Technical Assistance to the People s Republic of China for Preparing the Railway Development Project

Technical Assistance TAR: PRC 39153 Technical Assistance to the People s Republic of China for Preparing the Railway Development Project September 2005

CURRENCY EQUIVALENTS (as of 14 August 2005) Currency Unit yuan (CNY) CNY1.00 = $0.1235 $1.00 = CNY8.1002 ABBREVIATIONS ADB Asian Development Bank EIA environmental impact assessment GMS Greater Mekong Subregion MOR Ministry of Railways PRC People s Republic of China TA technical assistance YMR Yuxi Mengzi railways TECHNICAL ASSISTANCE CLASSIFICATION Targeting Classification General intervention Sector Transport and communications Subsector Railways Theme Sustainable economic growth Subthemes Promoting economic efficiency and enabling markets, fostering physical infrastructure development (i) (ii) NOTES The fiscal year (FY) of the Government and its agencies ends on 31 December. In this report, $ refers to US dollars. This report was prepared by: Mission Leader: M. Parkash, Transport and Communications Division Other Team Member: S. Ferguson, Transport and Communications Division Director: N. Rayner, Transport and Communications Division Director General: H. Satish Rao, East and Central Asia Department Vice President: J. Eichenberger, Operations Group 2

I. INTRODUCTION 1. The Government of the People s Republic of China (PRC) requested technical assistance (TA) from the Asian Development Bank (ADB) for preparing the Railway Development Project. 1 ADB conducted a fact-finding mission in June July 2005, carried out an initial poverty and social assessment and a rapid environmental assessment, and discussed technical and socioeconomic issues with representatives of the Government, Yunnan provincial and local governments, and the Ministry of Railways (MOR). An understanding was reached with the Government on the goals, purpose, scope, implementation arrangements, cost, financing arrangements, and terms of reference for the TA. The TA is included in ADB's country assistance program for 2005. 2 The design and monitoring framework is in Appendix 1. II. ISSUES 2. The PRC has experienced sustained rapid economic growth since market-oriented economic reforms were introduced in 1978. This has resulted in a rapid increase in demand for transportation. Passenger transport grew by 9.0% per year between 1978 to 2004 and freight transport grew by 7.6% per year. Road traffic accounted for 53.7% of total passenger-kilometers (km) in 2004, followed by railways at 35.0%, civil aviation at 10.9%, and coastal and inland waterways at 0.4%. The modal split for freight ton-km was 58.4% for coastal and inland waterways, 28.9% for railways, 11.4% for roads, 1.2% for pipelines, and 0.1% for civil aviation. 3. Rapid economic growth led to high demand for railway transportation, which is the primary mode for long-distance and bulk transport. Between 1978 and 2004, railway freight grew from 535 billion ton-km to 1,929 billion ton-km, equivalent to an annual growth rate of 5.1%. Passenger traffic grew at 6.6% annually, increasing from 109 billion passenger-km to 571.2 billion passenger-km. At the end of 2004, the PRC s railway system comprised 74,400 route-km. Despite such growth rates, railway capacity has lagged behind demand due to railway system constraints. Given the railway s important role in providing economic transportation, these constraints if not removed will continue to adversely affect efficient economic growth. 4. The Government adopted an aggressive plan to improve the railway, and planned network extensions and construction in underserved areas. Government policy on railway development is focused on (i) removing constraints and expanding the system, (ii) encouraging construction of joint-venture local railways to promote local economic development, (iii) improving efficiency by using new technology and modern management tools in planning and operation, (iv) reducing operating subsidies through appropriate pricing and commercialization of services, (v) initiating institutional and structural reforms to increase MOR s autonomy and accountability, and (vi) encouraging nongovernment investment in infrastructure and related services. 5. The Tenth Five-Year Plan (2001 2005) identifies transportation including railway development as a priority. The plan envisages (i) constructing 6,000 km of new lines to provide access to unserved areas to increase the network length to 75,000 route-km by 2005; (ii) constructing 3,000 km of double lines and electrifying 5,000 km of key lines to increase capacity; and (iii) increasing operating speeds on 5,000 km to reach high speeds on the total length of 15,000 km. The plan envisages a total investment of CNY350 billion, including CNY270 billion for capital construction and CNY80 billion for rolling-stock acquisition for the 1 Formerly called Yuxi Mengzi Railway Project. 2 The TA first appeared in the ADB Business Opportunities (Internet edition) on 22 June 2005.

2 railway sector. Investments in capital construction for the railway are expected to reach CNY450 billion from 2003 to 2007. 6. In 2004, the State Council approved the new railway development plan (until 2020), which seeks to expand the railway network from 72,000 km to 85,000 km by 2010 and 100,000 km by 2020. Increasing train speed is identified as a major goal. Train speeds will be raised to over 200 km per hour on the trunk network by 2020. Priority will be given to the development of railways in unserved areas and regions, which lack transport and are less developed. The route network length will increase by 16,000 km in the western region of the PRC, to reach a network length of 40,000 km by 2020. To improve operational efficiency, steps will be taken to separate passenger and freight trains on key rail corridors. 7. Japan is the major source of external financing in the PRC railway sector, followed by ADB and the World Bank. Since 1979, Japan has provided about Y558 billion for 15 railway projects to expand rail transportation capacity. Since 1984, the World Bank has provided 10 loans totaling over $2.4 billion for (i) nine national railway projects to expand railway capacity on high-priority corridors, modernize system wide technology, and strengthen institutional capabilities; and (ii) one local railway project. ADB focused on the development of railways in less-developed inland provinces, to promote growth and reduce poverty. ADB provided 13 loans, totaling about $2.6 billion, to finance the construction of about 1,921 km of provincial railways and 4,597 km of national railway projects. 8. ADB's operational strategy in the PRC focuses on (i) expanding the railway system in unserved, less-developed, and poor areas; (ii) modernizing and increasing the capacity of key national railway system routes to improve transport efficiency; (iii) commercializing railway operations to sustain efficient operations; and (iv) increasing railway competitiveness in the transport sector through restructuring and policy reform. The strategy will continue to focus on railway development in underserved areas in poor interior provinces, to link lower-income regions with growth centers and facilitate pro-poor growth. Policy issues addressed include corporatization, marketing and business development, and tariff-setting with improved cost recovery. ADB enhanced policy dialogue with MOR and is providing technical assistance support for MOR policy reforms. 3 This consultation will continue to further reforms in the sector. 9. The Project envisages the construction of 141 km of Class I electrified railway line and 13 new railway stations, with subgrades, bridges, and tunnels. Tunnels and bridges will comprise 51.5% of the route length because of hills along the Yuxi-Mengzi railway route. The railway will cross Yunnan province from Yuxi running southward through the Yuxi district and Honghe prefecture to Mengzi in the southwest. The project area includes two cities and three counties with a total population of about 3.56 million in Yuxi city, Tonghai county, Jianshui county, Geiju city, and Mengzi county. The total rural population is about 2.8 million about 0.44 million (15.7%) live below the poverty line, including inhabitants in 259 poverty villages that do not have access to highway (65 villages), electricity (17 villages), telephone (78 villages), and good drinking water (440 villages). In the project area, 34.1% of inhabitants are from ethnic minorities mainly Yi, Hani, Dai, Hui, and Meng, with smaller concentrations of Miao and Lago. The proposed railway project will directly benefit a significant number of the poor, especially through the construction of 13 new railway stations. The proposed Project will cause resettlement due to the requirements of the new alignment and construction of new railway stations. Total land acquisition area is estimated at 617.3 hectares (ha) of permanent land and 3 ADB. 2004. Technical Assistance to the People s Republic of China for World Trade Organization-Policy Reform Support to the Ministry of Railways. Manila.

3 113.6 ha of temporary land. In addition, the Project will displace 55,105 square meters (m 2 ) of structures and relocate 460 households. 4 10. The rationale for the Project reflects the need to (i) develop the railway network; (ii) enhance capacity; (iii) enhance regional cooperation; (iv) reduce energy consumption and environmental pollution; (v) meet the needs of the new railway development plan and the western region development strategy; and (vi) promote pro-poor economic growth along the line and in the region. The proposed railway line will connect with the Kunming-Chengdu, Kunming- Guiyang, Kunming-Nanning, Kunming-Neijiang main lines, and Kunming-Lijiang 5 through the Kunming-Kunyang-Yuxi railway line in the north and Mengzi-Hekou in the south, to the LaoCai- Hanoi-Ho Chi Minh city and Haiphong port in Viet Nam. This line extends northward to Chengdu and Nanning, connecting with the Chen-Kun and Nan-Kun routes; and westward to Hekou to connect with the Kun-Hue line. The existing meter gauge Kun-Hue railway line built in 1903 is in poor condition and cannot meet existing traffic demand, so capacity must be added. The existing highway runs between Kunming and Mengzi only. 11. Once completed, the connection will provide the shortest link from Kunming to Hekou and connect to the proposed pan-asian railway to Viet Nam, Cambodia, Thailand, Malaysia, and Singapore. The Project will provide access to Haiphong port in Viet Nam 6, and South and Southeast Asia promoting regional cooperation in the Greater Mekong Subregion. The railway is the most energy efficient and environmentally friendly mode of transport and is at least six times more fuel-efficient than the best mode of road transport. The electric line will have small energy requirements and cause minimal environmental pollution. The proposed Project will be a joint-venture railway project, with equity participation from MOR and Yunnan provincial government. 12. The project area has large mineral reserves and is rich in food grains and forest produce. It has chemical, engineering, cement, and manufacturing industries and a number of tourist sites. The proposed railway will pass through an alignment area that has remained cut off from mainstream development, due to lack of transportation and its remote location. Poor accessibility and lack of economic transport impeded economic growth in the resource rich area. The region has many tourist spots and potential is enormous. This can be maximized with the development of the railway line, as the line will provide much-needed economic, reliable, and safe transport. The provincial and local governments and people living in the project area view the railway as a key investment crucial to create employment and income-generating activities and a prerequisite for reducing poverty. 13. The proposed railway will carry both passenger and freight traffic and help develop the railroad network in an unserved area. It is included in MOR s updated Tenth Five-Year Plan, as well as the railway development plan, and will support the Government s western region development strategy. By the year 2012 and 2020, the project railway is expected to carry 7 million tons of freight and 1.3 million passengers, and 9 million tons of freight and 1.7 million passengers, respectively. This will facilitate economic development and integration of the poor western region; and stimulate industrial and natural resources development, and tourism and related industries. It will also increase local people s access to market and social services, and allow them to improve their standard of living. ADB-financed railway projects show that such 4 These estimates are preliminary and will be revised during the project preparatory TA. 5 Part of this is financed by ADB under ADB. 2004. Report and Recommendation of the President to the Board of Directors on Proposed Loan to the People s Republic of China for the Dali-Lijiang Railway Project. Manila, which is currently under implementation. 6 ADB is supporting the development of Kunming Haiphong corridor and is considering financing improvements on the existing railway line from Lao Cai to Haiphong in Viet Nam.

4 projects create jobs in construction and loading and unloading operations, as well as other income-generating activities. 7 Lower transportation costs after project completion will make goods and services available at lower prices and allow local people to sell their produce to broader markets. The railway will offer more affordable, reliable, and punctual transport. The Project is consistent with ADB s country operational strategy and will support the Government s strategic policy objective of greater developmental emphasis on poor, interior, and underserved areas of the PRC by improving transport links with growth centers. 14. The National Development Reforms Commission approved the project proposal on 25 February 2005. MOR has prepared a feasibility study with cost estimates and traffic forecasts. The Yunnan provincial government has established a project leading group and confirmed that all cities/counties to be affected by resettlement have implemented locally-funded projects involving resettlement. Resettlement under the Project will be implemented according to national laws, provincial regulations, and ADB s Policy on Involuntary Resettlement. 15. ADB has pursued the introduction of operational reforms and enhanced railway safety with MOR, which is in a transition phase and is upgrading its technology and systems. It is adopting high-speed passenger train and heavy load freight train operation systems. These developments require an urgent comprehensive approach to safety development on PRC railways. ADB is supporting a separate additional project component to promote sustainable safety systems, and help MOR modernize and upgrade its existing management systems and technology to meet current and future requirements of safe, reliable train operation. MOR is preparing a draft feasibility study detailing the rationale, objective, scope and components, cost estimates, and monitoring indicators for this component. III. THE TECHNICAL ASSISTANCE A. Impact and Outcome 16. The TA aims to (i) assist the Government in reviewing and strengthening the two feasibility studies, EIA, resettlement plan, and related studies to meet ADB's financing requirements; (ii) identify policy measures and institutional development needs to improve railway safety, operational efficiency and management, and ensure financial sustainability of operations; and (iii) identify social dimensions to be incorporated in project design (including measures to enhance social development and reduce poverty in the project area). The outcome will be the design of a project suitable for ADB financing. B. Methodology and Key Activities 17. The TA will (i) review and strengthen the two feasibility studies to meet ADB requirements for (a) technical aspects (railway safety, construction, and operation); (b) economic and financial analyses (including a review of the traffic forecast and financial performance of project facility operations); and (c) financial management assessment (including a review of budgetary and planning control, financial and management accounting, and internal control and audit systems); (ii) develop a set of verifiable performance indicators (including socioeconomic and poverty) and a sustainable monitoring mechanism for during and after construction; (iii) recommend policy measures to improve railway safety, enhance operational efficiency and management, and assess specific institutional development needs to 7 In the ADB-financed Daxian Waxian Railway Project, the average net income along the proposed alignment of the railway increased by 25% in real terms during the construction period. The average real increase in Chongqing for the same period was approximately 10%. Education is often the first spending priority for families. Increased income has reportedly led some poor people out of debt for the next generation s education.

5 commercially operate the project facilities and ensure financial sustainability; (iv) review potential for private sector participation in construction, provision of services, and tourism development; (v) review and update EIA and prepare a summary EIA with appropriate environmental monitoring and management plans; (vi) review and refine the resettlement plan to ensure compliance with ADB s Policy on Involuntary Resettlement and relevant operations manuals; (vii) review the initial poverty and social assessment; carry out a detailed poverty, social and gender analysis (including a baseline gender-disaggregated socioeconomic profile of project area inhabitants); and prepare relevant mitigation and enhancement measures (Appendix 2); (viii) prepare a development plan for ethnic minorities, according to ADB guidelines; and (ix) undertake distribution analysis of the Project and associated developments on poverty reduction (including poverty impact). Key activities are field surveys; document review; data analysis; and consultations with stakeholders (including government officials, project beneficiaries, and project-affected people ethnic minorities, women, and the poor). C. Cost and Financing 18. The cost of the TA is estimated at $670,000 equivalent, comprising $376,000 in foreign exchange and $294,000 equivalent in local currency costs (Appendix 3). The Government requested that ADB finance $500,000 equivalent to cover the entire foreign exchange cost and $124,000 equivalent of the local currency cost. The TA will be financed on a grant basis by ADB s TA funding program. MOR will provide the remaining $170,000 equivalent in local currency cost for counterpart staff members, office facilities, support services, and local communications. The Government and MOR have been informed that approval of the TA does not commit ADB to financing any ensuing project. D. Implementation Arrangements 19. MOR will be the Executing Agency, with responsibility for supervising and monitoring TA activities. The Government and MOR agreed to provide assistance for the TA. MOR will make available (i) all relevant reports, studies, and information; (ii) suitable office accommodation and appropriate and qualified counterpart staff; (iii) local transport facilities; and (iv) any other assistance that the consultants may reasonably request (including liaison with the Government and local authorities). 20. The TA will require about 39 person-months of consulting services (16 international and about 23 domestic), including fieldwork. The TA will be implemented over 5 months from January to July 2006. ADB will engage the consultants in accordance with its Guidelines on the Use of Consultants and other arrangements satisfactory to ADB for the engagement of domestic consultants. Recruitment of consultants will follow the quality- and cost-based selection method, and simplified technical proposals will be required. The international consultants will have expertise in transport economics, financial analysis, railway safety, railway engineering and operation, institution building, environment, resettlement and social poverty analysis. Expertise required form domestic consultants will be in the fields of transport economics, railway safety, railway engineering and operation, environment, resettlement and social poverty analysis. Appendix 4 gives the outline terms of reference for consulting services. The consultants will procure equipment in accordance with ADB s Guidelines for Procurement. IV. THE PRESIDENT'S DECISION 21. The President, acting under the authority delegated by the Board, has approved the provision of technical assistance not exceeding the equivalent of $500,000 on a grant basis to the Government of the People s Republic of China for preparing the Railway Development Project, and hereby reports this action to the Board.

6 Appendix 1 DESIGN AND MONITORING FRAMEWORK Design Summary Performance Targets/Indicators Data Sources/Reporting Mechanisms Assumptions and Risks Impact An efficient, reliable, and affordable railway transport system is developed in the region. Passenger and freight traffic volumes increased in 2012 and 2020. Travel time reduced from Kunming to Mengzi (8 to 5 hours), and Yuxi to Mengzi (5 to 3 hours) Cost of travel reduced in 2012 Accident rate reduced in 2012 and 2020 MOR statistics and operating data before and after the Project Progress reports Project administration missions and project completion report Postevaluation surveys and reports from EA Local government statistics Assumptions Forecast economic growth rates are achieved Traffic forecasts for the Yuxi-Mengzi railway are realized Users of other transport modes will change to the Yuxi-Mengzi railway Commitment of local governments for local area development is sustained Outcome Project design and feasibility study suitable for ADB financing, agreed by Government and ADB Shops, tourist centers, hotels, and businesses established near station areas by 2012 and 2020 Memorandum of understanding signed by Government and ADB during appraisal mission of October 2006 Memorandum of understanding Assumptions Government willing to address necessary changes in priorities Government obtains additional sources of funding Outputs 1. Technical assessments 2. Project design requirements Inception report submitted to Government and ADB by February 2006 Summary EIA, poverty and social analysis, resettlement plan, and ethnic minorities development plan submitted to Government and ADB by April 2006 ADB document registration Government document registration Assumption Effective stakeholder participation and ownership developed Risks Restricted availability of and access to information and government personnel Draft final report submitted to Government and ADB by May 2006

Appendix 1 7 Activities with Milestones 1.1 Analyze transport demand in the region (by May 2006). 1.2 Assess the adequacy of railway infrastructure (by May 2006). 1.3 Review technical aspects related to railway construction and operation (by May 2006). 1.4. Develop a set of verifiable performance indicators, including socioeconomic and poverty (by May 2006). 1.5 Recommend policy reform measures and institutional development needs (by May 2006). 1.6 Review potential for private sector participation (by May 2006). Inputs ADB: $500,000 16 person-months of international and 23 person-months of domestic consulting services Government: $170,000 2.1 Carry out consultations with stakeholders, including government officials, project beneficiaries, and affected people ethnic minority groups, women, and the poor (February March 2006). 2.2 Undertake social and poverty assessment (by April 2006). 2.3 Complete baseline survey (by March 2006). 2.4 Carry out financial and economic analysis (by April 2006). 2.5 Undertake institutional analysis (by April 2006). 2.6 Complete summary initial environmental examination (by April 2006). 2.7 Prepare resettlement and ethnic minorities development plan, if required (by April 2006). 2.8 Finalize project design and monitoring framework (by May 2006). ADB = Asian Development Bank, EA = executing agency, EIA = environmental impact assessment, MOR = Ministry of Railways.

8 Appendix 2 A. Linkages to the Country Poverty Analysis INITIAL POVERTY AND SOCIAL ANALYSIS Is the sector identified as a national priority in country poverty analysis? Yes No Is the sector identified as a national priority in country poverty partnership agreement? Yes No Contribution of the sector or subsector to reduce poverty in the People s Republic of China: The transport sector and railway subsector contribute to poverty reduction directly through improved access to markets, employment opportunities, and social services, and indirectly by stimulating economic development. B. Poverty Analysis Targeting Classification: General intervention What type of poverty analysis is needed? Poverty analysis will be carried out to assess the impact of the new railway on existing railway services (passenger and freight) that currently serve the poor. The analysis will be carried out following the Asian Development Bank s Handbook on Poverty and Social Analysis and Handbook for Integrating Poverty Impact on Economic Analysis of Projects. C. Participation Process Is there a stakeholder analysis? Yes No Is there a participation strategy? Yes No To be determined D. Gender Development Strategy to maximize impacts on women: The railway project in general will provide equal opportunity to women, and past experience indicates that some of the unskilled jobs are taken by women, which will be included in the project design. Has an output been prepared? Yes No E. Social Safeguards and Other Social Risks Item Resettlement Significant/ Not Significant/ None Significant Not significant None Strategy to Address Issues A resettlement plan will be prepared following the Land Administration Law and ADB policy. The plan will be disclosed to the public and affected people. Internal and external monitoring arrangements will be put in place. Plan Required Full Short None

Appendix 2 9 Item Affordability Significant/ Not Significant/ None Significant Not significant Strategy to Address Issues The proposed tariffs will be lower than current service charges, as rail travel is considerably cheaper than road and other modes of transport hence, more affordable. Plan Required Yes No Labor None Significant Not significant The Project will contribute to creating employment opportunities during construction and will not have any adverse impact on labor issues. Yes No Indigenous Peoples None Significant Not significant None The project impact area includes 34.1% minority nationalities, including Dai, Hani, Yi and others who will be affected by land acquisition. Compensation is addressed in the resettlement plan and additional measures will be taken to enhance their benefits from the project. Yes No Other Risks and/or Vulnerabilities Significant Not significant None The railway will be more affordable, and no negative impacts of ADB intervention are likely. However, these will be further assessed by project preparatory technical assistance consultants. Yes No

10 Appendix 3 COST ESTIMATES AND FINANCING PLAN ($'000) Foreign Local Total Item Exchange Currency Cost A. Asian Development Bank Financing a 1. Consultants a. Remuneration and Per Diem i. International Consultants 290.0 0.0 290.0 ii. Domestic Consultants 0.0 80.0 80.0 b. International and Local Travel 30.0 3.0 33.0 c. Reports and Communications 3.0 2.0 5.0 2. Equipment b 8.0 0.0 8.0 3. Training, Seminars, and Conferences 0.0 2.0 2.0 4. Surveys 0.0 25.0 25.0 5. Miscellaneous Administration and 0.0 2.0 2.0 Support Costs 6. Representative for Contract Negotiations 6.0 0.0 6.0 7. Contingencies 39.0 10.0 49.0 Subtotal (A) 376.0 124.0 500.0 B. Government Financing 1. Office Accommodation and Transport 0.0 60.0 60.0 2. Remuneration and Per Diem 0.0 70.0 70.0 of Counterpart Staff 3. Others 0.0 40.0 40.0 Subtotal (B) 0.0 170.0 170.0 Total 376.0 294.0 670.0 a Financed by the Asian Development Bank s technical assistance funding program. b Including computer hardware and software, photocopier, facsimile machine, and other equipment to be procured under the consultant s contract, in accordance with procedures acceptable to the Asian Development Bank, and whose ownership will be transferred to the Government. Source: Asian Development Bank estimates.

Appendix 4 11 A. Scope of Services OUTLINE TERMS OF REFERENCE FOR CONSULTANTS 1. The scope of the technical assistance (TA) includes (i) railway safety, engineering, and operations; (ii) economic and financial analyses; (iii) policy measures to improve operational efficiency and management; (iv) environmental impact assessment (EIA) report with appropriate environmental monitoring and management plans; (v) resettlement plan; and (vi) poverty, social, and gender analysis, including an ethnic minorities development plan. B. Terms of Reference 2. The tasks under the TA will include, but will not necessarily be limited to, the following: 3. Railway Safety, Engineering, and Operations. The railway safety, engineering, and operations expert will undertake the following tasks: (i) (ii) (iii) (iv) (v) (vi) (vii) (viii) Review the Government s plan for development of a transportation network and other infrastructure in the project area, including the building of the Yuxi Mengzi railways (YMR), upgrading the existing Kunming-Hekou railway, complementary road network, and constructing link and access roads, other infrastructure, and social development programs. Document details of projects and/or programs, giving estimated cost, funding source, implementing agencies, schedules, and benefits envisaged. Review the Government s plan for sustainable safety development of PRC railways, including plans to modernize and upgrade technology and management. Prepare a status paper on safety, clearly identifying the issues and suggesting proposed actions. Recommend issues and actions that could be carried out under the proposed Project. Document details of ongoing and planned projects/programs giving estimated cost, funding source, implementing agency, schedule, and envisaged benefits. Analyze project and alignment alternatives to determine if the least-cost solution is proposed while minimizing environmental impact and involuntary resettlement. Review capacity of connecting railway lines, identify network constraints that may affect traffic to and from the YMR, and review plans for their mitigation. Assess how the Project will enhance regional cooperation with Greater Mekong Subregion (GMS) countries. Evaluate the regional benefits of the proposed railway and suggest options (including intermodal and facilitation measures) to maximize the traffic potential within the People s Republic of China (the PRC) and with the GMS region. Review all technical aspects presented in the two feasibility studies and preliminary designs, including safety aspects during construction and operation and maintainability of the new railway line after its completion. Review and update the cost estimates on the basis of current prices of goods and services (including the costs of environmental mitigation measures and monitoring, land acquisition, and resettlement). Prepare a list of contract packages for ADB financing that may be procured using international competitive bidding procedures, in accordance with ADB s Guidelines for Procurement. Review the implementation arrangements and organizational setup for project management and maintaining project accounts, and recommend any required changes. Prepare an implementation schedule and schedule for disbursement of loan and counterpart funds. Review requirements for tourism development (including provision of facilities and operational arrangements). Assess which of these could be offered to the

12 Appendix 4 (ix) (x) public and/or private sector on a profit-sharing basis to facilitate tourism development in the project area. Review requirements and proposals for passenger stations and station facilities, industrial sidings, and marshalling yards. Make recommendations on how their construction may be facilitated to benefit the railway, passengers and/or users. Examine multimodal issues to enhance the overall positive impact of the Project. Prepare a design and monitoring framework that outlines the impact, outcome, outputs, and activities and inputs under the Project, in accordance with staff instructions on the use of logical frameworks for ADB-assisted loans and TA. 4. Economic Analysis. The transport economist will undertake the following tasks: (i) (ii) (iii) (iv) (v) Include in the economic analysis (a) economic analysis of the Project as further described in this section; (b) economic analysis of the program for development of associated transport infrastructure (such as roads and other infrastructure that would help maximize poverty reduction); (c) economic analysis taking into account items (a) and (b) combined; and (d) distribution analysis, including poverty impact ratios for items (a) and (b) taken separately and combined. All economic analyses should be carried out in accordance with ADB s Guidelines on Economic Analysis of Projects, Handbook for Integrating Poverty Impact Assessment in the Economic Analysis of Projects, and Handbook on Poverty and Social Analysis. Review the project rationale and provide a basis for ADB involvement. Assess the relevance and priority of the Project to the transport sector strategy, ADB s and the Government s development strategies, and the United Nations Millennium Development Goals. Assess service differentiation with road transportation in terms of types of transport services demanded, bus and truck service complementarity, and competition. Review demand for transport of goods by the railway based on origin-destination data and traffic forecast by commodity. Review demand for passenger traffic based on an origin-destination survey. Develop passenger profile for the railway. Subdivide forecast of freight and passengers into categories to show the source of the traffic and enable the benefits of the railway and modal competition to be estimated. Subdivide forecast into traffic diverted from roads, traffic diverted from other modes, and traffic generated. The traffic forecast should cover 25 years from the start of project operation, under basecase and low-case scenarios, which consider experiences gained and lessons learned from similar projects, in which actual traffic was less than forecasts due to delays in implementation of envisaged developmental projects that were expected to provide traffic for the Project and/or any other reasons. Identify all project costs and benefits comparing with and without project situations. Estimate economic internal rate of return on the basis of nonincremental and incremental economic benefits and economic costs (including economic capital, operation, and maintenance costs) in constant economic prices. In an economic analysis, evaluate the environmental aspects and analyze poverty reduction benefits envisaged under the Project. During project operation, include in the economic analysis the effects on poverty reduction through the provision of goods at affordable prices due to more economic and cheaper rail transportation, increased prices of goods received by rural producers at the markets in urban areas, and less costly personal travel. Also include incremental benefits related to the Project. Undertake sensitivity analysis to assess the effects of adverse changes in key assumptions that underline the economic analysis (including but not limited to project costs, traffic, and implementation delays). Express results as a sensitivity

Appendix 4 13 (vi) indicator and a switching value. If the Project is sensitive to the value of a key variable, recommend measures to minimize the risk. Carry out quantitative risk analysis in accordance with ADB s Handbook for Integrating Risk Analysis in the Economic Analysis of Projects. Develop for project monitoring, together with item (i), a set of performance indicators that can be verified and monitored (including operational, financial, environmental, socioeconomic, and poverty reduction parameters). Specify baseline targets for socioeconomic and poverty indicators and a sustainable mechanism for monitoring during and beyond the construction stage. Assess the developmental impact of the Project, focusing on generated economic activities. Draw up a project performance management system. 5. Financial and Institutional. The financial and institutional expert will undertake the following tasks: (i) (ii) (iii) (iv) (v) Undertake financial analysis of the Project following ADB s Guidelines for the Financial Governance and Management of Investment Projects Financed by ADB, including a financial return at constant prices and financial projections over 25 years at current prices. Calculate financial internal rate of return and weighted average cost of capital for comparison with the financial internal rate of return. Conduct sensitivity analysis (including the effects of a change in the exchange rate). Prepare the financial projections of the existing railway administration in the project area on a pro forma basis. Review the potential for private sector participation in the construction of project facilities and provision of services for operation and tourism development, and assess the financial impact. Review the status of reforms in the railway sector (since 1985). Document the status of their implementation, achievements and lessons learned, and impact of reforms on the operational efficiency and profitability of the national railway and the Project. Review Railway Development Plan (2020) and the reforms that are proposed to be implemented in the future, together with their likely impacts. The status should be reflected in a matrix, together with supporting background and description. Review and recommend additional areas for reform in the railway sector in general and the Project in particular, which could be pursued under the Project. Examine the adequacy of operational, financial, and institutional arrangements for separating freight and passenger traffic. Review the organizational structure for the proposed YMR and identify specific areas where support is required for institutional development. Review the institutional arrangements for railway safety in PRC railways and identify areas which could be supported by ADB under the proposed component on railway safety. 6. Environmental. The environmental expert will undertake the following tasks: (i) (ii) Analyze the following aspects: (a) review the EIA to ensure it conforms to ADB s Environment Policy, 2002 and Environmental Assessment Guidelines 2003 and Environmental Review Procedures; (b) assist the Ministry of Railways (MOR) (the Executing Agency) in carrying out further investigations and analyses, as required, and in finalizing the environmental impact statement, management plan, and monitoring plan by incorporating comments from ADB and provincial environmental protection bureaus; and (c) prepare summary EIA. Assess major issues in the EIA (based on a preliminary environment scoping) to include impacts on ecological resources, cultural heritage sites, tourism: (a) soil

14 Appendix 4 (iii) erosion, (b) noise and air quality, (c) spills of hazardous or toxic chemicals, and (d) construction activity disturbances affecting communities. The EIA will include detailed plans for (a) protection of sensitive ecological areas, (b) protection or enhancement of environmental resources that promote tourism, (c) mitigation of environmental impacts from construction activities, (d) containment and cleanup of hazardous or toxic chemical spills, and (e) health and safety for construction workers and local people. Assess potential induced impacts, if any, on environment and ecosystem and reflect in the EIA report. The consultant will (a) determine costs of the proposed environmental measures, (b) appraise the level of cost against expected environmental benefits, (c) assist MOR in incorporating appropriate mitigating measures into the project design, (d) prepare contractor specifications for environmental management and monitoring, and (e) prepare terms of reference and budget for independent environment monitoring and evaluation. The consultant will assist MOR with public consultation and EIA preparation. 7. Poverty, Social, and Gender Analysis. The poverty, social, and gender expert will undertake the following tasks: (i) (ii) (iii) Prepare socioeconomic and poverty profiles for the areas to be served by the railway and local roads. Collect data through statistical records, necessary field surveys, and key informant interviews and participatory community appraisal techniques. Conduct surveys to develop a profile of transport services and costs that are currently available in the project areas and assess whether accessibility is affordable for low-income groups. This information will also serve as a baseline for performance monitoring. Conduct a poverty, social, and gender analysis (based on the initial poverty and social assessment) in accordance with ADB s Handbook on Poverty and Social Analysis and Handbook for Integrating Poverty Impact on Economic Analysis of Projects. Assess how the proposed construction of the railway will help improve people s incomes and livelihoods. Recommend measures to enhance benefits and minimize adverse impacts, particularly for the poor and ethnic minorities. Assess other social issues (including those related to ethnic minorities, and gender and vulnerable groups) and recommend appropriate measures to address impacts and promote development opportunities during railway construction, and operation and maintenance. Prepare ethnic minorities development plan, as set out in ADB s Indigenous People s Policy 1998. Carry out a detailed gender assessment of the project area. If the Project is gender sensitive, formulate strategies and an action plan to enhance project benefits and improve the gender balance within an SDAP and EMDP. (iv) Collect official gender-disaggregated information on the prevalence of HIV/AIDS 1 and other sexually transmitted infections in the Yunnan province and in the project area. Identify ongoing programs and modalities through which the project may complement ongoing government and nongoverment-funded activities aimed at HIV/AIDS prevention, harm reduction, and anti-human trafficking in the project area. (v) Assist MOR in establishing consultative and participatory processes that will continue throughout project design, construction, and operation. Identify stakeholders and representatives to be consulted to incorporate their needs and demands into the Project. Prepare public participation and consultation status report and project implementation plan. 1 Human immunodefiniciency virus/acquired immunodeficiency syndrome.

Appendix 4 15 (vi) (vii) Review local government policies, strategies, and programs for poverty reduction and regional economic development for the project area. Analyze how the proposed Project will complement government development programs. Consult with local governments to identify development initiatives that could complement the railway project particularly those targeted at the poor and ethnic minorities and identify possible sources of funding for these initiatives. Develop a set of verifiable and easily monitored gender-disaggregated socioeconomic and poverty indicators. Specify baseline targets and assist with the preparation of performance monitoring and evaluation systems, including a reporting format and how to measure indicators during and beyond the construction stage. 8. Resettlement. The resettlement expert will carry out the following tasks: (i) (ii) (iii) (iv) (v) (vi) Review draft resettlement plan and prepare modifications, as required, to comply with ADB s Handbook on Resettlement: A Guide to Good Practice. Conduct resettlement household surveys to ensure adequate understanding of social impacts. The resettlement plan must include a village-level impact assessment of project-affected people, land, assets, and occupations. Define categories for impact and compensation eligibility of affected people, and prepare an entitlements matrix (covering compensation and other assistance) for all types of impacts to achieve full replacement for lost assets, income, and livelihoods. Identify potential impoverishment risks and vulnerable groups, including gender analysis. Prepare village economic rehabilitation plans for seriously affected villages, which will restore incomes of affected people and host people. Identify specific measures for severely affected people, poor people, ethnic minorities, affected women, or other vulnerable households. Assist MOR and relevant local government officials in initiating and expanding consultation with affected communities, local leaders, local proponents, and local stakeholders who may be opposed to the Project. Prepare a consultation plan for MOR and a format for documenting consultation with affected people. Assist MOR in preparing a resettlement information booklet, and distribute it to affected villages and households. Assess and justify that (a) compensation standards are based on replacement value, and (b) overall resettlement budget is sufficient to acquire land and implement the resettlement plan based on the proposed entitlements and rehabilitation plans. Review the organizational structure and capacity for resettlement implementation and recommend improvements and actions required before the start of land acquisition. Assist MOR in preparing a detailed resettlement implementation schedule and a plan for external and internal monitoring and evaluation. C. Schedule and Reporting Requirements 9. Submit (i) brief monthly progress reports; (ii) an inception report (within 3 weeks of starting work); (iii) a preliminary social analysis (within 6 weeks of starting work); (iv) a draft summary EIA together with the EIA, a supplement to the EIA, a draft resettlement plan, and a draft ethnic minority peoples plan, for YMR, and an interim report for component on railway safety (within 3 months of starting work); (v) the draft final report, including a detailed social analysis (within 4 months of starting work), which will be discussed at a tripartite meeting involving the Government, ADB, and the consultant; (vi) the final report (within 2 weeks of tripartite meeting). All reports will be submitted to ADB in English (3 copies) and to the Government and MOR in English and Chinese (3 copies of each).