Document of The World Bank Report No.: ICR00003432 IMPLEMENTATION COMPLETION AND RESULTS REPORT (IBRD-77220) ON A LOAN IN THE AMOUNT OF US$ 300 MILLION TO THE PEOPLE’S REPUBLIC OF CHINA FOR A NANGUANG RAILWAY PROJECT December 3, 2015 Transport and ICT Global Practice East Asia and Pacific Region CURRENCY EQUIVALENTS (Exchange Rate Effective June 2015) Currency Unit = Renminbi (RMB) RMB 1.00 = US$0.163 US$1.00 = RMB 6.12 FISCAL YEAR January 1 – December 31 ABBREVIATIONS AND ACRONYMS CR China Railways CRC China Railway Corporation EIA Environmental Impact Assessment EIRR Economic Internal Rate of Return EMP Environmental Management Plan EMU Electric Multiple Unit FCTIC Foreign Capital and Technical Import Center of MOR FM Financial Management GGRC Guiyang-Guangzhou Railway Company Limited GHG Greenhouse Gas HSR High-speed Railway ICR Implementation Completion and Results Report M&E Monitoring and Evaluation MLTRDP Mid- and Long-term Railway Development Plan MOR Ministry of Railways MTR Midterm Review NGRC Nanning-Guangzhou Railway Company Limited NPV Net Present Value PAD Project Appraisal Document PDO Project Development Objective RA Regional Administration RAP Resettlement Action Plan Senior Global Practice Director: Pierre Guislain, GTIDR Practice Manager: Michel Kerf, GTIDR Project Team Leaders: Gerald Ollivier / Martha B. Lawrence, GTIDR ICR Team Leader: Romain Pison, GTIDR PEOPLE’S REPUBLIC OF CHINA NANGUANG RAILWAY PROJECT CONTENTS Data Sheet A. Basic Information...................................................................................................... iv B. Key Dates .................................................................................................................. iv C. Ratings Summary ...................................................................................................... iv D. Sector and Theme Codes ........................................................................................... v E. Bank Staff ................................................................................................................... v F. Results Framework Analysis ...................................................................................... v G. Ratings of Project Performance in ISRs .................................................................. vii H. Restructuring (if any) ............................................................................................... vii 1. Project Context, Development Objectives and Design ............................................... 1 2. Key Factors Affecting Implementation and Outcomes .............................................. 3 3. Assessment of Outcomes ............................................................................................ 8 4. Assessment of Risk to Development Outcome......................................................... 13 5. Assessment of Bank and Borrower Performance ..................................................... 14 6. Lessons Learned..................................................................................................... 16 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners .......... 18 Annex 1. Project Costs and Financing .......................................................................... 19 Annex 2. Outputs by Component ................................................................................. 20 Annex 3. Economic and Financial Analysis ................................................................. 22 Annex 4. Bank Lending and Implementation Support/Supervision Processes ............ 32 Annex 5. Beneficiary Survey Results ........................................................................... 34 Annex 6. Stakeholder Workshop Report and Results................................................... 35 Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR ..................... 36 A. Basic Information NanGuang Railway Country: China Project Name: Project Project ID: P112359 L/C/TF Number(s): IBRD-77220 ICR Date: 12/03/2015 ICR Type: Core ICR Specific Investment MINISTRY OF Lending Instrument: Borrower: Lending FINANCE Original Total US$300.00 million Disbursed Amount: US$297.54 million Commitment: Revised Amount: US$297.54 million Environmental Category: A Implementing Agencies: China Railway Corporation Cofinanciers and Other External Partners: n.a. B. Key Dates Revised / Actual Process Date Process Original Date Date(s) Concept Review: 01/22/2009 Effectiveness: 12/21/2009 12/21/2009 08/25/2011 Appraisal: 04/14/2009 Restructuring(s): 10/14/2014 Approval: 06/24/2009 Midterm Review: Closing: 12/31/2014 06/30/2015 C. Ratings Summary C.1 Performance Rating by ICR Outcomes: Satisfactory Risk to Development Outcome: Low or Negligible Bank Performance: Satisfactory Borrower Performance: Satisfactory C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry: Satisfactory Government: Satisfactory Implementing Quality of Supervision: Satisfactory Satisfactory Agency/Agencies: Overall Bank Overall Borrower Satisfactory Satisfactory Performance: Performance: C.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments (if Indicators Rating Performance any) Potential Problem Project Quality at Entry No None at any time (Yes/No): (QEA): Problem Project at any Quality of Supervision No None time (Yes/No): (QSA): DO rating before Satisfactory Closing/Inactive status: D. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) Railways 100 100 Theme Code (as % of total Bank financing) Public expenditure, financial management and procurement 100 100 E. Bank Staff Positions At ICR At Approval Vice President: Axel van Trotsenburg James W. Adams Country Director: Bert Hofman David R. Dollar Practice Manager: Michel Kerf Ede Jorge Ijjasz-Vasquez Gerald Paul Ollivier / Martha B. Project Team Leader: John Carter Scales Lawrence ICR Team Leader: Romain Pison Romain Pison, Fatima Arroyo ICR Primary Authors: Arroyo1 F. Results Framework Analysis Project Development Objectives (from Project Appraisal Document) The project development objectives are to provide additional transport capacity and reduce transport time between the less developed western region of southwest China and the relatively more developed Pearl River Delta region. Revised Project Development Objectives (as approved by original approving authority) The development objective and key indicators were not revised. 1 Based on substantial analysis from Richard G. Bullock, Mengke Chen, Jitendra Sondhi, and Nanyan Zhou. (a) PDO Indicator(s) Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised approval Completion or Target Values documents) Target Years Average number of pairs of express passenger trains between Sanyanqiao and Litang Indicator 1 : West Value (Quantitative or 7 20 20 31 Qualitative) Date achieved 12/31/2008 12/31/2014 06/30/2015 03/31/2015 Comments Number of express passenger trains are above original target value by 55%, ahead of (incl. % the one-year operation timing. achievement) Average number of pairs of freight trains operated per day between Sanyanqiao and Indicator 2 : Guigang Value (Quantitative or 0 8 8 0 Qualitative) Date achieved 12/31/2008 12/31/2014 06/30/2015 03/31/2015 Comments While capacity is in place for freight trains, China Railway has decided not to run (incl. % freight trains in the short term as part of its unified network strategy. achievement) Average travel time of express trains having maximum speed of 200 km per hour Indicator 3 : between Sanyanqiao and Litang West (minutes) Value (Quantitative or 620 170 – 156 Qualitative) Date achieved 12/31/2008 12/31/2014 – 03/31/2015 Comments Travel time has been reduced by 75% compared to before the project and is shorter than (incl. % original target value by 8%. achievement) (b) Intermediate Outcome Indicator(s) Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised Target approval Completion or Values documents) Target Years Indicator 1 : Progress rate of works and procurement of goods (%) Value (Quantitative 0 100% – 100% or Qualitative) Date achieved 12/31/2008 12/31/2014 – 03/31/2015 Comments 100% achievement (incl. % achievement) G. Ratings of Project Performance in ISRs Date ISR Actual Disbursements No. DO IP Archived (US$, millions) 1 06/21/2010 Satisfactory Satisfactory 0.00 2 06/28/2011 Satisfactory Satisfactory 22.99 3 03/24/2012 Satisfactory Satisfactory 38.29 4 04/22/2013 Satisfactory Satisfactory 112.92 5 10/26/2013 Satisfactory Satisfactory 190.16 6 06/10/2014 Satisfactory Satisfactory 225.66 7 12/09/2014 Satisfactory Satisfactory 259.05 8 05/25/2015 Satisfactory Satisfactory 263.53 H. Restructuring (if any) ISR Ratings at Amount Board Restructuring Restructuring Disbursed at Reason for Restructuring & Key Approved Date(s) Restructuring Changes Made PDO Change DO IP in US$, millions A transformation in the project institutional arrangements to endorse Nanning-Guangzhou Railway Company Limited (incorporated in July 2009) to succeed the Preparation Group of the NanGuang Railway Company (formed in September 2008) and Guiyang-Guangzhou Railway Company Limited (incorporated on June 4, 2009) to succeed the 08/25/2011 S S 27.09 Preparation Group of the GuiGuang Railway Company (formed on November 28, 2007) as the project implementation entity and to take over all implementation responsibilities of the Preparation Group as defined in Schedule 2 of the Loan Agreement, as earlier foreseen and pre-announced by the Project Appraisal Document (PAD). An extension of the loan closing date by six months, from 10/14/2014 S S 257.2 December 31, 2014 to June 30, 2015 I. Disbursement Profile 1. Project Context, Development Objectives and Design 1.1 Context at Appraisal 1. The railway sector was considered vital to China’s economic and social development and its international trade, continued economic growth, and ability to extend the benefits of development to people living in the central and western regions of the country. China is a vast country where people and goods move over long distances, for which railways was considered to provide the most economic means of transport over the distance range supported by the project. Railways are also more energy-efficient, are environment-friendly, and require less land than highways of comparable capacity. 2. Between 2000 and 2008, traffic on the China Railways (CR) network grew rapidly. Passenger traffic (measured in passenger-km) grew by 70 percent and freight (in ton-km) grew by 82 percent. Even the economic downturn had comparatively little impact, with passenger traffic in the first two months of 2009 up by 10 percent compared to the previous year and freight traffic down by only 6 percent. The network had been expanded by 11 percent since 2000 but had been unable to keep pace with traffic demand. As a result, much of the system, already intensively used a decade earlier, operated close to, or at, capacity. Some traffic on these routes was diverted to transport modes with higher economic and social costs. To avoid railway congestion slowing sustainable economic growth in China, its railway network and services needed to be both expanded and improved. 3. To tackle the increase in demand, in 2004 the State Council approved the Mid- and Long- term Railway Development Plan (MLTRDP) of the Ministry of Railways (MOR) which set out the investment required at the rate of about US$12–15 billion per year through 2020 to keep pace with demand. An element of the World Bank’s strategy for China was to support this government initiative to bring the various parts of the country closer with regard to personal mobility and the movement of goods through railway development, especially between the central and western regions of the country,. 4. Following State Council approval of the 11th Five-Year Plan (2006-2010), the annual rate of investment in railways had increased significantly above the level originally envisaged in the MLTRDP, and in 2008 had reached a level of approximately US$45 billion. Although the Bank financing for this project aimed at contributing to achieving the overall investment target, an equally important reason for China to seeking Bank participation during the early years of developing higher standard rail lines for freight and passengers that are able to accommodate electric multiple units, EMU, was continued to be to access technical advice, especially on the application of appropriate safeguard policies, as well as international practice in project preparation, procurement and implementation, since those were still the early years of developing higher standard rail lines for freight and passengers able to accommodate electric multiple units (EMU). 5. At the time of appraisal, the Bank initiated its engagement through a wide program of railway projects, with 2,660 km over six projects during the period. The choice of a multiproject engagement from the Bank was supported by the objective to leverage additional benefits from a holistic support compared to a single-project financing approach. In addition and in parallel to the 1 program support, the Bank also fostered a railway sector-based policy dialogue and institutional support nurtured by multiple railway policy notes, which eventually facilitated and enriched the railway sector in China. 1.2 Original Project Development Objectives (PDOs) and Key Indicators 6. The PDOs as indicated in the Project Appraisal Document (PAD) and the Loan Agreement were to provide additional transport capacity and reduce transport time between the less developed western region of southwest China and the relatively more developed Pearl River Delta region. 7. The key PDO indicators as indicated in the PAD were: a. average number of pairs of express passenger trains; b. average number of pairs of freight trains operated per day; and c. average travel time of express trains having maximum speed of 200 km per hour. 1.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification 8. The development objective and key indicators were not revised. 1.4 Main Beneficiaries 9. The project was expected to benefit both current and potential passengers who traveled between Guangzhou and southwest China as well as the volume of freight and commodities, as the capacity and the level of service for both were anticipated to improve significantly. The population of the poorer autonomous region of Guangxi Zhuang was also expected to be a core beneficiary by becoming connected to the economically developed Pearl River Delta and thus enjoying wider economic benefits. The project was expected to not only benefit the railways as a business but also the country overall, by encouraging the use of the more economically and environmentally efficient railways. Approximately 40 percent of the forecast rail patronage on the new railway was expected to either transfer from other modes or be generated. 1.5 Original Components 10. At appraisal, the project consisted of the following activities: a. Construction of a new two-track electrified rail line of about 400 km for freight and passenger service connecting Litang West in Guangxi Zhuang Autonomous Region and New Zhaoqing in Guangdong Province, including the construction of subgrades, tunnels, bridges, culverts, and buildings; acquisition and installation of goods (including, without limitation, communications, signaling and electrification equipment, and maintenance vehicles); and provision of related technical assistance. By international standards, this was a technically complex megaproject. b. Construction of two tracks of a new four-track electrified rail line of about 62 km to be shared with the GuiGuang Railway Project for freight and passenger service connecting 2 New Zhaoqing and Sanyanqiao in Guangdong Province, including construction of subgrades, tunnels, bridges, culverts and buildings; acquisition and installation of goods (including, without limitation, communications, signaling and electrification equipment, and maintenance vehicles); and provision of related technical assistance c. Construction of new and reconstruction of existing railway stations along the rail line d. Resettlement and rehabilitation of displaced persons 11. The initial project cost was US$5,984.79 million, including a Bank loan of US$300 million. The Bank loan financed the procurement of goods, including communications, signaling and electrification equipment, and maintenance vehicles. In addition to the goods financed by the Bank loan, there was an allocation for potential technical assistance as warranted during project implementation but not specified at the time of appraisal. This project was part of a much wider program of railway projects that supported the construction of 2,660 km of rail lines over six projects during the period. 1.6 Revised Components 12. Project components were not revised. 1.7 Other Significant Changes 13. Restructuring. The project underwent two Level II restructurings: a. August 25, 2011. A transformation in the project institutional arrangements to endorse the Nanning-Guangzhou Railway Company Limited (NGRC) (incorporated on July 2009) to succeed the Preparation Group of the NanGuang Railway Company (formed in September 2008) and Guiyang-Guangzhou Railway Company Limited (GGRC) (incorporated on June 4, 2009) to succeed the Preparation Group of the GuiGuang Railway Company (formed on November 28, 2007) as the project implementation entity and to take over all implementation responsibilities of the Preparation Group as defined in Schedule 2 of the Loan Agreement as earlier foreseen and pre-announced by the PAD. b. October 14, 2014. An extension of the loan closing date by six months from December 31, 2014 to June 30, 2015. At the time of this restructuring, the project disbursed US$257.2 million (86 percent of the loan amount). 14. Project design did not include a Midterm Review (MTR). When the Bank indicated that a MTR should be conducted of all projects, all contracts had been awarded and project implementation was well under way, and there was no need for an MTR. 2. Key Factors Affecting Implementation and Outcomes 2.1 Project Preparation, Design and Quality at Entry 15. The project quality at entry is Satisfactory based on the analysis detailed hereafter. 3 Soundness of Background Analysis (Satisfactory) 16. In the period from 1995 to 2010, the Chinese railway industry had been pursuing two key objectives. One was to reform the industry to become more responsive to the market economy. The other was to achieve an order-of-magnitude change in the capacity and quality of infrastructure and services in a network that was already the busiest at the time of appraisal, by a wide margin, of any railway system in the world and which was still facing rapidly growing demand. The NanGuang Railway Project and its documentation clearly described the background and sector challenges and objectives, including the step-by-step approach chosen by the government toward industry reforms, concentrating on reforms within the existing framework rather than breaking up the CR itself. Assessment of Project Design (Satisfactory) 17. The selection of the final route was based on a diligent multicriteria selection, including economic, environmental, social, and technical factors. Several alternatives were considered, with the final choice based on multiple criteria that included connections with existing rail network, minimizing cost and land acquisition/resettlement, and environmental degradation, as well as connecting potential areas of economic development. Further efforts were made to avoid forest reserves, places with cultural relics, scenic and historic spots, and areas with poor geological conditions. The design institutes consulted urban planning development officials of the various cities in selecting sites for proposed railway stations and railway facilities. 18. Environmental and social aspects were diligently considered during feasibility engineering and environmental assessment preparation. Feasibility engineering included, as required by Chinese practice, an alternative analysis. Though three design institutes were involved in the feasibility study and design, to ensure uniform quality a single Environmental Impact Assessment (EIA) consultant was responsible for overall EIA/Environmental Management Plan (EMP) preparation. 19. Two project companies were planned to be created for project implementation, based on the lessons learned from other Bank railway projects in China. This project and the two previous Bank-financed projects (the ShiZheng Railway Project and the GuiGuang Railway Project), differed from previous Bank-financed railway projects in China in that a project company was to be created and the Ministry of Railways (MOR) was to transfer assets created by the project to the project company. This arrangement was considered to strengthen ownership of the project for both implementation and future operations. Assessment of Risks (Satisfactory) 20. Risks were assessed diligently, taking into account the Bank’s previous Bank’s engagement in the railway sector in China. The following risks were identified and risk management measures were taken: a. Traffic estimates. Success of the project would be dependent on traffic volume. Forecasts for 2020 were conservative and the initial traffic level is higher than the original forecast. 4 b. Creation of the special purpose Nanning-Guangzhou Railway Company Ltd: At appraisal, the preparatory group of NanGuang Railway Company was appointed as the implementing agency. However, the institutional and financial framework linking the Company with MOR and the Bank loan was not fully defined, but was to be clarified before the transfer of project assets. The company implemented the project on schedule and within estimated costs. c. Sustainability. The risk that this high cost project would not be economically and financially sustainable was considered substantial. Results of the economic and financial analysis, which were based on conservative assumptions, have been confirmed by preliminary updates of the analyses after the beginning of operations. d. Resettlement and Land Acquisition. The project was designed as a green field project and required the acquisition of a large extent of land. There was a risk that land acquisition and resettlement would not be carried out as per the Resettlement Action Plan (RAP). Assessment of land acquisition and compensation payments confirmed that these were as per the standards indicated in the RAP. e. Environmental risk. The project was along a well-developed corridor, parallel to a major river, with urban areas as well as agricultural areas throughout the entire corridor. There was a moderate risk that the environmental management plan (EMP) would not be implemented satisfactorily. However, the arrangements for implementing the EMP turned out to be appropriate and the EMP was implemented satisfactorily. 2.2 Implementation 21. The performance of the Nanning-Guangzhou Railway Company Ltd (NGRC) and the Guiyang-Guangzhou Railway Company Ltd (GGRC) in implementing the project was satisfactory. This massive project involved the construction of a number of complex elements. Examples include: a 450 meter span arch suspension bridge over the Xi Jiang river (the largest in China at that time); and a cable stay bridge over Yujing River with a span of 559 meters; and a 12.4 km tunnel. Nevertheless, project implementation proceeded in line with expectations and with high administrative efficiency. The project was completed on time, with costs only slightly above original estimates, and with strong initial traffic. The quality of work was good and suitable measures were taken to ensure safety, environmental preservation, and specified quality standards. 22. The section in Guanxi province (Litang-Wuzhou, 237km) started commercial operations on April 18, 2014 while that in Guangdong province (Wuzhou-Zhaoqing 165km) started commercial operations on December 26, 2014. While the line is built for both passenger and freight traffic, MOR made a decision to postpone the use of the line for freight transport. Passenger traffic is growing strongly, and with new lines connecting Nanning to Kunming coming into operation shortly, passenger volume is expected to continue to grow rapidly in the next few years. Freight demand is currently accommodated on the original line, which benefits from the reduction in passenger trains that now use Nanguang and Guiguang, and as such has some spare capacity. The separation of freight and passenger traffic also triggers a reduction in maintenance costs for the 5 line compared to a mixed used line. Freight traffic is expected to be introduced when passenger traffic has reached a more natural growth rate, after the initial ramping up experienced currently. 2.3 Monitoring and Evaluation (M&E) Design, Implementation, and Utilization 23. Overall M&E quality rating - Substantial. There were minor shortcomings in the M&E system’s design and implementation. The M&E system, as designed and implemented, was generally sufficient to assess the achievement of the objectives and to test the links in the results chain. 24. M&E design. The M&E framework had clear and simple-to-use definition of indicators in order to measure the achievement of the PDO: three PDO indicators and one intermediate indicator. These indicators are based on easy to gather data and the target values were achievable within the project scope. The indicators are specific, measureable, adequate, realistic and targeted. The first two PDO indicators measure additional transport capacity. At the design stage, a decision was made to measure the increase in capacity through separate indicators for passenger and freight traffic. A single indicator for capacity (freight and passenger combined) could instead have been considered as an alternative. In addition, these indicators do not measure the operation’s impact or effectiveness in the long run, since such measurement can only take place after a few years of operation. The third PDO indicator measures reduction in transport time between the less developed western region of southwest China and the relatively more developed Pearl River Delta region. Annex 3 in the PAD does not define clearly how the intermediate indicator “Progress rate of works and procurement of goods” would be measured, e.g., as a % of total investment or as % km of infrastructure works completed and equipment installed. In practice it was measured taking a combination of both, as captured in annual audit reports. The project could have developed better intermediate indicators to measure progress of project outputs. 25. M&E implementation and utilization. MOR monitored and evaluated the progress of the project on a six-monthly basis. MOR, through the Foreign Capital and Technical Import Center (FCTIC), and the China Railway Corporation (CRC) reported on project progress, including achievement of performance monitoring indicators. Data on baseline, target values and intermediate values were provided by MOR, through FCTIC. Overall progress was reviewed as part of annual audit reports, with progress compared to targets. CRC supplemented the M&E framework with other tools to serve as a basis for evaluation and to inform decision-making and resource allocation. 26. The PDO indicator on number of freight trains operating was not revised as it was confirmed only in November 2014 (i.e., one month after the second restructuring) that freight trains would not be running for the time being on the project rail line. With only six months remaining before the loan closing date, and the Bank decided that a restructuring at that point would not add value. 2.4 Safeguard and Fiduciary Compliance 27. Procurement under the project complied with Bank policies. Procurement was been mostly carried out by FCTIC, with the assistance of a tendering company and several design institutes. The Bank’s assessment of FCTIC’s capacity to implement procurement actions for the 6 project during project preparation had confirmed that FCTIC would be able to manage project procurement in compliance with Bank Procurement Guidelines. This assessment proved valid and the project did not face any procurement issues or delays, despite its very large size. Disbursements were slowed in early 2015 by the need to finalize contract amendments for 24 contracts under the project, some of them requiring notification to the Bank. The Bank processed these contract amendments promptly without affecting the project timeline. 28. Financial Management (FM) of the project complied with Bank policies, although there were some minor delays. The project FM system provided, with reasonable assurance, accurate and timely information that Bank loan proceeds were used for the intended purposes. Counterpart funds were provided as planned. World Bank loan proceeds were outside the budgetary and accounting system, but were included as a separate line item reported to the National Peoples’ Congress. Public accounts were consistently audited by the National Audit Office with results generally publicly available, except for national security or commercial secrecy items. The auditors issued unmodified/clean opinions on project audit reports and interim unaudited financial reports (IUFRs), and any minor issues identified were addressed by the implementing agency. In May 2015 FM rating was downgraded by the Bank from Satisfactory to Moderately Satisfactory because of a delay in providing the most recent interim financial report as well as a few deviations in the use of domestic funds (compared to applicable provisions of state laws and regulations and internal controls) in project activities financed entirely by counterpart funds. Shortcomings in the internal controls of the NanGuang Company identified by the auditor were addressed by NanGuang Company and CRC. 29. The Environmental Safeguards Policies triggered (OP/BP 4.01, OP/BP 4.04, OP/BP 4.11) were complied with. A number of environmentally sensitive areas (nature reserve, forest areas, tourist areas, cultural relics) were identified at appraisal and the EMP included specific actions. The final EA documents (EIA Report, Environmental Management Plan, and EA Executive Summary) complied with Bank requirements. The EMP was implemented satisfactorily. Most sensitive areas were either avoided through proper alignment selection or crossed by tunnel or tunnel-bridge-tunnel systems to minimize negative impacts. Spoil sites and worker camps near the tunnel were well designed, maintained and removed. The NanGuang line passed a preliminary environmental protection acceptance inspection prior to the trial operation in December 2014. The inspection concluded that most of the temporarily occupied land had been restored and returned to local government, noise barriers were adequately installed, slope protection measures and greening works were properly implemented, and necessary environmental facilities (e.g., wastewater treatment and sanitation facilities) were installed as per design. 30. The Social Safeguards Policy triggered (OP/BP 4.12 on Involuntary Resettlement) was complied with. A RAP was prepared, reviewed, and disclosed in compliance with OP/BP 4.12. Active public consultations took place with affected villages and households from early 2008 on the selection of railway alignment and the locations of railway stations, as well as compensation rates, relocation arrangements and livelihood restoration approaches and measures and helped optimize project design and reduce project impacts. At project closure, the implementing agency had completed land acquisition (16km2 compared with the appraisal estimate of 17km2) and paid the required compensation. A total of 2,463 households were relocated compared to the 2,029 households estimated at appraisal And the total compensation 7 paid for land acquisition and relocation is equivalent to amount estimated at appraisal. The external social monitoring carried out for the project concluded that the RAP was implemented in a satisfactory manner. 2.5 Post-completion Operation/Next Phase 31. Operations. China Railway has been operating high speed railways successfully now for over six years, with over 12,000 route km of high speed rail operational at the end of 2014. 32. Maintenance. China Railway has developed and operationalized robust and effective maintenance systems for infrastructure and rolling stock for the very intensively used high speed rail systems. Under the project, the appropriate number of technicians have been trained to carry out the maintenance of infrastructure and rolling stock. The institutional setting as well maintenance infrastructure is considered adequate for the foreseeable future. 33. Financial sustainability. The project line generates positive cash flow from operation on a major national corridor. The Nanguang Company is likely to pay interest on the debt and then negotiate any payment for infrastructure maintenance with the local Regional Administrations, who are also shareholders in the Nanguang companies. Nanguang Company will however need to restructure its debt, when repayment of the principal begins in 2017. The need to restructure project-related debt is linked to the difference in maturity between the commercial loans and the life of the asset and the need for traffic to ramp up. CRC would address the restructuring at a network level. 34. Social sustainability. MoR has carried out detailed passenger surveys, which show a strong willingness on the part of passengers to pay a surcharge of 50% for high-speed services, compared to conventional rail. 3. Assessment of Outcomes 3.1 Relevance of Objectives, Design, and Implementation 35. Relevance of objectives - High. Project objectives were and remain highly relevant to the development priorities of China. The project directly contributed to the World Bank Group Country Partnership Strategy (2006–2010), especially on the dimensions of integrating China into the world economy; reducing poverty, inequality, and social exclusion with affordable transport; and improving public and market institutions. The railway sector is vital to China, especially to its continued economic growth and development and to international trade. Railways also enhance China’s ability to extend the benefits development more widely in society and to people living in remote regions. The PDO became even more relevant as Nanning gained in prominence as part of the cooperation between Southeast Asia and China. This project remains a key response to China’s current transport challenges as greener development through railway transport have the potential to address China's environmental degradation and resource depletion and also to become a new driver for growth. The project is still aligned with the World Bank Group Country Partnership Strategy (2013–2016), especially on the dimensions of greener growth through low-carbon transport and the improvement of transport connectivity for more balanced regional development. 8 36. Relevance of design and implementation – High. Project design and implementation were and remain highly relevant in achieving the PDO. Bank financing covered only 10% of costs, which is a relatively low level compared to most Bank projects in China. Such an approach had two main merits: (a) it enabled the Bank to support a much wider program of railway projects (2,660 km of rail lines over six projects during the period) within the overall lending volume; and (b) it leveraged Bank resources effectively by extending the application of Bank requirements, especially safeguards, over a much larger project. Project components and expected outputs are consistent with the stated objectives, as outputs and outcomes are a direct result of the causal chain of the project. The results framework, despite some minor shortcomings (see discussion of M&E Design in Section 2.3) was appropriate. Despite its massive size and technical challenges, project implementation was timely and consistent with on-going Government programs. 3.2 Achievement of Project Development Objectives 37. Achievement of the PDO - High. This was based on the assessment of the achievement of each of the elements of the PDO as follows. 38. Providing additional transport capacity between the less developed western region of south west China and the relatively more developed Pearl River Delta Region (High). Of the two PDO indicators that contribute to measuring the achievement of this element of the PDO, the one relating to passenger trains has been exceeded by over 50%, whereas the one relating to freight trains has not been achieved. China Railway has decided not to run freight trains in the short term as part of its unified network strategy, and instead runs freight trains on the existing conventional line. Running only passenger trains on the new project line also reduces maintenance costs. Overall, additional rail capacity has been provided as planned and capacity utilization in pairs of trains exceeds targets, although the passenger – freight composition is different due to CRC’s network level approach to optimize freight and passenger traffic based on overall network capacity. While there is no timeline for the introduction of freight trains, there are no bottlenecks in freight transportation, since trains are using the existing train line. 39. Reducing transport time between the less developed western region of south west China and the relatively more developed Pearl River Delta Region (High). The PDO indicator target has been exceeded vis-à-vis overall transport time (travel time of 156 minutes between Sanyanqiao and Litang West compared to the target of 170 minutes). While detailed train occupancy figures are not available at the beginning of operation and are not part of the results framework, NGRC indicated that train occupancy is good, in particular during week-ends. A Bank mission in May 2014 found about 50 percent of seats taken at the departure point, which increased to 75 percent by the second station. Figures from March 2015 indicate an average occupancy of 91 percent. Before project completion, there were six pairs of express trains between Litang West and Sanyanqiao, which would take more than 10 hours to travel the itinerary. At project completion, the itinerary took 2 hours and 36 minutes - travel time has therefore been reduced by four times. Also, the line is now shorter by 180 km, yielding an efficiency gain. The overall transport time is therefore clearly reduced as the actual travel time has been reduced by 75 percent compared to before the project and is shorter than the original target value by 8 percent. 3.3 Efficiency Rating: High 9 40. Ex-post economic analysis. The ex-post economic analysis indicates that project investments were economically viable for all regions and provinces, with an overall Economic Internal Rate of Return (EIRR) of 16%, compared with an estimated EIRR of 13% at appraisal. The two principal contributors to the improved economic returns are the reduction in construction cost in real RMB terms and increase in passenger-related benefits associated with increased demand and higher value of time. These are offset to some extent by the lack of any freight-related benefits. More details are provided in Annex 3. 41. Agglomeration effects. The impacts used in the analysis can be classified as (a) cost- benefit analysis of passenger and freight traffic (for example, through travel time savings); (b) externalities (reductions in distances and travel times); and (c) agglomeration effects. The use of agglomeration benefits in this project is essential as an increasing number of companies become more closely connected and this is known to generate agglomeration economies. Such agglomeration brings benefits to all companies in the cluster. Therefore, as this structuring rail project made companies locate or expand in a given area, the cost-benefit analysis captured the benefits to the companies through direct cost and time savings but did not include potential efficiency gains which arise from that decision but which accrue to other companies in the cluster. 42. Cost effectiveness. Project costs at completion were about US$6,584 billion (RMB41,801 billion) compared to appraisal estimates of US$5,984 billion (RMB40,995 billion), i.e., an increase of 2% in RMB terms, which is a highly satisfactory for a rail project of this scale. This results in a unit cost of US$14.5 million per km, which is among the lowest cost per kilometer in the world2, especially as about 65 percent of track was laid on bridges and viaducts and through tunnels. The estimated unit costs of three railway projects in China (with a maximum speed of 250 km/h) that are partly funded by the Bank are between US$17 to 19 million per km, while that of another 200 km/h mixed use line (with about 48 percent track on bridges/viaducts and in tunnels) is US$15.5 million per km. 43. Administrative efficiency. The administrative efficiency of the project is high, as project activities were completed ahead of time and at lower dollar costs. The line was opened in December 2014, ahead of the original loan closing date, and project was completed on June 30, 2015 with loan funds almost fully disbursed. There is a very limited increase of 2% between costs estimated at appraisal in RMB terms and preliminary final costs, which is remarkable given the scope and size of this mega railway project. 3.4 Justification of Overall Outcome Rating Rating: Satisfactory 44. In summary, the relevance of objectives as well as the relevance of design and implementation are rated high. The PDO has been achieved. Overall efficiency is rated high. The 2 Ollivier, Gerald Paul; Sondhi, Jitendra; Zhou, Nanyan. 2014. High-speed railways in China: a look at construction costs. China transport topics; no. 9. Washington, DC; World Bank Group. http://documents.worldbank.org/curated/en/2014/07/19761655/high-speed-railways-china-look- construction-costs 10 combination of the ratings for project relevance, achievement of PDO, and efficiency justify an overall outcome rating of Satisfactory. 3.5 Overarching Themes, Other Outcomes, and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development 45. Impacts are best assessed about five years after operation starts; nevertheless, it already appears that the NanGuang Rail Project has been a major contributor to the economic transformation of the region and a driver toward poverty reduction in the less developed western region of southwest China and the relatively more developed Pearl River Delta region. Local authorities in Yunfu, Wuzhou and Guigang have all used NanGuang line as a key element of shaping their economic development plans, both by emphasizing the greatly improved ease of access for firms wishing to establish themselves in their area, as well as by promoting specific land development adjacent to the stations. All three also reported increases in tourism, although less so in the case of Yunfu due to the low service frequency to date. 46. Cities along the NanGuang line have started to develop new urban development strategies associated with the introduction of the high speed rail service, to stimulate job creation. Local authorities believe that such new development could provide more job opportunities for poor people and the bottom 40 percent of the population. Local Development and Reform Commissions (DRC) and poverty offices have already set up multiple job training programs for poor people. In Yunfu, within three months of train operation, about 1,900 extreme poor people found jobs in tourism. In GuiGang, tourists during the Chinese spring festival have increased by about 18%. 47. Incomes of project beneficiaries, especially rural households, have increased dramatically in the affected cities, including Zhaoqing, Yunfu, Nanning, Guigang and Wuzhou. However, it is difficult to assess the direct contribution of the project to these increases. Between 2008 and 2013, the average increase in income was above 50%, especially in Zhaoqing and Guigang, and the increase in per capita annual income of rural households was above 80%. Moreover, rural households enjoyed a greater increase than urban households. With the same concerns and limitations on attribution, a few indicators are showing increases in value along the railway line, potentially showing the impact on land value; the average value of a residential area in Yunfu went from RMB 3,000 (US$471) per m2 in 2008 to RMB 5,300 (US$833) per m2 in 2014, while the average value of an office area went from RMB 5,500 (US$864) per m2 in 2008 to RMB 8,600 (US$1,352) per m2 in 2014. 48. Impact on women. The results of a passenger survey indicates that the new railway line is more attractive for women, who in general have fewer personal and private means of transport available to them, compared to men. Female passengers surveyed tended to be younger and with a lower income. 21% of female interviewees are new passengers, while only 16% males are new travelers. Travelling for leisure accounts for a larger proportion for women’s trip purpose (59%) than men’s (49%). 49. During the construction period, the NanGuang Railway Project directly provided job opportunities for poor local people. The total man-days were about 94 million during the 11 construction period. The total man-days from local labor (most poor people) were about 15 percent, primarily for non-related professional construction work such as cooking and cleaning services. The salary rate for local people was in the range of RMB 80–150 per working day, with 25 working days per month. During 2009–2014, most of the hired local labor was from the Guangxi Zhuang Autonomous Region rather than the economically advanced GuangDong Province. For example, in Yunfu (a city in Guangdong Province), virtually none of the local people were involved to railway construction-related work. Only a small number of local people worked in construction material industries. The NanGuang Railway Company estimated that at the peak construction period, about 100,000 persons were employed directly and indirectly to support project construction (including those engaged in manufacture and supply of goods for the railway project). It is estimated that, on average, about 10,000 persons were employed directly on construction activities for a period of four years for this project. This gives a proxy number of 100 person-year per km of railway construction at the project site. 50. The NanGuang Railway Project directly improved accessibility for local people. Since this project was in a remote, hilly area, it was necessary to build access roads for construction, which have been turned over to local communities. As the NanGuang Railway Company indicated, about 442 km of service roads and 1,445 km of bridges were built in total to facilitate construction of the railway. More importantly, today, local communities are still using these roads and bridges. Even in the remote areas, such as Teng County, about 70–80 percent of the roads are still being used by the local people. 51. The train service is also considered affordable compared to any equivalent transport services that were available previously, facilitating labor migration. The Bank conducted a passenger onboard survey along the NanGuang railway line in 2015. The results indicated that 40 people out of the surveyed sample size (504) were poor people with no regular monthly income. The trip purposes of these people were mainly personal trips, including for migrant work, tourism, and visiting friends, with the main reason being the short travel time and affordable ticket prices. The NanGuang railway service was found to be beneficial for people across a wide range of income levels. Bus services within the corridor to and from Wuzhou and Guigang have been reduced sharply, typically by up to 50 percent, with few end-to-end passengers on long-distance trips other than those who could not obtain rail tickets; rail fares are currently very competitive compared to, if not cheaper than, bus tickets. 52. Informal onboard interviews conducted on the first opened section of the line indicated that a wide range of people (farmers, entrepreneurs, retirees, migrant workers, children, old couples, men, women, and across income levels) are using the new line to access job opportunities, meet their families, or visit other parts of China. All interviewed individuals indicated that the service was affordable or very affordable compared to alternatives (cheaper than the bus) and offered a much safer, more convenient, and comfortable solution compared to buses. One businessman for a large pharmaceutical company had seen his revenue increase by 15 percent since the opening a month earlier and was using the train five to seven times a month. A couple of migrant workers were going to their next job 200 km away. Migrant workers from Guangxi Zhuang working in Guangdong were using motorcycles earlier, a mode of travel with high accident rate, especially when coming back for the Spring Festival. Many have now shifted to using HSR, resulting in a reduction in road fatalities, based on anecdotal evidence. 12 53. In the longer term, local governments anticipate that the new High Speed Rail (HSR) will bring investment and greater development opportunity that could further indirectly benefit poor people. Local governments are developing plans for new development districts, access roads/highways to center city and promotion of eco-tourism in remote tourism villages. In Wuzhou 29 new enterprises (e.g., energy industry, and electronic industry) have relocated into the new developed Guangdong-Guangxi Special Collaboration District, in part due to the HSR service. The local DRC and Poverty Office have already set up multiple job-training programs (e.g., planting skills, and auto repair technicians) for the local poor (including the extreme poor and the bottom 40% of population). In GuiGang more than 3000 poor people attended job-training programs in 2013. (b) Institutional Change/Strengthening 54. The Bank reinforced its engagement in the railway sector beyond the current project through a program of six projects during the period. The choice of a multi-project Bank engagement enabled the Bank to engage in policy dialogue and to provide institutional, including multiple railway policy notes. These contributed to sector reforms, including financing options, optimization of operations and maintenance, and the balancing of demand and supply on the railway network based on traffic forecasts. (c) Other Unintended Outcome and Impact (positive or negative) Not applicable. 3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops 55. From March 25 to April 14, 2015, a sample of 504 interviews and 8 trains were surveyed. Results detailed in annex 5 show that more than 42 percent of the interviewed travelers chose the train because of the short travel time. Comfort, punctuality, and affordability were other main reasons for choosing the train. Over 84 percent of the passengers reported an increase in travel frequency. The additional generated traffic on the NanGuang railway line is about 18 percent of the previous traffic, with a 59 percent break-up for tourism or visiting friends and relatives. 4. Assessment of Risk to Development Outcome Rating: Low or Negligible 56. The financial risk to the PDO is Moderate. Results of the first months of operation show that the appraisal estimate of the number of passengers and number of passenger trains was conservative and has been exceeded. Financial analysis indicates that the project has a financial rate of return of 3 per cent. Despite this relatively low rate, the project is cash-positive from the start of operations, with revenues being three times greater than the cost of operating the trains and maintaining the infrastructure. When repayment of the principal begins in 2017, Nanguang Company will need to restructure its debt, due to the difference of maturity between commercial loans and the life of the asset and the need for traffic to ramp up. However CRC would arrange the refinancing through rebalancing of financing between lines, as the main railway corridors are expected to cover their full costs. 13 57. The technical risk is Low or Negligible. Similar train systems have been operated and maintained at very high levels of reliability and safety in China since 2007; they are also in operation in Japan, Germany, Italy, UK and France for many years. 58. The social risk is Low or Negligible. Detailed passenger attitude surveys have established a strong willingness to pay a surcharge of 50% on high-speed services compared to conventional rail. Even with higher fares on the new services, the cost to most passengers will be lower because of the substantial distance savings. The price of a train ticket on the project line is comparable to the cost of a bus ticket for the same distance in many locations along the line. The overall impact of the project will be to encourage more passengers to rail. 59. The risk of reduced government ownership and commitment and institutional support risk is Low or Negligible. The railway sector benefits from strong government commitment and institutional support. China has the world's longest High Speed Railway network. The State Council approved 2004 MOR Mid- and Long- Term Railway Development Plan’ (MLTRDP) sets out the investment required to keep pace with demand at about US$12-15 billion per year through 2020. This has increased substantially to over US$90 billion per annum post 2009. 5. Assessment of Bank and Borrower Performance 5.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry Rating: Satisfactory 60. The Bank ensured quality an entry through an adequate alignment of the project objectives with the CPS and national and World Bank transport strategies, combined with components designed to achieve the PDO, as well as appropriate implementation arrangements. Bank inputs and processes prior to Board approval were appropriate. The Bank provided guidance and support to ensure that technical and environmental specifications and feasibility studies were prepared to meet high quality standards, and within a short time. Project preparation included a screening to identify the poorest cities and the impact of the line on poverty issues. The results framework was well focused and straightforward. The Bank assessed agglomeration effects as part of the economic analysis, which was an innovation, and considered a best practice for the railway sector. The risk assessment was comprehensive and proved robust during the implementation of a very large and complex project. (b) Quality of Supervision Rating: Satisfactory 61. The Bank worked closely with the government and the implementing agencies that this complex mega railway project was completed on time and to high quality standards, in compliance with Bank policies (especially safeguards and fiduciary policies), despite financing only 5% of an almost $6 billion project. The minor weakness in the results framework (discussed earlier) could not be addressed during supervision as CRC’s decision to initially use the line exclusively for passenger transport came in late 2014, i.e., very close to the loan closing date, making the question of revising the results framework inefficient. 14 62. The Bank supervised the project diligently with the required expertise. Implementation Status Reports (ISRs) were prepared on a six-monthly basis and the ratings were candid and appropriate. The Task Team has been commended by Management for using the risk framework in all the ISRs to update risk ratings and the management of identified project risks. 63. The Bank also drew extensively on lessons learned from this project to document the experience of China in developing its high speed rail network, including notes on traffic, costs, success factors in project implementation, good practice in environmental management, and wider economic impact evaluation 3 . In parallel with project activities, the Bank engaged in policy dialogue with MOR and CRC on sector reforms and cutting-edge analytical work in railway network management and financing. (c) Justification of Rating for Overall Bank Performance Rating: Satisfactory 64. The rating of overall Bank performance is based on the ratings for each of the two dimensions: (a) Bank performance in ensuring quality at entry and (b) the quality of supervision. Bank performance was rated Satisfactory for the quality at entry and quality of supervision dimensions. Therefore, the overall Bank performance is Satisfactory. 5.2 Borrower Performance (a) Government Performance Rating: Satisfactory 65. The Government ensured that the project was prepared and implemented in record time with good quality, and also complied with loan covenants, including fiduciary and safeguards aspects. MOR delegated responsibility and provided the needed resources to enable implementing units to implement the project. MOR demonstrated strong ownership in the project and actively participated in Bank supervision missions and wrap up meetings and ensured that the implementing agency executed the project in accordance with the agreements reached with the World Bank. MOR engaged in a dialogue with the Bank on railway sector reform and took Bank inputs into account while finalizing reforms. (b) Implementing Agency or Agencies Performance Rating: Satisfactory 66. Project implementing agencies deserve major credit for successfully implementing this massive infrastructure project. FCTIC, CRC as well as the NanGuang Railway Company responded efficiently on all project issues, adhered to project implementation requirements, engaged with Bank missions, and contributed to the timely completion of the project. These 3 Regional Economic Impact Analysis of High Speed Rail in China (P143907) (http://operationsportal2.worldbank.org/wb/opsportal/ttw/about?projId=P143907) 15 agencies successfully led overall project management and oversight, and delivered results on time. They furnished progress and other reports on time, monitored environmental and social issues, and suggested good practices for environmental methodologies. FCTIC managed procurement activities without issues or delays. CRC ensured that testing and commissioning went well. NanGuang Railway Company monitored resettlement and timely payment of compensation to project affected persons, coordinated with local governments to review options to improve connectivity between urban areas and the new stations, and provided data on performance indicators as soon as the service was operational. (c) Justification of Rating for Overall Borrower Performance Rating: Satisfactory 67. The rating of borrower performance is based on the ratings for each of the two dimensions: (a) government performance and (b) implementing agency or agencies performance. The borrower performance was rated Satisfactory for the government performance and Satisfactory for the implementing agencies dimensions. Therefore, the overall borrower performance is Satisfactory. 6. Lessons Learned 68. Based on the issues discussed in the earlier sections of the present Implementation Completion and Results Report (ICR), some of the lessons learned that could be applied in similar operations are the following: a. Unified control over railway program development, project design, financing and implementation is a recipe for overall project success even when the Bank’s financial contribution is relatively marginal: China Railway Corporation has single point responsibility for planning, financing and implementation of individual projects, for the creation of delivery mechanisms (such as the joint venture companies with provincial governments), and for administration of China’s national railway services. This, combined with legal and institutional power, strong technical capability, access to operating cash flows of railways and ability to borrow, gave CRC the agility to plan and deliver projects very quickly. Eventually, the fruitful cooperation between national and local authorities with a timely availability of counterpart funds, made the project a success. This unified control over the project, as well as the overall commitment of the Government and the implementing agencies, enabled the project to be a technical and environmental success despite the relatively marginal financial contribution of the Bank. The low level of Bank financing for the project allowed the Bank to support a much wider and unified program of railway projects (2,660 km over six projects during the period). b. The use of agglomeration benefits is essential for structuring a railway project as an increasing number of companies became more closely connected. Such agglomeration brought benefits to all companies in the cluster, and the same agglomeration benefit model could be applied to other corridors in China and in other countries. As this rail project made companies locate or expand in a given area, the cost benefit analysis captured the benefits to companies through direct cost and time savings. In China, agglomeration effects have been recognized at a theoretical level, although to date there are only a few quantitative studies on the topic. One, conducted by the Bank in 2006, found that firms in more 16 populated cities and city regions tend to be more productive, and this was tentatively attributed to greater competition and agglomeration benefits. The results from this project’s economic analysis confirm the earlier results on the existence of agglomeration benefits. The ICRR recommends undertaking an ex-post analysis in five and ten years to confirm the long term agglomeration effects. c. A large and linear infrastructure investment projects calls for: (a) a good preliminary design; (b) strict control over compliance with standards and specifications and quality control; (c) reliable and responsible contractors; (d) meticulous planning of activities; and (e) timely land acquisition: An early and good preliminary project design was the basis of the Feasibility Report and initial cost estimates. The detailed design taken up later did not deviate significantly from the preliminary design, thus enabling smooth progress in construction. In addition, applicable standards and technical specifications for railway construction and material inputs were formulated and followed strictly. An effective quality control system was functional with contractors as well as with Project Management, with quality control and audit systems in place to ensure that there was no compromise with quality standards. As a result no significant problems were noted during testing and commissioning of the railway. A project of this dimension and complexity requires linking and control of thousands of activities that are carried out by diverse agencies. All construction and supply activities were identified and their inter-dependence was established. Meticulous planning and control of critical activities was carried out to prevent hold up in construction progress. Red flags for lagging activities were acted upon quickly. Qualifications and experience of contractors were defined carefully, so that only those with credible past performance and with adequate resources were able to bid for contracts. On time availability of materials for construction progress was ensured thanks to timely procurement. The timely land acquisition was another critical factor, since for a linear project any break in land availability is very disruptive for construction progress. This was possible as a result of the full co-operation of provincial and local governments on project matters. d. Understanding and addressing passenger needs in the context of door-to-door connectivity and adequate urban planning will be critical to achieve the full impact of the high speed rail network. While initial results are encouraging, high speed rail remains a major investment that requires high traffic density to be justified economically and financially. This can be achieved by working closely with cities to carefully develop areas around stations in a way that leverages the gain in accessibility provided by the rail. This is now officially encouraged by the State Council Directive 2014 (37) on “Land Comprehensive Development in Supporting Railway Construction”. It also requires careful attention to the overall door-to-door trip experience of travelers. This includes dealing with aspects that sometimes extend beyond the remit of railways, e.g., improving access to and from the station, reducing the current waiting time for taxis at stations, or ensuring good frequency for public transport services. It also includes optimizing train frequencies and city pairing, based on emerging trip patterns and user surveys, introducing flexible ticket prices reflecting peak/off-peak periods, and introducing convenient e-ticketing services. These need to be done along the areas served by the railway line, vis a vis urban planning perspectives at the city level. By focusing on these aspects, and on the efficient and 17 effective operation of the HSR network, HSR in China can be expected to continue to experience substantial growth for many years to come. 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/implementing agencies 69. Both the borrower and the implementing agency consider that the project can be evaluated as successful. This project is, according to their completion report, meeting the development objectives and priority of the government for the economic growth of China, for passengers, and in the future, for freight as well. They emphasize that results are showing the effectiveness and relevance of the project and that the Bank, the borrower, and partners have showed a satisfactory performance in managing the NanGuang Railway Project with regard to efficiency, effectiveness, quality of inputs, quality of supervision, and M&E. The project also conformed to social and environmental requirements. A summary of the ICR of the borrower is provided in Annex 7. (b) Cofinanciers Not applicable. 18 Annex 1. Project Costs and Financing (a) Project Cost by Component (in US$, millions equivalent) Actual/Latest Percentage of Components Appraisal Estimate Estimate Appraisal Civil works 3,255.44 3,748.57 115 Goods 864.27 811.27 94 Land acquisition and resettlement 455.48 412.71 91 Other 278.80 706.85 254 Consulting services 0.30 0.30 100 Total Baseline Cost 4,854.29 5,679.70 117 Physical contingencies 484.58 439.18 91 Total Project Costs 5,338.87 6,118.88 115 Interest during construction 353.20 376.02 106 Rolling stock 291.97 0.00 0 Front-end fee IBRD 0.75 0.75 100 Total Financing Required 5,984.79 6,495.65 109 (b) Project Cost by Component (in RMB, millions equivalent) Actual/Latest Percentage of Components Appraisal Estimate Estimate Appraisal Civil works 22,299.75 23,241.13 104 Goods 5,920.22 5,029.87 85 Land acquisition and resettlement 3,120.02 2,823.98 91 Other 1,909.77 4,382.47 229 Consulting services 2.06 1.86 90 Total Baseline Cost 33,251.82 35,479.31 107 Physical contingencies 3,319.37 3,004.40 91 Total Project Costs 36,571.19 38,483.71 105 Interest during construction 2,419.42 2,332.44 96 Rolling stock 2,000.00 0.00 0 Front-end fee IBRD 5.14 4.65 90 Total Financing Required 40,995.75 40,820.80 100 (c) Financing Appraisal Actual/Latest Type of Estimate Estimate Percentage of Source of Funds Cofinancing (US$, (US$, Appraisal millions) millions) Borrower Counterpart 5,684.79 6,584.00 110 IBRD n.a. 300.00 300.00 100 19 Annex 2. Outputs by Component 1. The project delivered the following elements as planned: a. Two-track electrified rail line of about 400 km for freight and passenger service connecting Litang West in the Guangxi Zhuang Autonomous Region and New Zhaoqing in Guangdong Province has been built, including the construction of subgrades, tunnels, bridges, culverts, and buildings, and acquisition and installation of goods. By international standards, this was a technically complex megaproject that has been delivered in record time. b. Two tracks of a new four-track electrified rail line of about 62 km that are shared with the GuiGuang Railway Project for freight and passenger service connecting New Zhaoqing and Sanyanqiao in Guangdong Province have been built, including construction of subgrades, tunnels, bridges, culverts, and buildings; acquisition and installation of goods (including, without limitation, communications, signaling and electrification equipment, and maintenance vehicles), as well as the construction of new and reconstruction of existing railway stations along the rail line. c. Ultimately, no technical assistance was requested. 2. At the western end, the project connects to the existing rail network of southwest China near the city of Guigang and again further west near the city of Litang (roughly 95 km northeast of Nanning) and then connects with the planned LiuNan Dedicated Passenger Railway Project (Liuzhou to Nanning) at the Litang West station (just west of the city of Litang). At the eastern end, the project connects to the existing railway network of the Pearl River Delta at Sanyanqiao station. Power is provided from the nearby city grid to the traction substation in the railway station under an electricity purchase contract and by the local power company. Connection lines between the traction substation and the city grid are part of the city grid and not separate dedicated electric transmission lines for the project. 3. The choice of maximum speed for a proposed railway was based on projected traffic volumes. High-density corridors such as Beijing-Shanghai and Beijing-Guangzhou that operate 70–100 pairs of trains per day are designed for 350 km per h speed. Since this railway was expected to have modest passenger volumes of 30–40 pairs of trains per day, it was designed for 200 km per hour maximum speed. An HSR requires a relatively large track radius (minimum 3,500 m for 200 km per hour speed) while sharp curves are avoided by adopting a combination of viaducts and tunnels, particularly in hilly regions. In the case of NanGuang Railway, the 401 km line between Litang and Zhaoqing has 65 percent of the track laid over viaducts/bridges and in tunnels. The longest tunnel is over 12 km long. The use of viaducts also reduces land acquisition compared with that required for railway design using embankments, permits easy access to people and animals below the railway tracks, and improves safety as well as security of railway infrastructure. This included the construction of 105 km of tunnels and 153 km of bridges, a major undertaking by any international standards in a project built in a mere five years. However, this approach increased the capital cost and made the construction of this railway a challenging engineering project. 20 4. The technical parameters of this railway meet international standards in respect of track, power supply, overhead electric system, signaling, communications, train control and dispatching system, and energy conservation. It includes safety systems such as fencing of railway right-of- way; infrared hot box detectors; automatic train protection system; cab signaling; radio communication on train; and systems to monitor wind, rainfall, and obstructions on tracks. Suitable protection against electromagnetic interference to communications has also been provided. 5. This railway, over a distance of 401 km between Litang and Zhaoqing, has 156.4 km of track on bridges and viaducts (39 percent) and 106.3 km of track in tunnels (26.5 percent). The project also includes two major bridges (Xijiang and Yujiang) over rivers, costing RMB 620 million and RMB 490 million, respectively, and two long tunnels each over 12 km in length and costing about RMB 600 million each. Figure 2.1. Xijiang Super Bridge (source: task team mission) Figure 2.2. Yujiang Super Bridge (source: task team mission) 21 Annex 3. Economic and Financial Analysis Introduction 1. This note documents the economic reevaluation of the NanGuang Railway, constructed between Zhaoqing and Litang4 and fully opened to traffic in December 2014. It is based on data collected during a mission in March 2015 and supplemented by data obtained from a survey of passengers conducted at around the same time. The estimated economic return is about 16 percent, compared to 13 percent in the original evaluation, due to the significantly greater demand compared to what was forecast at appraisal and the savings in construction cost in real terms. Project Summary 2. At the time of appraisal, it was expected that the adjacent Nanning-Kunming HSR would open at the same time and the forecasts thus included traffic not only between Guangxi Zhuang and Guangzhou but also to and from Yunnan, which was at the time about double the Guangxi Zhuang rail traffic. The traffic forecasts for the NanGuang line assumed that most of the rail passenger traffic between Yunnan/Nanning/Guigang and the Pearl River Delta would transfer to it. In the short term, passengers to and from Liuzhou were also assumed to use the NanGuang line, as the section between Litang and Liuzhou was to be upgraded as part of the Liuzhou-Nanning line. However, once Liuzhou-Guilin was upgraded, the GuiGuang line would offer a route to Guangdong, which is the same distance as through NanGuang and this traffic was expected to go on both routes. 3. The overall objective was that by 2015 a new medium-speed (200 km per hour) corridor would be constructed for this traffic. Services would consist of a mixture of multiple-unit (EMU) services (65 percent of the total) and loco-hauled services (35 percent of the total). The average travel time between Nanning and Guangzhou for passengers would reduce from the 11 hours to around 4 hours. 4. It was also assumed that all freight traffic between Yunnan/Nanning/Guigang and Guangdong/Fujian would use the new line, operating at a maximum of 120 km per hour and saving 180 km compared to the existing route through the Sanmao railway. In practice, the new line has been opened before the onward connection to Kunming has been completed and there is thus no through traffic other than that to Liuzhou and Beihai. All services are operated by the EMUs. No freight traffic is yet operating on the line in spite of freight facilities being provided at several stations on the western part of the line. These are geared to handle local traffic and it remains unclear if through freight traffic will use the line as originally envisaged. The reevaluation ignores all freight-related benefits. Traffic 5. Two sets of forecasts were prepared—one by the design institute and the other by the Bank team. They forecast 7–9.5 million passengers in 2015, increasing to 16 million in 2030. Freight was forecast as 13 million tons in 2015, mostly through traffic, increasing to 30 million tons by 4 At each end there are connections with other lines to access Nanning and Guangzhou. The total distance between Nanning and Guangzhou via NanGuang is 563 km. 22 2030. However, as noted in the introduction, at the time of the ICR mission, no freight traffic was yet operating on the line and, given the current slowdown in freight demand, it remains unclear if through freight traffic will use the line as originally envisaged. 6. The passenger forecasts have proved to be conservative to date. Although the line has only been open six months, services have had to be increased and there are currently over 30 pairs of trains on the line daily. Exact patronage figures are not yet available but it is estimated that the traffic density5 for 2015 will be about 13 million passengers. About 19 million passengers are expected to use the services for all or a part of the line length in 2015. Table 3.1 compares the sources of the 2015 traffic, based on on-board surveys undertaken in March 2015, with the forecasts at appraisal. For the period from 2015, an average growth rate of 3.7 percent was used at appraisal; the ICR evaluation assumes a further 40 percent ramp-up in demand, based on patterns seen in similar lines, but then the same long-term growth rate as used at appraisal. Table 3.1. Forecast and Actual Average Traffic Density, 2015 (million per year) Appraisal Actual Source Million % Million % Conventional rail 5.4 56 2.0 15 Air 0.6 7 2.1 16 Bus 4.7 36 2.1 22 Car 2.0 15 Generated 1.4 14 2.3 18 Total 9.5 100 13.0 100 7. The conventional rail passengers transferring are about half those forecast. At the time of the appraisal, there were about 860,000 passengers each way per year between Nanning and Guangzhou; the forecasts assumed this volume would grow in line with general demand, at 6 –8 percent per year. In practice, volume on this route has remained static, probably due to increased competition from the bus and air markets. In addition, about 40 percent of the appraisal forecasts were through passengers between Kunming and Guangzhou; none of these have eventuated to date as the line has not yet been completed. 8. Rail has captured almost all the city-to-city air market (flights between Nanning and Guangzhou have reduced from about nine return services daily in 2013 to three at present) and much of the bus market. It has also captured a surprising share of the ‘car’ market, although this is probably from minibuses6 than from personal cars. 9. Generated passengers are 18 percent of the total, similar to many other new lines. However, these are passengers who would not previously have made the trip by any mode. HSR also seems to be increasing the frequency with which existing travelers make trips, with passengers typically quoting a 50 percent increase in trips undertaken compared to the situation before the line opened. This increase, which results from the combined effects of the reduced travel time for all except air passengers; the comparable cost for bus and car travelers; and the much improved frequency, capacity, and reliability of the rail service, was not allowed for at all in the appraisal forecasts and will have been a significant factor in the underestimation. 5 Passenger-km/route-km. 6 In China, minibuses with up to 10 seats are conventionally classified as cars rather than buses. 23 Project Investment 10. The estimated cost of the project infrastructure at appraisal was RMB 36.6 billion (US$5.3 billion) at 2008 Q2 prices (including contingencies but excluding interest during construction). The final cost of the project is estimated at RMB 1.9 billion more than at appraisal (in current prices). Taking into account the estimated time profile of disbursement, this is equivalent to a cost of RMB 34.7 billion at 2008 Q2 prices. 11. The initial cost of the train sets (taken as 10 eight-car sets at appraisal) and other rolling stock was an additional RMB 2 billion (US$290 million). This is not explicitly included in the evaluation but is incorporated in the above-rail train operating cost as an equivalent annual cost. Project Benefits 12. There were three main groups of potential benefits from the construction of the NanGuang line at appraisal: a. A major reduction in travel time and distance for the traffic diverted to the new line, thereby generating significant operating cost savings to the railway and time savings for passengers and freight. Service frequency would also be greatly improved, with services at least hourly as opposed to the existing services which effectively left twice each day. b. Freeing up capacity on the existing lines would allow to handle the projected increase in freight traffic, which would otherwise be by road or not at all. c. Wider economic, social, and environmental benefits. Although some of these benefits are included as part of the cost-benefit analysis, a significant component is not. For example, the NanGuang line would provide a quantum improvement in accessibility between its catchment and the Pearl River Delta and thus increase the competitiveness of the regional economy, accelerate the adoption of innovative practices, and stimulate its economic growth, all of which fall outside the conventional benefits directly linked to transport operations. Time Savings 13. At appraisal, the new line was expected to save the average rail passenger more than six hours compared to the existing timetable. The equivalent of a further two hours was included to represent benefits due to the much improved service frequency. This time saving was valued at appraisal using a weighted average income per head of forecast passengers of RMB 2,400 per month or RMB 15 per hour (2008 prices), based on 2002 on-board surveys of rail services in the region and adjusted for subsequent income growth. Business and non-business travelers were valued at 100 percent and 35 percent of this average income and the business/non-business mix was taken at 35:65, again based on the on-board surveys.7 This gave an average value of time savings in 2008 of RMB 8.73 per hour (US$1.27), which was forecast to increase in line with the expected growth in average income per head. 7 On-board surveys in 2002 gave a mix of 44:56; this was assumed to reduce by 2015 to 35:65. 24 14. The improved level of service was expected to attract passengers from other modes, especially from Wuzhou, which did not have a practicable rail service to Guangzhou, as well as generate additional trips by providing greater opportunities for potential passengers to travel (for example, it would be easily possible to make a return trip in the same day between Guangzhou and Nanning, something which was impossible to achieve at appraisal). This trip transfer would create user benefits as well as, in most cases, reduce both operating costs and externalities. 15. Diverted and generated traffic, calculated as part of the demand forecasting, was allowed benefits calculated at 50 percent of the increase in user surplus to base traffic, as provided by the ‘rule-of-a-half’. The associated operating cost savings for traffic diverted from other modes was calculated using average operating costs derived from user surveys and highway cost studies (for road) and from the assumed operating cost component of air fares of 85 percent. 16. The forecast time saving has been borne out in practice with the all-EMU services saving about eight hours for the trip between Nanning and Guangzhou.8 Frequency benefits are estimated as equivalent to a further two hours of travel time. The average income of passengers, based on the March 2015 on-board survey is RMB 5,270 per month or RMB 32.91 per hour. The business/non-business mix from the survey was 50:50 (compared with 35:65 at appraisal), with travel to and from work (including migrant labor) being treated as business,9 giving an average value of time savings of RMB 22.21 per hour in 2015 terms (US$3.50). At appraisal, the forecast of the average income for 2015 was RMB 26.20 per hour (based on a 2002 survey with adjustments). The on-board survey of 2015 gave RMB 32.91 per hour—25 percent higher, due to the increase in income in China. In conclusion, about 25 percent of the 47 percent difference is due to the revised average income and about 75 percent is due to the revised business/leisure mix— in broad terms, the difference is nearly equal due to the two causes. Distance Savings 17. The value of the distance savings at appraisal was based on the estimated resources (loco- km, carriage-km, and so on) saved, combined with the 2008 unit costs. Savings for passengers transferring from air and road (estimated as 7 percent and 22 percent, respectively, of the opening volume) were based on the estimated operating costs of buses and air. At appraisal, the project was part of a general improvement of the link between Yunnan and Guangzhou and therefore contributed to benefits for trips made over much longer distances (for example, Pearl River Delta to Kunming). For such trips, the project was credited with a share of such benefits in proportion to its distance relative to that of the total trip. 18. The reevaluation has adopted the same approach, using estimated 2015 unit costs. Table 3.2 compares these with the 2009 unit costs adjusted for inflation. The two rail costs cover above- rail costs only, that is, rolling stock maintenance and capital, train and on-train crew, and fuel and energy. Rail infrastructure-related costs are considered separately. 8 The reevaluation only includes the proportion of this related to the NanGuang line (about 5.3 hours). 9 Based on interviews with passengers, who stated that the train enabled them to return to work faster and thus earn more. 25 Table 3.2. Estimated Unit Costs - Appraisal and Current (2015 RMB per person-km) Mode Appraisal Current Conventional rail (above-rail) 0.10 0.20 EMU (above-rail) 0.11 0.20 Air 1.04 0.70 Bus 0.35 0.35 Car 0.50 19. The large increase in estimated rail operating costs reflects the general increase of costs in the sector; between 2008 and 2014, the cost per traffic unit10 increased from RMB 0.095 to RMB 0.178, an increase of 90 per cent over a period in which inflation was 17 percent. Aviation costs have reduced with the growth of budget airlines while bus and car costs have been reasonably stable (the appraisal road cost was heavily weighted toward bus). Freeing Up Capacity 20. At appraisal, transferring passenger and freight operations to the new line from the existing network was expected to provide additional capacity for freight which would otherwise have slower transit times or, if a route is saturated, be forced to travel by road or not travel at all. The most heavily used alternative route was from Guigang to Zhaoqing via Hechun and Maoming (the Sanmao railway). In the long term, this route was expected to be partly relieved by the Guangdong coastal railway between Maoming and Jiangmen but this will primarily be for passengers. The potential reduction in congestion on the Maoming line was allowed for in the economic analysis by including a benefit, on a per train basis, that is credited to the project. 21. In practice, the construction of the Guangdong coastal railway began in 2013, and the railway is planned to open in 2017 and the existing line is also planned for duplication. This potential benefit has thus been overtaken by events and has been excluded from the reevaluation. External and Environmental Benefits 22. The external benefits included at appraisal include the reduction in road construction cost, accidents and congestion, vehicle emissions (net of the change in rail emissions), and changes in greenhouse gases (GHGs). These were all valued using standard unit costs adjusted to Chinese conditions. GHG emissions were valued at US$29 per ton. 23. The reevaluation adopted the same values for these benefits, updated to 2015 prices, except for the GHG benefits. The economic value put on CO2 avoided is taken as US$30 per ton, increasing over time to US$80 per ton, consistent with values used in Bank project evaluations. Based on the diversion of passengers from road transport to HSR, an estimated 400 road deaths will be avoided over the life of the project. Wider Economic Benefits 24. A transport project that makes a step change in travel costs and times between regional economic centers (such as the NanGuang Railway) is expected to yield significant impacts by 10 The sum of passenger-km and net ton-km. 26 bringing companies closer together in travel time and distance. Broadly speaking, the impacts can be classified as the following: a. Direct impacts on companies as they make their individual decisions based on considerations of profits and costs. These are already largely accounted for in the cost- benefit analysis of passenger and freight traffic (for example, via travel time savings). b. Externalities. The reductions in distances and travel times enable the companies to share input and output markets and enjoy knowledge spillovers; this produces positive externalities in the form of agglomeration. However, infrastructure building and traffic produces negative environmental effects. The cost-benefit analysis usually includes the environmental effects but excludes agglomeration effects. c. Agglomeration effects are excluded from conventional cost-benefit analysis as most companies decide where to locate or expand on the basis of their own profits and costs rather than the impact of their location upon profits or costs of others. However, in areas with improved transport, an increasing number of companies become more closely connected and this is known to generate agglomeration economies. Such agglomeration brings benefits to all companies in the cluster. Therefore, if a transport project makes a company locate or expand in a given area, the cost-benefit analysis will capture the benefits to the company through direct cost and time savings but will not include potential efficiency gains which arise from that decision but which accrue to other companies in the cluster. 25. Interviews with planners and businesses showed that many local businesses along the NanGuang corridor had already formulated their commercial plans to exploit the complementarity of local industrial activities to those in the Pearl River Delta, and Guangdong businesses had already made significant investment in Nanning businesses, bringing expertise as well as financial support for expanding and new business activities. The gains and losses of each region, to a significant extent, depend on local circumstances, such as industry clustering, local resources, labor supply, entrepreneurship, and governance, but the field work indicated significant potential benefits arising from the agglomeration effects. 26. Although these benefits are intrinsically difficult to quantify, at appraisal they were estimated using an approach developed by UK Department for Transport for use in a number of road and rail projects in the United Kingdom, based on the concept of economic mass. This was applied to the NanGuang Railway Project to demonstrate the potential magnitudes of the effects. At the time, there were no specific Chinese parameters which could be used and the analysis instead used parameter values imported from the U.K. studies. Subsequent work, however, on the impact of expressways on regional development in Guangdong has confirmed the general reasonableness of these values. 27. The estimated agglomeration effects included three geographic areas within Guizhou Province (Nanning, Guigang, and Wuzhou) as well as in Yunnan. Although they were the furthest, and thus benefited from larger reductions in travel time, Nanning and Kunming only represented about 25 percent of the agglomeration benefits as they both had existing air services and thus the reduction in cost across all modes is not as great as it would otherwise be. Guigang and Wuzhou 27 both had poor rail services to Guangzhou and Nanning, no air service, and only partially completed expressways and the project thus generated a quantum improvement in their accessibility which flows through to the agglomeration benefits. In practice, similar benefits would also accrue in other parts of Guangxi Zhuang Province (for example, Liuzhou and Beihai) but these were excluded as they were likely to be relatively small. 28. As services have only been operating for six months, these benefits cannot be quantified at present and it will take three to four years before their impact becomes fully apparent. Nevertheless, interviews conducted with local authorities along the line indicated a strong belief in improved service and strengthened economic linkages with the Pearl River Delta and that these linkages were having significant flow-on effects throughout the local economy. For the purposes of the reevaluation, the benefits estimated at appraisal have been retained and updated for inflation. However, the comparison of the reevaluation with the appraisal considers the return, both including and excluding these wider benefits. Economic Rate of Return 29. At appraisal, the project was expected to yield a net present value (NPV), during 30 years of operation, of RMB 8 billion11 (2007 prices discounted at 12 percent to the first full year of operation in 2014) and to achieve an EIRR of 13 percent. The reevaluation estimates an NPV of RMB 29 billion (2015 prices discounted at 12 percent to 2015) and an EIRR of 15 percent. The corrected appraisal NPV on the same basis is RMB 14 billion. Table 3.3 compares the distribution of costs and benefits in the appraisal evaluation and ICR reevaluation. 30. The two principal contributors to the improved economic result are the reduction in construction cost (RMB 6.6 billion) and the passenger-related benefits associated with the increased demand and higher value of time (RMB 15.7 billion). These are offset to some extent by the lack of any freight-related benefits (RMB 6.5 billion). The small difference in agglomeration benefits is due to the difference of one year in opening dates between the two evaluations. 31. The reduction in construction cost is partly due to the absolute savings in real terms of about RMB 2 billion combined with the delay in starting and the subsequent accelerated construction, which generates savings when discounted. 32. The passenger-related benefits are due to the 50 percent increase in the number of passengers combined with, in the case of time savings, the 50 percent increase in the value of time.12 No freight benefits are included, although some at least will arise at the western end of the line from local freight services, even if through services continue to use the upgraded Sanmao line. 11 Reexamination of the appraisal calculations has shown an error in the NPV, which should have been RMB 11 billion at 2007 prices, with the EIRR increasing to 13.5 percent. The corrected benefit, updated to 2015 prices, has been used in the comparison tables. 12 This is somewhat dampened by the shift in passenger mix from those diverted from existing rail services, whose time savings are valued at their full value, and those diverting from other modes as well as those generated, whose time savings are valued using the ‘rule-of-a-half’. 28 33. If agglomeration benefits are excluded, the EIRR at appraisal becomes 9 percent with an NPV of RMB ˗22 billion. However, the reevaluation gives an EIRR of 11 percent with an NPV of RMB ˗6 billion. Table 3.3. Comparison of Costs and Benefits at Appraisal and at ICR (RMB, billions, 2015) (discounted to 2015 at 12% per year) ICR Appraisal Difference Construction ˗56.7 ˗63.3 6.6 Train operations EMU passengers 1.6 0.5 1.1 LH passengers 0.0 0.6 ˗0.6 Freight 0.0 2.8 ˗2.8 Infrastructure maintenance ˗2.1 ˗3.0 0.8 Time savings EMU passengers 10.2 13.9 ˗3.7 LH passengers 0.0 6.2 ˗6.2 Other modes diverting to EMU 24.7 7.7 16.9 Other mode operations Air 7.3 3.1 4.1 Bus 4.9 2.2 2.7 Car 2.7 0.0 2.7 Road freight 0.0 4.6 ˗4.6 Road construction Passengers 0.2 0.1 0.2 Freight 0.0 0.1 ˗0.1 Avoided delays Passengers 0.0 1.0 ˗1.0 Freight 0.0 0.8 ˗0.8 Road accidents Passengers 0.4 0.1 0.3 Freight 0.0 0.2 ˗0.2 GHG Passengers 0.4 ˗0.1 0.4 Freight 0.0 0.1 ˗0.1 Agglomeration 35.4 36.5 ˗1.1 Total passengers 50.2 34.5 15.7 Total freight – 6.5 ˗6.5 Total 28.9 14.2 14.7 Financial Analysis 34. The line is owned by a project company, although the former MOR (now CRC) was formally responsible for implementing the project, mobilizing the financing, and repaying all borrowed funds. The project was financed using 50 percent of equity obtained from the project company partners, loans obtained from domestic banks (China Development Bank) and from the Bank, and bonds raised in China, amounting to RMB 41 billion (US$6 billion) in total (2008 prices). Of this, US$300 million was funded by the Bank loan. 35. At appraisal, it was expected that the project company would be ultimately responsible for the maintenance and operation of the line, although in practice, the actual functions would be subcontracted, with the RAs operating the trains under contract with infrastructure maintenance also contracted to them or to third parties. It was expected that the RAs would own the train sets and receive all revenue earned on the services. 29 36. This model has been implemented on several of the new HSR lines but in the case of NanGuang, an alternative business model has been implemented in which the project company is essentially an infrastructure manager, receiving access fees for use of its network and stations by third parties and contracting third parties for infrastructure maintenance and operation. 37. The access fees are set on a national basis and cover both usage of the infrastructure (currently RMB 70 per train-km for an eight-car set on a 200 km per hour line such as NanGuang) and the use of railway stations (currently RMB 5 per departing passenger at a major station). The train operating company also has to pay for the traction electricity at a rate (on NanGuang) of RMB 53 per thousand gross ton-km. 38. Against this, the company is responsible for the maintenance and operation of the infrastructure and stations, which in the case of NanGuang is contracted to the local RAs. As the line has only been open for six months, maintenance to date has largely consisted of inspections. There is little experience of what lifetime average costs might be but estimates for this type of line of RMB 1 million per route-km are generally considered to be reasonable. 39. At appraisal, the general expectation was that existing services would be withdrawn once the high-speed services commenced, with the conventional services only serving intermediate towns bypassed by the high-speed lines. Unit revenues were initially assumed to be RMB 0.30 (RMB 2009) per passenger-km in 2020, compared to the 2009 average level of RMB 0.1413 (U.S. cents 1.7) per passenger-km. However, the appraisal considered that it was unlikely the planned yields would be reached for the market as a whole for several years and that yield management policies would be required to provide a range of availability and service levels. The appraisal thus assumed a yield growing from RMB 0.20 (RMB 2009) per passenger-km in 2015 to RMB 0.25 (RMB 2009) per passenger-km in 2020, remaining constant thereafter. 40. In practice, the CRC found it difficult to withdraw as many conventional services as it wished and these have in general been retained although generally at lower frequencies than previously. However, they are now able to charge around RMB 0.30 (RMB 2015) per passenger- km on the NanGuang services, equivalent to about RMB 0.25 per km (RMB 2009). The current tariff undercuts bus tariffs by about 15 percent and is typically under half the cost of competing air services. Financial Analysis of the Line as a Whole 41. NanGuang (or the RA operating its services) can, like most 200 km per hour lines, cover its operating costs of around RMB 0.20 per seat-km from its average yield of RMB 0.31 per passenger-km. However, even though it has a load factor (passenger-km:seat-km) of over 90 percent, to cover its expected maintenance cost of around RMB 1 million per route-km, it requires a passenger density of about 10 million per route-km. NanGuang has already achieved that. The next target is to be able to repay interest charges. NanGuang has about RMB 20 billion of debt, on which it is paying interest at 5.9 percent; the annual interest bill is thus about RMB 1.2 billion. This can be paid as long as it is before considering any payment for infrastructure maintenance. The NanGuang Railway Company, in common with other smaller HSR lines, is likely to pay the 13 Although tariffs can be double this rate for the higher-standard accommodation. 30 interest on the debt and then negotiate any payment for infrastructure maintenance between itself and the local RAs, who are of course also shareholders in the NanGuang companies. When repayment of the principal begins in 2017, the NanGuang Railway Company will have no option but to restructure its debt; however, there is very little risk that the CRC would not arrange for the refinancing for a line that generates a positive cash flow from operation on a major national corridor. The need to restructure the project-related debt is linked to the difference of maturity between the commercial loans and the life of the asset and the need for traffic to ramp up to start covering more of its debt. Those matters are addressed at a network level through rebalancing of financing between lines as the main railway corridors are expected to generate revenues after a few years of operations. 42. At its current volume, NanGuang can pay for the operation of the services and maintenance of the infrastructure. However, it is only likely to be able to also finance debt service by 2025 – 2030, by which time volume will have increased and thus its gross margin over operating costs will also have increased. In the meantime, the shareholding RAs will probably have to absorb the cost of maintaining the NanGuang infrastructure from their other operations. Financial Analysis of the NanGuang Railway Company 43. The company has two sources of income: track access fees and payment for traction electricity, which it uses to pay the electricity company. The access charges are more than enough to pay the cost of maintaining the infrastructure, especially in the early years, but nowhere near enough to pay the debt charges when they begin in full. 44. The RAs, as the train operating companies, earn revenue from passengers, which covers train operating and traction electricity costs but is not enough to cover the cost of the track access charges. The RAs, as maintenance and train control contractors, earn revenue from this activity but it is balanced by the corresponding expenditure that they incur. As demand increases, the balance between revenue and expenditure will improve, as the access charge for a 16-car train is about 50 percent greater than for an 8-car train while the passenger capacity is double. 45. While the long-term outlook for the NanGuang Railway Company is promising, given its strong initial demand which will increase as the feeder routes in Guangxi Zhuang are expanded, its short-term outlook will require renegotiation of the principal repayments of its loans as well as cross-subsidy by the local RAs of the maintenance and train control that they perform. 31 Annex 4. Bank Lending and Implementation Support/Supervision Processes (a) Task Team Members Responsibility/ Names Title Unit Specialty Lending Syed I. Ahmed Lead Counsel LEGAM John Scales Lead Transport Specialist GTIDR Team Leader Paul Amos Consultant GTIDR Richard G. Bullock HQ Consultant ST GTIDR Jianjun Guo Senior Procurement Specialist GGODR Ying Jin HQ Consultant ST GSURR Maria Luisa G. Juico Program Assistant GTIDR Juan D. Quintero Consultant GENDR Jitendra Sondhi HQ Consultant ST GTIDR Peishen Wang Consultant GENDR Lei Wu Program Assistant EACCF Songling Yao Senior Social Development Specialist GSURR Chaohua Zhang Lead Social Development Specialist GSURR Supervision/ICR Gerald Paul Ollivier Senior Infrastructure Specialist GTIDR Team Leader Martha B. Lawrence GTIDR Co Team Leader Syed I. Ahmed Lead Counsel LEGAM Richard G. Bullock HQ Consultant ST GTIDR Wanli Fang Consultant GSURR Yi Geng Senior Financial Management Specialist GGODR Jianjun Guo Senior Procurement Specialist GGODR Maria Luisa G. Juico Program Assistant GTIDR Jitendra Sondhi HQ Consultant ST GTIDR Ye Song Consultant EASCS Peishen Wang Consultant GENDR Lei Wu Program Assistant EACCF Ning Yang Senior Environmental Specialist GENDR Songling Yao Senior Social Development Spec GSURR Nanyan Zhou Consultant ST GTIDR Romain Pison Transport Specialist GTIDR Fatima Arroyo Arroyo Operations Analyst GITDR 32 (b) Staff Time and Cost Staff Time and Cost (Bank Budget Only) Stage of Project Cycle US$, thousands (including No. of Staff Weeks travel and consultant costs) Lending FY2010 13.60 128.79 FY2011 10.64 74.84 Total: 24.24 203.63 Supervision/ICR FY2012 7.84 71.64 FY2013 7.45 50.57 FY2014 7.67 62.23 FY2015 8.08 89.62 FY2016 1.33 7.26 Total: 32.37 281.32 33 Annex 5. Beneficiary Survey Results 1. During March 25-April 14 2015, a sample of 504 interviews and eight trains were surveyed. The predominant group of passengers on Nanguang railway was between 19 and 40 years old. Men accounted approximately for 65% of the passengers and women for 35%. Business trips accounted for 48% of the total trips on Nanguang Railway. Of the generated passengers, 59% were tourists or visiting friends and relatives. There is no train service more than 800 km on Nanguang line. Short-distance trips (<300km) accounted for 29%, and 71% for medium (300~800km) distance trips. (Figure A) About 37% of trips are travel from one end to another between Nanning and Guangzhou. 2. Survey results indicate that the HSR is used by a relatively broad range of income levels. The average monthly income is about RMB5,500 (US$864) while 44% reported an income of less than RMB4,000 (US$691 ). 3. Female passengers tend to be younger and with lower income. Travelling for leisure accounts for a larger proportion of women’s trip purpose (59%) than men’s (49%). 21% of female interviewees are new passengers, while only 16% males are new travelers. 4. The generated traffic on Nanguang railway is about 18%. More than 42% of interviewed travelers chose the train because of the short travel time. Comfort, punctuality and affordability are the main reasons for choosing the train (Figure A). Over 84% of passengers reported an increase in travel frequency in general, while the average travel frequency is 4.4 days. Figure 5.1. Repartition of Trip Distances and Reasons Supporting Choice of Train for Travel 34 Annex 6. Stakeholder Workshop Report and Results Not applicable. 35 Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR Project Background 1. The Nanning-Guangzhou High-speed Railway (hereinafter referred to as ‘NanGuang Railway’) comes out from the existing Nanning Railway Station, goes through the newly built Nanning Railway Station, and then goes into four-line travel on the Liunan Railway section. It starts from the east of Litang West Railway Station, passes by Guiguang and Wuzhou of Guangxi Province and Yunfu and Zhaoqing of Guangdong Province, and then goes into four-line travel on the Guiguang Railway section. It finally arrives at Guangzhou South Railway Station after Foshan City. The length of the NanGuang Railway totals 574 km, in which 347 km lies in Guangxi Province and 227 km in Guangdong Province. 2. The section from Nanning Railway Station to Litang West Railway Station (included) was a single project which was built by the Liunan Company. The section from Litang West Railway Station (excluded) to Zhaoqing East Railway Station (excluded) was built by the NanGuang Railway Company. The construction of the section from Zhaoqing East Railway Station (included) to Guangzhou South Railway Station was entrusted to the Guiguang Company and the Guangzhou Railway Group. Route overview 3. The NanGuang Railway Company is responsible for the construction of the section from Litang West Railway Station (excluded) to Zhaoqing East Railway Station (excluded). After the railway section of Litang West Railway Station (excluded) to Wuzhou South Railway Station (included) comes out from the east of Litang West Railway Station of the Nanning-Litang Railway, it goes into a double-line railway and then merges into the existing Xianggui Railway. It passes by Binyang County of Nanning City, Guangxi Zhuang Autonomous Region, and divides into right and left lines at Quli Village, Qintang Town, Guiguang City. The railway passes through Genzhu Railway Station of the existing Lizhan Railway. The right line merges into the Lizhan Railway again and runs parallel to enter into the existing Guiguang Railway Station. It passes by Gangbei District of Guiguang City, Guiping City, Pingnan County and Tengxian County and Cangwu County of Wuzhou City, down across the Yizhan Railway and enters into Wuzhou South Railway Station. The overall length of the railway is designed to be DK0+000 to DK238+900 and the section of the NanGuang Railway from Litang West Railway Station (excluded) to Guangzhou, which is divided from the Nanli Railway, is designed to be K96+393.12. 4. The continuous length of Litang West Railway Station (excluded) to Wuzhou South Railway Station (included) is K96+393.120 to K331+106.264, and the overall length totals 234.8 km, in which subgrade covers 142.1 km, bridges 79.6 km, and tunnels 13.1 km, with a 39.5 percent tunnel bridge rate. There are five newly built railway stations, that is, Houlu, Guiping, Pingnan, Tengxian, and Wuzhou South and two rebuilt railway stations, namely Genzhu and Guigang. Houlu is a passing station. 36 Construction Completion of Four Projects 5. The section of Litang West Railway Station to Zhaoqing East Railway Station of Nanning- Guangzhou High-speed Railway (‘NanGuang Railway’) was kicked off in December 2008 and was put into operation in two stages in accordance with the deployment and instruction of the CRC. 6. The construction of the section of Litang West Railway Station to Wuzhou South Railway Station was completed in June 2013. The static acceptance of works, communications, signals, and electricity as well as traction power supply, building construction, information, customer service, construction land, disaster prevention safety, and environmental protection were completed in August 2013. We had conducted operational trial of wagons in September 2013, carried out a combined trial in October 2013, conducted dynamic acceptance in March 2014, completed safety assessment and initial acceptance in April 2014, and put them into operation on April 18, 2014. 7. The construction of the tunnel in the section of Wuzhou South Railway Station to Zhaoqing East Railway Station (excluded) was completed in July 2014, bridge erection was completed in September 2014, and steel rail was laid in October 2014. The static acceptance of works, communications, signals, and electricity as well as traction power supply, building construction, information, customer service, construction land, disaster prevention safety, and environmental protection were completed from August to November 2014. We also passed the review of static acceptance report organized by the CRC. We passed the dynamic acceptance assessment review, initial acceptance, and safety assessment during December 12–25, 2014. The section of Nanning- Guangzhou South of NanGuang Railway was put into operation on December 26, 2014. Operation Goals, Design and Implementation 8. An economic bridge and transport link between Pearl River Delta, in conjunction with Guangxi and Yunnan, was set up with the hands of the NanGuang Railway and other relevant railways such as the existing Nanning-Kunming Railway. This facilitated the partnership and development of Pearl River Delta, enhanced the delta’s overall economic strength and competition, improved its influence and coverage, branded Guangxi North Bay Economic Zone to be the new limit to the growth of China, and realized regional supplementary development. 9. From the kick-off operation of NanGuang Railway, the units that took part in the construction of the section of Litang West Railway Station (excluded) to Zhaoqing East Railway Station (excluded) implemented the policies, regulations, rules, and mandatory standards relevant to the national, former MOR and CRC. The main function and physical quality of specialty systems satisfied the design requirement and the safety and stability of the running of passenger trains met relevant standards. The transport load of passenger trains recently achieved the expected goal and reached the goal of three hours of travel from Nanning to Guangzhou. The NanGuang Railway plays an important role in both the national economy and the railway network and brings the expected economic and social benefits. Operation Goal 10. Since the NanGuang Railway started operation on November 26, 2014, the daily passenger train has reached 44 train fleets (8 train fleets remaining to reach the goal of 52) and the train in 37 different Railway Bureaus has reached 39 train fleets (11 train fleets remaining to reach the goal of 50). Wagon transport has not kicked off yet. 11. It took five months to realize the goal of 44 train fleets in the region and 39 train fleets operated by different Railway Bureaus after the NanGuang Railway started operation, which almost met the design target. In other words, it meets the demand along the railway and brings new energy to the economy along the railway. It still does not meet the design target because the neighboring lines are under construction, but we believe that the NanGuang Railway passenger train fleet will definitely achieve the design target along with the operation of the Yungui (Nanning-Kunming High-Speed) Railway and Foshan West Railway Station. 12. The reason that the wagon fleet has not begun operation relates to the deployment of the CRC. We will partner with the CRC to carry out relevant works to prepare the operation of the wagon fleet at any time. Land Acquisition, Demolition, and Management 13. According to the agreement between the former MOR and the Guangxi and Guangdong governments, the works of land acquisition, and electricity, communications, and broadcasting lines demolition would be carried out by the local governments and the temporary land acquisition lay with the construction unit. The Railway Company had signed an acquisition and demolition agreement with relevant units and departments, in which the key works of acquisition and demolition had been carried out by local acquisition and demolition units under the instruction of section commands. 14. During the construction, we strictly followed the basic national policy of “Cherish and give a rational use to the land as well as to give a real protection to the cultivated land,” in accordance with the principle of reducing land consumption and minimizing to appropriate basic cultivated land and basic farmland, control the border of land acquired, take measures on reinforcement and protective engineering to decrease the subgrade width appropriated, and improve bridge-tunnel rate to save the land. The major and temporary construction of the project, on the basis of proximity and long-lasting and temporary combination principles, made use of surrounding idle land and uncultivated land. To decrease earthwork excavation, the temporary lands are repeatedly used as the sites for mixing stations and for making precast beams and small parts. The existing roads are also used as the construction passages. The whole construction basically realized the goal of reducing land consumption. Future Prospects 15. Conduct in-depth surveys on the NanGuang Railway to find out new passenger sources, coordinate and partner with NGRC to add necessary EMU fleets, and increase passenger train fleets to achieve the design operative goal. 16. Conduct surveys on the NanGuang Railway and freight transportation at both terminals, to accumulate data for future wagon operation. 38