Documentof The World Bank Report No. 13795-CHA STAFF APPRAISAL REPORT CHINA SEVENTH RAILWAY PROJECT APRIL 14, 1995 Transport Operations Division China and Mongolia Department East Asia and Pacific Regional Office Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized
Transcript
Document of
The World Bank
Report No. 13795-CHA
STAFF APPRAISAL REPORT
CHINA
SEVENTH RAILWAY PROJECT
APRIL 14, 1995
Transport Operations DivisionChina and Mongolia DepartmentEast Asia and Pacific Regional Office
ctkm = converted tkm or traffic unit (I pkm 1 tkm)ha = hectare (= 2.47 acres)km = kilometer [= 0.621 mile (mi)]m = meter (= 3.281 feet)M2 = square meter (= 10.764 square feet)Mp = million passengersMpkm = million passenger-klometersMppy = million passengers per yearMt = million tonsMtkm = million ton-kilometersMtpy = million tons per yearmu = 0.1647 acre = 0.0667 hectare (ha) = 667 square meterspkm = passenger-kilometer (= 0.621 passenger-mile)tkm = ton-kilometer (= 0.621 ton-mile)
ACRONYMWIS AND ABBREVIATIONS
CETE = Cost-Effective Technology EvaluationCIF = Cost, Insurance, and FreightCOSCO = China Ocean Shipping Group CompanyCPI = Consumer Price IndexCRC = China Railway Container CompanyCTS = Coal Transport StudyDECO = Diversified Economy CompanyEIA = Environmental Impact AssessmentERR = Economic Rate of RetumFCTIO = Foreign Capital and Technical Import OfficeFSA = Fuzhou SubadmirnistrationGDP = Gross Domestic ProductGNP = Gross National ProductGRC = Guangzhou Railway Group CorporationICB = Intemational Competitive BiddingIDC = Interest During ConstructionISO = Intemational Standards OrganizationLCB = Local Competitive BiddingLIB = Limited International BiddingMIS = Management Information SystemsMOC = Ministry of CommunicationsMOF = Ministry of FinanceMOR = Ministry of RailwaysMPT = Ministry of Post and TelecommunicationsNBF = Not Bank-financedNPV = Net Present ValuePHRD = Policy and Human Resources Development (Fund)PID = Policy reform and Institutional DevelopmentPRS = Passenger Reservation SystemPSO = Public Service ObligationsRCT = Rail-Based Container TransportRIS = Railway Investment StudyRME = Railway Management and Economic ContractSAA = State Audit AdministrationSIPS = Strategic Issues in Ports and Shipping StudySIT = SinoRails Intermodal Transport CompanySOE = State Owned EnterpriseSPB = State Pricing BureauSPC = State Planning CommissionTA = Technical AssistanceTEUs = 20-foot equivalent unitsTMIS = Transport Management Information SystemYEZTS = Yangtze Economic Zone Transport Study7FYP = Seventh Five-Year Plan8FYP = Eighth Five-Year Plan9FYP = Ninth Five-Year Plan
CHIlNA
SEVENTH RAILWAY PROJECT
LoAN AND PRoJEcr SUMMARY
Borrower: People's Republic of China
Beneficiary: Ministry of Railways (MOR)
Poverty: Not Applicable
Amount: $400 million equivalent
Terms: 20 years, including 5 years of grace, at the Bank'sstandard variable rate
Commitment Fee: 0.75 percent on undisbursed loan balances,beginning 60 days after signing, less any waiver
Financing Plan: See para. 3.37
Economic Rate of Return: 27 percent overall.
Map: IBRD 26327
CONTENTS
1 Transport Bottlenecks and Reforms ...................... 1
A. Introduction ................................. 1B. Traffic ..................................... 2C. Past Transport Reforms ........................... 2D. Bank Group Participation and Future Transport Reforms ..... . . 3E. Outline of Report ............................... 5
2 The Railway System and Reform Opportunities. 6
A. The Railway System. 6B. Rationale for Bank Involvement. 8C. Reform Constraints and 30-point Action Statement. 9
This report is based on the findings of an appraisal mission that visited China in October/November 1994. Members of the appraisal team included Messrs./Mmes. T. Watanatada(Transport Economist, Task Manager until negotiations), H. Deboeck (Financial Analyst,Task Manager from negotiations onwards), P. Anderson (Railway Specialist), J. Fraser(Financial Analyst, Consultant), M. Gill (Resettlement Specialist, Consultant), N. Holcer(Telecommunications Engineer), R. Kopicki (Transport Industry Specialist), M. Kuby(Transport Specialist, Consultant), U. Marggraf (Railway Engineer), R. McAfee(Information Systems Specialist, Consultant), W. Siemieniuk (Environmental Specialist,Consultant), A. Somani (Environmental Specialist), R. Spero (Transport Economist,Consultant), L. Thompson (Railway Advisor), W.H. Thompson (Container TransportSpecialist, Consultant), S. Tsukada (Transport Specialist). Assistance was also providedby Messrs./Mme. Juemin Chen, Huikang Xu and Yan Zong, Operation Officers in theResident Mission in China. Mmes. M. Dearborn and T. Ortega provided the wordprocessing support for the documents. Peer reviewers for the project were Messrs./Mme.R. Bums (SA21N), R. Carruthers (LA2IE), J. Holt (EC3IV) and E. Vasur (EC2IN). TheDivision Chief is Mr. Richard Scurfield and the Department Director is Mr. Nicholas C.Hope.
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3 The Project ..................................... 14
A. Objectives ................................... 14B. Lessons Learned ............................... 14C. Policy Reform and Institutional Development Initiatives ... .... 15D. Investments for Expansion, Modernization and Reform ........ 15E. Studies for Modernization and Reform .................. 18F. Cost Estimates ................................ 20G. Financing ................................... 21H. Implementation and Risks .......................... 22I. Procurement .................................. 23J. Disbursements ................................ 25K. Monitoring, Evaluation and Supervision ................. 25L. Environmental Impacts and Resettlement ................ 26
4 Economic Evaluation and Risk Analysis of Project-Financed Investments 28
A. Introduction .................................. 28B. Main Benefits ................................. 28C. Expanding Corridor Capacity ....................... 29D. Modernizing Information Systems ..................... 30E. Upgrading Telecommunications Systems ................ 30F. Commercializing Container Transport .................. 31G. Expanding System Capacity ........................ 31H. Overall Evaluation and Risk Analysis .................. 32
5 Flnancial Viability of Railway Transport Operation ...... ...... 34
A. Introduction .................................. 34B. Past Financial Performance ......................... 34C. Present Financial Position ......................... 35D. Future Financial Performance: Base Case ............... 36E. Sensitivity Analysis ............................. 37F. Conclusions .................................. 39
6 Agreements Reached and Recommendation ...... .. ......... 41
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TABLES
General
1.1 Freight Traffic Intensities and Road and Railway NetworkDensity in Selected Countries ....................... 43
1.2 Freight Traffic by Mode .......................... 441.3 Passenger Traffic by Mode ......................... 451.4 Transport Investment vs. Economic Output in China ..... . . . . 461.5 Investment in the Transport Sector .................... 471.6 Summary Statistics of Bank-financed Transport Projects ..... . . 48
2.1 Freight Traffic Carried by MOR ..................... 502.2 MOR's Freight Tonnage Originated ................... 512.3 Average Distance of Freight Traffic Carried by MOR ... ..... 522.4 MOR's Passenger Traffic and Average Passenger Travel Distance . 532.5 Selected Operational Statistics of MOR, 1980-93 .... ....... 542.6 Railway Asset Utilization in Selected Countries .... ........ 57
Investment Costs, Implementation Schedule, and Disbursements
3.1 Investment Costs and Loan Summary ........ .......... 583.2 Investment Costs of Corridor Capacity Expansion Component . . . 623.3 Investment Costs of Information Systems Modernization Component 633.4 Investment Costs of Telecommunications Upgrading Component . 643.5 Investment Costs of Container Transport Commercialization
Component .653.6 Investment Costs of Pilot Environmental Protection Component . . 663.7 Investment Costs of System Capacity Component .... ....... 673.8 Costs of Technical Assistance ........ ............... 683.9 Implementation Schedule .......... ................ 693.10 Cumulative Disbursement Schedule .82
Economic Evaluation
4.1 ERR and NPV Calculation for the Corridor Expansion Component 834.2 ERR and NPV Calculation for the Information Systems
Modernization Component .844.3 ERR and NPV Calculation for the Telecommunications
Upgrading Component .854.4 ERR and NPV Calculation for the Container Transport
Commercialization Component .864.5 ERR and NPV Calculation for the System Capacity Expansion
Component .87
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ANNEXES
1. Bank Group Participation in the Transport Sector ............... 892. Summary of Previous Railway Projects .................... 913. Summary of Completed, Ongoing and Proposed Programs of Cooperation
between MOR and the World Bank ....................... 944. Reforming China's Railway System: Progress to Date ... ........ 1005. Indicators and Targets for Monitoring the Progress and Effectiveness of
Implementation of Investment Components ................... 1106. Action Plans for Policy Reform and Institutional Development Components 1147. Completion Dates for Study Components .................... 1208. Environmental Impact Assessment: Wuhan-Guangzhou Electrification and
Upgrading ....................................... 1219. Resettlement Plan: Wuhan-Guangzhou Electrification and Upgrading ... 12310. Supervision Plan ................................... 12911. Documents Available in the Project File .................... 130
CEHARTS
C.1 General Organization Chart of the Ministry of Railways ... ........ 133C.2 General Organization Chart of the Government of China ... ....... 134C.3 Long-Distance Telephone Network ........................ 135C.4 Data Communications Packet Switching Network .............. 136C.5 Route Map of China Railways Container Company (CRC) ... ...... 137
MAP
IBRD 26327 China Railway System
TABIEs IN TExTChapter
3 Cost Summary .................................... 213 Financing Plan .................................... 223 Procurement Summary ............................... 244 Net Present Value and Economic Rate of Return by Component ... ... 294 Results of Sensitivity Analyses .......................... 33
S Actual Revenues and Expenses, 1988-93 .................... 355 Forecast of Revenues and Expenses, 1994-2000: Base Case ... ..... 385 Sensitivity Analysis-Key Ratios, 1994-20W .................. 39
FIGURES IN TEX
1 Intemational Comparison of Railway and Road Networks ......... 1
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1. TRANSPORT BOTTLENECKS AND REFORMS
A. INIRODUCTION
1.1 Since the mid-1980s, China's transport system-and especially the railway-has been unable to handle the country's spiraling growth of freight and passenger traffic(average annual growth rates of about 7 percent and 10 percent, respectively). Many keyrailway lines have developed bottlenecks where traffic in at least one direction reaches95 percent of the design capacity or more. These bottlenecks occurred on less than10 percent of the network in the mid-1980s, but reached nearly 40 percent by the end ofthe decade. This, in turn, causes the railway to ration service extensively.
1.2 The situation developed because the economy grew rapidly after theGovernment adopted the open-door policy in 1978 (averaging 9.4 percent a year from 1980to 1993). And, although capacity was also expanded-with the network more thandoubling in the last three decades-it still did not keep pace with economic growth. Infact, the network is one of the sparest in the world, compared with the area and populationit serves (see the figure below; Table 1.1). Thus, China has not been well-served by eitherthe rail or highway system and growth has been hampered (most severely in thehinterland). According to World Bank figures, this led to at least a 1 percent loss of GNPannually.
INTERNATIONAL COMPARISON OF RAILWAY AND ROAD NETwoRKS
Ralliwy Networks Road Networks
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ClJna Russia ISA India SsaSm Jall1n CRloa Russi USA Ilndi Braln Japan
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1.3 The railway system was unable to match economic growth for two reasons.First, the country underinvested in transport infrastructure-an annual average of1.4 percent of GNP from 1980 to 1993, compared to 2 to 3 percent in Brazil and India(Tables 1.4 and 1.5). Second, authorities did not apply congestion pricing on routes withbottlenecks to moderate demand and raise more revenues to expand capacity. To correctthe capacity problem, China has embarked on a massive investment program since 1992:it aims to build by the year 2000 some 16,000 route-km of new railway lines to add to theexisting 54,000 route-km, and some 5,000 route-km of new high-capacity, high-speedexpressways to add to the roughly 1,500 route-km of expressways built so far.
1.4 If China is to move to a market economy fully, another set of pressing issuesalso need to be resolved. These relate to regulations and the relationship between therailway system and the Government, the railway's management and organization, and itstechnology, operations and services. The railway recognizes that it must undertakereforms so as to operate in a market economy. MOR formulated its own vision of changesin a 30-Point Action Statement for Railway Reform, which was endorsed by the StateCouncil in April 1994 (Chapter 2), and which the proposed project will support.
B. TRAlc
1.5 The surge in traffic occurred despite capacity constraints and relatedbottlenecks. Highway freight traffic grew at the highest annual rate (14.2 percent),compared with 6.3 percent for railway traffic and 9.7 percent for coastal and inlandwaterway traffic (Table 1.2). Nevertheless, intercity passenger travel per capita remainsvery low-about two thirds the level in India. Civil aviation traffic, which grew at17.7 percent a year (from a very low base) from 1982 to 1993, remains limited-withmarket share of 6 percent-while long-distance passenger rail traffic grew by 7.5 percenta year during the same period (Table 1.3).
1.6 Although the railway's share of total traffic declined over the past decade asthe road network developed, rail transport still dominates: In 1993, about 55 percent offreight (Table 1.2) and about 44 percent of passengers (Table 1.3) moved by rail, and therest moved by road, inland waterway, coastal shipping, pipeline and air. The dominancein freight transport is due partly to the economy's past dependence on heavy industry andpartly to comparatively poor road conditions and small, inefficient vehicles. Withpassenger transport, it is partly due to inadequate intercity bus service, the virtual absenceof private automobiles, and the limited use of civil aviation. However, the move to amarket economy will increase demand for more responsive transport and thus shift theemphasis to road transport-although it will still leave a growing market for the relativelylow-cost rail services.
C. PAST TRANsPoRT REFoRMs
1.7 In the past decade, China attempted to increase economic efficiency withreforms designed to: (a) reduce Government intervention in the production and distributionprocess; (b) reduce its deficits and subsidies to state-owned enterprises (SOEs); and
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(c) open the economy by expanding trade and allowing greater participation of private andcollective enterprises.
1.8 In transport, the country also launched various reforms. These included:
(a) Eliminating almost all price distortions by (i) decreasing the volume ofcommodities produced under the state plan; (ii) raising the in-plan commodityprices closer to market levels; (iii) raising the tariffs charged by state transportenterprises for railways, highways and waterways; and (iv) reducing operatingand capital subsidies for major infrastructure services through higher cost-recovery and user-funded capital construction funds;
(b) Allowing private individuals and collective and township enterprises to providepassenger and freight services on roads and inland waterways, andencouraging provincial and national authorities to develop local railways andother transport projects with private sector financing;
(c) Introducing structural reforms in the organization and management of the portsand civil aviation, which have increased financial autonomy andaccountability, reduced central government controls, and paved the way forcompetitive services;
(d) Encouraging the introduction of more modem transport technology, primarilyby improving rolling stock; enhancing container and bulk handling capacity inthe ports; improving road pavement design and geometric standards; andincreasing the use of computerized data processing and planning techniques inall modes.
D. BANK GROUP PARTICIPATION AND FuTURE TRANSPORT REFORMS
1.9 The Bank Group has supported government initiatives in transport throughloans and credits of $4.53 billion for 29 projects (Table 1.6 and Annex I . These projects,which represent 6 to 8 percent of government-financed investments during 1982 to 1992,involved:
(a) Expanding rail capacity; modernizirg locomotives and rolling stock, facilities,track maintenance, telecommunications and information systems; providingtechnical assistance (TA) and training programs ($1.78 billion in sevenprojects);
(b) Constructing 2,180 km of high-quality national and provincial roads,upgrading 6,850 km of rural roads, improving the supervision and qualitycontrol of road construction; conducting studies of key issues in road safety,pavement management, user charges and methods of financing for roadmaintenance and construction; and upgrading roads and inland waterways inJiangsu Province ($1.82 billion in 12 projects);
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(c) Constructing terminals, jetties and berths in six ports, dredging navigationchannels, and providing TA and training for port planning, operationsmanagement and containerization ($715 million in eight projects);
(d) Improving urban transport in Shanghai, including upgrading infrastructure andimproving urban transport planning, finance and management ($210 millionin two projects).
1.10 The Government-Bank dialogue has occurred through project preparationactivities, project-financed studies and secto. studies done in collaboration with Chineseauthorities, especially in the areas of multimodal transport investment and the setting ofsectoral priorities. Eight studies explored multimodal pricing and investment issues.These included the Waterway Transport Sector Study, the Guangdong ComprehensiveTransport Planning Study, the Yangtze Economic Zone Transport Study (YEZTS), theCoal Transport Study (CTS), the Railway Investment Study (RIS), the Strategic Issues inPorts and Shipping (SIPS) Study, the Price Reform Study, and the Road Freight ServiceStudy. Further, the Bank and the Government prepared railway and highway strategiesso as to provide broad, long-term recommendations on how the two largest transportsubsectors should be developed and reformed.
1.11 Recommendations from all these efforts were used as inputs to transportplanning, pricing and reforms. CTS and RIS results supported the Government's decisionin 1992 to raise the economic growth rate for infrastructure investment planning from6 percent a year to 8-9 percent; SIPS results supported the decisions to invest in containertransport. The Price Reform Study Report was a basis for a major Government-Bankdialogue, with railway tariffs used as a key example of the need for price reform. TheMinistry of Railways (MOR) drew on the railway strategy paper when preparing its30-Point Action Statement, which was endorsed by the State Council in April 1994.
1.12 Six other studies funded under Railways IV, V and VI focused on technicalimprovements with systemwide implications, including its telecommunications andinformation systems, maintenance and rehabilitation of track and equipment (locomotivesand rolling stock), electrification, and heavy-haul operations. MOR applied their findingswhen it modernized the railway.
1.13 Finally, eight other studies were launched under Railways VI to deal withcosting, tariffs, and accounting issues, as well as regulations, management concerns, andrestructuring. They provided a basis for: (a) rationalizing tariffs in the marketframework; (b) redefining the Government-railway relationship; (c) restructuring themonolithic railway organization into a number of profit-oriented, market-focusedenterprises; (d) bolstering the railway's treasury capability; (e) improving its laborproductivity; (f) rationalizing its diversified businesses; (g) reforming its housing system;and (h) enhancing its human resources. Some of the studies' results underpin the Bank'sreform assistance under Railways VII.
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1.14 Still, the Government needs to take further measures to alleviate bottlenecksand rationalize the transport system, in particular:
(a) Boost the level of transport investment relative to GNP to expand capacity tomeet new demands and eliminate underinvestment backlogs; realize the mosteconomic balance of investments among the major modes (railway, highway,waterway and civil aviation);
(b) Further increase the productivity of existing transport assets throughtechnological modernization and management reforms-for example byapplying congestion pricing to selected bottleneck links to moderate transportdemand and raise more revenues for transport capacity expansion, and byadding a premium for better services; and
(c) Improve and expand the multimodal transport system, both across and withinmodes, particularly through more extensive use of containers.
1.15 The Bank will continue to assist the Govemment in designing andimplementing transport reforms. For example, a Transport Logistics Study was launchedwith the Chinese authorities to establish a policy framework for market-oriented,intermodal freight transport, dealing with improving distribution of seabome containers andmodernizing customs documentation and clearance processes.
E. OUTLINE OF REPORT
1.16 Chapter 2 provides a background of the railway system and summarizescurrent constraints, past reforms, and the future agenda. Chapter 3 describes the project'scomponents, Chapter 4 evaluates the investment components, Chapter 5 analyzes therailway's finances and Chapter 6 presents the covenants for the Bank proposed loan.
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2. TIE RAILWAY SYSTEM AND REFORM OPPORTUNITIES
A. TE RAmLWAY SYSTEM
2.1 The railway system is the dominant mode of transport in China, carrying about55 percent of the country's total freight and about 44 percent of its passenger traffic in1993. The national network comprises about 54,000 km of main routes (Map IBRD26327), and is administered by the Ministry of Railways (MOR) an organization of some1,000 employees. In addition, provincial and local govemment entities administer 4,400route-km of local railways (Tables 2.1-2.6).
2.2 Organization. MOR is headed by a minister who is assisted by three vice-ministers, a chief dispatcher, a chief engineer and a chief economist (Chart 1). TheChinese railway system has a workforce of about 3.4 million, 51 percent of whom areengaged in rail transport. The remaining 49 percent work in nontransport activities:17 percent in constructing railway infrastructure and facilities; 13 percent in manufacturinglocomotives, rolling stock, signaling, and communications equipment and other variousrailway parts and components; 8 percent in the "diversified economy" which includesthousands of small business ventures (DECOs); and 11 percent in other activities. Throughvarious measures MOR is expected to keep the number of employees constant over thenext several years.
2.3 The rail transport system is organized into 12 regional administrations. MORperforms both regulatory and central transport management functions. It is alsoresponsible for nontransport activities that include 35 factories, 20 construction companies,7,000 DECOs, 4,700 hospitals and clinics, 11 universities, 14 research institutes, 140technical schools plus numerous primary and secondary schools for the employees'children. The railway is a relatively well-managed organization. It has a disciplinedworkforce and the utilization rate of its track and equipment is among the world's highest:in 1993, the railway's average wagon turnaround time was four days, and the density ofits freight and passenger traffic was about 29 million converted ton-km (ctkm) per route-km (ctkmi are defined as equal to the sum of freight tkm and passenger-km, pkm) (Table2.5).
2.4 Trafric and Bottlenecks. Partly because of past underinvestment, railtransport demand far exceeds supply. In 1993, freight traffic grew at 4.5 percent andpassenger traffic at 11.2 percent. Demand is projected to grow at similar rates throughthe year 2000. Thus, present capacity is stretched to the limit. Although total length ofnational and local railways are expected to increase to a total 70,000 km by 2000, capacityconstraints are projected to continue into the next century.
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2.5 Major bulk and semibulk commodities (such as coal, grains and constructionmaterials) account for about 75 percent of total freight (Tables 2.1 and 2.2). Theremaining 25 percent includes general merchandise and materials that can be moved incontainers, traffic that has been increasing each year and for which the railway facesincreasing competition from trucks. On average, roughly 20 percent of the railwaycapacity is for passenger transport.
2.6 Faced with rapidly growing demand, the railway rationed services bycontrolling wagon allocations to shippers and the number of train seats available forpassengers. For example, in 1990, on average more than 40 percent of monthly wagonrequests had to be denied. This inevitably led to higher operating costs for shippers whomust schedule their activities around the availability of transport services. Also, oncrowded routes, passenger trains compete for space with freight trains and are oftendelayed because of conflicts with freight train schedules.
2.7 Outlook of Rail Transport Demand. Besides the possibility that railwaytariffs will increase, the next decade is likely to see highways, waterways, and civilaviation mount increasing competition with the railway. Highway transport is expandingrapidly with more high-quality roads and more modem trucks and buses that providecompetitive services over short to medium distances. Waterway transport is modernizingto include container transport in the coastal and river delta areas to serve import and exporttraffic. Air transport is growing fast, with more modem aircraft and the birth of regionalairlines to encourage competition. As a result, the railway is likely to lose market share:some long-distance railway passengers will likely switch to civil aviation while others andshippers of light manufactured products, usually shipped by rail over short to mediumdistances, are likely to shift to highways and waterways, especially in coastal areas orwhere modem highways run parallel to railways. Conversely, because of its low-costservices for medium and long distances, the railway is likely to retain its competitive edge,especially in long-distance bulk and semibulk freight transport as well as in long-distancepassenger transport. Taling these various factors into account, future railway transportdemand is forecast to be in the range of 4 to 6 percent per year for freight and 10 to12 percent per year for passengers, according to the Bank's "China's Railway Strategy,'prepared in close cooperation with MOR (Report No. 10592-CHA).
2.8 Investments. Railway investment in new or upgraded lines and transportequipment is planned by MOR to rise (in current prices) to Y 350-400 billion in the 1996-2000 period. This is a sharp rise from the Y 154 billion investment in the 1991-95 EighthFive-Year Plan (8FYP), and the Y 52 billion investment in the 1986-90 period (7FYP).This substantial increase is due to the Government's recent focus on expanding China'stransportation infrastructure to handle the projected economic growth rate of 8 to 9 percentper year through 2000. The main thrust will be to reduce bottlenecks in heavily traffickedroutes, and increase the carrying capacity of the coal routes from north China to the coastalcities.
2.9 MOR/SPC and the Bank have had in the past several years a constructivedialogue on expenditures for expanding capacity (mainly through the Railway Investment
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Study), developing cost-effective technologies, and maintaining track and equipment. Thisdialogue is being strengthened under the proposed project.
B. RATIONALE FOR BANK INvOLvEmENT
2.10 The railway has as its objective to become a market-oriented, commercially-operated entity. To give MOR a mandate, the State Council approved in April 1994 a 30-Point Action Statement of Railway Reform prepared by MOR, which provides the railwaywith a comprehensive agenda for this transformation. The Action Statement supports a 50-Point Agenda of Nationwide Economic Reform promulgated by the Government at the 14thNational Congress in November 1993. [The 50-Point agenda aims to focus on enterprisereform to support commercialization of state-owned enterprises (SOEs) and participationof the private sector; this adds to price reform, which is now several years intoimplementation.] The Action Statement also conforms with the Bank's railway strategypaper and the Country Assistance Strategy (CAS) to be discussed at the Board in May 1995in conjunction with this project. The CAS aims to assist China in alleviating infrastructurebottlenecks, reforming SOEs, and safeguarding the environment. Because theimplementation of the Action Statement's agenda will have far-reaching ramifications notonly for the railway but also for the economy, the restructuring of the railway into variousself-accounting profit centers must be determined with great care, as must the newregulations and the relationship between the railway and Government.
2.11 Because of its limited familiarity with structures and operating practices ofmarket-economy railways, MOR has asked the Bank to assist it in implementing the initialphase of the Action Statement through the proposed project. The Bank, given its extensiveexperience with railway reforms in other countries and its familiarity with the railway, isin a position to assist. Indeed, since 1984 the Bank has lent to China's railway sector $1.8billion, through six national railway operations and one local railway operation (Annex 2!.Railways I to V were mainly for physical investments, which were or are beingsatisfactorily implemented. Furthermore, these loans supported MOR in undertakingseveral studies to develop plans to modernize the railway's information systems and itstrack and equipment technologies (Annex 3). Railways VI was designed as a transitionproject with the aim of establishing a foundation for policy reform through studies and thepreparation of analytical tools. Its tariff, accounting and railway management andeconomic studies (covering, among other themes, the relationship between the Governmentand MOR, restructuring of the railway, and railway financial resource mobilization) havebeen completed or are near completion, a railway investment model and costing modelhave been developed, and a pilot program to modernize rail container transportation hasbeen initiated (Annex 3). Railways VII builds on these studies, tools and pilot effort tocontinue tariff reform, railway restructuring, strengthening of MOR's investment decisionsand their financing, and commercialization of container transport.
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C. REFORM CONStANSS AND 30-POINT ACnION STATEMENT
2.12 Although the railway is relatively well managed, it is still constrained in fourmain areas: (a) cumbersome regulations and government control over operations;(b) command-economy organization and management; (c) inadequate capacity, investmentand finance; and (d) outdated technologies, operations and services. MOR has taken manycorrective steps in recent years (Annex 4), but much remains to be done. MOR's 30-PointAction Statement describes a set of major objectives and many, but not all, of the requiredactions to ameliorate these constraints.
2.13 Government-Railway Relationship and Railway Regulations. MOR, whichis part of the Government, exercises both regulatory and executive control over all aspectsof the railway's operations. Other government agencies also engage in the microcontrolof selected key management decision-making. For example, the Ministry of Laborapproves the size of total compensation. The State Planning Commission (SPC) not onlyapproves tariffs but also assigns coal freight traffic quotas from three provinces that therailway must meet, sometimes at tariffs below costs. This is done without fullcompensation; thus, the railway furnishes these services at a loss.
2.14 To tackle these problems, the 30-Point Action Statement proposes to:(a) separate the roles of the Government and railway agencies-with the Governmentlimited to developing and implementing macroregulations (for example as related tofinancial targets); (b) introduce compensation for public service obligations; and (c) createan enabling environment, by amending the Railway Law, in which modern railwayenterprises can develop. Previous efforts have addressed some of these issues. Theseincluded:
(a) Forming an Economic Contract. In 1986, MOR entered into an economiccontract with the Government, which caused two major changes. First, theMOR would receive no direct Govemment subsidies and finance all of itsoperating expenditures and capital investments (through internally generatedfunds and borrowings). Second, the contract offered incentives: the MOR'stotal wage bill would be based on revenue per net tkm handled. This formulaencouraged the railways to increase total outputs as well as to control the sizeof its workforce, but not to improve services, revenues and profits. In early1994, the Government and MOR agreed to modify the contract to emphasizefinancial results;
(b) Eliminating Price Subsidies. Until 1990, the MOR enjoyed indirect inputprice and loan rate subsidies from the Government equal to 20 to 25 percentof its total expenses for materials, fuel and electricity, because it bought aportion of these items at less-than-market prices. In 1990, prices werepermitted to gradually rise to market levels and by late 1993, all price andloan rate subsidies were eliminated;
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(c) Enacting a Railway Law. In 1991, China's first Railway Law was enactedto provide a framework for regulating the railway's activities and establishingthe rights and responsibilities of the various levels of govemment, MOR, its12 administrations, and the public. However, several provisions in the 1991Law do not conform with MOR's 30-Point Action Statement (such as theprinciple of separating MOR's operating and regulatory functions). Thus, theLaw needs to be amended, and MOR has asked the Bank for assistance indrafting revisions.
2.15 Organization and Management. The 12 railway administrations are subjectto MOR's central planning and control-although, since 1990, a series of incrementalreforms have been introduced to give the administrations a modest increase in autonomy.As of 1994, the administrations were: (a) managing small-scale investment projects;(b) retaining profits from local transport (shipments that originated and terminated withinthe administration); and (c) deciding on their internal organizational structure, staff sizeand composition, and distribution of pay incentives.
2.16 Until now, the railway's objective was to maximize the physical transport offreight and passengers; its services have not been organized by line of business and itscompensation systems have not focused on increasing revenues and profits. Also, it doesnot have management information systems (MISs) that are suitable for managing itstransport operations by line of business or its nontransport operations in a Socialist marketeconomy. In addition, its nontransport manufacturing and diversified economy activitiesneed to be restructured to compete effectively in a Socialist market economy and to takeadvantage of economies of scale. Finally, like other SOEs, the railway has to shoulder theburden of providing welfare services (housing, pensions, health and education) to its staff.
2.17 To deal with these issues, the Action Statement proposes to: (a) increase theautonomy of the administrations and subadministrations; (b) form various profit-orientedtransport enterprises organized along lines of business (for example, systemwide companiesthat provide specialized interregional transport services such as hauling containers);(c) allow these enterprises to interact through arms-length commercial relationships, suchas operating and lease agreements; (d) regroup the equipment manufacturing companies toachieve competition and economies of specialization; (e) expose railway constructioncompanies to international competitive bidding; (f) rationalize the diversified-economycompanies; (g) divest the railway of its social welfare responsibilities; and (h) improve thestaff compensation and manpower planning systems. Past efforts in these areas include:
(a) Initiating Pilot Reform Programs. MOR began experimenting with railwayrestructuring and enterprise reform by setting up pilot programs aimed atevaluating "line-of-business" organizations for selected railway lines andsubunits of regional administrations. These included (i) two railway lines(Datong-Qinhuangdao and Guangzhou-Shenzhen); (ii) two subadministrations(Fuzhou and Jinan), and (iii) one administration (Guangzhou). Technicalassistance for some of these programs, which was started under Railways VI,would be supported under Railways VII also;
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(b) Increasing Labor Productivity. MOR decided to control the size of itsworkforce by (i) minimizing the staffing for new lines; (ii) penalizingmanagers for exceeding targeted staffing levels; (iii) reducing management inthe administrations and MOR by 15 to 20 percent; and (iv) hiring almost allnew employees on a contract, rather than lifetime, basis. These programswould be supported under Railways VII;
(c) Refocusing the Diversified-Economy Program. MOR resolved to(i) separate the management of diversified-economy companies (DECOs) fromthat of rail transport; and (ii) expand the scope of its DECOs, which currentlyare profitable, to absorb additional redundant transport employees, from thepresent 200,000 to 400,000 by the year 2000.
2.18 MOR has not yet resolved, in its 30-Point Action Statement, the functions andorganizational relationships of a possible central transportation management entity. Thisentity would assume network responsibility for overseeing (a) empty wagon distribution;(b) power assignments of through locomotives; and (c) day-to-day modifications of throughtrain schedules. This is a difficult issue. Based on the experience of other freight-orientedrailways in developed-market economies, there are inherent efficiencies in centralizedmanagement of trains, locomotive and freight wagons. However, strong political pressurespersist in China to decentralize transportation decision-making to the administrations andsubadministrations. MOR has asked the Bank to help resolve this issue under RailwaysVII.
2.19 Transport Capacity Investments and Fmancial Management. The Chineserailway system has chronically lacked the capacity to adequately support rapid economicgrowth. In addition, the current expansion program may not close more than 75 percentof the anticipated gap between transport demand and supply in 2000. This is partly dueto MOR not regularly applying modern investment and financial planning tools to optimizethe location, scale and timing of railway investments or to forecast its long-term needs forinvestments, borrowings and increases in tariffs and surcharges. Another reason is thatthe railway just began to adopt modern, cost-effective track and equipment technologies(such as using trains with a high ratio of payload to tare weight) to expand its capacity withless investment. Further, the railway has limited experience in raising capital andmanaging assets and liabilities. Last, it is not familiar with commercial practicescommonly followed in market economies such as operational logistics and contract tariffnegotiations.
2.20 To remedy these deficiencies, MOR's Action Statement proposes to:(a) employ modern investment and financial planning tools; (b) adopt more cost-effectivetechnologies; (c) attract private sector funds to railway enterprises through both debt andequity financing; and (d) improve pricing-for example, by initiating congestion andcontract pricing. Some changes were already introduced:
(a) Applying Investment Planning Tools. In 1992, MOR applied the decision-support system it developed under the Bank-supported Railway Investment
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Study (RIS) to (i) determine priorities of railway investment projects, and(ii) support the Government's decision to augment railway investment.Further applications would be carried out under Railways VII;
(b) Involving Foreign Investors. In 1992, new policies were issued to encouragesome of MOR's nonrail entities to raise capital by creating joint ventures withprivate foreign investors. In 1994, a joint venture (with 25 percent foreignequity) was created to build and operate a new local railway line betweenJinhua and Wenzhou (330 km);
(c) Expanding Capacity More Efficiently. In 1994, MOR decided to implementrecommendations of the Bank-supported Cost-Effective Technology Evaluation(CETE) study to expand railway capacity at significantly lower costs, notablyby raising wagon axle loads from 21 tons to 25 tons in heavily traffickedcorridors;
(d) Introducing New Types of Tariffs. From 1993 to 1994, MOR receivedpermission from the State Pricing Bureau (SPB) to introduce special tariffs,such as extra charges for congested passenger lines, higher tariffs for newlines, contract prices for oversized or extraheavy freight loads, and passengerfare surcharges for higher quality services. Some of these tariff initiativeswould be supported under Railways VII.
2.21 Technology, Operations and Services. Although the railway utilizes itsphysical assets intensively, much of its technology is outdated and not always cost-effective. For example, although they are being phased out, some 35 percent of therailway's locomotives were steam-powered at end-1993. Also, the top-down approach totransport planning, combined with shortages of freight wagons, means shippers wait from20 to 50 days to receive a wagon. This standard of service would be unacceptable invirtually all market economies.
2.22 To correct these problems, the Action Statement proposes to: (a) upgraderailway track and equipment technologies; (b) develop a more dynamic wagon distributionplanning system; (c) adopt modem management practices to improve the use of track andequipment and the productivity of labor (using service as a criterion for rewarding staffperformance); and (d) install modern management information systems to improvecustomer services. Changes already introduced include the following:
(a) Modernizing Track, Equipment, and Telecommunications Technologies.During 1988 to 1992, MOR conducted Bank-supported studies to modernizethe maintenance of railway track and transport equipment, upgrade thetelecommunications system, and apply new electrification technologies. Manyrecommendations from these studies are being implemented;
(b) Introducing Modern Information Systems. In 1992, MOR embarked on twocomplementary programs: (i) it installed a digital packet-switch telecommuni-
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cations network and (ii) it initiated the replacement of the hierarchical wagon-tracing system with a modem, computer-based transport managementinformation system (TMIS). When fully implemented in 1997, the TMIS willprovide the tools to decrease shippers' waiting times through better distributionof empty wagons. It will also permit transport managers to monitor andcontrol the movement of trains, wagons, locomotives and containers on anetwork basis. This work would be continued under Railways VII;
(c) Adopting Customer-Responsive Operating Practices. In 1993, MORlaunched a Bank-assisted pilot program to provide container transport servicesthat used unit trains running at passenger-train speeds north-to-south betweenHarbin and Guangzhou and east-to-west between Shanghai and Xian. Thiswork would be extended under Railways VII.
2.23 The process of railway reform outlined above is expected to be difficult,lengthy and uneven because of: (a) the size and complexity of the railway system; (b) thereluctance of some government agencies and some railway management to relinquish theirmiicrocontrol over the railway; and (c) the ramifications to the entire economy of anychanges to the railway in structure, staffing and pricing. For these reasons, theGovernment and MOR are following a cautious, gradual approach in testing reforminitiatives in pilot experiments, which the Bank considers appropriate.
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3. THE PROJECT
A. OBJEcTrES
3.1 The proposed project is to support MOR's initial efforts to implement its30-Point Action Statement of Railway Reform. The project's main objectives are to assistMOR: (a) redefine the relationship between the railway and the Government; (b) reshapethe railway's organization and strengthen its internal management; (c) expand the railway'stransport capacity, raise its investment efficiency, and enhance its finances; and(d) modernize the railway's technologies and bolster the efficiency and quality of itstransport operations and service. To achieve these objectives, MOR formulated a seriesof components on policy reform and institutional development (PID), investments, andstudies (Sections C-E below).
B. LESSONS LEARNED
3.2 The project draws on lessons learned from Railways I to VI, and railwayprojects in other developed and developing countries. First, MOR wants to learn newskills from abroad and prepare its own projects, with Bank assistance; it hires foreignspecialists only when absolutely necessary. This approach has generally created a senseof ownership, but learning by doing has sometimes delayed project preparation andimplementation. Thus, to assist MOR at the earlier stage of reform, the Bank has providedit in the past five years with extensive technical assistance (TA) financed by grants of about$3 million under the Policy and Human Resources Development (PHRD) Fund. Thissource of TA funding, however, is less likely to be forthcoming in future. To avoid delaysin implementing reform under the proposed project, MOR agreed to undertake more TAwith its own funding including that from Bank loans.
3.3 Second, railway reform is slow due to the railway's lack of authority overrates, its lack of a commercial approach to the transport market, and resistance to changeon the part of railway management and government institutions. Railways VII would alsoface these issues. Third, excessive reliance on loan covenants to achieve reform objectivesis unrealistic. As the Bank enjoys a constructive dialogue with MOR, loan covenants havebeen kept to a minimum under this project. Fourth, it is advantageous to begin makingadvance procurement arrangements long before the loan becomes effective, have a well-prepared implementation plan, and develop a system for monitoring the performance of theproject-financed investments.
3.4 Furthermore, MOR's reform agenda is broadly consistent with lessons fromrailway reform in developed market economies (World Bank Discussion Paper No. 269).First, there should be clear separation between the role of the Government and the role of
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the railway, and between market-driven activities and public-service-obligation activities.Second, railway organizations should be designed along lines of business, with clearfinancial goals (rather than physical output targets), adequate compensation for publicservice obligations, and sufficient authority in tariff setting. Third, major barriers suchas excessive redundant labor and employee welfare obligations should be removed.
C. POLICY REFORM AND INSTITONAL DEVELOPMENT INrITATIvEs
3.5 PID components would provide MOR with the TA to implement three elementsof its 30-Point Action Statement: (a) railway enterprise reform, (b) railway tariff reform,and (c) labor productivity enhancement.
3.6 Railway Enterprise Reform. This component would support MOR's initialefforts to transform the railway into a group of geographically-based enterprises andsystemwide, line-of-business specialized transport service companies. Specifically, itwould help MOR: (a) prepare recommendations for improving the legal and regulatoryframework so as to create an enabling environment for market-oriented railway enterprisesto function; (b) undertake experimental programs of railway enterprise reform [includingthe proposed restructuring of the Fuzhou Subadministration (FSA) and the GuangzhouRailway Group Corporation (GRC)]; and, based on lessons learned from theseexperiments, prepare a comprehensive plan for railway restructuring; and (c) prepare adebt and equity financing strategy for selected railway services.
3.7 Railway Tariff Reform. This component would assist MOR in improvingrailway tariffs further, by: (a) justifying tariff adjustments on a cost recovery basis (usinga costing model and a cost-index system to gear tariffs to price and productivity changes);(b) pilot-testing contract pricing to increase flexibility in tariff setting; and (c) furtherexperimenting with passenger congestion pricing.
3.8 Labor Productivity Enhancement. This component would help MORundertake measures to control the size of its workforce and boost labor productivity-byreducing management overlap, increasing contract employment, linking capital budgetingto human resources planning, transferring redundant staff to new diversified economycompanies and adopting new labor productivity and service-quality methods.
3.9 Agreement was reached at negotiations that the Borrower, through MOR, willcarry out the PID components in accordance with action plans acceptable to the Bank(para. 6.la, Annex 6).
D. INVESTMENTS FOR EXPANSION, MODERNIZATION AND REFORM
3.10 The proposed six investment components would finance equipment, materialsand TA for MOR to expand, modernize and reform the railway system. They have beenaccorded top priority by MOR, either because of their economic returns or because of theirstrategic importance to railway modernization. Their technical designs are based on resultsof various technological studies under Railways IV and V. Indicators has been developed
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for monitoring the effectiveness of the investment components (Annex 5). The componentsare:
3.11 Expanding Corridor Capacity. Financing would be provided for electrifyingand upgrading the 1,044-km Wuhan-Guangzhou line (the last remaining section of theBeijing-Guangzhou trunk line to be electrified and modernized). The line represents only4 percent of the total network but carries 15 percent of total traffic. Traffic volumes havebeen increasing at about 14 percent per year since 1990 compared to the railway's nationalaverage of about 9 percent.
3.12 The proposed electrification and upgrading would enable the line toaccommodate longer and heavier trains, consistent with MOR's decision to raise the axleload from 21 tons to 25 tons for its core network. Its main design features are: (a) 1,050-meter siding lengths, (b) 25 kV/50 Hz electrification, (c) 110 kV power supply withimprovements to the related power supply and distribution system, (d) upgraded signalingand telecommunication systems, (e) reconstructed bridges and tunnels, and (t) upgradedmaintenance depot shops. The technical design conforms with recommendations of theElectrification Technology Study under Railways V.
3.13 The construction would produce economic benefits mainly as savings in railoperating costs. It would also have environmental benefits, particularly as it would:(a) eliminate the concentrations of particulates and carbon monoxide emitted by dieselengines in built-up areas; and (b) reduce soil contamination caused by the spills of dieselfuel and lube oil. The electric power would come mainly from large coal-burning plants,and to a lesser extent from hydropower plants, which serve general users, of which therailway use would represent less than 3 percent of total power consumption (Annex 8).Because large thermal plants control pollution more efficiently and hydro plants create noair pollution, the switch from diesel to electric locomotives would reduce net emissions ofair pollutants.
3.14 To allay the Bank's concern over shortages of electricity, SPC has written tothe Bank that power supply would be adequate for the electrified line, and that MORwould have priority, if necessary.
3.15 Modernizing Information Systems. Financing would be provided foracquiring computer hardware, software and related TA needed for: (a) the first phase ofa computer-based management information system (MIS); (b) integrated TMIS for majormarshalling yards, subadministrations and administrations; (c) a pilot passengerreservations system in one administration; and (d) management of funds under the treasuryfunctions. This technology would help railway managers make better-informed decisionsand improve railway operating efficiency and service quality.
3.16 Upgrading Telecommunications Systems. Financing would be provided foracquiring telecommunications equipment and related TA, including fiber-optic cables anddigital microwave equipment, to enable MOR to expand and modernize the railway's trunktransmission and data telecommunications networks. This would be part of the Bank's
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ongoing effort to help MOR implement the railway's Telecommunications Master Plan.Specifically, the component would provide financing for: (a) expanding and digitalizingthe railway's long-distance transmission network; (b) expanding the data communicationsnetwork; (c) developing a video conference network, with a terminal for eachsubadministration; and (d) setting up a telecommunications network management system.
3.17 Commercializing Container Transport. Financing would be provided forpurchasing container transport and handling equipment (e.g., rubber-tired gantry cranes,forklift container handlers, and highway tractors) and the TA and computer softwareneeded to modernize and commercialize rail-based container transport operations. MORwould lease the equipment on commercial terms to at least two container transportcorporations, which are expected to be: (a) the Chinese Railway Container (CRC)Company, a wholly-owned subsidiary of MOR; and (b) the SinoRails Intermodal Transport(SIT) Company, a joint venture among MOR, China Ocean Shipping Group Company(COSCO), and Sinotrans (a freight forwarder). Both corporations would be authorized tooperate on any railway route and serve both domestic and foreign traffic as long as linecapacity is available and the operations are profitable.
3.18 CRC and SIT would become prototypes of self-accounting enterprises thatprovide interregional, specialized rail-based transport services on a commercial basis.More specifically, the component would: (a) serve as pilot programs for MOR to testvarious aspects of railway enterprise reform; and (b) offer landlocked provinces access tointernational trade by providing them with fast and reliable transport service for high-valueproducts to major seaports.
3.19 Agreement was reached at negotiations that the Borrower, through MOR, will:(a) select at least two container transport companies acceptable to the Bank to which thecontainer transport and handling equipment to be procured under the project shall beleased, (b) employ consultants with terms of reference, qualifications and experienceacceptable to the Bank to assist it in the preparation of contractual agreements betweenthe Borrower and said container transport companies required for the leasing andoperation of said equipment on a commercial basis; (c) furnish said agreements to the Bankpromptly upon their preparation and afford the Bank a reasonable opportunity to exchangeviews with the Borrower thereon; (d) thereafter, take all measures required on its part toconclude said agreements with said container transport companies, taking into account theviews of the Bank on the matter; and (e) ensure that no invitations to bid for contracts forcontainer transport and handling equipment included in the project shall be issued unlessand until the Borrower shall have concluded the agreements referred to in item (d) above(para. 6.lb).
3.20 Enhancing Environmental Protection. Railway environmental protection hashistorically received low priority because MOR has primarily focused on transportation.However, it now recognizes that to protect the environment over the long term, it mustdevelop a comprehensive environmental strategy and strengthen its EnvironmentalProtection Bureau. This component would finance the TA and equipment for MOR to:(a) undertake pilot programs to address pressing environmental problems; and
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(b) strengthen the capabilities of its environmental staff. These initiatives are consistentwith the comprehensive long-term environmental strategy being prepared under RailwaysVI.
3.21 The pilot programs would involve: (a) testing noise barriers along a rail linetraversing urban Beijing; (b) developing a solid waste management strategy for theShenyang station; (c) assessing techniques for cleaning up contaminated soil at the Taopufreight yard; (d) treating oily wastewater at a locomotive depot; (e) upgrading the BeijingAnti-Epidemic Center; (f) developing locomotive and factory noise abatement programs;(g) training railway environmental staff in advanced environmental impact assessmenttechniques; (h) developing a fuel additive for diesel locomotives to boost combustion andreduce emissions; and (i) preparing an environmentally-sound strategy to dispose of morethan 1 million styrofoam lunch boxes per day.
3.22 Expanding System Capacity. This component would support MOR's initialeffort in its long-term plan to introduce heavy-haul operations-employing heavier trainswith a higher ratio of payload to tare weight-to the core network. Financing would beprovided for procuring three-phase AC electric locomotives, including equipment, tools,spare parts and training, and securing heavy-haul expertise to help MOR raise the axle loadlimit on the core network from 21 to 25 tons. The acquisition of these locomotives wouldinvolve importing fully-assembled locomotives and transferring technology for locomotivemanufacture from a foreign locomotive builder to China (to be financed separately byMOR). This transfer would be either to a joint-venture manufacturer or to one of China'stwo electric locomotive works. The first use of AC electric locomotives would be on theheavy-traffic, 269-km single-track section between Baoji and Yangpingguan. This section,which is part of the Baoji-Chengdu main line, has gradients up to 3 percent.
3.23 The investment would reduce operating and maintenance costs and increasethroughput capacity of congested main lines through the use of more powerful electriclocomotives to pull the heavier freight trains. The investment would also contribute toMOR's strategy to: (a) develop for eventual manufacture in China a new generation ofelectric locomotives required on other electrified, high-volume main lines; and (b) upgradethe quality of its locomotive manufacturing, which would be an element of a studycomponent under the proposed project.
3.24 The Borrower, through MOR, plans to implement the investment componentsaccording to the implementation schedule given in Table 3.9.
E. STUDIES FOR MODERNIZATION AND REFORM
3.25 The following study components would provide MOR with the TA andsoftware needed to prepare future railway projects or to develop and apply new railwaytechnologies and management techniques.
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3.26 Feasibility Study of Dedicated Passenger Rail. Foreign experts and trainingof MOR staff would be provided for the purpose of: (a) forecasting ridership on the newdedicated passenger rail line between Beijing and Shanghai and its competing modes;(b) comparing the life-cycle costs of the dedicated passenger rail line with those of othermodes for different market segments; (c) assessing the economic, financial and technicalfeasibility of the line; and (d) optimizing the line's engineering and operating parameters(such as station spacings, train size, train speeds and operating patterns).
3.27 Application of the RIS Decision Support System. Expertise and computersoftware would be provided for helping MOR: (a) refine the decision support systemdeveloped under the Railway Investment Study (RIS) to make it more realistic; (b) developand apply a new, fast-response model to help MOR optimize railway investment programsthrough 2005 under anticipated budget constraints (this would replace the existing trial-and-error procedure); and (c) apply the RIS system to determine the economic priority of theproposed dedicated passenger line relative to other major railway projects.
3.28 To strengthen the dialogue between the Government and the Bank on railwayinvestment planning, MOR plans to apply appropriate methodologies (including the RISsystem) and criteria to evaluate the proposed railway investments. The results of theevaluation would be presented in a report to be discussed by MOR and the Bank at themid-term review. To make the review manageable, the evaluation would focus only ona few most important questions, in particular, those related to the adequacy of theinvestment programs for capacity expansion, maintenance and rehabilitation, andtechnological upgrading.
3.29 Information Systems Studies. TA would be provided to MOR for conductingstudies to: (a) develop a marketing information system built on a systemwide waybill file;(b) prepare plans for expanding TMIS beyond 1997; and (c) conduct feasibility studies fornew operating information systems, including one for locomotive and rolling stockmaintenance and a material stock control system.
3.30 Telecommunications Network Systems Study. MOR would receive TA andtraining for undertaking a study on network management and optimization, to monitor theperformance and improve the reliability of the railway telecommunications network.
3.31 Diesel Engine Design. Financing would be provided to MOR for:(a) acquiring the expertise needed to design high-efficiency, high-power, low-emissionsdiesel engines for heavy-haul freight operations and higher-speed, higher-capacitypassenger services; and (b) importing the critical parts needed to develop a prototypeengine.
3.32 Restructuring the Railway's Manufacturing and Overhaul Sector. MORwould obtain TA to prepare an action plan to restructure and modernize the railwaymanufacture and overhaul sector. The restructuring part of the proposed TA would dealwith (a) rationalizing MOR's 35 factories into appropriate groups of companies, to strikea better balance between specialization and competition; and (b) forming joint ventures totransfer management expertise and manufacturing technologies to the railway. The
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modernization part would deal with upgrading the quality of railway equipmentmanufacturing to international standards.
3.33 Strengthening MOR's Treasury Functions. Foreign experts and training ofMOR staff would be provided for the purpose of: (a) strengthening its treasury functions,and (b) establishing a framework for issuing railway bonds.
3.34 Agreement was reached at negotiations that the Borrower, through MOR, will(a) undertake the studies summarized above according to action plans acceptable to theBank (Annex 7J, (b) exchange views with the Bank on the studies' recommendations; and(c) implement the recommendations taking into account the Bank's comments (para. 6. 1c).
F. COST ESTIMATES
3.35 The project is estimated to cost $1.75 billion, including physical and pricecontingencies (see Tables 3.1-3.8 and the cost summary table below). The foreignexchange costs of the project are estimated at $619.9 million, representing about35 percent of project costs. Base costs were originally estimated at January 1994 prices;they have been adjusted to January 1995 prices. Physical contingencies are calculated at10 percent of the base costs of civil works and 5 percent of the base cost of equipment(7 percent for the container transport component). Price contingencies were calculatedboth for foreign and local costs according to Bank guidelines, for each year from 1995 to2002, when expressed in US dollars: 1.5, 1.8, 2.6, 2.5, 2.5, 2.5, 2.5, and 2.5 percent;and when expressed in Yuan: 14.0, 10.5, 8.5, 7.0, 6.5, 6.2, 6.2, and 6.2 percent. Theexchange rate of Y 8.7 to the US dollar was used for converting foreign exchange costs.MOR is currently exempt from import taxes, customs duties and local taxes, but will besubject to import taxes from 1996 onward. Identifiable taxes and duties amount to about$130 million equivalent. The costs of the goods financed under this project were estimatedon the basis of unit costs of similar equipment, machinery and materials procured in 1993.The costs of TA and training were based on current average fees per month in China andon current costs for travel and subsistence for foreign consultants.
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COST SUMMARY(January 1995 prices)
FormignY million S niullion as % of Bank loan
Local Foreign Total Local Foreign Total total (S milion)
/a Ten percent for civil work. and 5 percent for equipment./b From 1996 onward, MOR will not be exempt from import taxes, customi duties and local taxes. Identifiable taxes and duties are
estinated at $130.1 nillion equivalent.
3.36 The accuracy of cost estimates for the proposed corridor expansion wasdifficult to assess because the Bank received insufficient details on the goods and labor tobe funded domestically. To address the Bank's concern, MOR provided the Bank withcost estimates for the preliminary and final designs, which differ by less than 3 percent.
G. FINANCING
3.37 A Bank loan of $400 million would be made to the People's Republic ofChina, representing about 23 percent of total project costs and almost 65 percent of theforeign costs. MOF would allocate the funds to MOR. MOR would cover the remainingcosts and, if needed, local cost overruns, including contingencies. MOR does notcapitalize interest expenses during construction, and interest expenses relating toimplementation would be covered by its operating revenues. MOF would allocate the loanproceeds to MOR on the same terms as those of the Bank loan, with MOR bearing theforeign exchange risk.
3.38 Implementation of the investment components depends on availability ofcounterpart funds, which became an issue in 1993 when local funds originally allotted toRailways VI were temporarily diverted to another project, thereby delaying Railways VI.This implementation risk would be mitigated by MOF's newly issued policy that ensuresthe availability of counterpart funds up front.
H. IMPLEMENTATioN AND RLsKs
3.39 MOR, through its Foreign Capital and Technical Import Office (FCTIO),would be the executing agency responsible overall for implementing the project undersimilar arrangements to those for the previous loans. Procurement of goods underInternational Competitive Bidding (ICB) would be handled by tendering companiesappointed by MOR. The acquisition of TA, training, computer software, and equipmentwould be handled by MOR with consultants' help as needed.
3.40 Preparation of general, commercial and technical specifications has alreadybegun with the intention to complete the bidding process for procurement in 1995 and tohave contracts signed when the loan becomes effective. Implementation is expected tospread over six years. The project would be completed by December 31, 2001 and closedby December 31, 2002 (Table 3.9-Implementation Schedule).
3.41 The physical investments in the proposed project pose minimal risks in viewof the railway's past experience in implementing such components. The risks relate to thepolicy reform component because of MOR's lack of familiarity with reform and itsdependence on endorsement from core government agencies in undertaking reforminitiatives. However, the Government and MOR are committed to reform, and are clearlymoving in the right direction. The risk would be reduced by a continuous dialogue amongMOR, other Govemment agencies, and the Bank on the substance and timing of reforms,by funding TA and training for sector policy reform, and by intense Bank supervision ofthe project. Additionally:
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(a) MOR has prepared action plans for the various technical assistance programsunder the proposed project; and
(b) the government agencies concerned, especially SPC, plan to give top priorityto supporting MOR in undertaking reform initiatives proposed under theproject.
I. PROCUREMENT
3.42 Except as noted, all Bank-financed goods would be procured under ICB,according to the Bank's Guidelines for Procurement under IBRD Loans and IDA Creditsdated May 1992. The bidding documents would conform with model documents preparedby the Government based on the Bank's standard bidding documents. Contracts worth$200,000 or less each and totaling no more than $10 million may be purchased by eitherlocal or international shopping, based on at least three quotations from potential suppliers.Contracts valued at $500,000 or less each and totaling no more than $20 million may beprocured by Local Competitive Bidding (LCB) according to procedures acceptable to theBank (see the procurement summary table below). Contracts for goods above the thresholdof $2 million would be subject to the Bank's prior review procedures. In bid evaluationunder ICB, Chinese manufacturers would be allowed a preferential margin over the CIFcosts of competing imports equal to the lesser of 15 percent or customs duties and localtaxes MOR would have to pay (expressed as a percentage of the CIF costs).
La Figures in parentheses are the amounts to be financed by the Bank loan.lb Includes Limited Intemational Bidding (LIB), local and intemational shopping, and
consultants' services.& NBF = Not Bank-financed.
3.43 The three-phase AC locomotives for $100 million equivalent would beprocured by Limited Intemational Bidding (LIB) from reputable electric locomotivebuilders in the world. The bids would be evaluated on the basis of criteria that conformwith the Bank's Guidelines for Procurement dated May 1992; a margin of preference,however, would not be applicable. Bidders would be requested to quote for transfer oftechnology, although this would not be financed by the Bank. The bidding process wouldbe subject to the Bank's prior review.
3.44 Bank-financed consulting services would be provided by qualified consultantsappointed according to the Bank Guidelines for the Use of Consultants dated August 1981.
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The Bank's prior review would be required for all contracts over $100,000 for consultingfirms and $50,000 for individual consultants, all single-source contracts, and terms ofreference for all contracts.
3.45 Items not financed by the Bank-including civil works, miscellaneous localmaterials and equipment-would be procured according to Chinese government procedures.
J. DISBURSEMENTS
3.46 Disbursements under Bank financing would be for: (a) 100 percent of theforeign expenditures for imported goods; (b) 100 percent of the local expenditures(ex-factory costs) for goods purchased direct from factories; (c) 75 percent of the localexpenditures for other goods procured locally; and (d) 100 percent of the costs of services.Domestic transport costs from the border, a port or factory would not be eligible for Bankfinancing.
3.47 Disbursements against contracts for goods valued less than $2 million each,consulting contracts valued less than $100,000 each for firms and $50,000 each forindividuals, and expenses on training and study tours would be made on the basis ofStatements of Expenditure. To facilitate disbursements, a Special Account would beestablished with an authorized allocation of $20 million representing about four months ofexpected expenditures on average. Replenishment would be made monthly or wheneverthe Special Account is drawn down by 50 percent of its initial deposit, whichever occursfirst. Documentation supporting Statements of Expenditure would not be submitted to theBank, but would be kept in MOR's project office in Beijing and made available for reviewby the Bank's supervision missions.
3.48 Disbursement projections (Table 3.10) assume that the loan would becomeeffective by September 1, 1995 and be fully disbursed by December 31, 2002. Theprojections are conservative with regard to the positive effects of advance procurementarrangements.
K. MONrrORING, EvALUATION AND SUPERVISION
3.49 Monitoring. To monitor the progress and effectiveness of implementation,MOR would provide the Bank with periodic reports during each year of projectimplementation (beginning with the year after loan effectiveness) on:
(a) Audits of the Project Accounts, the Special Account, the Statements ofExpenditure, and the consolidated financial statements for the railway, CRCand SIT by end-June;
(b) The status of implementation for each PID component with respect to thetarget dates shown in Annex 6 by the end of June and December;
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(c) The status of implementation for each investment component as specified inthe implementation schedule (Table 3.9) by the end of April, July, Octoberand January;
(d) The performance of each investment component relative to the indicatorsdescribed in Annex 5 during the period of operation by end-March;
(e) The status of resettlement under the corridor expansion component by the endof March;
(f) The results of resettlement monitoring and evaluation and environmentalimpact mitigation for the corridor expansion component by end-March.
3.50 Mid-term Review. Given the complexity of the project, agreement wasreached at negotiations that the Borrower, through MOR, will undertake, jointly with theBank, a mid-term review ofproject implementation no later than November 30, 1998 (para.6.1d).
3.51 Supervision. Two Bank supervision missions per year are planned, but moremissions may be needed depending on implementation progress. Because of its size andcomplexity, the project would require above-average supervision staff-weeks, especiallyin the first two to three years of implementation involving the PID components. Over theproject's six-year implementation period, the supervision staff time is estimated to totalabout 94 staff-weeks or average about 13 staff-weeks per year (Annex 10). This estimateincorporates staff-week savings expected from combining the supervision of this and otherrailway projects in China. MOR would submit a Project Completion Report to the Banksix months after loan closing.
L. ENVIRONMENTAL IMACS AND RESETELEMENT
3.52 Envirommental Impacts. This is a Category B project. The proposedWuhan-Guangzhou electrification and upgrading has an impact on resettlement; none ofthe investment components would significantly harm the environment. In fact, theelectrification would reduce air pollution and soil contamination by diesel fuel and lube oil.Agreement was reached at negotiations that the Borrower, through MOR, will carry outthe project according to health, safety, and environmental standards acceptable to the Bank(Annex 8; para. 6. le). The pilot environmental protection programs would acquaint MORwith up-to-date technologies and practices, and thereby help MOR develop acomprehensive environmental action strategy for the railways (Annex8).
3.53 Resettlement. Under the proposed electrification, resettlement would resultfrom land acquisition along the Wuhan-Guangzhou line, to make land available for theextension of stations, and the construction of substations and power supply depots. Itwould affect about 13,200 individuals (4,300 due to housing demolition). No sites ofnotable historical or cultural value are in or near the land to be acquired, nor are they
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known to contain habitats of endangered species. MOR has submitted a resettlement plansatisfactory to the Bank (Annex 9!.
3.54 While resettlement activities would be funded by MOR, the villages andtownships in rural areas and the city district government in urban areas would beresponsible for planning and implementing them. The local branches of the landadministration offices at the county level are charged with monitoring resettlementactivities to ensure they comply with the Land Management Law, and the State AuditAgency is charged with auditing the use of resettlement funds. Experience under previousrailway projects has shown this arrangement to be satisfactory. To ensure a continuoussatisfactory resettlement process, MOR has contracted with the Social Sciences ResearchInstitute (SSRI) of Southwest Jiaotong University to monitor resettlement activities andalert MOR to problems. MOR would make available to the Bank annual monitoring andevaluation reports prepared by the university. Agreement was reached at negotiations thatthe Borrower, through MOR, will ensure that land acquisition and resettlement will bedone according to a plan acceptable to the Bank (para. 6. le).
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4. ECONOMIC EVALUATION AND RISK ANALYSISOF PROJECT-FINANCED INVESTMENTS
A. INTRODUCTION
4.1 The following five investment components have undergone economicevaluation: expanding corridor capacity, upgrading telecommunications systems,modernizing information systems, commercializing container transport, and expandingsystem capacity. Monetary inputs and outputs used in the evaluations were obtained byconverting financial costs to economic costs using economic shadow prices and theirrelated conversion factors in two key areas. For local labor costs, a conversion factor toaccount for the value of fringe benefits was applied to the amount associated with basicwages. For locomotives and rolling stock, the analysis used a conversion factor based onthe nonsubsidized prices charged by MOR to third-party buyers. Details on theassumptions are in the Project File.
B. MAiN BENEFTs
4.2 The estimated net present values (NPV) and economic internal rates of return(ERR) for each investment component are summarized in the table below (special attentionwas devoted to avoiding double accounting both between and within componentcategories). The table also indicates the NPVs for the five components in terms of threemajor benefit categories:
(a) By increasing throughput capacity, both the system capacity expansioncomponent and the telecommunications component would facilitate theproduction and distribution of new bulk and manufactured goods. As aconsequence, these components would produce value added to the economy.
(b) Upgrading and electrifying the Wuhan-Guangzhou line (corridor capacityexpansion component) and handling more container traffic by rail rather thanroad (container transport commercialization component) would reduce the costof transport services.
(c) Improvements made possible by the telecommunications and informationsystems components would enable MOR to make more efficient use of existingrolling stock and fixed plant, thereby creating savings in capital investmentoutlays.
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NET PRESENT VALUE AND EcoNoMIc RATE OF RETuRN BY COMPONENT(in Y million)
Type of Benefits Value Added to Reduction in the Avoided Capital Total ERRthe Economy Cost of Transport Investments NPV (%)
Modernize Infornation Systems - 4,042 4,042 42.2%(100%)
Upgrade Telocommunications Systems 2,436 - 2,525 4,961 30.2%(49.1%) (50.9%)
Commercialize Container Transport - 956 956 29.0%(100%)
Expand System Capacity 3,714 22 - 3,736 20.5%(99.4%) (0.6%)
Total NPV 6,149 5,101 6,567 17,818 26.7%(34.5%) (28.6%) (36.9%) _
4.3 Besides the benefits quantified above, several components-particularly theexpansion of system capacity and commercialization of container transport-would helpspur development of interior provinces by expanding transport services into these areas.
C. EXPANING CORRIDOR CAPACrrY
4.4 Over the next decade, rail freight demand on the Wuhan-Guangzhou corridoris expected to grow substantially. By the year 2000, the line will be called upon to handlemore than 203 million tons-two thirds more than the 123 million tons transported in 1991.In 2005, demand is anticipated to approach 245 million tons-a doubling of current levels.Passenger traffic also is projected to expand rapidly: compared to the 29 billion pkmhandled by the line today, personal travel will increase 40 percent by the turn of thecentury and 75 percent by 2005.
4.5 The Wuhan-Guangzhou line, as currently configured and operated, lacks thecapacity to handle all the contemplated growth in freight demand (as priority has beengiven to passenger trains). Consequently, without the project, as least 15 percent of theanticipated freight volume would need to be rerouted to the more circuitous andnonelectrified Beijing-Jiulong rail line (for through traffic the Beijing-Jiulong route is1,32'7 km compared to the 1,044 km of the Wuhan-Guangzhou line). In addition, withoutthis investment component, some of the projected Wuhan-Guangzhou freight traffic alsowould be diverted to more costly road transport.
4.6 The benefits were estimated in terms of transport operating costs savingsattributable to the lower fuel and maintenance outlays made possible by shifting from diesel
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to electric traction. These savings, in turn, relate to the passenger and freight traffic that,without the project, would be moved over the Wuhan-Guangzhou line by diesel traction,and to the freight traffic that would be redirected to the longer, diesel-operated Beijing-Jiulong route. Because the unit costs of trucking in China are over 10 times higher thancomparable rail outlays, the diversion to trucks that would be avoided by this componentwould produce further benefits. These savings are properly classified as reductions intransport operating costs. Electricity was not shadow-priced to reflect shortages becauseelectricity for the line would not be taken from industry, but would be provided throughinvestment earmarked for expansion of power generation capacity. Still, sensitivityanalysis showed that the project would still be economically justified even with the priceof electricity doubled.
4.7 Complementary investment costs are quantified as the difference between thecosts of the with- and without-project scenarios. The with-project scenario costs includecapital costs for a generating plant with the requisite capacity to supply the Wuhan-Guangzhou line with electric power; the cost of maintaining the overhead catenary system;the cost of new locomotives and rolling stock less the cost of comparable equipment thatwould otherwise be required if diesel service continued; and the costs of populationresettlement. Under the without-project scenario, freight traffic would be diverted to theBeijing-Jiulong route. To accommodate this traffic, certain fixed plant capital costs wouldbe incurred (e.g., the double tracking of the Xiangtang-Longchuan section at an earlierdate than now planned, and double tracking lines connecting the alternative route to bothWuhan and Guangzhou). The resulting NPV discounted at 12 percent is Y 4.1 billion andthe ERR is 26.1 (Table 4.1).
D. MODERNIZING INFORMATION SYSTEMS
4.8 From the experience of railways in other countries, modernized informationsystems produce significant investment savings. The Canadian National, for example,attributes freight car savings of 3.4 percent annually to the introduction of informationsystems. The consequences for British Rail-large gains in the utilization of rolling stock-are similar. Acknowledging the large capital outlay contemplated by MOR, evenconservative estimates of improvement in plant and equipment efficiency stemming froma better information system would yield relatively large savings. (The savings in plant andequipment tabulated for this component are separate from and in addition to the capitalinvestment savings quantified for the telecommunications component.) The informationsystems component is anticipated to yield an NPV of Y 4.0 billion and an ERR of42.2 percent (Table 4.2).
E. UPGRADING TELECOMMUNICATIONS SYSTEMS
4.9 The expansion and modernization of MOR's telecommunications networks bythis component would make more productive use of existing capital assets. Thus, twomajor types of benefits can be anticipated. First, better telecommunications would enableMOR to improve car tumaround times and reduce the downtime for locomotivemaintenance. This, in turn, would raise the freight-hauling capacity of the system. This
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is because an improved telecommunications system would allow freight wagons to bedispatched more efficiently, and thereby enable the average wagon to make more trips.When a wagon makes only one additional trip per year, its effective annual freight capacityincreases by 1.5 percent annually. Calculated on a systemwide basis, this amounts tonearly 23 million tons in incremental freight capacity and associated benefits in the formof value-added to the economy. At the same time, the more intensive use of existing plantand equipment made possible by upgraded telecommunications also defers the need for newcapital expenditures, which MOR presently estimates at about Y 70 billion per year. Thus,the gains in efficiency stemming from improved telecommunications would createadditional benefits by postponing the need for near-term capital investment outlays. TheNPV of this component is estimated at Y 5 billion and the ERR at 30.2 percent-a rate thatis well in line with other Bank-funded telecommunications projects. Not quantified hereare other benefits including higher worker productivity, greater service quality, and morereliable communications (Table 4.3).
F. COMMRCIALIZING CONTAINER TRANSPORT
4.10 Following the pilot container transport project funded by the Bank underRailways VI, this component would further enhance MOR's efforts at moving largerquantities of higher-valued goods in containers. This merchandise is now handled eitherby truck or rail in break-bulk form. For traffic diverted from trucks, economic benefitsstem from: (a) the much lower unit cost of container rail transport; and (b) the shorter tripdistances of rail compared with truck. Based on the lengths of haul for the five highest-volume rail container routes in service today (Shanghai-Xian, Shanghai-Tianjin,Guangzhou-Zhengzhou, Beijing-Guangzhou, and Guangzhou-Wuhan), the long-run variablecost of transporting goods by rail is nearly Y 860 per ton less than the comparable cost viatruck. For traffic diverted from break-bulk rail service, savings in handling costs areestimated by MOR at Y 106 per ton. The resulting NPV of this investment is Y 956million and the ERR is 29.0 percent (Table 4.4).
G. EXPANDING SYSrEM CAPACrrY
4.11 While they would eventually be used systemwide, three-phase AC electriclocomotives would be deployed first on the mountainous Baoji-Chengdu route in westernChina. At present, this line-utilizing standard SS4 electric locomotives-operates atcapacity and cannot sustain any growth in freight volume. By comparison, the AC unitscan haul about 20 percent more than the SS4s. Further, due to their greater power, higherspeed and more effective braking systems, the AC units permit more trains to be run overthe line than do the SS4 units. Taken together, these capacity-enhancing features of theAC locomotives would greatly increase the amount of traffic that can be carried over theroute, from 20.2 million tons today to 37 million tons-a gain of 78 percent.
4.12 Given this increase, the project would foster the production and consumptionof new products that would result in value-added benefits to the economy (especially in theinterior western region). These benefits have been calculated based on the anticipatedyearly growth in incremental traffic using a methodology for valuing induced traffic.
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Further, compared to the SS4s, the AC units are expected to cost less to maintain and havea much lower failure rate. Consequently, benefits in the form of annual operating savingsof about 16 percent per year also are anticipated.
4.13 MOR proposes to import 32 locomotives over the three-year period 1997-99.In calculating the economic costs of this component, a unit price representing the averageof initial quotations already obtained by MOR has been employed. Since the locomotivesare to be manufactured and assembled abroad, there are no pertinent local costs. Theinitial quotations also include a three-year spare parts guarantee; accordingly, it is notnecessary to specify this cost element separately until 1999. Finally, an allowance fortools, instruments, and training is included as a part of the total project investment.Because import duties and value added taxes are not regarded as economic costs, they havebeen excluded from this analysis. Including the complementary costs for expanding mineand factory capacity needed to produce the incremental traffic, the NPV of this componentis estimated at Y 3.7 billion and the ERR at 20.5 percent of the incremental investment ofreplacing SS4s with new locomotives (Table 4.5).
H. OVERALL EVALUATION AND RISK ANALYSIS
4.14 As summarized in the table above, each of the components has an ERR of atleast 20 percent and taken together, all components as a group yield an overall ERR of26.7 percent. The NPVs of most components exceed Y 3.7 billion (the NPV of thecomparatively lower-cost container transport component amounts to almost Y 1.0 billion).The investments would expand rail capacity and thereby create more value added of goodsand services-particularly in the interior provinces. Moreover, the more efficient railservice afforded by these investments would produce additional benefits in the form oflower capital outlays and reduced transport operating expenses. Therefore, the proposedinvestment is well justified.
4.15 Execution of the investment components would entail certain risks. Severalof the components-the AC locomotives, information systems and telecommunications-involve newer technologies. As such, they are subject to delays in procurement andimplementation that could retard the flow of expected benefits. By contrast, with respectto the Wuhan-Guangzhou corridor capacity expansion component, the technologies are wellknown to MOR. One concern, though, pertains to the failure rate of electric catenarysystems and whether MOR's statement of electric locomotive operating expenses fullyreflects these outlays. To compensate for possible shortfalls, an additional complementarycost for catenary maintenance is included in the economic analysis. The risks and potentialbenefits of the container transport component largely depend on the pricing and logisticspolicies adopted by CRC and SIT. Rates that adequately cover rail long-run variable costsand properly take into account the pricing and service offerings of trucks should succeedin diverting substantial volumes of higher-value traffic from trucks. At the same time,however, unreliable and erratic rail delivery schedules would fail to attract the desiredbusiness, while below-cost rail tariffs would yield unacceptable losses.
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4.16 To assess the above-mentioned risks, two separate sensitivity analyses wereconducted on each of the investment components. First, the economic cost (including allcomplementary costs) of each component was increased by 20 percent. Second, the totalvalue of all economic benefits associated with each component was reduced by 20 percent.In no case did any of these tests reduce the ERR to less than 15 percent. The results ofboth sensitivity tests, along with the base-case values, are presented in the table below.
RESULTS OF SENsrnrPv ANALYSIS(Y million)
Increase in Decrease in BenefitsBase Case Investment Costs
Modernize Information Systems 4,042 3,793 2,984(42.2%) (37.7%) (36.7%)
Upgrade Telecommunications Systems 4,961 3,239 2.247(30.2%) (21.9%) (20.2%)
Commercialize Container Transport 956 746 555(29.0%) (23.6%) (22.5%)
Expand System Capacity 3,736 2,199 1,451________________________________ (20.5%) (16.2%) (15.4%)
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5. FINANCIL VIBILITY OFRAILWAY TRANSPORT OPERATION
A. INTRODUCTION
5.1 Since entering into an economic contract with the Government in 1986, MORhas been financing all of its operating and capital expenditures through internally generatedfunds and borrowings. This chapter examines the past and present financial performance(1988-94) of the railway's transport operation (comprising the 12 regional administrationsbut not including the diversified economy companies) and forecasts its future financialperformance (1995-2000).
B. PAS FINANCL PERFR NCE
5.2 By Government decree, gross revenue from the railway's transport operationis divided into two parts: the first is from base tariffs, which covers operating expensesand contributes to the net income of the railway's transport operation; the second comesfrom a Railway Construction Fund freight surcharge earmarked for capital investments andcannot be used to meet operating expenses. This separation has served the Government'seffort to control operating costs. Adjustments of the base tariffs and freight surchargerequire SPC/State Council approval, which limits MOR's flexibility in setting tariffs.
5.3 During 1988-92, the railway was profitable, although an increasing operatingratio since 1990 indicates that base tariffs did not keep pace with inflation and the completephasing out of input subsidies. Since 1988, operating costs per ctkm escalated 99 percent,while revenues grew only 70 percent (the latter exclude freight surcharge revenuesearmarked for capital investments). From 1992-93, the cost of previously subsidizedinputs such as electricity, energy and materials increased 77, 58 and 41 percent,respectively. Nonoperating expenses (i.e., interest) also grew 75 percent during this timedue to more borrowing for capital investment and to the phasing out of interest subsidiesby the Government. At the same time, the freight surcharge increased from 0.2 fen/tkmin 1991 to 2.7 fen/tkm in 1993.
5.4 When it was introduced in 1991, the Railway Construction Fund was notleveraged, i.e., funds had to be used 'yuan for yuan' for capital investments. However,starting in 1993, the fund could be used to pay the interest on debt incurred for theseinvestments, and the railway showed a net loss of Y 0.7 billion in 1993 (after paying Y 3.2billion interest from surcharge revenues). Had the surcharge revenues been included withbase tariff revenues, the railways would have shown a profit of Y 20.4 billion in 1993 (seethe table below).
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ACTUAL REVENUES AND EXPENSES, 1988-93(Y million, in current prices)
Unit operating expense 1.55 1.86 2.13 2.39 2.46 3.09 99% incr.(fen/ctkm) since 1988
/a 1992-93 operating expenses and income are not directly comparable to previous years due to changes in the accountingguidelines.
/b Operating income less net nonoperating expenses, interest and taxes./c Capital Construction Fund under old accounting guidelines, i.e., balance of net income after allocations to the Railway
Construction Fund and the Special Fund (which was eliminated under new accounting guidelines)./d Revenues from the freight surcharge less business taxes (and less interest expense in 1992 and 1993)./e Operating expenses, less depreciation, expreswed as a percentage of operating revenue less surcharge revenue.If Operating expenses expressed as a percentage of operating revenue leu surcharge revenue./g Operating revenue from base tariffs Ci.e., excluding freight surcharge revenue).
C. PRESENT FINANCIAL PERFORMANCE
5.5 MOR projects (based on unaudited figures) an operating ratio approaching100 percent and a loss of Y 2.9 billion (based on base tariffs and after paying Y 6.5 billioninterest from surcharge revenues) in 1994. If freight surcharge revenues were treated asfungible with base tariff revenues, MOR would project a profit of about Y 26.0 billion.MOR is now in a situation that it has funds to build new railway lines, but is havingtrouble maintaining the railway's physical assets and replenishing pension and welfarefunds because of the segregation of base tariff and freight surcharge revenues. Protracteddeferment of maintenance could impair the safety of railway operations, especially byheightening the risk of derailments.
5.6 As to financial self-sufficiency (see definition in table in para. 5.14), MORprojects that the railway will internally generate 67 percent (compared to 75 percent in1993) of average capital investments including equipment replacements, other than normalrepairs and maintenance. The decline is due to higher capital investments (Y 45.0 billion
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in 1994 compared to Y 40.0 billion in 1993) and to the absence of across-the-board tariffincreases in 1994 [i.e., in 1994, only selective tariff increases (see para. 5.8) comparedto an across-the-board freight surcharge increase in 1993 took place].
5.7 The self-financing ratio in the railways is relatively high because 80 to closeto 100 percent of internally generated funds is from freight surcharge revenues that areearmarked for capital investments. The remainder of the internally generated funds arenoncash expenses (i.e., depreciation) and the difference between base tariff and operating(excluding depreciation) and nonoperating expenses.
5.8 MOR is trying to sustain the railway's profitability (i.e., the excess of booktariff revenues over expenses) by containing costs, raising productivity, and proposingtariff hikes. With regard to freight, MOR initiated in 1993 a "new line, new tariff" policyto achieve full cost recovery for newly built lines. Applying the policy to the new Daqin,Lanwu and Zhenwu lines raised the average base freight tariff from 2.7 fen/tkm in 1992to 2.9 fen/tkm in 1993 (a 6.7 percent increase). With regard to passenger traffic, two newpolicies were introduced. First, a "higher price for higher-quality service" policy wasapplied to 12 pairs of passenger trains in 1993 and to 26 train pairs in 1994. Second,passenger tariffs were raised in Guangdong province during peak demand periods. Thesemeasures increased the average passenger fare from 4.4 fen/pkm in 1992 to 4.6 fen/pkmin 1993 (a 3.4 percent increase). Still, these initiatives were insufficient to keep therailway profitable (excluding freight surcharge revenues) in 1994.
5.9 To restore profitability, MOR has proposed to SPC a cost-index methodologyfor justifying future tariff adjustments. In addition, MOR has developed a costing model.Once data are available, the costing model will have the capability to track specific point-to-point costs that, combined with a centralized waybill file (to be developed along withmanagement information systems), can calculate revenues and costs for the origin-destination movements of major commodities, and thus, determine profitable and loss-making lines and traffic categories. MOR is also preparing a plan in which concretemeasures for reductions of operating costs over the next two to three years would be setforth.
D. FUTURE FINANCIAL PERFORMANCE: BASE CASE
5.10 The base case reflects the most likely increases in base tariffs and freightsurcharge from 1995 to 1997 and MOR's proposed capital investments from 1995 to 2000.In the base case and all scenarios (except the medium scenario, which assumes a surchargeincrease in 1998), under the sensitivity analysis, it was assumed that no tariff increaseswould take place from 1998 to 2000. This approach was taken because discussions withthe client on tariff increases beyond 1997 were inconclusive. Key assumptions for the basecase financial projections for 1995-2000 are given below. Detailed financial assumptionsare in the Project File.
(a) A capital investment program of Y 61 billion in 1995 and Y 418 billion from1996 to 2000 (including Y 350 billion of new investments and Y 68 billion of
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equipment replacement) based on a real GNP growth rate of 8 to 9 percent,which corresponds to a combined freight and passenger traffic (ctkm) growthrate of 6.6 percent per year;
(b) About 50 percent of the capital investment plan to be implemented in 1995-97and the remaining 50 percent in 1998-2000;
(c) An increase in average passenger fares from 4.77 fen/pkm to 6.77 fen/pkmin 1995 (about 42 percent increase);
(d) An increase in average base freight tariffs from 2.85 to 4.35 fen/tkm in 1996(about 53 percent increase);
(e) An increase in the freight surcharge from 2.7 to 4.2 fen/tkm in 1997 (about57 percent increase).
5.11 For 1995, MOR estimates a loss of Y 4.4 million; after a brief recovery in1996 to 1998 (due to projected tariff increases in 1995, 1996 and 1997), it projects lossesin 1999 and 2000 because no tariff increases were assumed beyond 1997 (see para. 5.10)(see table below). The operating ratio (net of freight surcharge revenue) approaches100 percent in 1995, recovers to 82 percent in 1996, but deteriorates to 98 percent by2000. Aside from the projected loss/profit, MOR would have net surcharge revenuesranging from a low of about Y 29 billion in 1995 to a high of about Y 62 billion in 2000.The surcharge revenues are net of interest; since 1993 SPC and MOF have allowed MOR,on a year-to-year basis, to use surcharge revenues to cover some nonoperational expenses.Thus, a first step has been set in the direction of fungibility of revenue sources. Ifsurcharge revenues were fungible in their entirety, the net result would be a profitableMOR (see table below). The self-financing ratio is projected at 67 percent in 1994 (basedon unaudited figures), 52 percent in 1995, 63 percent in 1996 and over 80 percent from1997 to 1999.
E. SENsrnwvr ANALYSIS
5.12 The ability of the railway to increase the base tariffs and freight surcharge iscrucial to the upkeep of its infrastructure, the welfare of its workforce, and the realizationof its capital investment program. Two scenarios, a low and high case, are examined incomparison with the base case, where the low case implies no tariff increases for theperiod forecast and the high case implies the full tariff increases as proposed to the StateCouncil in June 1994. In addition, a medium case is tested to determine the implicationsof delaying all tariff increases, assumed in the base case, by one year. The purpose is toevaluate the implications for: (a) the level of the self-financing ratio, (b) the amount tobe borrowed, and (c) coverage of debt service. The detailed financial results under eachof the scenarios are in the Project File.
5.13 The results are given in the table below. The low-case scenarios assume notariff increases from 1995 to 2000 and can be rejected because it implies that MOR either
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FoREcAST OF REVENUES AND ExPENSES, 1994-2000: BASE CASE(Y million, in current prices)
/a Operating income less net nonoperting expenses, interest and taxes./b Reflects net income after taxes but excludes interest and freight surcharge revenue./c Revenues collected from the freight surcharge les businew taxes and interest.a Operatung expenses, les depreciation, expresed as a percentage of operating revenue less surcharge revenue./e Operating expenses expresed as a percentage of operating revenue from base tariffs only.Tf Operating revenue from base tariffs (i.e., excluding freight surcharge revenue).
has to: (a) reduce its capital investments by almost 15 percent in 1995 and by over70 percent during the 1996 to 2000 period; or (b) borrow substantial amounts to implementits investment plan in 1995 to 2000, and run its operations from 1995 onward. Option (a)is contradictory to a national investment policy to increase investments in transport; option(b) is infeasible because MOR could not service its debt from 1997 onward. Both low-casescenarios result in increasing operating losses (due to base tariffs and freight revenues notbeing fungible), evidenced by an operating ratio of 111 percent in 1995, deteriorating to141 percent by 2000.
5.14 The high-case scenario assumes that the railway receives approval for the fulltariff increase as submitted to the State Council in June 1994: average base freight tariffsincrease in 1996 from 2.85 fen to 5.55 fen per tkm, while increases in passenger tariffsand surcharges remain the same as under the base case. In addition, the 1996 to 2000capital investment program is assumed to increase by Y 50 billion to reflect the high endof the Y 350-400 planning range. The high case should also be rejected because itassumes that the proposals MOR submitted to SPC in June 1994 for increases in freighttariffs, freight surcharge and passenger rates would be approved in their entirety with
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SENsrnvyrY ANALYSIS-KEY RATIOs, 1994-2000
1994 1995 1996 1997 1998 1999 2000
Base Case, Railway's current plansOperating Ratio, % /a 97 99 82 87 91 95 98Self-Financing Ratio, % /b 67 52 63 82 84 84 -Debt Service Coverage c 2.9 3.4 3.4 3.3 4.2 4.5 4.7
Low Case (1). no tariff increases, reduction in capitalinvestment
/a Operating expenses expressed as a percentage of operating revenue. Freight surcharge revenues are not included in this percentage./b Defined as internal cash generation (including net revenue lou, railway surcharge revenues and depreciation) as a percent of the
average capital investment and equipment replacenent in years (x-1), x and (x+ 1)./c Defined as inconme after taxes plus interest and depreciation divided by interest and repayment on long-term to be paid in the same
year.
regard to timing and level of increase. Based on experience since 1990, this is unlikelyto happen.
5.15 The medium-case scenario assumes a one-year delay in tariff increases, i.e.,average passenger tariffs increase by 2 fen/pkm in 1996, average base freight tariffsincrease by 2.7 fen/tkm in 1997, and the freight surcharge increases by 1.5 fen/tkm in1998. As a result of decreased revenues, MOR would need to mobilize Y 97 billion inadditional borrowings during 1995 to 2000 to maintain positive cash flow. The loss in1995 would increase from Y 4 to Y 12 billion and a loss of Y 9 billion would be incurredin 1996. MOR would become profitable in 1997. Including surcharge revenues, MORwould be profitable in each year from 1995 to 2000.
F. CONCLUSIONS
5.16 The base case is the most desirable scenario because it limits the period oftransitional losses (the latter not including surcharge revenues). The low case is a worst-case scenario because it would either not enable the railways to carry out the much-needed
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capital investments, or it would result in a nonviable railways from 1999 if it borrows thefunds needed to implement the capital investments program. The medium case representsa possible altemative to the base case. It is less desirable because it lengthens the periodof transitional losses by one year.
5.17 To effectively serve an increasingly market-driven economy, the railwayrequires, among other things, to increase its base tariffs by at least an amount that wouldallow it to phase out its transitional losses. Agreement was reached at negotiations thatthe Borrower, through MOR, will produce or cause to be produced in respect of MOR'srailway transport operations, for each of its fiscal years, finds from internal sourcesequivalent to not less than the following percentage of the annual average of the capitalexpenditures incurred, or expected to be incurred, for that year, the previous fiscal yearand the next followingfiscal year: (a) for itsfiscal year ending on December 31, 1995 andits fiscal year ending on December 31, 1996: 50 percent; and (b) for each of its fiscalyears thereafter: 55 percent (para. 6. 1f).
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6. AGREEMENTS REACHED AND RECOMMENDATION
6.1 During negotiations, agreement was reached with the Borrower that it, throughMOR, will:
(a) Implement the PID components of railway enterprise reform, railway tariffreform, and labor productivity according to action plans acceptable to theBank (para. 3.9);
(b) (i) select at least two container transport companies acceptable to the Bank towhich the container transport and handling equipment to be procured under theproject shall be leased; (ii) employ consultants with terms of reference,qualifications and experience acceptable to the Bank to assist it in thepreparation of contractual agreements between the Borrower and said containertransport companies required for the leasing and operation of said equipmenton a commercial basis; (iii) furnish said agreements to the Bank promptlyupon their preparation and afford the Bank a reasonable opportunity toexchange views with the Borrower thereon; (iv) thereafter, take all measuresrequired on its part to conclude said agreements with said container transportcompanies, taking into account the views of the Bank on the matter; and(v) ensure that no invitations to bid for contracts for container transport andhandling equipment included in the project shall be issued unless and until theBorrower shall have concluded the agreements referred to in item (iv) above(para. 3.19);
(c) Carry out the study components of (i) dedicated passenger rail feasibility,(ii) application of the RIS decision-support system, (iii) railway informationsystems development, (iv) railway telecommunications systems management,(v) diesel engine design, (vi) strengthening of MOR's treasury functions, and(vii) restructuring the railway's manufacturing sector, according to actionplans acceptable to the Bank; then, exchange views with the Bank on thestudies' recommendations; and, finally, implement the recommendations,taking into account the Bank's comments (para. 3.34);
(d) Undertake, jointly with the Bank, a mid-term review of project implementationno later than November 30, 1998 (para. 3.50);
(e) Ensure that (i) the project will be implemented according to health, safety, andenvironmental standards acceptable to the Bank and (ii) the resettlement ofpeople affected by the corridor expansion component will be carried outaccording to the plans acceptable to the Bank (paras. 3.52, 3.54); and
- 42 -
(f) Produce or cause to be produced in respect of MOR's railway transportoperations, for each of its fiscal years, funds from internal sources equivalentto not less than the following percentage of the annual average of the capitalexpenditures incurred, or expected to be incurred, for that year, the previousfiscal year and the next following fiscal year: (i) for its fiscal year ending onDecember 31, 1995 and its fiscal year ending on December 31, 1996:50 percent; and (ii) for each of its fiscal years thereafter: 55 percent (para.5.17).
6.2 Subject to the above, the proposed project would be suitable for a loan of $400million to the People's Republic of China. The loan would be for a term of 20 years,including a grace period of 5 years, at the Bank's standard variable interest rate.
Table 1.1: FREIGHT TRAFFIC INTENSnTIES AND ROAD AND RAELWAY NETwoRK DENSrTy IN SELEcTED CouNTRIEs
Country Country Area Tons Originated/a Ton-km/a Average Estimated GNP Tons/$1,000 Ton-km/$ GNPName (million kn2) (millions) (billions) Distance (i)/a ($ billion) of GNP
/a Includes rail, highway, inland waterway, pipeline, and air freight only.
RoAD AND RAILWAY NETWORK DENsmY IN SELEcTED CouNTRIES
Country Population Area Rail Length Rail Density Road Length Road DensitvName (million) (million km2) ('000 km) kn/'000 pop km/'000 kmZ ('000 ki) km/'000 pop km/'000 km
Sources: China: Statistical Yearbook of China 1993 (Data for 1992), pp 460-68.Russia: "The Former Soviet Union in Transition," vol. 2-Study papers submitted to the Joint Economic Committee, Congress
of United States, February 1993, p. 1162. Jane Holt: 'Transport Strategies for the Russian Federation," World Bank,1993, Chapter 1 (1992 data).
USA: World Faabook 1992 (Central Intelligence Agency), pp 358-9; World Road Statistics 1988-93 (International RoadFederation) (data for 1991). National Transportation Statistics: Annual Report, June 1992, pp 54, 105; ENOTransportation Foundation: Transportation in America, PP 44-46.
India: Indian Railways Ycarbook-1992-93, p. I 1; cIndia: Transport Sector Long-Term Issues, " Internal Document no.13192-IN, Annex 1 (data for 1992).
Brzil: World Road Statistics 1988-1992, International Road Federation, 1993, Section V; Kessides,I: Brazilian RailroadIndustry: Options for Organizational Restructuring, p 41 (data for 1991).
Japan: World Road Statistics 1988-1992, International Road Federation, 1993, Section V (data for 1991).Area & GNP: World Bank: The World Development Report 1994, pp 162-3 (GNP in 1992 US dollars).Population: World Bank: The World Development Report 1994, pp 162-3.
- 44 -
Table 1.2: FREIGHT TRAmC BY MODE(in billion ton-km)
Domestic Pipe- Civil OceanRail Road waterwayLa line aviation Total Shipping
& Investment of FYPs includes Post and Telecommunications (about 4 percent of total).
Source: Statistical Yearbook of China-1994, Table 5-2, p. 149, Table 2-10, p. 32.Statistical Yearbook of China-1993, Table 5-22, p. 135, Table 2-12, p. 28.Statistical Yearbook of China-1991, Table 5-22, p. 160.Other data based on SAR of China Fifth Railway Project, Table 1.5, p. 88.
Table 1.5: INVESTMEN iN THE TRANSPORT SECTOR (INCLUDING POST AND TELECOMMUNICATIONS)
Average net tons/wagon loaded (tons) 56.1 19.3/c 58.4
Average freight wagon turnaround time (days) 4.2 10.8/c
Average length of freight haul (km) 761 721 1,281
Average number of staff per route-km 63.36 26.39 0.67
Traffic units per route-km (million)/d 28.63 8.93 9.12
Traffic units per employee (000)/d 451.82 335.01 8,433.15
/a Figures converted into metric system./b Includes wagons owned by wagon companies and shippers./c Broad gauge./d Traffic units = ton-km + passenger-km.
Sources: China: Ministry of Railways.India: Indian Railways Yearbook, 1992-93.USA: AAR, Railroads Fads, 1994 edition (includes Class I railroads only).
Table 3.1: INVFsTmENT Com AND LoAN SUMMARY (in $ million)19)94 1995 1996 1997
Local Foreign Total Loian Local Foreign Totali Loain Local Foreign Total Loan Local Foreign Total Loant'Crtidor Capacity Expansion
Table 3.2: INVESTMENT COSTS OF CORREDOR CAPACrrY ExPANSION COMPONENT (in $ million)
1994 1995 1996 1997 1998 Total US$ millLocal Foreign Total Local ForeigLn Total Local Foreign Total I ocal Foreign Total Local Foreign Total Local Foreign Total
Soirt e: NM inistiy of Rail wa s and mission estimates UM -95-04-06
Table 3.3: INVEsTMENT COsTs OF INFORMATION SYSrEmS MODERNIZATION COMPONENT (in $ million)
1994 1995 1996 1997 1998 1999 TotalLocal Foreign Total Local Foreign Total Local Foreign Total Local Foreign Total Local Foreign Total Local Foreign Total Local Foreign Total
1. Through June 1994, the Bank Group had loaned about $4.53 billion to Chinaunder 29 projects for the transport sector (see Table 1.6 for Summary Statistics) and isnow preparing several new transport sector projects.
2. The railway subsector has received $1,785 million in Bank Group funding:six loans to the national railway system (Loans 2394-CHA; 2540-CHA; 2678-CHA/Credit1680-CHA; Loans 2968-CHA; 3406-CHA; and 3581-CHA) and one loan to the localrailway system (Loan 3060-CHA/Credit 2014-CHA). These projects have helped thegovernment expand capacity on key routes and modernize the technology for manufacturingelectric locomotives, passenger coaches, and signaling equipment. The local railwayproject is financing the construction of a line in Inner Mongolia. The most recentlyapproved project is assisting MOR with railway policy and management initiatives;institutional development of the railway system; expansion of railway capacity; andmodernization of railway technology on a systemwide basis. The audit of the FirstRailway Project noted that physical components were well executed and that macropolicyadjustments, especially in the area of tariff reforms, and investment prioritization werelikely to have the highest impact; these conclusions are being considered in the currentlyproposed railway project. The project completion report for the Second Railway Projectis currently under way.
3. The highway subsector has received $1,669 million in Bank Group financingunder 11 projects (Loans 2539-CHA/Credit 1594-CHA; Loan 2811-CHA/ Credit 1792-CHA; Loan 2951-CHA/Credit 1917-CHA; Loan 2952-CHA; Credit 1984-CHA; Loan3073-CHA/Credit2O25-CHA; Loans 3471-CHA; 3530-CHA; 3681-CHA; and 3748-CHA).These projects provide for the construction of high-quality national and provincial roadstotaling about 2,180 km, and the expansion and improvement of some 6,851 km of rural(lower class provincial, county, village) roads and major bridges. When completed, someof these roads will help to provide vital missing links in the national highway network;others will help to ease severe congestion in parts of the network or provide access toremote areas. The projects are also designed to provide foreign technical assistance andtraining of Chinese personnel in areas such as supervision and quality control of roadconstruction, design, and planning. Finally, the projects support studies on key issues ofhighway development such as road safety, pavement management, user charges, andmethods of financing the expansion, improvement, and rehabilitation of the road network.The First Highway Project (Loan 2539-CHA/Credit 1594-CHA) is completed; a ProjectCompletion Report was issued in May 1992.
4. The ports subsector has received $715 million of Bank Group financing undereight projects (Loans 2207-CHA, 2689-CHA, 2877-CHA/Credit 1845-CHA, Loan 2907-
- 90- ANNEX 1
CHA/Credit 1875-CHA, Loans 3006-CHA, 3007-CHA; Credit 5623-CHA; and Loan3552-CHA). Most of the loan funds are being used in Shanghai, Tianjin, Dalian,Huangpu, Ningbo, and Xiamen for construction of terminals, jetties, and berths forhandling bulk commodities, general cargo, and containers, as well as the dredging ofnavigation channels. Funds also have been used for training, technical assistance, andvarious studies such as port planning, operations management, and containerization. Theaudit report of the first port project, found the project successfully completed, on time andbelow cost, but recommended developing long-term strategic port investment, planningports and improving prequalification procedures; recommendations on the former pointhave been incorporated in the preparation of the recent Shanghai Port Restoration andDevelopment project, and recommendations on the latter have been taken into account inthe discussion of procurement procedures in transport projects under preparation. TheShip Waste Disposal Project (FY92) involves cofinancing between the InternationalDevelopment Association (IDA) and the Global Environmental Facility (GEF) to improveways for disposal of ship effluents and thus reduce pollution of international and territorialwaters caused by ships' waste. The recent Shanghai Port Project (FY93) focuses onrestructuring and long-term port development with a complementary technical assistanceand training component targeting institutional and financial reforms.
5. The urban transport subsector has received $210 million of Bank Groupfinancing under two projects (Credit 2296-CHA and Loan 3652-CHA). These two urbantransport projects are intended as a first stage of a long-term program to upgrade anddevelop urban infrastructure in Shanghai. They finance capacity increases of key urbanlinks as well as traffic management and safety upgrades and assist the ShanghaiMetropolitan Govemment to strengthen public sector management capacity by improvingthe planning and management of the urban transport system.
6. One multimodal project was approved in 1991 (Loan 3316-CHA/Credit 2226-CHA, $154 million) to improve provincial transport in Jiangsu. While the main focus ofthis project is on rehabilitating the provincial road network, the project includes the firstloan to the inland waterway subsector to rehabilitate a section of the Grand Canal andexpand an important shiplock.
SUMMARY OF PREVIOUS RAILWAY PROJECTSComponent | Project Description and Objectives Loan/Credit
Am'ount(S millUion) I
RAILWAY I
1. Xinxiang-Yanzhou Une Conosction of single track between Xinxiang and Heze (165 kin, including a 10 km long bridge); and upgrading 113.0
and capacityincrea es of the existing Heze-Yanzhou line; and related construction works. This project will increase the capacity.
2. Datong-Taiyuan Line Double-tracking of two ections (127 kn); lengthening of all (34) existing crossing stations; construction of additional crossing 87.0sations; nd line electrification and insallation of centralized traffic control signalling system. This component will increase overallcapacity.
3. Electric Locomotives: Manufac- Provision of technical assistance and training. Provision of equipment to increase and improve production of electric locomotives of 20.0ture and Technical Asistance the present design. This component will increase the electric locomotive output to meet the overall demand.
Tots 220.0
RAILWAY 11
I. Zhengzhou-Wuhan Line Upgrad- Track lengthening at 59 stations and increase of the loading gauge of 18 bridges; electrification of the 574 km double track section; 211.5ing and Electrification related construction works; and technical assistance. This component will increasc the capacity of this line which has the second
highest traffic density in China.
2. Technical Assistance for Technical assistance to CPCF; training of CPCF personnel in modern technical and management practices; development of a new 8.0Changchun Passenger Coach coach design adapted to Chinese conditions, and other related works. Bank assistance will enhanec the efficiency of production andFactory (CPCF) improve the quality of the coach.
3. Technical Assistance for China Provision of equipment and instruments to equip the laboratories; and training of Academy staff in fields related to the laboratories. 15.0Academy of Railway Science
4. Management Information System Upgrading of MOR's management information system to improve the efficiency of its operations. 0.5Study
TOtal 235.0
SUMMARY OF PREVIOUS RALLWAY PROJECTSCoa"mponts Project Description and Objectives Loe,a/Credit
Anwwt(S million)
RAILWAY III
I Chongqng-Guiyang Line Extension of sidings from 550 m to 750 m; replacemeit of 43 kg/m rails with 50 kg/m rails; and line electrification. This compo- 96.0/aUpgrading end Electrification nent will increase the line capacity.
2. Yingtan-Xian men Line Upgrsd- Extension of short crossing loops from 450 m to 650 m and other related works; and electrification. This component will increase 106.0/aVg and Electrification the line capacity.
3 Technical Asasistnce for Xian Provision of better equipment, facilities and technical assistance to increase production efficiency and improve product quslity. 8.6/aRsilway Signaling Factory
4. Maintenance of Permanent Way Provision of mechanical equipment to MOR for railway maintenance to improve track condition and increase line capacity. 19.0/a
|S Costing Study Comprise specifications of the coating system to be adopted by MOR, and pilot system implementation and training. 0.4/a
Toul 230.0
RAILWAY IV f
1. YueIhan-Xiangfan Line Double- Double-tracking of Yueshan Xiangfan line (492 kin) and electrification from Yueshan to Luoyang (113 km) to incrase the line 163.0Tracking and Partial Electrifica- capacity.
2. Modernization of Three Locomo- Provision of advanced equipment and transfer of new technology to MOR to modernize three locomotive and rolling stock factories 37.0tive and Rolling Stock Factories to improve the quality of products.
Total 200.0
INNER MONGOLIA LOCAL RAILWAY
1. Line Construction, Design Fea- Construction of a new line with initial capacity of seven million tons per year in each direction. Provision of related operational 150.0tures and Operational Equipment equipment to improve the quality of railway operation.
Total 150.0
/a Data are based on the loan agreement and are different from the cormsponding Staff Appraisal Report.
SUMMARY OF PREVIOUS RAILWAY PROJECTSConponents Project Description and Objectives 1 Loan/Credit
Amount(S million)
RAILWAY V
I Systemwide Component-Perms- Provision of on-track machinery for permanent way rehabilitation and maintenance to improve the track condition and thereby 90.0nent Way increase line capacity and train speed.
2. Systemwide Component-Loco- Procurement of wheels; critical components for locomotives; and some critical machinery and equipment for the workshops and 60.0motives and Rolling Stock depot. The objective is to reduce the gap between supply and demand.
3 Capacity Expansion Component Double-tracking of 594 km single-track between Zhuzhou and Hangzhou; and build a new double-track bridge over the Gan River. 160.0-Zhengan Line The objective is to remove the bottleneck and increase the line capacity.
4. Capacity Expansion Component Provision of additionsl land, new roadbeds, bridges, culverts, buildings, machinery, and equipment. This component will increase 20.0-Xuzhou Terminal railway capacity, reduce the train delay, and the operational costs.
Total 330.0
RAILWAY VI
1. Capacity Expansion Subcompo- Electrification and modernization of 694 km double track line to increase the traffic carrying capacity of the line by about 50 per- 112.0nent: Beijing-Zhengzhou cent.
2. Capacity Expansion Subcompo- Electrification and moderization of 1094 km single track line to increase the traffic carrying capacity of the line by about 70 per- 90.0nent: Chengdu-Kunming cent.
3. Mechanizing Track Maintenance Mechanization of the track maintenance system. The objective is ultimately to lower train operating and maintenance costs. 48.0
4. Locomotive & Rolling Stock Introduction of modern m achine tools for manufacturing critical parts of MOR's equipment fleets which will help reduce the fre- 22.0Parts Manufacture quency of failures of diesel locomotives and freight wagons and improve their reliability and utilization.
5. Telecommunicationa & TMIS Expansion and modernization of MOR's telecommunications network and implement computerized TMIS to automate wagon opera- 120.0tions on a systemwide basis. The objective is to increase the flow of information for decision making at all levels and make railwayoperations more efficient and responsive to customer needs.
6 Pilot Container Transport Demonstration of the operational and economic feasibility of a frequent and regularly scheduled container transport service and 19.0guide the future expansion of modern container ervices.
7 Technical Assistance for System- Technical *asistance and training for MOR to carry out three major studies including: (1) rail-based container transport study; 9.0wide Technological Moderniza- (ii) cost-effective technology evaluation study; and (iii) environmental protection study.tion
Total 420.0
SUMMARY OF COMPLETED, ONGOING AND PROPOSED PROGRAMSOF COOPERATION BETWEEN MOR AND THE WORLD BANK
I Costing Study Railways I To develop a coating system which provides Total: S800,000 Comoleted. Study was initially delayed1984 detailed costs of railway trnsport for Raihvays I: $500,000 due to Chinese hcsitation to tackle
freight by commodity and for pasengens by Railways mI: S300,000 costing and pricing issues, but MORclass and type of service by origin and agreed with the Bank through Raihwaysdestination. An inmontnt follow-up is to V negotiations on an action plan to: (a)usc the coating model for (i) indexing tariffs complete the tudy by December 1993;to inflation; (ii) contract pricing; (iii) re- and (b) ue study results to formulatemoving structural distortions in tariffs; and revision of tariff system. A proposal(iv) calculating comnpenations for PSOe. for railway tariff reforms was preparedSee the Railway Tariff Reform Study be- under Railways VI. MOR bas pre-low, pared a costing model, yielding rmilway
cost estimates which provided a basisfor initial improvements of the railwaytariff system under the proposed rail-way tariff reform study (see below).This model is currently being appliedin the Fuzhou subadministration.
2. Pilot Msnagement Railways U To improve MOR's infornation system in Railways U: $500,000 Completed. A pilot system for com-Information System 1985 the Harbin Administration through stream- puterizing expenses, revenues and way(MIS) Study lining of information flow and use of mod- bills has been tested for the Harbin
era conmuter software. Administration. MOR is beginning todevelop a comprehensive MIS for theentire railway system. The compre-hensive MIS would employ the Trans-port Management Information System(TMIS) proposed under Railways VI toprovide key input.
3. Strategic Phn Study Railways IV To imnprove operational nmnagenent and Total: S2,500,000 Cornwieted. Traffic capacity nmdeling1988 increase transport capacity on the Beijing- Railways IV: S1,000,000 with ALK consultants has been com-
Shaghai lne, through three areas of tech- PHRD: $1,500,000 pleted and tested on a pilot basis. Thisnological mnodernization: model was used extensively in the(a) traffic capacity mnodeling; Coat-effectiveneu Technology Evalua-(b) telecommunications; and tion (CETE) Study Phase I. MOR has(c) TMIS. prepared, with the help of EDS (USA)
nd CANAC (Canada) conultants, re-pott on the telecommunications sub-tudy and with CANAC consultants on
the TMIS subsudy. Thee reportsprovided a bai for the proposedinvestment ubcomponeMt for telecom-nmnications and a Transport Manage-ment Infornation System (FMIS) forBank financing under Railways VI. %
4. Railway Investnent Railways V To develop a decision-support eytem for Total: S550,000 Conoleted. Phase I (model develop-Study (RIS) 1989 (a) forecrating traffic flows on railway net- World Bank: $200,000 ment and testing) was completed in
work; (b) evaluating economic merits of PHRD: $350,000 June 1991. Conmputer tools are nowproposed railway capacity expansion invest- available for applicationx by trainedments; and (c) selecting high-priority MOR. staff. RIS Phase n applied ainvestments and increasing total system decision-support sytem developedthroughput under budget constrmints, under RIS Phase I to determine eco-
normic priorities of proposed railwayinvestents on a systemwide bais; tomaximize system throughput underbudget conaints; and to size futurerailway investmt plans under differ-ent economic growth scenarios. Twoof these projects were impiemetedunder Railways VI. RS results wereused as a basis for the Governmentdecision nade in 1992 to acceleraterailway construction in the 8th and 9thFive-Year Plns.
COMPLETED STUDIES (cont'd)
Coywncn Start g project Obp.tived/ccope Funding ourfca/foign exchan Stac
lepic h ye r cod (appmx. )
5. Technical Studies Railways V To develop action plans to: Total: $3,500,000 Com£ leted As rgreed during Railway1989 (a) modernize tuck maintenance; (b) mod- Railways I: $3,500,000 V negotitions, MOR has carried out
ernize loconuotive and olling mock main- the studies (a)-(d). These reports pro-tenance; (c) modernize and expand the rail- vided a basis for preparing four invest-way telecommunications sytem; and (d) mest subcomponents of Railways VI.
modernize railway electrification technol-ogy.
6. Tariff Study Railways VI To prepare a proposal to reform railway Total: $250,000 Coenleted. Originated from rhe ongo-1992 tariffs in order to help MOR strenihen ita MOR(Dank Loana):/b $170,000 ing CoMing Study, the study addreaed
financial aIf-mufficiency and remove price World Bank: S 0,000 not only dhe isue of price distortions,disonios, but also die isses of trengthening
MOR's financial elf-sufficiency ndgrsani MOR grter autonomy inprice sening. A Tariff Reform StudyCommitte and Working Group withrepresentation of MOR, MOF, SPCand SPC werm created. An action planwa agreed with MOR in July 1994and is currently being implemented.This atudy provides a basis for the PIDcomnponent on railway tariff reformunder Railways VU.
7. Accounting Study Railways VI To prepare railway accounting rules to Total: $300,000 Comnleted. MOR has prepared guide-
1992 conform with national accounting rules to MOR(Bank Loana):/b $300,000 lines for accounting rules and financialbe iaued by MOR. reporting, and, accordingly, has revised
its chart of accounts accordingly. MOFtreated the tudy as a test case for thetransport sector. To implementaccounting reform, MOR haa agreed toprepare accounting policies withtechnical asianea under Railways Vi.
8. Rail-based Container Railways VI To develop immediate, medium- and long- Total: $500,000 Completed. A short-term action planTrasiport Study 1991 term action plans to modernize and expand MOR(Bank Loans):/b $200,000 was prepared as a basis for launching a
railway container services. This action plan PHRD: $300,000 pilot container transport investmentaims to help China promote its exports and component which was implementedspur developments of enterprises in the under Railways VI. Two overseas vis-hinterland, by exploiting the still largely un- its of MOR study team were conductedtapped potential for rail-based container to the USA in May/June and Decembertransport in China's interior. 1992. A final report by Don Breazeale
& Aasociates in December 1993offered recommendations to expandcontainer transport operations andprovided a prelimiinary basis for thecontainer transport coniponent underRailways Vl.
9. Study of Cost-Effec- Railways VI To identify rail technologies which offer a Total: $500,000 Comnleted. With Bank assistance, in-tive Railway Technol- 1992 cost-effective approach to expand transport MOR(Bank Loans):/b $200,000 cluding the use of a Panel of Interns-ogy Evaluation throughput capacity, reduce transport cost, PHRD: $300,000 tional Experts, MOR completed the(CETE), Phase I and improve the safety of train and yard study with Bank assistance in Septem-
operations. ber 1993. These results are being usedas a basis for the CETE Phase 1 studyand the CETE investment componentof Railways VIL
10. EnvironmentalProtec- Railways VI To strengthen MOR's capability for envi- Total: $350,000 Ongoin!. With UNDP funding, for-tion Study 1992 ronmental assessment, monitoring and MOR(Bank Loans):/b S150,000 eign environmental experts visited
control, and to help solve MOR's environ- UNDP: $200,000 China in June 1992 to view areas ofmental problems including passenger trains immediate concern including passengerand noise pollution. coach sterilization, night soil manage-
ment, solid wase nmanagement andmoving train noise. MOR environmen-tal experts visited North America inSeptember 1992. MOR prepared TORfor a long-term environmentl stategyin July 1994 which will be prepared byyear end 1995. Some of these resuwlshave been uwed as a basis for preparingthe pilot enviromnernal protection Icompotent of Railways Vl.
1. RailWay MarnSament Railways VI To facilitate CR's trmnsfonmation into a Total: $2,900,000 Onaoing. TORs for te six tudy com-and Economics 1993 market-orientedentity through: Oi) eablish- MOR(Bank Loans):& $2,400,000 ponents were agreed in July 1993.(RME) Studies ing more flexible railway-government rels- PHRD: $500,000 Inception reports were completed in
tionship and reshaping CR's organizational October 1994. Five teama [teama ),structure; (ii) expanding CR's capability for (ii), (ii), (iv) nd (v)l have completedfinancial resource mobilization; and (iii) foreign study tours, while the remain-providing guidance to the development of ing tam (vi) is planning to conduct adiversified business activities. The RME foreign study tours in early 1995. Instudiesare also aiming at helping CR per- addition, two seminnrs were held inform its economic role more efficiently September 1993 and July 1994 to di.-through: (iv) enhacing CR'a labor pro- cus railway organization nd manage-ductivity; (v) advancing CR'B human re- ment iuues and options. The interimource development; and (vi) reforing report which will st out major policy
CR's housing sytem. recommendations are completed for thefirst five teams, and the report for theremaining team will be completed afterits tour in early 1995. These studiesare providing the basis for the PIDcomnponents of Railways VU.
12a. CETE Phase 11: Railways Vn To implement the 25 ton axle load on MOR Total: $800,000 Ongoing. Study began in July 1994,Implementation of 25 1994 network over the ncxt several years, which MOR(Bank Loans):tb $400,000 would be supported by the Railwayston Axle Load will require new designs of freight cars, up- (to be agreed) Vn loan, and is expected to be com-
grading of track and bridges, and modifi- PHRD: $400,000 pleted in December 1995. Draft In-cations to operating rules and procedures. ception Report has been prepared and
is under review by MOR and the Bank.
12b. CETE Phase H: Railways vn To determine the feasibility of the proposed Total: $1,100,000 Ongoing. Study began in July 1994,Feasibility Study of 1994 dedicated passenger railway between MOR(Bank Loans):& $500,000 would be supported by the RailwaysDedicated P asenger Bcijing and Shanghai. The study includes a (to be agreed) VI loan, and is expected to be com-Railway multimnode ridership study for the Beijing- PHRD: $600,000 pleted in December 1995. Draft In-
Shanghai Corridor and the technical design ception Report has been prepared andof various options, including infrasucture b under review by MOR and the Bank.and roUing tock, and preparation of anoperting plan.
12c. CETE Phae 11: Railways VII To evaluate the proposed dedicated passen- Total: S200,000 Ongoins. Study began in July 1994,
Evaluations Using 1994 ger railway between Beijing and Shanghai MOR(Bank LAns):/b $100,000 would be supported by the RailwaysRailway Investment in the context of major capacity expansion (to be agreed) V bon, and is expected to be com-
Study (RIS) Models projects proposed for the Ninth Five Year PHRD: S100,000 pleted in December 1995. Draft Ii-Plan. The work includes modifications to ception Report has been prepared andRIS models to provide more efficient opti- is under review by MOR and the Bank.mization of results and processing of alarger traffic flow matrix for the base peri-od.
13. Inforration Systemn Railways Vll To (i) inroduce a marketing infornntion Total: $1,000,000 Prorot MOR has agreed to under-Studies 1994 system based on a central waybill file; (ii) MOR (Bank oAns) :/b $ take these studies. The mnarketing
increase the scope and effectiveness of (to be agreed) infiorntion tduy [(i)l can begin imme-TMIS; (iii) conduct feasibility studies for PHRD: $ diately; the remaining three studies [(ii-new informAtion systems; and (iv) develop iv)l should begin when implementationaction plas to implement Pasenger Res- of TMIS nears comnpletion in 1997.ervation System and Automated EquipmentIdentification throughout CR.
14. Railway Manufac- Railways VII To prepare an action plan to restructure and Total: $500,000 Proposed MOR has prepared someturing and Overhaul 1994 modernize CR's equipment mnnufacture MOR (Bank loan): $250,000 background information for a Bank
Sector Study and overhaul ector. Restructuring would (to be agreed) mission tentatively scheduled in Springdeal with consolidating MOR's factories PHRD: $250,000 1995 to prepare a TOR.and forning joint ventures as a way totransfer management expertise and manu-facturing technology. Modernization wouldaddress upgrading the quality of railwayequipment manufacturing to internationaltandards.
g Exchlde Bank gaffs time and tavel cogs.lb Funing for overwAs visits and traiis for MOR taff.
- 100 - ANNEX 4
REFORMING CIIINA'S RAILWAY SYSTEM: PROGRESSTO DATE
The following table outlines the progress to date in reforming the Government of China's(GOC's) railway system. These reform programs have been directly or indirectly influ-enced by the Bank in the last few years as a result of (i) the Bank-prepared China Rail-way Strategy Paper, (ii) six Bank-financed RME studies,l/ (iii) two Bank-sponsoredseminars, (iv) other Bank-financed technical assistance, and (v) suggestions by Bankmissions. In general, MOR has accepted and is in the process of implementing many ofthe reform suggestions and recommendations that have emanated directly or indirectlyfrom the Bank.
The recent reform programs of the railways are grouped under the following four head-ings:
I Improving Government-Railway Relationships And Railway Regulation;
II Reshaping Organization of the Railways And Strengthening Its InternalManagement;
III Increasing the Railway's Investment Efficiency And Improving Its Finan-cial Viability; and
IV Enhancing The Efficiency And Quality Of the Railway Operations AndServices.
1/ The six RME Studies comprise: (i) Government-Railway Relationship Study; (ii) Diversified Econ-omy Study; (iii) Finance Mobilization Study; (iv) Labor Productivity Study; (v) Housing Study; and(vi) Human Resource Development Study.
TOPICS & OBJECTIVES PROGRESS TO DATE COMMENTARY
1. IMROVING GOVERNMENT-RAILWAYRELATIONSHIPS AND RAILWAY REGU-LATION:
A. To improve the relaionship between the gov- In 1986 an economic contract was et up between MOR and the govenmuent, to transfereminent and the aihays by giving the rail- more financial and mnageral responsibiities ftom the govrnment to MOR, with twoways more autonomy and permitting it to be- main features:have as a commercial entity.
1. MOR was to has become fuHv resoonsible for financine all of the railway's ODeratinx These incentives have encouraged theand capital expenditures (through elf-generated cash flow and borrowings). In addition railway to increase total outputs as wellMOR was to pay the Govemment of China (GOC) an annual lump-sum tax of Y 2 as to control the size of its work force.billion plus a 5.3 % of revenue busines tax to the government. Beginning in 1994, the Since the incentives re not tied to reve-annul lump sum was been replaced by an eterprise income tax. mae or operating profits produced, how-
ever, they have not encouraged the rail-2. MOR was to initiate an incentives compensation system whereby tota combined com- way to view itself as market-oriented
penution for all the rilway employees ould be based on railway productivity mea- enterprise.sures.
O Total compensation for the railway was based on a ratio of yuan per net tkm han-dled, which has been negotiated an-nlly between MOR and the Ministry of Lsbor.
o Total compensation of individual entities within the railway was based on a series ofmore explicit productivity rtios such as the amounts of freight and pauenger trafficoriginated or carried per employee, the numbers of locomotives and rolling tockproduced or maintained per employee, etc.
In order to focus the attention of the railway on revenae and profit, the GOC has abolishedthe economic contract tarting in 1995.
B. To separate regultion and mangement. Based on MOR's recently adopted 30 Point Railway Reform document and MOR and SPC There are ongoing discussion withinmanagement presentations made at the July 1994 Bank-sponsored high-level conference, it MOR and other GOC departmens as tois apparet that the establishment of the rilway sytem as an independent entity has now whether there should be a centrl enter-been agreed to in principle, but no concepul approach or formal action plan for accom- prise entity and, if so, what pecific du-plishing this goal has yet been amnunced. ties, responsibilties and utdority should
be assigned to the cental entity and whatThe reduction of MOR headquarter saff froin 1,000 to S00 is a first ste toward a reduc- should be assigned to the regional admin-tion in the centl micocabtol of the t ihy. istrations and subadninitrations.
TOPICS & OBJECTIVES PROGRESS TO DATE COMMENTARY
.- d):
C. To remove DprCC and credit subsidies for MOR. Since 1990, the governmeat hs been slowly phasing out various subsidies.
o Prices for mnterials, including fuel and electricity, have been permitted to rise rduallyto international market levels. More specifically, price subsidies have bee_ reducedfroin 20-25 % in 1990 to zero by the end of 1993.
o Also, onlending interemt rates on loans to MOR have increased, e.g., to 5 % for Rail-ways V and to the ank's variable lending rate for Railways VI (for a 20-year matur-ity).
D. To clarify the reationships between GOC A Railway Law was enacted in 1991, to provide a framework for proper regulation, con- Before the enactment of the 1991 Rail-and MOR, and to provide a basis for pro- ructior, nmnagement, and operation of China Railways. The LAw lays down th respon- way Law, there had been no legal basistecting the consumer, incrcasing rail trans- sibilities of the national and local governments, railway enterprises, railway customer, and for assigning responsibilities for opera-port safety and protecting the environment, the public at large. Its najor provisions are the following: tion of the railways; thus, there was no
formal allocation of authority and ac-o the State Council to st forth detailed regulations for railway operations; countability among various parties. The
1991 Railway Law wil have to be amen-o MOR to set forth 'technical regulations'; to plan and consuct national railway proj- ded, however, as a result of several °
ects; and to et railway tariffs subject to approval by the State Council; provisions in MOR's 30-point ReformAgenda. MOR has requested that the
o MOR to manage the railway's regional adminiations and subadministtions; and Bank provide assistance in drafting reco-mmended changes to the Law.
o Regional administrations and subadministrations to provide rail transport services; tomeet safety and on-time standards; to provide basic amenities and services to pasen-gers; and to prevent pollution of the environment along the railway lines.
E. To introduce intrarail conVetition. In July 1994 MOR approved the establishment of one or more national container compa- This will be the first time, at least sincenies which would be independent subsidiaries of MOR and which would provide inter- 1949, that an individual rail customermodal container srvices in competition with the railway's main freight transportation will have a choice of rail service. It willactivities for the for transport of high value general merchandise traffic, also provide an opportunity for the rail-
way to tailor customer service packagesto attract international intcnnodal traffic.At present the railway transports lessthan 3 % of this traffic between the portsan inland destinations.
TOPICS & OBJECTIVES PROGRESS TO DATE COMMENTARY
11. RESHAPING THE RAILWAY's ORGANI-ZATION A STRENGTHENING ITS INTER-NAL MANAGEMENT:
A. To improve the responsiveness of the railway Staning in early 1994 MOR initiated a series of seven geographicly-based pilot programs The State Council has now given approv-to its customer needs aimed at introducing line-of-business type organizations so as to focus on the specific al for threc entities to becomc separte
service requiremcnts and profitability of different classes of freight and paswenger traffic, limited liability com,anics. le Bank isThey comprise: (i) two rmilway lines (Datong-Qinghuangdaoand Guangzhou-Shenzhen); providing specific technical assistance in(ii) two subadministrations (Fuzhou and Jinan); and (iii) one adminisrtion (Guangzhou). the establishment of lines-of-busines
organizational structures for the Fuzhouand Guangzhou pilot programs.
B. To improve the efficiency of the internal man- Since early 1980s decentralization efforts have shifted decision-making powera from MORagement of the railway by decetGraliing deci- headquarters to the 12 regional railway administrtions and to tie contruction and factorysion making. companies. Now these administrations and companies manage smil-cak investment pro-
jecta; retain profits on the basis of their performnance; and make stffing decision such asthe internal organizational structure, saff size and composition, and distribution of payincentives.
C. To control the size of the railway work force. The RME Labor Productivity Study Team, in conjunction with MOR's Labor and Payrol oDepartnment, has recommended and received approval from MOR to institute a number ofmeasures to control the size of the work force, as follows:
o Develop pecific progrms to operate the new lines with a mininum number of employ- The manning program for the six newces, and saff these lines with existing Transportation Department employees to the lines, which will come into operationmAximum extent possible. within the next two years, is targeted at
staffing levels of 12 employees per kilo-meter of new line. This ratio comparesfavorbly with the present railway aver-age of 32 employces per kilometer ofline.
o lntrduce local mumcnt penalties aimed at corstminiug overall taffig levels. MOR has developed a manager finingsystem which penalizes m gers fromY 10,000 to Y 50,000 for adding unau-thorized personnel to their saffs. Thpurpowe is to help enmure that the raimwaystaff reduction targets are mt as a rfehof the 5 % historical average a*ttition
te.
TOPICS & OBJECTIVES PROGRESS TO DATE COMMENTARY
H. k~
C. (cogimed) o Reduce management overlap and cut the railway's overhead costs by reducing the MOR recognizes that the railway's over-railway overhead stffs by at least 15 to 20% and MOR total staff by 20% to 800 all management and overhead daffs areemployees by January 1996. top-heavy and has et specific reduction
targets for each operating unit.
o Increase future flexibility in controlling the size of the work force by hiring *Imost allnew employees as 'contract employeea' rather than 'life time workers' and by requir-ing existing employees who request a change in job status or a geographical move totransfer their status from life time worker to contract employee.
o Consolidate and continue to encourage the growth of diversified economy companies The fast-growing and highly profitable(DECOs) with the target of increasing the absorption of redundant transportation em- DECO Program (1993 DECO revenueployees from the present 200,000 to 400,000 by the year 2000. exceeded $3 billion) is the major vehicle
for reemploying surplus TransportationDepattment personnel.
D. To strengthen internal management through MOR has recently completed the implementation of a pilot management information system This pilot installation demonstrated thethe introduction of computer-based informa- (MIS) for the Harbin Administration. The implementation of this program took several benefits of a computer-based MIS intion systems. years and was financed under Railway IL terms of reduced clerical workload, faster
preparation of reports and increased dataaccuracy.
Because of strong internal opposition,In 1992 MOR agreed to replace traditional hierarchial approach of the railway to informa- this was a difficult decision for MOR.tion systems with a centralized transportation management information system (TMIS) ap- But the experience of other large freight-proach. When it is fully implemented in 1997 it will be the foundation for essentially all oriented railways which have installed aBank-financed information system investments under Rwy VI and proposed Rwy VII. Not modern TMIS and associated telecom-only will the TMIS provide a proven tool for increasing transport capacity, it will also munication systems demonstrates that thisprovide several customer service application programs. investment was far more cost effective in
terms of expanding capacity than a simi-lar invedment in locomotives and rolling
MOR is in the process of issuing tenders for a permanent way management information tock.system (PWMIS) which is being financed under Railway VI. Finally, MOR is requestingthat the Bank provide financing for computer hardware and software plus technical assis-tance under the possible Railway VII for: (i) a systemwide MIS which would process theinput data to TMIS to prepare management financial and statistical reports and (ii) a pilotpassenger reservation, ticketing and accounting system (PRS) for the new Beijing station.
TOPICS & OBJECTIVES PROGRESS TO DATE COMMENTARY
111. INCREASING THE RAILWAY'S IN-VESTMENT EFFICIENCY AND IMPROVINGITS FINANCIAL VIABILITY:
A. To increase the efficiency of railwas invest- A major portion of the $1.8 billion Bank financial assistance been directed towards expand- Chinese railway is the only major freight-ment through better planning and prioritization. ing the capacity of China Railways, and the Bank has assisted MOR in improving the effi- oriented railway in the world today
ciency of capacity expansion investments in the following ways: where demand substantially exceedscapacity. Since the railway is facingsevere capital constrainta, it must careful-ly evaluate the most cost effective ap-proaches and tools to increase capacity.
o In the Fourth Quarter of 1993 MOR agreed to implement the following Cost EffectiveTechnology Evaluation (CETE) study recommendation. The objective is to buy ca-pacity using the moat cost effective techniques. For example:
- Increase freight wagon axle loads from 21 tons to 25 tons on all heavy trffic corri- This increase in axle loads (i.e., intro-dors. ducing heavy haul operationa) on the
milway'a main freight corridors is themost cost effective approach to increasingline capacity by approximately 20%.
- Expand capacity of Xiang-yu Line (Chongging-Xiangfan) by: (a) operating 'siding The Xiang-yu Line is a heavily usedcleaance' length trains; (ii) converting signaling systems from serni-ABS to ABS; single trck, mountainous line which was(iii) upgrading electric traction systems; and (iv) constructing double tracks and add- selected for studying the most cost effec-ing new sidings in selected locations, tive approaches to increasing capacity of
a sinsle track line .The Jing-hu Line is a- Expand capacity of Jing-hu Line (Beijing-Shanghai) by: (i) operating 5,000 ton heavily used double trck line which was
freight trins at seven minute headways; (ii) using double deck passenger coaches; selected for studying the most cost effec-and (iii) constructing a new high speed Jing-hu Line for passenger trains. tive approaches to increasing capacity of
a double track line.
#6
TOPICS & OBJECTIVES PROGRESS TO DATE COMMYIENTARYM. (cotinued)
A. (continued) o Under the Bank-supported Railway Investment Study (RIS), MOR has developed adecision-support system to improve the election of capacity expansion projects. TheRIS system has been ued in following three ways:
- to prioritize railway investment projects;
- to increase total traffic throughput by (a) using an optimal combination of improve-ments, and (b) improving the freight routing procedures. One RIS scenario sug-gested nearly 10% increase in traffic throughput, equivalent to S4-5 billion ovings inrailway construction cogs through the year 2000 for each measure); and
- to determine the size and composition of railway investment through the year 2000under different economic growth scenarios.
B To develop costing systems and revise tariff In March 1992, MOR and GOC formally launched a railway tariff study to addres thetructures. question of the tariff level as well as the issues of tariff structure, price and credit subsi-
dies, and tsriff-setting flexibility.
MOR has also received permission from SPC in 1993 and 1994 to structure a few special Higher tariffs have been approved fortariffs: Daqin, Lanwu, Zhenwu, Baozhang and
Houyue Lines. MOR is grateful for theo Higher tariff rates for new lines. approval of any tariff increase from SPC,
but it realizes that tariff surcharges foro Passenger fare surcharges for special services and high passenger traffic seasons (e.g., overutilized existing lines rather than for
Spring Festival Season passenger tickets surcharge) for the Guangzhou Administration - new lines may be more effective.- In January 1995, seasonal floating passenger fares for the Spring Festival wereextended to the Beijing, Shanghai, Chengdu, Liuzhou, Zhengzhou and Jinanadministrations
o Higher passenger fares for higher quality services (e.g., air conditioned and expresstrain services) for 17 pairs of trains
o Charge special contract prices for oversize or extaheavy freight loads.
TOPICS & OBJECTIVES PROGRESS TO DATE COMMENTARY
III. (coutinued)
C. To improve the financial viability of the rail- Between 1989 and July 1992 SPC permitted MOR to increawe tariffs, fares and surcharges Because of substantial external cost in-way by increasing tariff levels so that MOR could fulfill its agreement to be completely financially self-sufficient, to wit: creases (e.g., costs for teel, fuel, elec-
(i) in 1989, SPC granted MOR a one-time increase in passenger tariffs of 112%; (ii) dur- tricity and cement) with essentially noing 1990-91, base tariffs and surcharges for railway freight traffic were increased by 41%. passenger fare increase since 1989 and
no freight tariff increase since 1992, theIn 1991 SPC approved the collection of special Railway Construction Fund surcharges to railway registered a small operadngbe used to expand the capacity of the railway. The initial 1991 surcharge was 0.2 fen/tkm. loss in 1993 and 1994. This is the firstThe surcharge was increased to 1.2 fen/tkm in 1992 and to 2.7 fen/tkm in 1993. loss for the railway since its formation in
1949. In 1993, there would have beenno operting losa if construction sur-charge tariff receipts were classified asoperating revenue. But in order not toexperience negative cash flows, the rail-way has had to curtil its maintenanceactivities and planned capacity expansioninvestment programs in these two years(e.g., purchase of locomotives and roll-ing stock and the modernization and elec- _trification of the Chengdu-Kunming line).
D. To mobilize financial resources other than Since the late 1950s, GOC has promoted the development of local railways which are The Railway VI RME Finance Mobili-tariffs, financed by local governments as another way to expand the railway system. Local rail- zation Study team have been meeting
ways now comprise more than 5,000 route-km of the total national railway network, with international investment bankers toexplore specific avenues for rising both
In 1992 MOR raised domestic bonds for the first time (totaling Y 3 billion). Also, in July debt and equity financing.1992 new policy changes were announced to encourage various MOR nonrail units to raisecapital through joint ventures with private investors and through exports of their productsand services, and in early 1994, a joint venture (with 25% foreign equity) was created tobuild and operate a new local railway line between Jinhua and Wenzhou (330 km). Final-ly, as part of MOR's new 30-point Reform Agenda, MOR will now permit foreign invest-ors to participate in the ownership of new local railways through joint ventures.
TOPICS & OBJECTIVES PROGRESS TO DATE COMMENTARY
[1. (continued)
E. To improve the railway accounting systems and MOR has made the necesary changes in the railway's chart of accounts and its funancial The MOF indructions appear to be incosting systems. reporting to implement the accounting rules issued by MOF in 1993. MOR intends to general compliance, but not full compli-
update the railway's accounting standards during the next two years in conformance with ance with International Accounting Stan-the staggered release of the national accounting standards by MOF. dards (LAS). For example, one of the
moat important requirements of LkS isMOR has also developed a costing model, with Bank assistance under a Railway VI tariff the disclosure of contingent future liabili-study. This costing model can now be used to analyze the cost and profitability of its rail ties, guch as potential under funding fortransport operations by traffic or service category. Following the collection of Waybill future pension obligations.data via the TMIS network in 1995 and the development of a central waybill file as part ofthe new management information system to be financed under the proposed Railway VII,the costing model can be used to evaluate the profitability of origin-destination pairs.
IV. ENHANCING THE EFFICIENCY ANDOUALITY OF THE RAILWAY OPERATIONSAND SERVICES:
A. To impmve service levels for freight and pas- In addition to introducing intrarail competition (para I.E.)and 'line-of-business' conceptssenger customenrs. (pam II.A.), MOR is in the process of implementing a variety of systems and programs O
aimed at improving customer service levels, but much remains to be done. Examples of °°approved programs include:
o In 1992 MOR agreed to replace the railway's traditional hierarchial approach to infor- The present levels of freight and passen-mation systems with a centralized transportation management information system ger customer services on China Railways(TMIS). After completing the implementation of TMIS in 1997, the railway will be in are clearly inadequate for it to competea position to adopt a less rigid, more timely response to wagon orders and other cus- effectively with other transportationtomer service requesta. modes in a market economy. For exam-
ple, a wagon order must be placed fromo As an interim step, MOR is implementing procedures and systems to reduce the time 20 to 50 days in advance and passenger
intervals between the preparations of the freight transportation plan from the present transit delays in Beijing vary from I to 3one month to shorter, but as yet unspecified number of weeks or days. The lengthy days.preparation times for the transportation plan is the main cause for the long lead timerequirements.
o MOR plans to implement a pilot passenger reservation and ticketing system (PlMRS) The development of software for thebeginning with a pilot installation in the new Beijing Station under Railway VI. national PRTS would be financed under
the possible Railway Vll Project.
TOPICS & OBJECTIVES PROGRESS TO DATE COIMMENTARYIV. ke 1
A. (contiuted) o In 1993 the railway consolidated and expanded dorneatic containar tranport ervices The objective of this pilot program is tothrough a pilot program of through block trins (i.e., unit trains) north-outh between provide a superior transport service forHarbin and Guangzhou and east-west between Shanhi and Xian. high grade general merchandise to better
support the energing rmrket economy.
o In 1993 and 1994 under Railway VI MOR also initiated the design and procurement Heretofore, the container operations ofproceses for modernizing container operations by (i) redesigning container yards to uwe the railway werm based on Russian prac-modern pntry cranes and side loaders; (ii) phasing out one, five and ten ton containers tices. With the acceptance of the mod-and replacing them with standard ISO containers; and (ii) acquiring special container ernization recommendations, the railwaywagons that can haul the popular 45 foot container. has begun the transition towards contem-
porary North American intermodal oper-ating practices.
B. To modernize the maintenance of railwav track In the early 1990s MOR launched a eries of studies finaced by Railways V to identifyand transort eQuipment (e.g, locomotives, measues for modernizing the maintenansce of ita trck and its rolling stock, locomotiveswagons and coaches) and transport equipment. The overaU aim of these sudics was to lower the cost of opera-
tion and increa system throughput capacity. Most of the recommendations from thesetudies ar in the proce"s of being implemented.
C. To install a modern telecommunications sys- At the suggestion of the Bank and with the assisance of consultants, MOR drafted a Tele- A modern, integrated communicationtemrn communications Master Plan in 1992. The Telecommunication Maser Plan is a living system is a prequisite to the efficient
document which describes in detail the railway's communication standards for all levels of operations of a large railway in a marketthe operating organization to help ensure that the railway telecommnunication system is, in economy.fact, integrated and cost effective.
D. To introduce modern rilway electrification As a resut of a study under Railway V, MOR has adopted new design technologies fortechnolories. electrification programs aimed significantly improving the cost effectiveness of railway
lins that employ electrical power to drive the locomotives.
E. To sct priorities for the implementation of In 1972, MOR established an Environmental Protection Bureau. In February 1992, MOR In spite of the fact that there are sub-environmental protection proiects. launched a study to prepare action plans to reduce pollution related to paenger trins and stantial inherent environmental advan-
noise pollution resulting from passing trains. An extension of this study was carried out tages of rail transport compared to roadunder Railways VI, to bolster MOR's capability for environmental protection on a more transport, MOR now realizes that it mustcomprehensive basis. MOR now recognizes that the only effective approach to achieving expand itu technical competence in theenvironmental protection within the constraint of limited funds is to develop a comprehen- use of various environmental monitoringive Environmnental Action Plan and it has requested the Bank to provide flnsncing under instruments and et specific targets for
the possible Railway Vn for technical assistance in preparing this Action Plan and in de- noise abatement, waste clean up andveloping competence in the use of environmental protection instrumentation, control, and the like.
-110 - ANNEX 5
INDICATORS AND TARGETS FOR MONITORINGTHE PROGRESS AND EFFECTIVENESS OF
IMPLEMENTATION OF INVESTMENT COMPONENTS
1. MOR has agreed that during the period of operation of each component,MOR would gather the following monitoring data on a regular basis for measuring theachievement of project objectives. The data would serve Bank project supervision andauditing, and provide MOR senior management with additional information on projectperformance.
A. GENERAL
2. The systemwide monitoring targets for each year through the year 2000 arerecorded in Table A at the end of annex. While there will be many factors in addition tothe Bank-financed investment components that will influence these targets, they providea framework to judge the overall impact of the Seventh Railway Project.
B. CORRIDOR CAPAcrrY EXPANSION
3. The following monitoring indicators were used to evaluate the economicreturn of the 1,044 km Wuhan-Guangzhou Line electrification project.
1993 2000Description Base Year Target Year
A Passenger train pairs, Wuhan-Puqi Section 19 29
B Passenger train pairs, Zhuzbou-Hengyang Section 29 42
C Freight tkm (millions) 63,249ta 101,253
D Passenger-km (millions) 28,669ta 40,706
E Freight density (tkmtroute-km) (millions) 60.58/a 97.00
F Average freight train speed, downbound (southbound) (km/hr) 54.4 59.0
G Average freight train speed, upbound (northbound) (km1hr) 52.7 57.9
H Average passenger train speed, downbound (southbound) (km/hr) 68.6 72.1
I Average passenger train speed, upbound (northbound) (km/hr) 68.4 71.7
.a These amounts are 1994 estimates rather than 1993 actuals.
-111- ANNEX S
C. INFORMATION SYSTEMS MODERNIZATION
4. The primary benefit of the TMIS and MIS systems will be the improvementin the railway's overall operating performance. These improvements can best bemeasured by systemwide monitoring indicators contained in Table A. In addition, thisinvestment component is projected to produce the following two direct benefits thatwould be monitored:
(a) Approximately 4,000 clerical positions are required at the 57subadministrations and 12 statistical factories to process 4.8 million waybillsper month. Following the implementation of the TMIS and the first phase ofthe integrated MIS under Railway VII, MOR projects that the remainingclerical work at these locations clerical positions can be handled by 1,000clerical positions, a reduction of 3,000 positions.
(b) At present, it takes between 12 and 18 days to process these waybills andproduce the various waybill-based statistics and management reports.Following implementation of the first phase of the MIS, this process shouldbe accomplished within 2 to 3 days.
D. TELECOMMUNICATIONS UPGRADING
5. The following telecommunication monitoring indicators and targets wereagreed for each type of network development investment under Railways VII:
Description 1993 2000Base Year Target Year
Equi ment Implementation:A Transit Switch Capacity (trunks) 15,479 312,500B Local Switch Capacity (000 lines) 450 1,250C Connected Subscribers (000) 325 1,062D O.F. Tran. System 8Mb/s (km) 1,150 6,200E O.F. Tran. System 140Mb/s (km) 2,535 7,500F Satellite Earth Stations 0 68G Mobile Satellite Earth Stations 0 12H Data Telecom Network Nodes 6 25I Data Telecom Network Subnodes 42 70J Data Telecom Intel. PAD (No.) 218 600K Data Telecom Network Maintenance Centers 3 3L Conference Network Locations 0 70
Network Performance Indicators:M Long Distance Automation (%) 10% 60%N Internal Effective Call Completion Rate (%) 98.81% 99.00%0 Speech Satisfaction Degree (%) 98.20% 99.00%P Number of Faults / 100 DELs Per Month 60 40Q Average Duration of Fault (hrs) 1.38 1.40
Efficiency Indicators:R Number of staff / 1,000 DELs 175 80S Number of staff / 100 km of cable 132 101T Number of staff 56,253 64,884
-112 - ANNEX S
E. CONTAIER TRANSPORT COMMERCIALIZATION
6. The container transport component is limited to providing financing for12,000 twenty- and forty-foot containers, selected container-handling equipment andcontainer information systems. Nevertheless, the primary thrust of this component is toincrease the railway's focus on intermodal container operations. This is beingaccomplished through the establishment of two new container companies. Thus, thesuccess of this program can best be monitored by selected systemwide monitoring targetssuch as increased market share. These targets are included as part of Table A.
F. ENVIRONMENTAL PROTECTION
7. The environmental protection component comprises a variety of small pilotprojects and studies. Each of these pilot projects and studies will produce measurableenvironmental benefits on a localized basis. Monitoring indicators for each of theseprojects will be specified in the individual work plans. Measurable impacts on therailway's environment on a national or regional basis will occur when results of the pilotprojects are implemented systemwide.
G. SYSTEM CAPACITY EXPANSION
8. The following projected monitoring indicators were used to evaluate theeconomic return of the application of new three-phased electric locomotives on the Baoji-Yanepinzuan Line.
1994 2000Description Base Year Target Year
A Failure rate per 100,000 km 2 to 3/a 0.3
B Freight density in tkm per route-km (millions) 20.67 33.92
C Yuan operating expense per thousand ctkm (1994 constant 13.55 11.39prices)
/i 1994 failure rate data apply to SS4 locomotives.
Table A: SYSnEmWIDE MONrORiNG TARGETm AND INDICATORS
E Average elapsed time betwoen receipt of wagon 33 31 29 28 26 24 23 22order and delivery of wagon (days)
Key freight and passenger ratios:
F Converted tkm per employee 0.90 0.98 1.18 1.24 1.30 1.34 1.39 1.45 U[(A + B) / C] (millions)
G Average freight route density: 22.1 23.0 23.6 24.1 25.2 26.8 27.3 27.7[A / D] (millions)
Container traffic indicators:
H CRC and SIT ISO market share 1.7% 2.0% 3.0% 4.0% 5.0% 8.0% 11.0% 15.0%
I Number of unit trains per month 35 60 70 80 90 100 110 120
J Number of yards handling 40-foot containers 60 63 70 75 80 85 90 100
/a Preliminary estimates pending the approval of the Ninth Five-Year Plan.
-114 - ANNEX 6
ACTION PLANS FOR POLICY REFORM ANDINSTITUTIONAL DEVELOPMENT COMPONENTS
1. This annex outlines the action plans for the following PID components:
A. Railway enterprise reformAnnex Al. Application of the costing model to the line-of-business
organization of the Fuzhou Subadministration (FSA)
B. Tariff ReformAnnex Bi. Completion of the development of cost indices
C. Labor productivity and pension management
NOTE: (a) All dates refer to end-month unless otherwise stated.(b) All dates are indicative and delays of six months may be expected.
A. RAILWAY ENTERPRISE REFORM COMPONENTACTION PLAN
Steps and actions agreed upon with MOR to be undertaken during the project preparationand implementation period, along with their target dates, are set forth below:
-115 - ANNEX 6
Subcomponents Activities Target Date
A. Improvement of a - Preparation of TOR by MOR May 95new legal framework - Workshop July 95
- Inception report October 95- Development of Framework March 96- Drafting of proposed amendment of law and regula- August 96
tions- Submission of draft Railway Law revision to MOR December 96
for appropriate actions
B. Railway EnterpriseReform:
1. FSA Experiment - Drafting of an overall restructuring plan by FSA October 94- Preparatory work (evaluation of assets, setting up December 94
accounting methods, etc.) for the conversion of FSAinto a limited liability company prior to the submis-sion of the reform plan to MOR
- Submission of the restructuring plan to MOR for its December 94approval
- Decisions on implementation of the traffic costing July 95model and related cost allocation methods (SeeAnnex Al)
- Establishment of FSA Limited Liability Company December 95
2. GRC Experiment - Preparation of an overall restructuring plan by GRC June 94- Preparation of a plan for establishing GRC holding June 95
company- Establishment of GRC's holding company December 95- Preparation of a detailed restructuring plan for con- June 96
version of Yanchang Subadministration (YSA) into alimited liability company
- Implementation of the YSA restructuring program December 96- Review of the experiments in YSA and preparation June 97
of broad-based restructuring program- Upgrading GRC financial management capability (Mid-1997)
with application of a traffic costing model and othermanagement tools
3. Preparation of - Preparation of TOR by MOR May 95Comprehensive - Workshop for reviewing experiment & discussing July 95Enterprise Reform restructuring strategyStrategy - Inception report October 95
- Development of a comprehensive strategy for rail- September 96way restructuring
C. Debt and Equity - Preparation of TOR by MOR May 95Financing Strategy - Workshop July 95
- Inception report October 95- Development of a strategy for debts and equity August 96
financing for selected railway services
- 116 - ANNEX 6
Annex Al: ACTION PLAN FOR THE APPLICATION OF THE COSTING MODEL TOTHE LINE-OF-BUSINESS ORGANIZATION OF THE FUZHOU SUBADMINISTRATION (FSA)
ACTIONS TARGET DATES
1. Test 1993 MOR unit costs on the FSA October 1994l________________________________________________________________ (completed)
2. Develop a set of "interim" 1993 unit costs suitable for FSA October 1994l________________________________________________________________ (completed)
3. Identify necessary and feasible changes to expense accounts October 1994for FSA (completed)
4. Produce "interim" 1993 freight expenses by commodity October 1994l________________________________________________________________ (completed)
5. Produce "interim" 1993 passenger expenses by seat type Mid-December 1994
6. Discuss "interim" results with FSA
7. Develop a set of "final" 1993 unit costs for FSA and sub- January 15, 1995mit, in English, to the Bank
8. Produce "final" 1993 freight expenses by commodity and January 15, 1995"final" 1993 passenger expenses by train and seat type
9. Train FSA staff in costing model Feb-April 1995
10. Design methodology for development and regular produc- August 1995tion of the FSA inputs required by the freight point-to-pointmodel: (a) trains; (b) car utilization; and (c) shunting
11. Produce preliminary 1993 FSA inputs to the freight point- August 1995to-point model
12. Make necessary modifications to freight point-to-point cost- August 1995ing model for FSA
13. Design methodology to develop the cost of specific Line October 1995Haul commodities in FSA: (a) Study sources of trafficinformation; (b) Design and collect sample of point-to-pointmovements representing specific commodities; (c) Use thepoint-to-point costing model to estimate the cost of specificcommodities
14. Collect the information required to calculate the cost of December 1995specific passenger services in FSA:
a) Crew make-upb) Train consistc) Number of trips per yeard) Type of locomotivee) Number of passengersf) Number of parcels
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B. TARIFF REFORM ACTION PLAN
Recommendations Activity Schedule Responsibility
A. FREIGHT TARIFFS
1. Contracting: Dimensional Traffic Prepare report Nov 1993 MORSubmit to SPC Dec 1993 MOR
l________________________________ Implement program* Jan 1994 MOR
2. Contract Pricing: Containers Approve formation of CRC Dec 1993 SC- China Railway Container Cor- Prepare report Apr 1994 MOR/CRC
poration (CRC) Submit to SPC Jun 1994 MORSubmit to State Council Dec 1994 SPC
3. Tariff Adjustment: by Commodity Prepare report Apr 1993 MORl ____________________________ Submit to SPC ** MOR
4. General Tariff Increase: Freight Prepare report Sep 1993 MORTariffs Submit to SPC Sep 1993 MOR
Submit to State Council Mar 1994 SPCImplement program* Jul 1996 MOR/SPC
5. Higher Price on New Lines: Prepare report Nov 93/Nov 94 MOR-EPRIBaozhong/Houyue Lines Submit to SPC Dec 93/Dec 94 MOR
Implement program* Sep 1995 MOR
6. Increase the 'Construction' Gen- Prepare report Aug 1994 MOReral Surcharge Submit to SPC Sep 1994 MOR
Submit to State Council Nov 1994 SPCImplement program* Mar 1997 MOR
B. PASSENGER TARIFFS
7. Expand Scope of Higher Prices for Prepare report Oct 1993 MORHigher Quality Services Submit to SPC Nov 1993 MOR
Implement program* Jul 1995 MOR
8. Expand Scope of Floating Price Prepare report Oct 1993 MOR- Fujian province & Shanghai Submit to SPC Dec 1993 MOR
l ________________________________ Implement program* Jan 1994 MOR
9. General Tariff Increase: Passen- Prepare report Aug 1993 MORgers Submit to SPC Sep 1993 MOR
Submit to State Council Mar 1994 SPCImplement program* Sep 1995 MOR
C. COSTINGS
10. Enhance the Costing Model (See Annex Al) l l
11. Cost Index Procedure for Adjust- (See Annex B 1)
ing Tariffs l
* The schedule shown has been prepared by MOR and indicates its plans and best estimate of timing.Implementation is dependent on approval by the State Planning Commission and/or the State Council.
** Because of losses on all commodities, MOR is no longer pursuing a tariff increase for specific com-modities. Instead, MOR is pursuing a general freight tariff increase.
Soirce: This action plan is based on that provided by MOR on September 27, 1993 and changed as aresult of discussions held on September 28/29 and October 4-9, 1993 and November 1-11, 1994.
- 118 - ANNEX 6
Annex Bi: ACTION PLAN FOR THE COMPLETON OF THE DEVELOPMENTOF COST INDICES
Note: The completion dates in this table are not sequential because some activities areimplemented simultaneously by different staff.
ACTIONS TARGET DATES
1. Make final verification for homogeneity of sample items used in materi- October 1994al price index calculation and take corrective action (Shanghai and (completed)Harbin administrations) l
2. Complete verification of applicability of stores prices to price index October 1994determination and substitute market prices for issue prices if necessary (completed)(Shanghai & Harbin adm.) l
3. Extension of pilot study from Shanghai and Harbin administrations to November 1994six adm.a) Training of staff in Beijing, Zhengzhou, Jinan, Lanzhou administra-
tionsb) Beijing, Zhengzhou, Jinan, Lanzhou forward data to MOR l
4. Verify productivity calculation through an account-by-account compari- October 1994son of 1992 predicted and actual expenses, and adapt methodology as (completed)necessary
5. Submit to the Bank updated report for Railway Productivity Calculation October 1994with Multiple Factors (completed)
6. Apply methodology to 1993 data: June 1995a) Conversion of first half accounting data in 1993 to apply new
accounting guidelines effective since July 1, 1993b) calculation of 1993 price increasesc) calculation of 1993 productivity gains
7. Prepare a draft description of steps to negotiate with SPC/MOF the cost September 1995indexing methodology and submit, in Chinese and English, 1994 to theBank:a) MOR Finance Bureau request Economic Planning and Research
Institute (EPRI) to prepare planb) EPRI prepares planc) MOR Finance Bureau reviews plan l
8. Prepare "final' description of steps to negotiate with SPC/MOF cost December 1995indexing methodology and submit, in Chinese and English, to the Bank l
9. Cost indexing methodology and proposed plan for implementation sub- December 1995mitted to SPC/MOF as tool in negotiations for tariff adjustments
10. SPC/MOF/MOR negotiate tariff adjustments using cost indexing meth- December 1995odology
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C. LABOR PRODUCIVITrY COMPONENTNEXT STEPS AND TARGET DATES
Recommnendations Activity Target Dates
1. Reduce Management - Complete report* - June 1995Overhead and Cut Over- - 15 to 20% reduction in manage- - January 1996head Cost ment overhead
2. Increase 'Contract' - Increase contract personnel from - January 1995Employment 17.8% to 30.0%
- Complete report* - June 1995
3. Define Broader Work - Complete report* - June 1995Classifications and En- - Refine pre/post-training evaluation - Ongoingcourage Multitasking - Begin 'position evaluation" - August 1995
4. Constrain Employment - Complete report* - June 1995Levels at the Operating - Continue to refine manpower - Ongoing through 1995Unit Level reduction incentives and controls
for zero growth- Complete Pilot Line Officer Train- - March 1996
ing- Complete "Productivity Work- - July 1996
book"
5. 'Zero-Based' Manpower - Complete report* - June 1995Planning on New Lines - Draw and reposition 110,000 staff - Line by line through 1996
from existing forces
6. Link Capital Budgeting - Complete report* - June 1995with Payroll and Man- - Develop programs - Contingent on report findingspower Planning
7. 'Zero-Based" Manpower - Complete report* - June 1995Planning among New - Work with CRC and the DECO - Ongoing, case-by-caseEnterprises Including Center to develop payrolls, newLOBs organizations and initial manpower
controls
8. Productivity, Quality of - Prepare for Bank review TORs for - May 1995Service Management, and the TA and training requiredProcess Reengineering - Engage foreign experts to train - February 1996
first-line supervisors- Develop training programs for - August 1996
productivity and quality of servicemanagement
* A final report of the Railway Management and Economic Studies (i.e., Labor Productivity Enhance-ment Study).
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COMPLETION DATES FOR STUDY COMPONENTS
The completion dates for the study components are as follows:
a. Feasibility study of dedicated passenger rail June 1996
b. Application of RIS decision support system June 1996
c. Information system studies June 1997
d. Telecommunications systems studies June 1997
e. Diesel engine design study December 1999
f. Strengthening treasury functions, including December 1999resource mobilization
g. Restructuring manufacturing sector June 1997
-121 - ANNEX 8
ENVIRONMENTAL IMPACT ASSESSMENT: WUHAN-GUANGZHOU ELECTRIEICATION AND UPGRADING
1. Introduction. The proposed project is classified as Category B forenvironmental assessment purposes. The Wuhan-Guangzhou corridor expansion andupgrading component, and other investment components 1/ are not expected to harmthe environment. A draft environmental assessment report prepared by MOR wasreceived by the Bank in May 1994. The report addressed the impacts of the Wuhan-Guangzhou corridor expansion component. During the June/July preappraisal mission,the draft environmental assessment was discussed with MOR officials in Beijing and theFourth Survey and Design Institute officials in Wuhan (who prepared the EnvironmentalAssessment report). Taking into consideration the comments by the Bank, MORprepared a revised draft and submitted it to the Bank on October 12, 1994, before thedeparture of the appraisal mission.
2. The corridor expansion component involves the following construction:(a) electrification of the 1,044 km Guangzhou to Wuhan line; (b) 24 substations (21 new,3 reconstruction); (c) 26 sectioning stations (23 new, 3 reconstruction); (d) 7 switchingstations (5 new, 2 reconstruction); and (e) switchover to electric locomotives.
3. Environmental Impacts and Mitigation Measures. Environmental impactassociated with the corridor expansion is expected to result mainly from construction andoperation of the corridor. Since the tracks and corridor right-of-way already exist, theincremental impact is expected to be minor. During electrification of the line andconstruction of associated facilities, which is expected to stretch over three and a halfyears, major impacts will be from construction noise, fugitive dust, site wastewater,garbage, disturbance of land used for temporary staging areas during construction, andborrow pits. Noise impact will be minimized by avoiding night construction and bykeeping high noise-generating equipment away from noise-sensitive places. Dust will becontrolled by water sprinklers, by minimizing land disturbance and by reclaimingdisturbed land promptly. Use of land as staging areas will be kept to a minimum; topsoilwill be stockpiled and used to reclaim the disturbed area as soon as the construction iscompleted. Where possible, the borrow pits will be used for aquaculture. Constructionworkers will be educated in proper sanitation and wastewater will be handled as perspecified regulations. Garbage will be collected and disposed of at local landfill disposalsites.
1/ The other investment components involve mainly the purchase of equipment and materials and minorcivil works, if any, such as the installation of fiber-optic cables.
- 122 - ANNEX 8
4. During operation, anticipated impacts include noise and vibration from trains,electromagnetic fields from power lines and substations, oily wastewater disposal, solidwastes, etc. Noise impact will be minimized by: locating new noise-sensitive buildings(such as schools, residences, etc.) at least 100 meters from the railway tracks;minimizing the indiscriminate use of whistles and by use of low-noise, highly directionalwhistles; installing continuous-welded heavy metal tracks 60 km up and down track ofnoise-sensitive locations such as Hengyang, Chengzhou, Yingde and Tangxi; plantingsuitable plants and shrubs to form noise barriers near locomotive depots and othersensitive locations; relocating certain facilities, such as Yeuyang Railway Kindergarten,to less noisy sites; and retrofitting affected schools with sealed aluminum alloy windowsand air exchangers for fresh air. Tracks traversing through cities will use shockabsorbing pads and heavy continuous-welded tracks to minimize vibrations. Impact fromelectromagnetic fields will be minimized by locating substations, sectioning stations andlocomotive depots away from residences. Existing residences, cable TV networks andother facilities affected by the electromagnetic field will be relocated gradually.
5. Rolling stock, electric locomotives and the depots will generate oilywastewater that will be disposed of using the existing, expanded or refurbished facilitiesutilizing sedimentation, oil separation and/or air flotation treatment. A pilotoil/wastewater treatment project will be initiated at a selected facility to identify anddemonstrate an oil/water separation technology best suited to Chinese conditions.Sewage from the facilities will be handled as per current requirements. Solid waste(mainly lunch boxes) from passenger trains is expected to increase by about 12 percent.Solid waste will be collected at major stations and vehicles will be provided at thosestations to collect, transport and dispose of the wastes to local landfills. The projectincludes a technical assistance component to assist MOR to develop a lunch boxmanagement strategy to identify and assess alternatives to continued lunch box use, andan investment component to initiate a pilot program based on those findings.
6. Environmental Benefits. Following completion of the Wuhan to Guangzhoucorridor expansion, coal and fuel consumption will be reduced by 39.5 percent and93.6 percent, respectively. The report estimates that this will result in an improvementin air quality along the corridor through reduction in dust, SO2, NO, and CO. These areestimated to decrease by 94.6, 65.8, 86.2, and 56.7 percent, respectively. Measures tostrictly control garbage, and collect and recycle lunch boxes will minimize land pollution.To ensure environmental mitigative measures are being undertaken, MOR has committedpersonnel and resources to project monitoring. Progress reports will be provided to theBank on an annual basis.
7. Railway VII also includes a number of environmental technical assistance andpilot program investment components, whose findings and application will benefit notonly the Wuhan-Guangzhou line but also the rest of MOR. The proposed pilot programsand technical assistance studies will acquaint MOR with up-to-date environmentalprotection technologies and practices. When implemented, these programs will form afirm foundation for development of a comprehensive environmental action strategy forthe Chinese railways.
- 123 - ANNEX 9
RESETTLEMENT PLAN: WUHAN-GUANGZHOUELECTRIEFICATION AND UPGRADING
I. The Project. The capacity expansion component of Railways VII consists ofthe electrification and modernization of the Wuhan-Guangzhou railway line. The lengthof the railway line is 1,044.262 km and if the Jingguang line in the railway hub ofWuhan is included, the entire railway length is 1,081.172 km. The line moves throughthe three provinces of Hubei, Hunan and Guangdong. Ten regional-level cities and morethan 20 towns (county-level) will be affected by land acquisition and resettlement. Themajor purpose of land acquisition in this project is to meet the needs of station andsubstation expansion and construction of electricity supply depots. The project does notinvolve construction of new railway tracks and only the existing tracks are proposed to beelectrified. The land that will be affected as a result of land acquisition can be classifiedinto (a) regional-level cities, medium and small towns and counties, and (b) rural areas.The former involves production units, commercial structures and residential buildings.The latter includes agricultural land, residential structures, wooded areas and wasteland.
2. According to the feasibility study of the Wuchang Hengyang and Hengyang-Guangzhou sections of the railway line, it is estimated that land acquisition of 6,582 mu,building demolition of 279,467 m2 and resettlement of 865 households (about 4,300persons) will be required. A total of 13,168 people will be affected. A detailedsocioeconomic survey of the affected people will be conducted before displacement inorder to establish a baseline of income levels and standards of living. The area to beacquired for the project is predominantly agricultural land. Only 5 percent of the land isin urban areas. The railway line passes through some of the more developed agriculturalareas of the country. No areas of archeological importance will be affected for theproject. The land acquisition and resettlement activities will be initiated in 1994 and willbe completed in 1998.
3. Policy Framework and Legal Provisions for Resettlement. Resettlementcaused by state projects such as railroads is guided by the Land Management Law of thePeople's Republic of China and associated provincial implementing regulations ("the citybuilding relocation rules" published by the State Council, "the land managementimplementation method of Hubei province," "the land management implementationmethod of Hunan province," 'the land management implementation method ofGuangdong province" and the land acquisition and compensation rules of localgovernments formulated according to the above national and provincial rules).1/ Theregulations handle consistently across provinces the major issues involved in land
I/ Copies can be found in the Project Files.
- 124 - ANNEX 9
acquisition and resettlement for this project. The only variation is in the rates ofcompensation permissible, which are a function of the local conditions and pricestructure. The basic principle guiding land acquisition and resettlement is that the land-using department must not only pay compensation for the properties affected but it mustalso guarantee that those affected by land acquisition, after resettlement, must enjoy aliving standard not lower than their original standard of living. In other words, in orderto ensure that the standard of living of the affected people is maintained or improved, theland-using unit must pay adequate compensation to and arrange employment for them.
4. The national laws concerning land acquisition and resettlement compensationstipulate that, according to the actual farm size acquired and the number of peopleinvolved, each affected person should be compensated with an amount equal to 2-3 timesthe average total annual output per mu in the last three years from the land beingacquired. Under normal circumstances, the resettlement compensation does not exceed10 times the average annual output value per mu in the last three years beforeacquisition. However, if the affected farmers are unable to restore their previousstandard of living when compensation is calculated according to the normal compensationstandards, the compensation may be increased under the approval of the concerneddepartment. However, the total land acquisition and resettlement compensation fees maynot exceed 20 times the average annual output of the acquired land in the previous threeyears before acquisition.
5. The following principles of compensation and resettlement would beapplicable:
(a) Compensation for land acquisition used exclusively for vegetables, rice andfisheries are based on the average annual value of output for three yearspreceding acquisition. An amount equivalent to 5-6 times the annual outputwill be paid as compensation. Similarly, compensation for orchards, teaplantations, residential land and tree fields are calculated based on averageannual output multiplied by a factor that varies according to the type of land.There is a difference in compensation procedures for collectively owned andstate-owned land. In the former case, which is more relevant here, thenational regulations clearly stipulate that those persons losing land willreceive compensation adequate to maintain their original standard of livingduring and after resettlement. Compensation for restoring production goes tothe collective unit owning the lost land,. while individuals receive directpayment for the value of standing crops lost and for trees, houses, and otherindividually owned assets. The collective is responsible for planning andimplementing resettlement that maintains living standards and for negotiatingwith MOR the exact compensation to be paid.
(b) Housing compensation will vary depending on the type and location ofhousing. The rates vary from Y 200-300/m2 for ordinary structures in therural areas to Y 300-500/m2 for houses in Guangdong. Compensation forstructures used for production facilities will be negotiated between the land-
- 125 - ANNEX 9
acquiring unit, the local administrative office and the affected productionunit. Other buildings are valued on a replacement cost basis. A survey ofbuilding type and quality is undertaken by MOR as part of resettlementplanning. That initial evaluation becomes the basis for negotiatingcompensation with the owner of the building.
(c) When business structures are acquired, the principle of "first newconstruction, then old demolition" should be followed. If urgent constructionrequires that business or production be stopped right away, MOR will pay aproduction stoppage fee to the affected unit according to the total salariespaid to workers employed in the unit multiplied by 15 percent. For theworkers whose employment is affected by work stoppage, full payment ofsalaries must be made by MOR. If some commercial structures need to beremoved urgently, temporary commercial structures will be built to preventloss of jobs.
(d) If, after land acquisition, the per capita land area is less than 0.1 mu, theland-using unit shall be responsible for arranging employment for them andpaying for such employment. If the concerned departments are unable toadequately deal with the employment arrangement issue, the land-using unitand other government or collectively owned enterprises may provideassistance to the affected people to secure a job. Unemploymentcompensation is provided until the new job begins. Those who have the leastamount of residual land will be given priority in provision of jobs.Compensation paid to a unit as a result of land acquisition may only be usedto expand business and production or to develop secondary agriculturalproduction. The compensation may also be used as a subsistence allowancefor those unable to find employment. No unit or individual may distributethese designated compensation funds for other purposes. All cities, townsand villages must submit a resettlement fund utilization report to the land-using department concerned every year.
(e) The local government and "negotiation and conflict resolution group" will beresponsible for arranging a new rental place, comparable in rent and standardto the original rental residences, for the tenants and will also pay for thetransfer. If such arrangements cannot be made, a one-time compensation,deducted from the affected house owner's compensation fees, may be paidthe affected tenants.
6. Affected Population. About 13,00 persons will be affected by land andhouse acquisition under the project, of whom about 4,300 will have to move becausetheir houses will be demolished. The project files contain a family-by-family census ofhousing and land lost to the project. A detailed socioeconomic survey of the affectedpeople will be carried out before displacement, in order to document their presentstandards of living. The success, or otherwise, of the resettlement program will be
- 126 - ANNEX 9
evaluated based on the extent to which the original standards of living of the affectedpeople can be improved, or at least restored.
7. Resettlement Planning and Implementation. Responsibility for planningand implementing resettlement rests with city, country, township and villagegovernments. The local Land Administration Offices monitor resettlement and ensurecompliance with the Land Management Law. MOR is responsible for planning physicalworks in a manner that minimizes resettlement and for paying compensation as requiredunder the Land Management Law. MOR compensation payments are channeled throughthe Land Administration Offices. The State Audit Administration assumes auditresponsibility for disbursed funds.
8. MOR negotiates compensation with the land management department of eachaffected county, which negotiates on behalf of all affected villages. Although the LandManagement Law sets standard multiples of crop output value by which to determinecompensation, negotiation can occur over the measurement of crop output value andwhether the mandated goal of income maintenance can be attained on the basis ofstandard compensation or requires additional compensation.
9. Once county negotiations with MOR have been completed, the county in turnallocates compensation among the affected individuals and villages. The countrytypically sets a standard payment for assets of various types, and individuals directlynegotiate compensation for lost private assets, as do village leaders for expropriated land.The village management committee plans and implements resettlements using collectivecompensation funds, restricted by guidelines designed to ensure their use forinfrastructure development or other investments that improve villager incomes or socialwelfare. The people to be resettled in any given village as a result of Railway VIIcapacity expansion will be handled through these traditional planning mechanisms.
10. In order to ensure that the resettlement work is done properly, every localgovernment is required to form a 'negotiation and conflict resolution group." They areresponsible for the coordination of all land acquisition and resettlement-related taskswithin their jurisdictions. If there are any problems of coordination between the differentprovinces involved in implementation, or between the MOR and any of the provinces, theState Planning Commission will resolve the issue. If the issues cannot be resolved bySPC, it will be resolved by the State Council. A senior official of the State Council willbe in charge of project implementation coordination.
11. Resettlement Strategies. The nature of the resettlement strategy adoptedwithin any one administrative unit depends fundamentally on the nature of displacementthere. In urban areas, the enterprises are compensated for lost assets and are providedsuitable sites for reconstructing needed buildings. Enterprise managers were confident ofplans for altemative location of enterprises and were satisfied with the rates ofcompensation offered.
- 127 - ANNEX 9
12. Requisitioned agricultural land accounts for the bulk of displacement and lostproductive assets under Railway VII. 7he strategy for dealing with such loss is toredistribute all agricultural land within the collective, spreading the burden across thecollective. If the per capita land holding falls below a certain level (0.1 mu), the affectedpersons will be provided with a job.
13. Compensation levels considered adequate to at least restore the standards ofliving of the affected people will be paid. The level of compensation will be related toits capacity to help the affected people regain their previous standards of living. Forthose left with unviable landholdings, the land-using unit will arrange to provideemployment in local enterprises.
14. Rural houses will be relocated within the original village. Compensationrates for houses were determined at replacement value, with the owner having the rightto salvage but also responsible for tearing down the old house. A new housing site ofequal size will be made available, and most of these sites have been selected. The ownerwill be responsible for constructing the new house and will have approximately fourmonths in which to do so. A sample of homeowners relocated under earlier railwayprojects revealed a high level of satisfaction with the compensation and otherarrangements for new housing.2/
15. Public assets such as roads, and telephone and power lines to be rerouted,will be rebuilt by the appropriate agency of local government. In every case, thedisplacement in minor and the new routes are expected to result in minimal disruption ofservice and inconvenience to users. MOR has earmarked compensation sufficient tocomplete this work.
16. Budget and Timetable. Based on preliminary budget projections,resettlement costs will total Y 140.02 million. The resettlement financing plan is a partof the overall project budget. The resettlement timetable presents no extraordinarychallenges, since resettlement is spread over the entire length of the railway line. MORwill pay all resettlement compensation to the local government in advance ofresettlement, assuring availability of funds when needed. The State Audit Administrationhas assumed responsibility for monitoring the use of resettlement funds. The resettlementfinancing plan has been approved by SPC and is a part of the overall project budget.
17. Resettlement Monitoring and Evaluation. The monitoring of progress inthe resettlement program will be undertaken by the Social Sciences Research Institute(SSRI) of Southwest Jiaotong University. The terms of reference for this work require,inter alia, that: (i) the monitoring be conducted quarterly beginning in 1994 through suchtime as program objectives are achieve; M&E reports will be submitted every ninemonths to MOR and the World Bank; (ii) monitoring will include all major resettlementsites and will utilize standard survey methods; and (iii) in addition to indicators of
VI See Project Files.
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progress in physical works (e.g., land, housing, infrastructure, etc.), indicators selectedfor monitoring shall include standard socioeconomic variables designed to measure thewell-being of the affected populations. Particular attention will be paid to compensationlevels. At the end of each year of the project, SSRI will present a summary report oftheir supervision to MOR and the World Bank. If SSRI's investigations find problems,SSRI will discuss the solution with the local government and submit to MOR a reportabout handling of the problem. At the end of the project, a report will be preparedsummarizing the resettlement activities under the project.
RESETTLEMENT REQUIREMENTS
Land HousingAcquisition Demolition Number of People
Year Area Area Households Affected(mu) (m2)
1994 204 4,511 28 286
1995 1,113 51,382 230 2,347
1996 2,633 111,683 418 5,266
1997 1,975 83,840 140 3,949
1998 657 27,947 41 1,320
Total 6 582 279,364 865 13.168
- 129 - ANNEX 10
SUPERVISION PLANTIMING MIN ACTIVITIES SKILLS REQUIRED SW.
NOV 95 INITIAL REVIEW with particular emphasis on: - Transport economics 12- Steps taken by borrowers concerning loan effectiveness - Railway engineering- Status of equipment procurement - Resettlement- Status of ongoing studies/TA and trmining programs - Functional specialties
MAY 96 SUPERVISION covering overall implementation status emphasizing - Railway engineering II- Procurement of equipment - Financial analysis- Financial performance - Procurement- Status of studies/TA and training programs - Functional specialties- Review of performance/monitoring indicators
NOV 96 REVIEW to facilitate implementation of components with particular - Railway engineering 10emphasis on: - Resettlement- Identification of issues and agreement on actions to be taken - Functional specialties- Status of studies/TA and training programs- Resettlement
MAY 97 SUPERVISION covering overall implementation sttus emphasizing: - Railway engineering 7- Procurement of equipment - Financial analyais- Financial performance - Procurement- Status of studies/TA and training progranms - Functional specialties- Review of performance/monitoring indicators
NOV 97 REVIEW to facilitate implementation of components with particular - Railway engineering 6emphasis on: - Resettlement- Identification of issues and agreement on actions to be taken - Functional specialties- Status of studies/TA and training programs- Reseulement
MAY 98 SUPERVISION covering overall implementation status ernphasizing: - Railway engineering 6- Procurement of equipment - Financial analysis- Financial performance - Procurement- Review of performancelmonitoring indicators
MAY 99 SUPERVISION covering overall implementation Status - Railway engineering 5- Financial analysis
NOV 99 REVIEW to facilitate implementation status - Railway engineering 4- Functional specialties
MAY 2000 SUPERVISION covering overall implementation status - Railway engineering 5- Financial analysis
NOV 2000 REVIEW to facilitate implementation status - Railway engineering 4- Functional specia lties _
MAY 2001 SUPERVISION covering overall implementation status - Railway engineering 4- Financial analysis
OCT 2001 PROJECT COMPLETION SUPERVISION to review al aspects of - Transport economics 10the project implementation and to assess overall perfonnance of the - Railway engineeringproject - Resettlement
- Functional specialties
TOTAL STAFF-WEEKS 94
- 130 - ANNEX 11
DOCUMENTS AVAILABLE IN THLE PROJECT FILE
1. Feasibility Study Report on Capacity Expansion of Wuchang-Guangzhou RailwayLine Financed by the World Bank VII Loan, The Fourth Survey and DesignInstitute, Wuhan, MOR, October 1994.
2. Introducing AC-DC-AC Electiic Locomotives for Baoji-Chengdu Railway-Feasibil-ity Study, The First Survey and Design Institute, Lanzhou, MOR, August 1994.
3. Feasibility Report on Upgrading 16V280 Diesel Engine, Increasing Power &Reliability and Reducing Emission with the Cooperation of the Foreign Institutions,Qishuyan Locomotive & Rolling Stock Works, August 1994.
4. Feasibility Study Report for Telecommunication Network Item of 7th Railway Projectwith the Proceeds of the World Bank Loan, MOR, May 1994.
5. Feasibility Study on Railway Environmental Protection Project Using the SeventhLoan of the World Bank, MOR, September 1994.
6. Summarized Principles of Land Acquisition, Building Demolition and PersonnelResettlement Concerning the Wuhan-Guangzhou Railway Expansion Project, MOR,August 1994.
7. Land Acquisition, Building Demolition and Personnel Resettlement Plan for theWuhan-Guangzhou Railway Expansion Project, MOR, October 1994.
8. Feasibility Study On Railway Container Project Using the 7th World Bank Loan,MOR, September 1994.
9. Aide Memoire of March 1994 Identification Mission for Railway VII, with thefollowing attachments:
A. Planning Assumptions for All Investment ComponentsB. Pilot Railway Restructuring ComponentC. Financial Resource Mobilization ComponentD. Tariff Reform Component (and Railway Costing Exercise)E. Accounting Reform ComponentF. Labor Productivity ComponentG. Corridor Expansion ComponentH. Cost Effective Technology ComponentI. Dragon Services Subcomponent
- 131 - ANNEX 11
J. Information Technology Component-Data Processing SubcomponentK. Information Technology Component-Telecommunications SubcomponentL. Environmental Protection Pilot ComponentM. Environmental Impact Assessment for Railway VIIN. Investment Efficiency Technical Component0. Expanded Cofinancing OperationP. Technical Assistance for Implementing Environmental Protection Pilot ProgramsQ. Technical Assistance for Information Systems DevelopmentR. Pilot Housing System Reform ComponentS. Golden Bridge Intermodal Services SubcomponentT. Status of the Diversified Economy RME StudyU. High-level Seminar on Railway Management and OrganizationV. Foreign Study ToursW. Status of Environmental Protection StudyX. Current Status of RME StudiesY. Status of TMIS Implementation
10. Aide Memoire of July 1994 Preparation/Preappraisal Mission for Railway VII, withthe Following Mission Memoranda attached:
A. Railway VII Environmental Assessment ReviewB. Tariff Reform: Preparation Checklist for Railway VII Appraisal MissionC. Information Systems Short-term Action PlanD. Resettlement IssuesE. Reforming the Foreign Capital and Technical Import OfficeF. Status of Railway Costing StudyG. Main Elements of Railway Restructuring/Enterprise ReformH. Main Elements of Labor Productivity Policy ComponentI. Outline of Foreign Study Tours for RME StudiesJ. Economic Evaluation Information NeedsK. Work Schedule for RME StudiesL. Comments on the RME Diversified Economy Team Action PlansM. Wuhan-Guangzhou Capacity ExpansionN. Request for LORIC Background Data
11. Aide Memoire of November 1994 Appraisal Mission for Railway VII, with thefollowing Mission Memoranda attached:
A. Action Plans for PID ComponentsB. Indicators and Targets for Monitoring the Progress and Effectiveness of Railway
VII ImplementationC. Completion Dates for Study ComponentsD. Project Monitoring and SupervisionE. Environmental Protection ProgramsF. RIS Action PlanG. Strengthening MOR's Treasury Function and Financial Resource Mobilization
- 132 - ANNEX 11
12. Working Papers
1. Railway Enterprise Reform Component2. Government's Strategy for Restructuring China Rail3. Summary of Railway Restructuring Experiments4. Tariff Reform Component: Implementation Status5. Technical Assistance for Costing and Cost Indexing6. Labor Productivity and Pension Fund Management Component7. Description of Corridor Expansion Component8. Description of Information Systems Component9. Technical Assistance for Information Systems Component10. Description of Information Systems Studies (Study component)11. Description of Telecommunications Component12. Description of Telecommunications Systems Study13. Railway Telecommunications Master Plan Overview14. Description of Container Transport Commercialization Component15. The Emergence of Competition in the Chinese Intermodal Container Industry16. Preliminary Financial Results of Container Companies17. Description of Environmental Protection Component18. Railway Environmental Protection19. Description of Systemwide Capacity Expansion Component20. Technical Assistance for Systemwide Capacity Expansion Component21. Description of Dedicated Passenger Rail Study Component22. Description of RIS Study Component23. Description of Diesel Engine Design Study Component24. General Methodology for Economic Evaluation25. Economic Evaluation of Corridor Expansion Component26. Economic Evaluation of Information Systems Component27. Economic Evaluation of Telecommunications Component28. Economic Evaluation of Container Transport Commercialization Component29. Economic Evaluation of Systemwide Capacity Expansion Component30. Notes and Major Assumptions Underlying Financial Forecasts for Railway
Transport Operations31. Resettlement Plan for Land Acquisition and Demolition for Electrification of the
Wuhan-Guangzhou Line
Chart C.1 General Organization Chart of Ministry of Railways
Minister
Security Bureau j Secretariat
Systems Reform Bureau Foreign Cooperation Department
CHIEF VICE MINISTER VICE MINISTRVIEMNISTER VICE MINISTERENINE I rI3 . . . ~~~~~~~~~~~~~~~~~~~~Capital Construction Education &CH IEF Planning & Statistics General Bureau Health Dept.Science & DISPATCHER BLureau
Tech. Bureau _FnneBra 5 Design Electrification Cmisr-Finance BureauInstitutes Bureau -Cmisr
LCapital SettlementConmputer Transport Center Hospitals
_o Center BureauLabor & Wages Construction Construction Locomotive & -
Bureau Bureau Bureaus Bureau _ Rolling StockAppraisal Rolling stock _Audit Bureau IndustaBridge Factory Cn l
Materials Construction ConstructionSignal & Management Bureau Bureau 35 Locomotive
| Foreign 1 Telecom. Bureau/Company & Rolling Stock< Capital and | Bureau { I j | Civil Engineering FactoriesTechnical Transport ll Company l
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