of the effectiveness of the proposed reform measures. The sustainability rating was likely. D. Project Preparatory Technical Assistance 31. Overall. Two of the six railway PPTA projects performed satisfactorily according to the assessment, but the rated performance of the other four railways PPTA projects and the five road PPTA projects was less satisfactory. The PPTA projects rated poorly for relevance and efficiency, and satisfactorily for effectiveness and sustainability. This reflects the finding that in most cases, the Executing Agency did not require PPTA support for many of the tasks covered by the PPTA. However, the TA consultants did perform their TOR satisfactorily, and following the PPTA ADB approved the project loans in all cases. A summary of the overall ratings is in Table A13.3. Further elaboration on PPTA performance is provided below.
Table A13.3: Rated Performance of the Sample of Eleven PPTA projects for Roads and Railways Approved in 1997–2005
Evaluation % of Rated Project Preparatory Technical Assistance Rating Relevance Effectiveness Efficiency Sustainability Overall High 0 0 0 0 0 Satisfactory 27 91 9 100 18 Less Satisfactory 73 9 91 0 82 Unsatisfactory 0 0 0 0 0 PPTA = project preparatory technical assistance. Source: Sector assistance program evaluation team. 32. Relevance. There is little doubt that all of the projects preceded by PPTA were important. Ten of the 11 executing agencies said the project prepared by the PPTA had high Government priority and were important in the executing agencies' forward plans. All 11 said the TOR were satisfactory, but noted that they had been prepared by ADB. As such, the TOR focused too much on satisfying a host of standard ADB requirements and examining special project features that ADB wished to add to the main project. The TORs were, therefore, largely supply-driven. The executing agencies questioned the relevance of the PPTA, since only one
136 Appendix 13
out of 11 had led to the project design being changed at loan fact-finding or appraisal. Two railway PPTA projects and one road PPTA (urban transport) were rated relevant, and the other four railway and four road PPTA projects were rated less relevant. 33. Effectiveness. The executing agencies generally said that the TOR were performed satisfactorily by the TA consultants. In one case, the TA consultants lacked the level of specialized expertise needed for an urban transport PPTA and, therefore, performed less effectively. All the PPTA projects led to the approval of ADB project loans. All the PPTA projects were rated effective, except for the urban transport PPTA, which was rated less effective. 34. Efficiency. All but one of the 11 executing agencies said that PPTA was not efficient. For roads and railways in the PRC, PPTA has lost much of its original purpose of helping the Government to prepare a feasibility study to develop a project suitable for ADB financing. Six of eight responding executing agencies claimed that they could have led a design team—possibly supplemented with outside domestic experts—to prepare the project without ADB assistance. In many instances, this is essentially what happened as the Executing Agency's design and feasibility study was adopted with little revision. This was confirmed by all 11 consultants and half of the project officers (the other half did not know). The executing agencies also said that the extra time required to prepare and approve the PPTA and recruit consultants caused delays in project due time. 35. Other commonly cited features of inefficiency were (i) international consultants were often too unfamiliar with the PRC to make a significant contribution; (ii) good quality national consultants were underutilized; and (iii) it is feasible that a good translation of the full feasibility study prepared by the PRC authorities could have replaced PPTA in some instances; (iv) since domestic safeguard policies and laws were in many instances stringent, it would have been more efficient for ADB to review and use domestic policies, where appropriate, rather than require a duplication of safeguard-approval procedures during project preparation; and (v) there was a perception among executing agencies that PPTA has become an extension of ADB’s administrative budget, as it was being used largely to fulfill ADB requirements; increasingly PPTA consultants were being asked to assist ADB missions with drafting reports and recommendations to the President. All PPTA projects except for one railway PPTA (where the Executing Agency was newly formed and relatively inexperienced) were rated less efficient. 36. Sustainability. The projects preceded by PPTA were generally of a high standard, with strong executing agencies capable of operating the project facilities soundly, and good prospects of attracting sufficient traffic to be financially viable. All of the PPTA projects were, therefore, rated likely to be sustainable.
Appendix 14 137
APPROACH TO COMPARISON OF PROJECTS WITH AND WITHOUT ADB SUPPORT A. Introduction 1. To what extent has Asian Development Bank (ADB) involvement added value to road and railway projects in the People’s Republic of China (PRC)? Through field interviews supported by document review, the sector assistance program evaluation (SAPE) sought to examine the value added by ADB by comparing its road and rail projects approved in 1997–2005 with domestically financed road and rail projects of similar scope, location, and timeframe.1 This was intended to identify similarities and differences in projects. By including projects spanning the 9-year study period, it was hoped that the SAPE might establish whether the two categories of projects and their outcomes had changed over time and whether differences evident at the start of the period had remained, grown, or been reduced. B. Survey Questions 2. The overall focus was on whether ADB-financed projects were different from domestically financed ones, and whether these differences (i) added value to the project; (ii) affected the way Ministry of Communications (MOC) and Ministry of Railways (MOR) designed and implemented domestically financed projects; and (iii) influenced MOC's and MOR's wider policies, procedures, and practices. 3. A "with” and “without” survey was used to analyze the with-project and without-project scenarios. This focused on four main groups of questions: (i) did ADB financing influence the timing of investment; (ii) did ADB financing influence the quantum of investments (i.e., the fungibility issues, including effects on local roads); (iii) did standard requirements of ADB policies and procedures and ADB due diligence review add any improvements (e.g., international competitive bidding; anticorruption measures; safeguard requirements for environment, resettlement, indigenous peoples); and (iv) were the special features that ADB was seeking to promote through its projects differ markedly from features promoted in domestically financed comparator projects, and did they add value? 4. With respect to para. 3 (iv) above, ADB promoted the following features when it provided financing for expressway construction:
(i) highway design standards and construction quality; (ii) pricing and cost recovery; (iii) commercialization, corporatization, and private concessioning of expressway
management and operations; (iv) financial resources mobilization; (v) inclusion of local roads to increase poverty reduction impacts of expressways; (vi) road safety at project and provincial level; (vii) road transport service stations; (viii) overload control at project and provincial level; (ix) control of vehicle emissions at project level and provincial level, and recently also; (x) improving the regulatory framework for transport services; and (xi) mitigation of HIV/AIDS2 threats at construction sites.
1 To the extent possible, domestically financed comparator projects were selected on the basis that they cover road
or rail sections adjoining or near ADB-financed projects, were part of a common overall investment master plan, and were planned and implemented around the same time.
2 Human immunodeficiency virus/acquired immunodeficiency syndrome.
138 Appendix 14
5. All ADB rail project lending was for construction of new railways to extend the rail network to poorer regions. ADB's focus shifted over the 1997–2005 period. Initially, it continued to finance new rail links to be built and operated by provincial railway companies, and included support to help them commercialize their operations. From the late 1990s, when MOR started institutional reforms, ADB began financing new rail links under MOR and engaging in policy dialogue with MOR on national-level railway reform. With respect to para. 3 (iv) above, ADB promoted several features through its provision financing for successive railway projects and associated advisory technical assistance grants:
(i) development of link roads and stations to extend the impact of railways, (ii) full-cost tariffs on project railways, (iii) support for commercial practices in railway companies, (iv) new technology to improve efficiency and safety, (v) development of separate passenger and freight rail corridors, (vi) providing container terminals for private logistics operators, (vii) outsourcing of ancillary services, and (viii) support for subregional rail links.
C. Sample 6. As a basis for this analysis, 10 ADB-financed road projects and four ADB-financed railway projects were selected, along with 15 domestically financed comparator projects (comprising 10 road projects and five railway projects). A series of interviews were held with the executing agencies and implementing agencies in the six provinces, at MOC, and at MOR. Field interviews were generally with project directors of executing agencies and representatives of provincial communications and railways bureaus. Details of the study projects are in Table A14.
Appendix 14 139
Table A14: Sample of Projects for With and Without Comparison
Asian Development Bank-Financed Project Domestically-Financed Project Comparator
No. Year
Approved Province Loan No. Project Name
No.
Year Approved Province Project Name
A. Roads
1. 1999 Yunnan 1691 Southern Yunnan Road Development 1. 1996 Yunnan Yu-Yuan Expressway
2. 2003 Yunnan 2014 Western Yunnan Road Development 2. 2003 Yunnan Si-Xiao Expressway
3. 1998 Heilongjiang 1641 Changchun-Harbin: Hashuang Expressway
3. 1999 Heilongjiang Harbin-Suifenhe Expressway
4. 1998 Jilin 1642 Changchun-Harbin: Changyu Expressway
4. 2006 Heilongjiang Daqing-Zhaoyuan Expressway
5. 2005 Heilongjiang 4592 Heilongjiang Road Network Development
5. 1995 Hunan Yiyang-Changde Expressway
6. 2004 Hunan 2089 Hunan Roads Development II 6. 2003 Hunan Chang-Tan West Expressway
7. 2005 Hunan 2219 Hunan Roads Development III 7. 1996 Guizhou Guiyang-Liuzai Expressway
8. 2000 Guizhou 1784 Chongqing-Guizhou Roads, Chongzun Expressway
8. 2002 Guizhou Sansui-Kai Li Expressway
9. 2001 Shaanxi 1838 Shaanxi Roads Development Project 9. 1998 Shaanxi Yumen Kou-Yan Liang Expressway
10. 2003 Shaanxi 2024 X’ian Urban Transport 10. 2003 Shaanxi Yulin-Shaanmeng Border Expressway
B. Railways
1. 1998 Guizhou 1626 Guizhou-Shuibai Railway 1. 2001 Guizhou Yuhuai Railway
2. 2004 Yunnan 2116 Dali-Lijiang Railway 2. 2004 Guizhou Huangtong-Zhijin Railway
3. 1997 Shaanxi 1553 Shenmu-Yanan Railway 3. 1990 Yunnan Guangtong-Dali Railway
4. 1998 Shaanxi 1748 Hefei-X‘ian Railway 4. 2004 Shaanxi X’ian-Yanan Railway
5. 2004 Shaanxi Hefei-Nanjing Railway Source: Sector assistance program evaluation team.
140 Appendix 15
PERFORMANCE ASSESSMENT AND RATING In the absence of a formal guideline for preparation of sector assistance program evaluations (SAPE), the performance assessment of the SAPE on roads and railways assistance in the PRC uses the CAPE framework, which was modified as appropriate.1 The SAPE performance rating for top-down and bottom-up sector performance are detailed below.
Table A.15.1: Top-Down Sector Performance Rating
Item
Roads Railways Roads and Railways
Combined Strategic/Subsector Positioning 8 8 8 ADB Performance and Client Orientation 6 6 6 ADB Value Added/Contribution to Development Results 4 4 4 Overall Rating 18 18 18 (Rating Description) (Successful) (Successful) (Successful) Note:
1. A scale of 0-8 was used for sector positioning, ADB performance and contribution to development results: 8=high, 6=substantial, 4=modest, 0=negligible. 2. Aggregate top-down sector performance is considered highly successful if the total score is equal to or greater than 20; successful if the total score is between 16 and 19; partly successful if the total score is between 11 and 15; and unsuccessful if the total score is 10 or less. 3. Performance ratings for roads and railways subsectors combined are weighted total scores based on the approved amounts of loan and technical assistance to each subsector (i.e., about 71.7% for roads and 28.3% for railways).
Source: Sector assistance program evaluation team
Table A.15.2: ADB’s Value Added/Contribution to Development Results Item
Roads Railways Roads and Railways
Combined Raw Ratings on Value Added based on 3-point Criteria
Overall Rating on Value Added at Introduction 2.6 2.4 2.6 Overall Rating on Value Added at Period End 1.1 1.4 1.2 Mean Average 1.9 1.9 1.9
Equivalent SAPE Ratings based on CAPE Evaluation Framework
Overall Rating on Value Added at Introduction 6-8 6-8 6-8 Overall Rating on Value Added at Period End 1 1 1 Performance Rating for Value Added 4 4 4 (Rating Description) (Modest) (Modest) (Modest)
Note: 1. SAPE quantified value addition based on ratings at introduction and period end using a 3-point criteria of finance mobilization, standard provisions, and special features. A scale of 1-3 was used: 3 = significant; 2 = moderate; 1 = insignificant. The equivalent ratings using the CAPE evaluation framework is base on a 4-point scale of 6-8= substantial to high; 4=modest; and 0= negligible. 2. The performance rating for value added/contribution to development results is based on a simple average of the overall ratings on value added at introduction and period end.
Source: Sector assistance program evaluation team
1 ADB. 2006. Guidelines for the Preparation of Country Assistance Program Evaluation Reports. Manila.
Appendix 15 141
Table A.15.3: Bottom-Up Sector Performance Ratings
A. Roads and Railways Item Roads Railways Loans TAs Both Loans TAs Both Relevance 3.0 1.0 2.6 3.0 1.0 2.6 (scale of 0-3) Highly
Relevant Partly
Relevant Highly
Relevant Highly
Relevant Partly
Relevant Relevant
Effectiveness 6.0 4.0 5.6 4.0 4.0 4.0 (scale of 0-6) Highly
Effective Effective Highly
Effective Effective Effective Effective
Efficiency 3.0 1.0 2.6 2.0 1.0 1.8 (scale of 0-3) Highly
Efficient Less
Efficient Highly
Efficient Efficient Less
Efficient Efficient
Sustainability 4.0 4.0 4.0 4.0 4.0 4.0 (scale of 0-6) Likely Likely Likely Likely Likely Likely Impact
4.0 4.0 4.0 4.0 4.0 4.0
(scale of 0-6) Significant Significant Significant Significant Significant Significant Overall Rating 20.0 14.0 18.8 17.0 14.0 16.4 Highly
Successful Partly
Successful Successful Successful Partly
Successful Successful
B. Roads and Railways Combined Item Roads and Railways Combined Loans TAs Both Relevance (scale of 0-3) 3.0 1.0 2.6 Highly Relevant Partly Relevant Highly Relevant Effectiveness (scale of 0-6) 5.4 4.0 5.1 Highly Effective Effective Highly Effective Efficiency (scale of 0-3) 2.7 1.0 2.4 Highly Efficient Less Efficient Efficient Sustainability (scale of 0-6) 4.0 4.0 4.0 Likely Likely Likely Impact (scale of 0-6) 4.0 4.0 4.0 Significant Significant Significant Overall Rating 19.1 14.0 18.1 Successful Partly Successful Successful Notes:
1. Bottom-up sector performance ratings are consistent with the CAPE evaluation framework on the five-point evaluation criteria of relevance, effectiveness, efficiency, sustainability, and impact. 2. The performance rating for each subsector is the weighted total scores of loan and technical assistance based on the proportion of 80% and 20%, respectively. 3. Aggregate bottom-up sector performance is considered highly successful if the total score is equal to or greater than 20; successful if the total score is between 16 and 19; partly successful if the total score is between 11 and 15; and unsuccessful if the total score is 10 or less. 4. Performance ratings for roads and railways subsectors combined are weighted using approved amounts of loan and technical assistance to each subsector (i.e., about 71.7% for roads and 28.3% for railways).
Source: Sector assistance program evaluation team
142 Appendix 15
Table A.15.4: Overall SAPE Assessment
Item Roads Railways Roads and Railways Combined
Top-Down 18.0 18.0 18.0 (Rating Description) (Successful) (Successful) (Successful) Bottom-Up 18.8 16.4 18.1 (Rating Description) (Successful) (Successful) (Successful) Overall Rating of Road and Railway Support
36.8 34.4 36.1
(Rating Description) (Successful) (Successful) (Successful) Note: Overall rating performance is considered highly successful if the total score is equal to or greater than 40,
successful if the total score is between 30 and 39, partly successful if the total score is between 20 and 29, and unsuccessful if the total score is 19 or less.
Source: Sector assistance program evaluation team.
