Project Administration Manual. Project Number: August People s Republic of China: Mountain Railway Safety Enhancement Project

Transcription

1 Project Administration Manual Project Number: August 2017 People s Republic of China: Mountain Railway Safety Enhancement Project

2 Contents ABBREVIATIONS I. PROJECT DESCRIPTION... 1 A. Background and Rationale... 1 B. Impact and Outcome... 3 C. Outputs... 3 II. IMPLEMENTATION PLAN... 3 A. Project Readiness Activities... 3 B. Overall Project Implementation Plan... 4 III. PROJECT MANAGEMENT ARRANGEMENT... 5 A. Project Implementation Organization: Roles and Responsibilities 5 B. Key Persons Involved in Implementation 7 C. Project Organization Structure 9 IV. COST AND FINANCING A. Cost Estimates Preparation and Revisions 10 B. Key Assumptions 10 C. Summary Cost Estimates and Financing Plan 10 D. Detailed Cost Estimate by Expenditure Category 13 E. Allocation and Withdrawal of Loan Proceeds 14 F. Detailed Cost Estimate by Financier 15 G. Detailed Cost Estimate by Outputs 16 H. Detailed Cost Estimate by Year 17 I. Contract Awards and Disbursement S-Curve 18 J. Fund Flow Mechanism 19 V. FINANCIAL MANAGEMENT A. Financial Management Assessment B. Disbursement C. Accounting D. Auditing and Public Disclosure VI. PROCUREMENT AND CONSULTING SERVICES A. Procurement of Goods and Consulting Services VII. SAFEGUARDS VIII. GENDER AND SOCIAL DIMENSIONS IX. PERFORMANCE MONITORING, EVALUATION, REPORTING AND COMMUNICATION A. Design and Monitoring Framework B. Monitoring C. Evaluation D. Reporting E. Stakeholder Communication and Participation X. ANTICORRUPTION POLICY XI. ACCOUNTABILITY MECHANISM XII. RECORD OF PAM CHANGES Appendixes PROCUREMENT PLAN CONSULTANT'S TERMS OF REFERENCE... 37

3 Project Administration Manual Purpose and Process The project administration manual (PAM) describes the essential administrative and management requirements to implement the project on time, within budget, and in accordance with Government and Asian Development Bank (ADB) policies and procedures. The PAM should include references to all available templates and instructions either through linkages to relevant URLs or directly incorporated in the PAM. The China Railway Corporation, the executing agency; and Chengdu-Kunming Railway Company, the implementing agency, are wholly responsible for the implementation of ADB financed projects, as agreed jointly between the borrower and ADB, and in accordance with the policies and procedures of the government and ADB. ADB staff is responsible for supporting implementation including compliance by the executing agency and the implementing agency of their obligations and responsibilities for project implementation in accordance with ADB s policies and procedures. At loan negotiations, the borrower and ADB shall agree to the PAM and ensure consistency with the loan agreement. Such agreement shall be reflected in the minutes of the loan negotiations. In the event of any discrepancy or contradiction between the PAM and the loan agreement, the provisions of the loan agreement shall prevail. After ADB Board approval of the project's report and recommendations of the President (RRP), changes in implementation arrangements are subject to agreement and approval pursuant to relevant Government and ADB administrative procedures (including the Project Administration Instructions) and upon such approval, they will be subsequently incorporated in the PAM.

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5 CURRENCY EQUIVALENTS (as of 5 July 2016) Currency unit yuan (CNY) CNY1.00 = $ $1.00 = CNY ABBREVIATIONS ADB Asian Development Bank CKRC Chengdu Kunming Railway Corporation CRC China Railway Corporation GDP gross domestic product FMA financial management assessment PAM project administration manual PPMS project performance monitoring system PRC People s Republic of China SOE statement of expenditure SPS Safeguard Policy Statement WEIGHTS AND MEASURES km kilometer NOTES (i) (ii) The fiscal year (FY) of the Government and its agencies ends on 31 December. In this report, "$" refers to US dollars.

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7 A. Background and Rationale I. PROJECT DESCRIPTION 1. Railway development in southwestern People s Republic of China (PRC). Despite the PRC s vast expertise in developing the high-speed rail network, constructing medium-speed rail lines in a highly mountainous region such as southwestern PRC poses considerable problems. The difficult and dangerous terrain in southwestern PRC is one of the main reasons why the rail network in the region remains inadequate. The limited capacity for freight movements and the long travel times of passenger trains are considered major obstacles to economic development and poverty reduction in the region. Hence, the PRC is prioritizing the development of the railway infrastructure in this region to increase speeds and more than double the freight-carrying capacity through its Western Development Strategy. However, the PRC needs assistance and expertise in ensuring that the railway lines are well designed, properly constructed, and conform to the highest standards of safety. 2. Railway safety. Safety is an integral part of providing competitive, high-quality, and reliable transportation for people and goods. As the PRC railway industry expands, introducing new concepts and technologies and increasing speeds, the safety needs are changing as well. The PRC recognizes this important aspect and seeks to promote modern rail safety technologies and emergency management systems consistent with the development needs of the country s railways. It seeks to attract foreign technology and expertise to meet these needs, an area where the Asian Development Bank (ADB) can play a significant role. 3. The safety issue is a challenge because the trains encounter difficult operating conditions amid varying geological features as they crisscross the length and breadth of the country. This is particularly so in southwestern PRC, where the terrain is mountainous and railway lines should be built with many bridges and tunnels. Operating a railway through several tunnels poses significant challenges for railway safety. Special arrangements need to be made for signaling to ensure speed restrictions, real-time monitoring of tunnel conditions, and proper lighting, and emergency systems for firefighting, ventilation, and rescue need to be installed. Various new technologies now exist for improving the safety of rail tunnels, and can play a vital role in preventing accidents as well as enabling a swift emergency response. 4. Southwestern PRC has two major fault lines (Anning River Fault Line and Daliang Mountain Fault Line), so railway construction in the region requires high-intensity earthquake fortification. Mountainous areas are also prone to landslides, which cause rocks and debris to block the track and make train operations unsafe. A stronger safety management system, which includes advanced signaling and communication arrangements and more effective management information, is needed to prevent train accidents and to respond promptly if they do occur. 5. Chengdu Kunming railway line. The Chengdu Kunming railway line is a key part of a regional corridor that will eventually extend to the countries in the Greater Mekong Subregion, and thus become a part of an international railway route connecting the subregion to western PRC, Central Asia Regional Economic Cooperation countries, and the Eurasian land bridge. 6. The existing line between Chengdu and Kunming was built between 1958 and It is a single-track line with operating speeds in the range of 40 km 60 km per hour. It has been operating at near full capacity for more than 10 years. To expand capacity across the southwestern region of the PRC, the China Railway Corporation (CRC) is constructing a railway line from Chengdu to Kunming with 18 stations. This will involve construction of 860 km of double-

8 2 track electrified main railway line for passenger and freight transport operations. The proposed alignment of the new Chengdu Kunming railway line is shorter by 236 km (21.5%) compared with the existing single-track line (1,096 km) and has better geometry. The development of the line is being done in several phases: Guangtong Kunming, Miyi Guangtong, Chengdu E Mei, and E Mei Miyi The capacity along the entire route from Chengdu to Kunming will be greatly increased. Train speeds on the new railway line will increase to 160 km per hour from the existing 60 km per hour. The tonnage could increase from 3,200 tons to 4,000 tons net per freight train, and the capacity for passenger train pairs per day could increase from 12 to 35. The shorter alignment and faster train speeds will shorten the travel time to less than 8 hours for passenger trains. Presently, it takes hours for people to travel from Chengdu to Kunming via rail. 8. The region is also one of the most scenic areas in the PRC, so better rail services along this route will support tourism. Sites such as Qionghai Lake in Xichang, hot springs and karst caves in Panzhihua, and Mount E Mei will become much more accessible to tourists, and more visitors will also contribute to the overall economic development of southwestern PRC. 9. E mei Miyi section. ADB financing will support the provision of safety equipment for the E Mei Miyi section (386 km) of the Chengdu Kunming railway line, which is the most difficult section of the railway. 2 It runs mostly through treacherous terrain traversing mountains and steep river valleys and requiring 141 bridges (80.8 km) and 52 tunnels (211.4 km), 7 of which will be longer than 10 km each, 3 and climbing 1,200 meters over 95 kms resulting in a grade of approximately 1.2%. 4 The total length of bridges and tunnels is km, accounting for 75.7% of the alignment. The complex terrain, coupled with the increased weight, speed, and number of trains, adds to the importance of the safety of railway operations on the Chengdu Kunming railway line. 10. Value added by ADB assistance. Within this railway line development, ADB's financing will support railway safety equipment that conforms to the best international standards. The cost of the equipment is relatively small compared with the cost of other capital assets or construction of a railway line, but the benefits are significant. For example, investing in a high-quality signaling and information system, trackside defect detectors, and advanced train control systems will ensure that unsafe movements of trains are prevented and train operators have the necessary and complete information needed for safe train operations, including routing, spacing, speed control, protection, and shunting. Since the line has many long tunnels, emergency rescue facilities and procedures are critical in preventing a disaster associated with an accident or a tunnel fire involving a train. The tunnel safety equipment planned for the E Mei Miyi section serves to minimize risk and mitigate any potential casualties. 11. The capacity-building component will assist the executing agency, implementing agency, and the Chengdu Rail Bureau in developing a strong understanding of international best practices in integrating safety and emergency response. Training railway staff in emergency response and evacuation procedures, along with recurrent emergency evacuation drills, will ensure that any emergency involving tunnels can be quickly dealt with by locally stationed personnel. The small 1 Guangtong Kunming opened in 2016, Chengdu E Mei will open in 2017, Miyi Guangtong will open in 2018, and E Mei Miyi will open in This section is currently under construction, and roughly 19% of the works are completed (30 June 2017). 3 The longest tunnel, Xiaoxiangling, is 21 km at the highest elevation of the Chengdu Kunming railway line. 4 A grade of 1.2% means a 12-meter increase in elevation over a 1,000-meter length.

9 3 investment would have a significantly high value addition, allowing considerable leverage of ADB financing. B. Impact and Outcome 12. The impact will be a developed safe, reliable, and efficient rail transport system in southwestern PRC. C. Outputs 13. Output 1: Railway signaling, communication, and power supply system developed. This will include signaling and communication equipment to improve train operation safety, such as centralized train dispatching and monitoring, automatic block signaling, interlocking devices, and train control systems. This will also cover procurement of electric power supply, and bridge bearings for the safety of railway bridges Output 2: Tunnel safety operation and monitoring system installed. This will comprise tunnel equipment to enhance safety. The equipment will cover lighting, ventilation, firefighting and fire control systems, and emergency rescue and disaster management systems. 15. Output 3: Institutional capacity for railway safety management enhanced. This will help build the capacity for railway safety measures and technology. Working with the executing agency, the design institutes, and the railway administrations, the existing institutional arrangements for integrating safety measures in railway management will be reviewed, and recommendations made to make these more strategic and focused. Staff from pertinent government agencies will receive training on railway safety, disaster prevention, and emergency tunnel rescue operations to better equip them to handle rescue efforts in the event of a tunnel accident. About 100 staff from executing and implementing agencies will be trained, and technical exchanges on advanced technologies and new maintenance techniques will be organized to familiarize staff in these areas. II. IMPLEMENTATION PLAN A. Project Readiness Activities Table 1: Project Readiness Activities 2017 Q1 Q2 Q3 Q4 Responsible Indicative Activities J F M A M J J A S O N D 1. Establish project implementation arrangements CRC, CKRC 2. Loan negotiations CRC, MOF, ADB 3. ADB Board approval ADB 4. Loan signing CRC, MOF 5. Government legal opinion provided CRC, MOF 6. Government budget inclusion CRC, MOF 7. Loan effectiveness CRC, MOF, ADB ADB = Asian Development Bank, CRC = China Railway Corporation, CKRC = Chengdu-Kunming Railway Corporation, MOF = Ministry of Finance. Source: Asian Development Bank. 5 Installation of bridge bearings will be done as part of civil works contracts, which are domestically financed.

10 4 B. Overall Project Implementation Plan Table 2: Overall Project Implementation Plan Activities A. Design and Monitoring Framework Output 1: Railway Signaling, Communications, and Power Supply System 1.1. Develop technical specifications 1.2. Procure and install equipment and related systems 1.3. Conduct trial Operations Output 2: Tunnel Operation and Monitoring System 2.1. Develop technical specifications 2.2. Procure and install equipment and related systems 2.3. Conduct trial Operations Output 3: Institutional Capacity Development for Railway Safety 3.1. Recruit capacity building consultants 3.2. Identify staff for training 3.3. Provide training B. Management Activities 1. Annual review missions 2. Project completion Source: Asian Development Bank

11 5 III. PROJECT MANAGEMENT ARRANGEMENT A. Project Implementation Organization: Roles and Responsibilities 16. The executing agency will be the China Railway Company (CRC), and will be responsible for overall project implementation. The Planning and Statistics Department of the CRC, will coordinate and supervise project preparation, while the Material Department of the CRC will be responsible for supervising procurement and project implementation. 17. The implementing agency will be the Chengdu-Kunming Railway Corporation (CKRC), which is a joint-venture shareholding company established under the PRC company law. The shareholders are the China Railway Development Fund Company Ltd., Chengdu Railway Bureau (both under CRC) and Sichuan Provincial Railway Industry Investment Group Ltd. (under Sichuan Provincial Government). CKRC is responsible for project construction, operations management, finance and accounting and maintenance of infrastructure assets. 18. CKRC will be responsible for coordinating and implementing all project components. CKRC does not have any previous ADB or World Bank project experience, and the staff is not familiar with ADB procurement policies and procedures. The executing agency has engaged a tendering company to assist in procurement. Further support will be provided by engaging a consulting team under Output 3 for guiding and training the staff in the implementing agency. 19. The project will be implemented over 7 years from September 2017 to June The longer implementation period is due to the fact that this project is linked to the construction of the railway line. All procurement to be financed under the ADB loan will be carried out in accordance with ADB s Procurement Guidelines (2015, as amended from time to time). All consultant services will be recruited in accordance with ADB s Guidelines on the Use of Consultants (2013, as amended from time to time). 20. The implementation arrangements are summarized in Table 3. Table 3: Project Implementation Organizations Roles and Responsibilities Project Implementation Organizations Management Roles and Responsibilities China Railway Responsible for overall project implementation and coordination; Corporation, the executing Signing the on-lending Agreement for the project; agency Assist in the preparation activities of signing loan agreement and project agreement; Administration of the imprest account; Endorse to ADB the authorized staff with approved signatures for withdrawal applications processing; and Process and submit to ADB withdrawal applications and reimbursement requests and, if required, requests for reallocating the loan proceeds. Recruit procurement agent; Provide guidance to CKRC on project implementation to ensure compliance with the loan covenants; Supervise financial management system in CKRC, and conduct financial audits as per agreed timeframe; Coordinate and supervise the progress of approval procedures; Monitor and evaluate the project development outcome and activities, and propose the recommendations and suggestions; Review and approve the project design and budgets in the light of its administrative authority; Review bidding documents submitted by CKRC, oversee the procurement activities, and ensure the bidding document preparation,

12 6 Project Implementation Organizations Chengdu-Kunming Railway Corporation, the implementing agency Management Roles and Responsibilities bid opening, bid evaluation and contract award are in compliance with guidelines; Monitor the financial aspects of project implementation and providing respective coordination and facilitation; Coordinate with the implementing agency and design institute to complete designs and budgets to be submitted to ADB in timely manner; Regularly review and check work quality, progress, safety, land acquisition and resettlement, fund utilization, and implementation of environment protection measures in the light of administrative authority so as to ensure compliance with agreements; Review project progress reports (including progress, quality, safety, design variation, etc.), project completion report, and their timely submission to ADB; Review work statement, and ensure timely allocation of counterpart funds; Cooperate with related departments to conduct financial audits as per agreed timeframe; Provide agreed counterpart funds for project activities at a timely manner; Recruit consultants; Organize and implement the training program; and Provide assistance for post evaluation of the project as needed. Prepare withdrawal applications; Responsible for organizing the construction and management of the components under the project; Submit necessary materials and documents to ADB at the project preparation stage; Develop proposals to update the agreed procurement plan for submission to ADB; Recruit design institute, contractors and construction supervision company; Prepare bid documentation and maintain records of bid opening, bid evaluation, contract award and contract negotiation, etc.; Responsible for implementation and acceptance of completed works of the project components; Responsible for work progress, quality, safety, land acquisition and resettlement, environment protection, contract payment, design variation, closure of the project final accounts, and the handover of works at completion; Prepare progress reports, monitoring reports, evaluation reports and implementation completion report for submission to ADB at a timely manner; Establish strong financial management system and fund utilization control systems, and process withdrawal applications to ensure timely payments to contractors, suppliers and consultants; Review interim payment certificates, variation orders, prepare statement and payment certification, and process payments within the periods defined in the Works contract documents; Accept and take action on the findings and recommendations of the project audit conducted by ADB and/or authorized Government departments; Monitor the work quality, safety and management activities during the implementation period; and providing coordination and facilitation as needed;

13 Project Implementation Organizations Management Roles and Responsibilities Ministry of Finance Borrower representative; Responsible for signing the Loan Agreement; Primarily responsible for supporting CRC in the implementation of the project; and Provide training of CRC on ADB financial documentation requirements, as needed. Asian Development Bank Provide guidance to the executing agency and implementing agency at each stage of the project for smooth implementation in accordance with the agreed implementation arrangements; Conduct regular loan review missions, including midterm and project completion review missions; Review and approve procurement actions; Monitor compliance with all loan covenants including safeguards; Timely processing of withdrawal applications and releasing eligible funds; Review annual audit reports and follow-up on audit recommendations; Regularly update the project performance review reports in coordination with both the CRC and CKRC; and Regularly update the project information documents for public disclosure at ADB website, including the safeguard documents. ADB = Asian Development Bank, CKRC = Chengdu-Kunming Railway Corporation, CRC = China Railway Corporation. Source: Asian Development Bank. B. Key Persons Involved in Implementation 7 Government China Railway Corporation, Executing Agency Mr. Huang Dianhui Director General, Planning and Statistics Department Tel: Fax: Office Address: No. 10 Fuxing Road, Haidian District, Beijing Ms. Zhang Yanfang Director General, Material Management Department Tel: Fax: Office Address: No. 10 Fuxing Road, Haidian District, Beijing Chengdu Kunming Railway Company, implementing agency Mr. Liu Hongrun Director General, Finance Department Tel: Office Address: No. 10 Fuxing Road, Haidian District, Beijing Mr. Wang Xiaobing Deputy General Manager Tel: Fax: Office Address: Floor 16, Zhiyejiazhou, No. 1 Shawandong 2nd Road. Jinniu District, Chengdu, Sichuan Province Mr. Xiong Hua Director, Material and Equipment Management Tel: Fax:

14 8 Ms. Xia Jing Deputy Department Director Planning and Financial Department Tel: Fax: Asian Development Bank Transport Division, East Asia Department Mission Leader Mr. Robert Guild Director Tel: (local)/fax: address: rguild@adb.org 6 ADB Avenue, Mandaluyong City 1550 Metro Manila, Philippines Mr. Sharad Saxena Principal Transport Specialist Transport Division, East Asia Department Tel: /Fax /2426 address: ssaxena@adb.org 6 ADB Avenue, Mandaluyong City 1550 Metro Manila, Philippines

15 9 C. Project Organization Structure China Railway Corporation (Executing Agency) Chengdu Kunming Railway Corporation Planning and Statistics Department Responsible for programming, feasibility study, appraisal, statistics and annual project implementation plan CMC International Tendering Corporation (for biddings and contract awarding) Financial Department Responsible for financial affairs China Railway Eryuan Engineering Group Company (Design Institute) Materials Management Department Responsible for contract management, project implementation, coordination of engineering, information research and dispatching, marketing and business development, techniques and logistics, security and engineering quality. Source: China Railway Corporation.

16 10 IV. COST AND FINANCING A. Cost Estimates Preparation and Revisions 21. The cost estimates were prepared jointly by the executing agency, implementing agency, and ADB with assistance from the project preparatory technical assistance consultant. The sources and basis for cost estimates were reviewed during the project preparation and had been confirmed by related parties. The process was facilitated by a model in excel software which enabled easy updating or revision if necessary. The model is maintained by both implementing agency and ADB. Revision of cost estimates will be conducted when deemed necessary during implementation. The executing agency and the implementing agency will be responsible in proposing and drafting the revision which will be subject to ADB approval. B. Key Assumptions 22. The following key assumptions underpin the cost estimates and financing plan: (i) Exchange rate: CNY = USD1.00 (as of 16 November 2016). (ii) Price contingencies based on expected cumulative inflation over the implementation period are as follows: Table 4: Escalation Rates for Price Contingency Calculation Year Item Average Foreign rate of price inflation 1.4% 1.5% 1.5% 1.5% 1.48% Domestic rate of price inflation 2.3% 2.4% 2.4% 2.4% 2.38% Source: Asian Development Bank. (iii) In-kind contribution is not applicable for this project financing plan. C. Summary Cost Estimates and Financing Plan 23. The total project cost is estimated at about $ million, including taxes and duties (Table 5).

17 11 Table 5: Summary Cost Estimates ($ million) Item Amount a A. Base Cost b 1. Railway signaling, communication, and power supply system Tunnel safety operation and monitoring system Institutional capacity building for railway safety management 2.25 Subtotal (A) B. Contingencies c C. Financing Charges During Implementation d Total (A+B+C) a Includes taxes and duties of $23.37 million to be financed from government resources as counterpart funds through cash contributions. Such amount does not represent an excessive share of the project cost. b In June 2016 market prices. c Physical contingencies computed at 7% of equipment and instruments. Price contingencies computed for foreign exchange components at 1.4% for the first year, 1.5% annually thereafter, for local currency components at 2.3% for first year, 2.4% annually thereafter. d Includes interest and commitment charges. Interest during construction is based on the ADB 5-year fixed swap rate, plus a spread of 0.5%, and additional 0.2% loan maturity premium. A commitment charge for an ADB loan is at 0.15% per year on the undisbursed loan amount. Note: Numbers may not sum precisely because of rounding. Source: Asian Development Bank estimates. 24. The government has requested a loan of $180 million from ADB s ordinary capital resources to help finance the project. The loan will have a 25-year term, including a grace period of 7 years; an annual interest rate determined in accordance with ADB s London interbank offered rate (LIBOR)- based lending facility, a commitment charge of 0.15% per year, and such other terms and conditions set forth in the draft loan and project agreements. Based on the loan terms and government s choice of 10% annuity repayment option, the average loan maturity is years and the maturity premium payable to ADB is 0.20% per year. The interest charges will not be capitalized. 25. The summary financing plan is in Table 6. The loan will finance 20.93% of the project cost, including equipment, materials, and institutional strengthening. The government will finance the remaining $680 million through counterpart funds provided by the CRC and domestic commercial bank loans. 26. The Government of the PRC is the borrower of the loan and will relend the loan to the CRC on the same terms and conditions as those of the ADB loan. The CRC will assume the foreign exchange and interest variation risks of the ADB loan, including contingencies. The PRC, the CRC, and the CKRC have assured ADB that counterpart funding will be provided in a timely manner, including any additional counterpart funding required for any shortfall of funds or cost overruns. Except as ADB may otherwise agree, the terms for such on lending arrangements shall include: (i) commitment charge and interest at the rates identical to those applied to the loan; (ii) a grace period and a principal repayment period identical to those applied to the loan; and (iii) the CRC bearing the foreign exchange and interest rate variation risks. 27. The borrower shall cause the CRC to apply the proceeds of the loan to the financing of expenditures on the project in accordance with the provisions of the Loan Agreement and the Project Agreement.

18 12 Table 6: Financing Plan ($ million) Amount ($ million) Share of Total (%) Source Asian Development Bank Government Domestic Commercial Bank Total Source: Asian Development Bank estimates.

19 13 D. Detailed Cost Estimate by Expenditure Category Table 7: Cost Estimate by Expenditure Category CNY (million) USD (million) Foreign Local Total Foreign Local % of Total Base Cost Item Total Exchange Currency Cost Exchange Currency Cost a A. Investment Cost b 1 Installation of Equipment , , Mechanical and Equipment 1, , Consultants (a) Capacity building (b) Project administration cost Subtotal (A) 1, , , B. Contingencies c 1 Physical Price Subtotal (B) C. Financing Charges During Implementation d 1 Interest During Implementation Commitment Charges Subtotal (C) Total Project Cost (A+B+C+D) 1, , , a Includes taxes and duties of $23.37 million to be financed from government resources as counterpart funds through cash contributions. b In June 2016 market prices. c Physical contingencies computed at 7% of equipment and instruments. Price contingencies computed for foreign exchange components at 1.4% for the first year, 1.5% annually thereafter, for local currency components at 2.3% for first year, 2.4% annually thereafter. d Includes interest and commitment charges. Interest during construction is based on the ADB 5-year fixed swap rate, plus a spread of 0.5%, and additional 0.2% loan maturity premium. A commitment charge for ADB loan is at 0.15% per year on the undisbursed loan amount. Note: Numbers may not sum precisely because of rounding. Source: Asian Development Bank estimates.

20 14 E. Allocation and Withdrawal of Loan Proceeds Table 8: Allocation and Withdrawal of Loan Proceeds CATEGORY ADB FINANCING No Item Amount Allocated for ADB Financing ($) Percentage and Basis for Withdrawal 1 Project Cost* 180,000, % of total expenditure claimed Total 180,000,000 * Subject to the condition for withdrawal described in paragraph 5 of Schedule 3.

21 15 F. Detailed Cost Estimate by Financier Item Table 9: Cost Estimates by Financier ($ million) Amount (Costs) ADB % of Cost Category Domestic Commercial Bank Loans Amount (Costs) % of Cost Category Amount (Costs) Government Amount (Taxes and Duties) Amount (Total) % of Cost Category A. Investment Costs b 1 Installation of Equipment Equipment Mechanical and other related costs Consultants (a) Capacity building (b) Project administration cost Subtotal (A) B. Contingencies c 1 Physical Price Subtotal (C) C. Financing Charges During Implementation d 1 Interest During Construction Commitment Charges Subtotal (D) Total Project Cost (A+B+C+D) a Includes taxes and duties of $23.37 million to be financed from government resources as counterpart funds through cash contributions. b In June 2016 market prices. c Physical contingencies computed at 7% of equipment and instruments. Price contingencies computed for foreign exchange components at 1.4% for the first year, 1.5% annually thereafter, for local currency components at 2.3% for first year, 2.4% annually thereafter. d Includes interest and commitment charges. Interest during construction is based on the ADB 5-year fixed swap rate, plus a spread of 0.5%, and additional 0.2% loan maturity premium. A commitment charge for ADB loan is at 0.15% per year on the undisbursed loan amount. Note: Numbers may not sum precisely because of rounding. Source: Asian Development Bank estimates. Total Costs a

22 16 G. Detailed Cost Estimate by Outputs Item Table 10: Cost Estimate by Outputs ($ million) Total Cost a Railway Signaling, Communication, and Power Supply System Amount % of Cost Category Tunnel Safety Operation and Monitoring System Amount % of Cost Category Institutional Capacity Development for Railway Safety Management % of Cost Amount Category A. Investment Costs b 1 Installation of Equipment Mechanical and Equipment Consultants (a) Capacity building (b) Project administration cost Subtotal (A) B. Contingencies c 1 Physical Price Subtotal (B) C. Financing Charges During Implementation d 1 Interest During Implementation Commitment Charges Subtotal (C) Total Project Cost (A+B+C) a Includes taxes and duties of $23.37 million to be financed from government resources as counterpart funds through cash contributions. b In June 2016 market prices. c Physical contingencies computed at 7% of equipment and instruments. Price contingencies computed for foreign exchange components at 1.4% for the first year, 1.5% annually thereafter, for local currency components at 2.3% for first year, 2.4% annually thereafter. d Includes interest and commitment charges. Interest during construction is based on the ADB 5-year fixed swap rate, plus a spread of 0.5%, and additional 0.2% loan maturity premium. A commitment charge for ADB loan is at 0.15% per year on the undisbursed loan amount. Note: Numbers may not sum precisely because of rounding. Source: Asian Development Bank estimates.

23 17 H. Detailed Cost Estimate by Year Item Table 11: Cost Estimate by Year ($ million) Total Cost a (Year 1) (Year 2) (Year 3) (Year 4) (Year 5) (Year 6) A. Investment Costs b 1 Installation of Equipment Mechanical and Equipment Consultants (a) Capacity building (b) Project administration cost Subtotal (A) B. Contingencies c 1 Physical Price Subtotal (B) C. Financing Charges During Implementation d 1 Interest During Implementation Commitment Charges Subtotal (C) Total Project Cost (A+B+C) % Total Project Cost a Includes taxes and duties of $23.37 million to be financed from government resources as counterpart funds through cash contributions. b In June 2016 market prices. c Physical contingencies computed at 7% of equipment and instruments. Price contingencies computed for foreign exchange components at 1.4% for the first year, 1.5% annually thereafter, for local currency components at 2.3% for first year, 2.4% annually thereafter. d Includes interest and commitment charges. Interest during construction is based on the ADB 5-year fixed swap rate, plus a spread of 0.5%, and additional 0.2% loan maturity premium. A commitment charge for ADB loan is at 0.15% per year on the undisbursed loan amount. Note: Numbers may not sum precisely because of rounding. Source: Asian Development Bank estimates.

24 18 I. Contract Awards and Disbursement S-Curve Table 12: Project Contract Awards and Disbursement (by quarter) Year Contract Awards Disbursement Q1 Q2 Q3 Q4 Total Q1 Q2 Q3 Q4 Total Table 13: Project Contract Awards and Disbursement (cumulative) Contract Awards Disbursement Figure 1: Contract Awards and Disbursement Projections Contract Awards Disbursements

25 19 J. Fund Flow Mechanism Asian Development Bank People s Republic of China Borrower Ministry of Finance Direct Payment China Railway Corporation Executing Agency IMPREST ACCOUNT Withdrawal applications Suppliers, Contractors, and Consultants Claims Flow of Funds Repayment Flow of documents (withdrawal applications, claims)

26 20 A. Financial Management Assessment V. FINANCIAL MANAGEMENT 28. The financial management assessment (FMA) was carried out for the project in accordance with ADB s Guidelines for the Financial Management and Analysis of Projects and the Financial Due Diligence: A Methodology Note. 6 The FMA considered the capacity of the CRC and CKRC including funds-flow arrangement, staffing, accounting and financial reporting systems, financial information systems, policies and procedures, and internal and external auditing. The instrument used for the assessment was ADB s financial management assessment questionnaire. The assessment also included review on relevant information and documents submitted by the CRC and CKRC, including their audited financial statements for recent years and information collected from the interviews with key financial staff. 29. Based on the assessment, the financial management systems and procedures in the CRC and CKRC are in place to perform proper financial management and reporting. Their accounting procedures are aligned with the regulations and policies issued by the Ministry of Finance, which are considered effective and adequate for the project. CRC have extensive project experience with international financial institutions including the World Bank, ADB, and other bilateral financial institutions. ADB has financed 20 rail projects for a total of nearly 6,000 km. The experience gained from projects in the railway sector by the CRC will be transferred to CKRC which will mitigate the risk of CKRC s unfamiliarity with ADB's guidelines and procedures on procurement and disbursement. The financial management capacities of CRC and CKRC are summarized in Table The overall financial management risk-rating of the project before considering mitigating measures is moderate. The moderate rating is based on the potential financial management risks of lack of familiarity with ADB disbursement procedures and requirements on financial reporting and auditing; delays in provision of or inadequate counterpart funding; and inadequate experience in building some project component such as signaling and supervisory control systems for traffic control that could impact project progress and quality of the services to be provided after project completion. It is recommended that the executing agency and the implementing agency strengthen their financial management capability by undertaking training, particularly on ADB policy and procedural requirements on financial management and disbursement. 6 ADB Financial Management and Analysis of Projects. Manila.; ADB Financial Due Diligence: A Methodology Note. Manila.

27 21 Table 12: Financial Risk Mitigation Plan Risk Risks Assessment Risk Mitigation Measures 1. CRC and CKRC L CRC and CKRC have significant project implementation experiences. 2. Accounting Policies and Procedures L CRC and CKRC have adopted new Accounting Standards for Business Enterprises approved by MOF since 2007, which is consistent with the international accounting standards on a project accounting level. CRC and CKRC have established a complete system in budget management and asset management by 3. Funds flow/disbursement arrangements, Use of Imprest Account, Use of Direct Payment arrangements L applying enterprise resource planning. CRC has implemented a number of ADB Projects. Past experience has indicated that CRC has sufficient experience and capacity to handle withdrawal applications and manage imprest account. Capacity training on ADB requirements and procedures of disbursement and procurement will be provided to ensure all related staff at CKRC can understand ADB s procedures and standards in advance. 4. Staffing L The CKRC has six finance staff in charge of payments and preparation of withdrawal applications, and financial reporting. CKRC will explore the possibility to hire additional staff according to the need of the project implementation. 5. Internal Audit M CRC has built up a sophisticated internal audit system which is running effectively with permanent auditors and part-time auditors working in 157 audit units at various levels of CRC. CRC s internal audit function will cover CKRC s operation as well. Separating the accounting and internal auditing functions at CKRC will be further pursued. 6. External Audit L [People s Republic of] China National Audit Office will undertake the annual audit on the project account and project financial statements in accordance with International Standards on Auditing and the Government Auditing Standards of the PRC during implementation. 7. Reporting and Monitoring M An external audit firm a is hired for the annual auditing of CKRC s financial statements. CKRC will report and monitor the project and communicate with CRC. The current routine practice of reporting and monitoring at CKRC and CRC is adequate for the monitoring purposes of the project. CKRC will prepare project financial statements in accordance with Accounting Methods mandated by the Ministry of Finance. These financial statements will be submitted to CRC for review and confirmation. The audited agency financial statements of CKRC will be submitted to ADB during implementation to supplement the audited project financial statements.

28 22 Risks Risk Assessment Risk Mitigation Measures 8. Information Systems L CRC and CKRC use computerized accounting systems which produce financial statements automatically. Overall Control Risk (before mitigation action) M Implementing the mitigation actions mentioned above will reduce the control risks from moderate to low. a Beijing Zhong Lu Hua Certified Public Accountants Company Ltd. is a well-established auditing firm with a large number of qualified auditors and has many years of auditing experience in the railway sector. ADB = Asian Development Bank, CKRC = Chengdu-Kunming Railway Corporation, CRC = China Railway Corporation. Source: Asian Development Bank. B. Disbursement 31. The loan proceeds will be disbursed in accordance with ADB s Loan Disbursement Handbook (2017, as amended from time to time), 7 and detailed arrangements agreed upon between the government and ADB. Online training for project staff on disbursement policies and procedures is available. 8 Project staff are encouraged to avail of this training to help ensure efficient disbursement and fiduciary control. 32. The CKRC will be responsible for (i) collecting supporting documents and (ii) preparing and sending withdrawal applications through CRC to ADB. 33. Imprest fund procedure. To facilitate project implementation and funds flow, an imprest account may be set up in a commercial bank upon loan effectiveness. The account will be in US Dollar, and will be managed by the CRC. The imprest account is to be used exclusively for ADB s share of eligible expenditures. The CRC who established the imprest account in its name is accountable and responsible for proper use of advances to the imprest account. The total outstanding advance to the imprest account should not exceed the estimate of ADB s share of expenditures to be paid through the imprest account for the forthcoming 6 months. The government may request for initial and additional advances to the imprest account based on 6 months estimated expenditures to be financed through the imprest account. The imprest account will be established, managed, and liquidated in accordance with ADB s Loan Disbursement Handbook (2017, as amended from time to time) and detailed arrangements agreed by the Government and ADB. ADB s Loan Disbursement Handbook (2017, as amdended from time to time) describes which supporting documents should be submitted to ADB and which should be retained by the Government for liquidation and replenishment of an imprest account. 34. Before the submission of the first withdrawal application, the borrower should submit to ADB sufficient evidence of the authority of the person(s) who will sign the withdrawal applications on behalf of the borrower, together with the authenticated specimen signatures of each authorized person. The minimum value per withdrawal application is US$200,000 equivalent. Individual payments below this amount should generally be paid (i) by the executing agency/implementing agency and subsequently claimed to ADB through reimbursement, or (ii) through the imprest fund procedure, unless otherwise accepted by ADB. 35. Statement of expenditure procedure. 9 Statement of expenditures may be used for liquidation and replenishment of the imprest account and to reimburse eligible expenditures for any 7 Available at: 8 Disbursement elearning. 9 SOE forms are available in Appendix 7B of ADB s Loan Disbursement Handbook (2017, as amended from time to time).

29 23 individual payment not exceeding $100,000 equivalent to expedite fund flows. Payments in excess of the statement of expenditures ceiling will reimbursed, liquidated, or replenished based on the full supporting documentation process. Statement of expenditure records should be maintained and made readily available for review by ADB's disbursement and review mission or upon ADB's request for submission of supporting documents on a sampling basis, and for independent audit. C. Accounting 36. The CKRC should maintain project accounts and have them audited. The CKRC should submit project financial statements in accordance with the Government's accounting laws and regulations which are consistent with international accounting principles and practices. The audited entity financial statements of CKRC will be submitted to ADB during implementation to supplement the audited project financial statements. D. Auditing and Public Disclosure 37. The CRC through the CKRC will cause the project financial statements to be audited in accordance with International Standards on Auditing and with the Government s audit regulations, by an independent auditor acceptable to ADB. The audited project financial statements will be submitted in the English language to ADB within six months of the end of the fiscal year by the CKRC. 38. The annual audit report for the project accounts will include an audit management letter and audit opinions which cover (i) whether the project financial statements present a true and fair view or are presented fairly, in all material respects, in accordance with the applicable financial reporting framework; (ii) whether loan proceeds were used only for the purposes of the project; (iii compliance with financial covenants, where applicable. 39. Compliance with financial reporting and auditing requirements will be monitored by review missions and during normal program supervision, and followed up regularly with all concerned, including the external auditor. 40. The CRC and CKRC have been made aware of ADB s policy on delayed submission, and the requirements for satisfactory and acceptable quality of the audited project financial statements. 10 ADB reserves the right to require a change in the auditor (in a manner consistent with the constitution of the borrower), or for additional support to be provided to the auditor, if the audits required are not conducted in a manner satisfactory to ADB, or if the audits are substantially delayed. ADB reserves the right to verify the project's financial accounts to confirm that the share of ADB s financing is used in accordance with ADB s policies and procedures. 10 ADB Policy on delayed submission of audited project financial statements: (i) When audited project financial statements are not received by the due date, ADB will write to the executing agency advising that (a) the audit documents are overdue; and (b) if they are not received within the next six months, requests for new contract awards and disbursement such as new replenishment of imprest accounts, processing of new reimbursement, and issuance of new commitment letters will not be processed. (ii) When audited project financial statements have not been received within 6 months after the due date, ADB will withhold processing of requests for new contract awards and disbursement such as new replenishment of imprest accounts, processing of new reimbursement and issuance of new commitment letters. ADB will (a) inform the executing agency of ADB s actions; and (b) advise that the loan may be suspended if the audit documents are not received within the next six months. (iii) When audited project financial statements have not been received within 12 months after the due date, ADB may suspend the loan.