ASIAN DEVELOPMENT BANK PPA: PRC 26377

PROJECT PERFORMANCE AUDIT REPORT

ON THE

HEILONGJIANG EXPRESSWAY PROJECT (Loan 1324-PRC)

IN THE

PEOPLE’S REPUBLIC OF CHINA

August 2001

CURRENCY EQUIVALENTS

Currency Unit – Yuan (Y)

At Appraisal At Project Completion At Operations Evaluation (May 1994) (August 1999) (June 2001)

Y1.00 = $0.115 $0.120 $0.124 $1.00 = Y8.70 Y8.32 Y8.07

ABBREVIATIONS ADB − Asian Development Bank EA − Executing Agency EIRR − economic internal rate of return FIRR − financial internal rate of return HHEC − Heilongjiang Hatong Expressway Corporation HPCD − Heilongjiang Provincial Communications Department HPSB − Heilongjiang Public Security Bureau HSDI − Heilongjiang Survey and Design Institute HTSMO − Heilongjiang Traffic Safety Management Organization IRI − international roughness index NTHS − National Trunk Highway System O&M − operation and maintenance OEM − Operations Evaluation Mission PCR − project completion report PPAR − project performance audit report PRC − People’s Republic of China TA − technical assistance TOR − terms of reference VOC − vehicle operating cost

WEIGHTS AND MEASURES km − kilometer m − meter vpd − vehicles per day

NOTES

(i) The fiscal year (FY) of the Government and HHEC ends on 31 December. (ii) In this report, “$” refers to US dollars.

Operations Evaluation Department, PE-570

CONTENTS Page

BASIC DATA ii EXECUTIVE SUMMARY iii I. BACKGROUND 1 A. Rationale 1 B. Formulation 1 C. Purpose and Outputs 1 D. Cost, Financing, and Executing Arrangements 2 E. Completion and Self-Evaluation 2 F. Operations Evaluation 3 II. PLANNING AND IMPLEMENTATION PERFORMANCE 3

A. Formulation and Design 3 B. Achievement of Outputs 3

C. Cost and Scheduling 4 D. Procurement and Construction 4 E. Organization and Management 5 III. ACHIEVEMENT OF PROJECT PURPOSE 5

A. Operational Performance 5 B. Performance of the Operating Entity 7 C. Financial and Economic Reevaluation 8

D. Sustainability 9 IV. ACHIEVEMENT OF OTHER DEVELOPMENT IMPACTS 9 A. Socioeconomic Impact 9 B. Environmental Impact 11 C. Impact on Institutions and Policy 11 V. OVERALL ASSESSMENT 13 A. Relevance 13 B. Efficacy 13 C. Efficiency 13 D. Sustainability 14 E. Institutional Development and Other Impacts 14

F. Overall Project Rating 14 G. Assessment of ADB and Borrower Performance 14

VI. ISSUES, LESSONS, AND FOLLOW-UP ACTIONS 15 A. Key Issues for the Future 15 B. Lessons Identified 15 C. Follow-Up Actions 15 APPENDIXES 17

BASIC DATA

Heilongjiang Expressway Project (Loan 1324-PRC) Project Preparation/Institution Building TA No. TA Name Type Person-

Months Amount

($) Approval

Date 1981 Heilongjiang and Yunnan Expressways PPTA 13 320,000 16 Nov 1993 2177 Preparation of a Road Safety Program ADTA 22 600,000 29 Sep 1994 2178 Provincial Highway Network Planning ADTA 38 600,000 29 Sep 1994

Key Project Data ($ million) As per ADB

Loan Documents Actual

Total Project Cost 330.0 309.2 Foreign Exchange Cost 142.0 142.1 Local Currency Cost 188.0 167.1 ADB Loan Amount/Utilization 142.0 141.5 ADB Loan Amount/Cancellation 0.5

Key Dates Expected Actual Appraisal 3-23 May 1994 Loan Negotiations 15-19 Aug 1994 Board Approval 29 Sep 1994 Loan Agreement 14 Feb 1995 Loan Effectiveness 15 May 1995 7 Apr 1995 First Disbursement 23 May 1995 Project Completion 30 Sep 1998 30 Aug 1997 Loan Closing 31 Mar 1999 23 Jun 1998 Months (effectiveness to completion) 40 29

Key Performance Indicators (%) Appraisal PCR PPAR Financial Internal Rate of Return 3.7 3.3 1.1 Economic Internal Rate of Return 18.9 15.1 14.6 Borrower Government of the People’s Republic of China Executing Agency Heilongjiang Hatong Expressway Corporation1 Mission Data

Type of Mission No. of Missions No. of Person-Days

Fact-Finding 1 84 Appraisal 1 64 Project Administration

Inception 1 7 Review 3 28 Project Completion 1 36

Operations Evaluation2 1 30

TA = technical assistance, ADTA = advisory technical assistance, ADB = Asian Development Bank, PCR = project completion report, PPAR = project performance audit report, PPTA = project preparatory technical assistance. 1 Referenced at appraisal as the Heilongjiang Hatong Highway Corporation, this is a new organization incorporated

under the Heilongjiang Provincial Communications Department. 2 The mission comprised T.M. Hutton (Evaluation Specialist and Mission Leader), Dr. Yuli Pan (Local Consultant),

and D.B. Willmott (International Consultant).

EXECUTIVE SUMMARY

The Project, to build a 350-kilometer (km) two-lane expressway connecting the cities of

Harbin and Jiamusi in Heilongjiang Province, was formulated as a priority development under the Government’s Eighth and Ninth Five-Year Plans (1991-1995 and 1996-2000) for the construction of 12 key transport corridors. The Project was expected to improve access to Beijing and to Dalian, Dandong, and Tongjiang ports; reduce vehicle operating costs; relieve traffic congestion over the existing narrow unpaved Highway 101; spur development of the region and hinterland and provide poverty relief for Tonghe and seven other poverty areas, which the expressway would traverse; reduce vehicle accidents; and strengthen Heilongjiang Province’s institutional capacity for highway planning, construction, operation, and management. Two technical assistance (TA) grants attached to the Project were intended to provide advisory support to address mounting road safety concerns (associated with national highway designs) and further develop human resources in highway planning. The Appraisal Mission of the Asian Development Bank (ADB) was completed in May 1994, and ADB’s loan of $142 million and two TA grants of $600,000 each were approved on 29 September 1994.3 The Project was completed in August 1997, 13 months ahead of schedule. Expeditious implementation was facilitated through early loan effectiveness, advance action on the award of civil works, procurement of materials and equipment, and engagement of consultants, and retroactive financing. The final project cost of $309.2 million was less than the appraisal estimate of $330 million by 6 percent. ADB’s loan disbursements were $0.49 million below the approved loan amount. The project rationale to support the Government’s investment program for developing a national highway system was consistent with ADB’s country assistance strategy to support infrastructure development aimed at raising national productivity. Without the Project, traffic congestion along the existing corridor would have impeded access to the cities of Harbin and Jiamusi and slowed output through the northeast port of Tongjiang to Japan, the Republic of Korea, and the Russian Federation, and through the southern ports of Dalian and Dandong. Strengthening Heilongjiang Province’s capacity for highway planning, construction, operation, and management would have been denied as would the need to gain experience and understanding of road and pavement design to meet traffic loads and extreme weather conditions and reduce accidents. The region’s farming communities would not have benefited from reduced transport costs and easier access to markets. The quality of the civil works is sound and they should long outlast the projected end of economic life in 2018. Problems observed in ADB’s project completion report (PCR) with pavement cracking and deformation have been adequately addressed through maintenance sealing and pavement reconstruction. Safety deficiencies in design have been prioritized for remedy under Heilongjiang Province’s five-year program, and actions to date have resulted in a reduction of accidents. The expressway is well maintained, and ongoing improvements aimed at reducing overloading and improving safety are a priority concern attended to with a strong commitment. The primary purpose of improving transport efficiencies, reducing vehicle operating costs (VOCs), relieving congestion along the existing road, and facilitating access for intercity traffic was achieved. Average journey times for cars and small buses between Harbin and Jiamusi were reduced from 15 hours to 4.5 hours. Average VOC savings were around 40 percent. The

3 Loan 1324-PRC: Heilongjiang Expressway Project; TA 2177-PRC: Preparation of a Road Safety Program; and TA

2178-PRC: Provincial Highway Network Planning.

two TAs attached to the Project proved appropriate, enhanced safety awareness, and planning and design knowledge, and resulted in recommendations that have largely been taken up. Savings in VOCs, which were expected to benefit farmers, spur economic development of the region, and reduce poverty, were only partly passed on because of government controls on the price of key farm inputs. Other socioeconomic benefits deriving from reduced journey times were not measured. Their impact on production and on access to education and health services remains largely unknown. The Project is rated successful. The recalculated project economic internal rate of return (EIRR) of 14.6 percent attests to the overall efficiency and economic viability of the Project. The completion of the connecting expressway link at Jiamusi improved access to the port at Tongjiang, and economic zone development will help ensure that traffic growth is sustained. Revenues from tolls are adequate to cover management operations and capital outlays for routine and spot maintenance. Toll charges are set to take into account full project recovery costs, including provision for periodic maintenance, and adjusted to meet user affordability. Toll charges will next be reviewed in 2004 and thereafter every four years. The toll level has not inhibited the diversion of traffic from the existing road. Detracting from a higher assessment are (i) weaknesses in pavement and safety design that would likely have been avoided with greater attention to technical aspects, and (ii) failure to demonstrate adequately that economic development and poverty reduction objectives were achieved. Key lessons from the Project are (i) the need for more rigorous review of technical features at appraisal and during implementation to avoid design deficiencies associated with engineering and safety standards; and (ii) the need to make clear the project rationale, purpose, and targets, and how these will be realized, so that there is a clear basis for monitoring and evaluating benefits.

ADB should take these lessons into account and ensure that (i) all future reviews of feasibility studies comprise adequate technical review of engineering and safety design, (ii) future expressway projects are planned with greater attention to ensuring that design specifications are consistent with meeting project objectives and expectations for the quality of project outputs, and (iii) the responsibilities and specific advisory tasks of future implementation consultants are more diligently managed and evaluated for achievement of purpose.

The Government should initiate measures to ensure that pavement and highway designs for remaining corridor developments under the National Trunk Highway System are designed to meet international safety standards and are constructed with a more durable pavement surface. Specific to the Project, and for future corridor developments, a more responsive mechanism for transferring the gains from lower transport costs to the price of farm inputs such as fuel, fertilizer, and chemicals should be introduced. Finally, the Heilongjiang Hatong Expressway Corporation should continue its efforts aimed at reducing accidents.

I. BACKGROUND

A. Rationale

1. The Project’s rationale reflected (i) the investment program of the Government of the People’s Republic of China (PRC) for addressing transport constraints on economic activity and developing a National Trunk Highway System (NTHS) linking provincial capitals and all cities with populations of 500,000 and more, and (ii) the country assistance strategy of the Asian Development Bank (ADB) to support infrastructure development aimed at raising national productivity and efficiency to promote sustainable and equitable economic growth.

B. Formulation

2. The Project was formulated as a priority development under the Government’s Eighth and Ninth Five-Year Plans (1991-1995 and 1996-2000, respectively) for the construction of 12 key NTHS corridors. The Heilongjiang Provincial Communications Department (HPCD) carried out a feasibility study for the Project in 1993, which ADB reviewed in January 1994 under a project preparatory technical assistance (TA).4 Fact-finding was completed in March and appraisal in May 1994. ADB’s loan of $142 million and two TA grants were approved on 29 September 1994,5 together with another expressway project in Yunnan Province.6 The Borrower was the PRC Government.

C. Purpose and Outputs

3. The overall purpose of the Project was to improve the capacity and integration of the road transport network in Heilongjiang Province, and help eliminate road transport bottlenecks constraining economic growth. The Project provided for (i) construction of a 350-kilometer (km) two-lane expressway connecting Harbin and Jiamusi cities;7 (ii) construction of seven interchanges with toll facilities and eight bridges; and (iii) the establishment of service and maintenance areas.8 The advisory TAs were designed to help the Government prepare a road safety program to address mounting road safety concerns (associated with national highway designs) and provide training in provincial highway network planning. 4. By making it easier for motor vehicle traffic to move between Harbin and Jiamusi, the Project was expected to serve as a link in the transport corridor between Liaoning, Jilin, and Heilongjiang provinces; improve access to Beijing and to Dalian, Dandong, and Tongjiang ports; reduce vehicle operating costs (VOCs); reduce traffic accidents; promote technology transfer; have a positive impact on regional and hinterland development; and strengthen Heilongjiang Province’s institutional capacity for highway planning, construction, operation, and management. In addition, construction of the expressway was expected to provide poverty relief 4 TA 1981-PRC: Heilongjiang and Yunnan Expressways, for $320,000, approved on 16 November 1993. 5 Loan 1324-PRC: Heilongjiang Expressway Project, for $142 million; TA 2177-PRC: Preparation of a Road Safety

Program, for $600,000; and TA 2178-PRC: Provincial Highway Network Planning, for $600,000. 6 Loan 1325-PRC: Yunnan Expressway Project, for $150 million. 7 An expressway is a corridor highway with merging access and exits and no intersections. As completed, the

expressway length totaled 331 km. 8 Project inputs included (i) procurement of equipment and facilities for road maintenance, construction supervision,

materials testing, and toll road operations and communications; and (ii) consulting services for construction and supervision.

for Tonghe and seven other poverty areas.9 People living in the Project-influenced area were expected to benefit through improved transport services to administrative, health, education, and commercial centers. New employment opportunities were to be created through construction work on the Project and through expansion of industries, services, and commerce in the area. A total of 392 households were to be relocated within 1 km of their original dwellings, and with attention paid to maintaining their links with schools.10 The Project was not expected to cause a loss of jobs.

D. Cost, Financing, and Executing Arrangements

5. The estimated total project cost at appraisal was $330 million equivalent, with a foreign exchange cost of $142 million for civil works, equipment, consulting services, and loan service charges during construction. ADB’s loan was to be used to cover the entire foreign exchange cost and the Government was to meet the local currency cost of $188 million equivalent.11 Assurances that local currency funding would be available on a timely basis were a feature of the financing arrangements. ADB’s loan was drawn from its ordinary capital resources with provision for variable interest based on ADB’s pooled cost of funding US dollars, and a repayment period of 24 years (including a grace period of 4.5 years on repayment of principal). The PRC Government made subsidiary loan agreements with Heilongjiang Province and the Heilongjiang Hatong Expressway Corporation (HHEC) under the same terms and conditions. HHEC was created as a new organization under HPCD, and was the Executing Agency (EA). Overall responsibility for implementation was assigned to the directors of HHEC under the general supervision of HPCD.

E. Completion and Self-Evaluation

6. ADB’s project completion report (PCR) Mission visited the project area in May 1999 and considered the Project partly successful.12 Construction of the expressway was found implemented as envisaged, but safety design features were considered inadequate and to have caused an abnormal incidence of serious accidents. The Mission reported less than full compliance with ADB’s loan covenants covering reporting requirements for the attached TAs, project benefit monitoring, audited accounts for toll operations, and environmental mitigation measures. Vehicle use of the expressway was less than envisaged, and the financial internal rate of return (FIRR) of 3.3 percent and economic internal rate of return (EIRR) of 15.1 percent lower than the appraisal estimates of, respectively, 3.7 percent and 18.9 percent. Pavement cracking, which was later investigated under TA 2846-PRC,13 was found prevalent over the asphalt-concrete sections. Maintenance attention and budget provisions were considered satisfactory. Recommendations were made for (i) the Ministry of Communications to conduct further research studies on alternative pavement designs with a view to revising relevant 9 Fuyuan, Huanan, Lindian, Mingshui, Qinggang, Tailai, and Tongjiang. 10 Including, where necessary, provision for over- and underpasses. 11 Government funding was to be sourced from (i) a vehicle purchase fee fund administered by the Ministry of

Communications, and (ii) a road maintenance fee fund administered by HPCD. 12 At the time of PCR preparation, there was a three-category rating system: unsuccessful, partly successful, and

generally successful. A new system was introduced in September 2000, which rates projects in one of four categories: unsuccessful, partly successful, successful, and highly successful. The evaluation criteria for the new system differ from those used under the old one.

13 TA 2846-PRC: Changchun-Harbin Expressway, for $600,000, approved on 22 August 1997. No serious damage to pavement strength was found, and recommendations for remedial improvements were made. Deterioration along a 25 km section of the expressway was attributed to insufficient soil consolidation arising from an inadequate geotechnical survey.

pavement standards, (ii) HHEC to monitor the incidence of cracking and ensure that routine maintenance in the form of sealing and repair was carried out, and (iii) HPCD and relevant government departments to make a more intensive effort to implement safety recommendations made under TA 2177-PRC. 7. Based on PCR’s assessment of efficiency of project implementation, the achievement of the project purpose, the EIRR of 15.1 percent, and the success of the attached TAs on the positive side, and the concerns about the noncompliance with reporting covenants, pavement durability, and operating safety on the negative side, the rating of partly successful was realistic and appropriate. It called attention to the need to implement expeditiously PCR recommendations, particularly in relation to road safety.

F. Operations Evaluation

8. The project performance audit report (PPAR) reviews the findings of the PCR and presents the findings of the Operations Evaluation Mission (OEM) that visited the Project during 6-16 June 2001. The purpose is to draw lessons relevant for the design of future highway projects in the PRC and other developing member countries. Special attention is given to assessing the achievement of project purpose, sector goals, and intended developments from the Project, the operating performance of the expressway, the sufficiency of design and development impacts of the Project, as well as the social and environmental consequences of the Project’s operations. The PPAR is based on the findings of the OEM, taking into account two years of additional operational data; a review of the PCR, the Appraisal Report, and material in ADB files; discussions with ADB staff, senior officials of HHEC, and other government agencies; and spot interviews with farmer representatives. Copies of the draft PPAR were provided to the Government, HHEC, and ADB staff concerned for review, and their comments were considered when finalizing the PPAR.

II. PLANNING AND IMPLEMENTATION PERFORMANCE

A. Formulation and Design

9. The Project for an expressway linking the cities of Harbin (population 3.5 million) and Jiamusi (population 2.2 million) was consistent with the Government’s investment program (para. 1). Project design features in relation to safety were inadequately addressed. 10. Essential safety features not included or insufficient in the appraised design included merging access and exit ways, under- and overhead passes, wide shoulders, emergency stopping areas, line markings, and warning signs.14 These were also inadequately rectified by the implementation consultants, who should have ensured that such design features were consistent with international practice. The lack of safety design features could have been overcome with more attention to technical review (para. 60).

B. Achievement of Outputs

11. During implementation and following a review of the projections for traffic densities, several modifications to the detailed design were made. The section from Jiamusi to Bin Xian (278 km) was widened to 12 meters (m) by the addition of 1.5 m shoulders on each side. The section from Bin Xian to Harbin (53 km) was designed as the first stage of an expressway constructed with four lanes. Modifications to the project scope along the Jiamusi-Bin Xian section included (i) adding 56 underpasses for local farm traffic, (ii) constructing 42 grade-separated intersections, (iii) improvements to the alignment over 8 km, and (iv) adding three access and exit ways to improve access to Fangzheng, Huifa, and Yilan counties.15 All other physical outputs of the Project were implemented as planned. 12. Construction of the expressway helped achieve the Project’s primary aim of improving transport efficiencies, and reducing congestion on the existing highway (paras. 22 and 23). The quality of civil works is generally sound (Appendix 1). The incidence of pavement cracking and deformation, as highlighted in the PCR, is small in relation to the total length of the expressway. Cracks have been sealed, damaged pavement areas repaired or reconstructed, and riding quality preserved (para. 24). Minor pavement damage is a factor near approaches to bridges, where civil works were completed separate to construction of the expressway, and is largely the result of overloading.16

14 These take on added importance for an expressway designed for carrying traffic at high speed and combined

vehicle approach speeds of 240 km per hour. 15 The purpose of items (i) and (ii) was primarily to improve access. The additional under- and overpasses helped

make crossing the expressway safer, but remain on average 2 km apart. The graded intersections allow vehicle and nonvehicle traffic to directly cross the expressway and represent a safety hazard.

16 Heavy vehicles carrying loads of more than 30 tons distributed over two axles are common. Heavy truck loads consist predominantly of coal, logs, and vegetables. Pavement and subgrade design is considered sufficient to withstand loads of up to 10 tons per axle.

C. Cost and Scheduling

13. The actual project cost of $309.2 million equivalent was 6 percent below the appraisal estimate of $330 million. The foreign exchange cost of $142.1 million almost matched the appraisal estimate. The local currency cost of $167.1 million equivalent was lower by 11 percent. The reduced overall project cost was due to early completion of the Project and resultant savings on contingency provisions. Total disbursements under the ADB loan amounted to $141.51 million, and the undisbursed balance of $0.49 million was cancelled. ADB’s loan financed all the foreign exchange cost except $0.6 million financed by the Government. The Government financed the entire local currency portion. 14. The Project was completed 13 months ahead of schedule on 30 August 1997. Early implementation was facilitated through advance action on the award of civil works contracts, procurement of materials and equipment, and engagement of consultants, as well as through retroactive financing.17 ADB’s loan became effective within 7 weeks of loan signing, which was within the 90-day period specified in the Loan Agreement. As a result of expeditious implementation, the loan closing date was advanced from 31 March 1999 to 23 June 1998. A comparison of the actual implementation schedule with the appraisal schedule is shown in Appendix 2.

D. Procurement and Construction

15. Thirteen civil works contracts (see Map) and 15 contracts for the supply of construction materials and equipment were approved.18 All civil works contracts were awarded following bidding procedures acceptable to ADB. Equipment and materials supplied under the Project were procured in accordance with ADB’s Guidelines for Procurement and no disputes or contractual difficulties were encountered. HHEC reported that the civil works contractors and suppliers for the Project performed satisfactorily. Quality and performance of materials and equipment procured met technical specifications. All equipment and facilities inspected along the project expressway were functioning satisfactorily.

E. Organization and Management

16. The organization and management structure for the Project proved appropriate, and agreed implementation arrangements were closely followed. The recruitment of international consultants was initiated prior to loan approval and a consortium of one international consulting firm and three domestic consulting firms was contracted under an agreement concluded in March 1995. The international consultants were recruited in accordance with ADB’s Guidelines on the Use of Consultants. The domestic consultants were recruited using local procedures. The international consultants contributed to institutional strengthening through working alongside their counterparts in HHEC, and providing training on international standards and practices in project management, contract administration, and quality control. Engineering and progress reports were submitted promptly, and supervisory responsibilities over contractor activities and advisory assistance to HHEC were discharged satisfactorily. HHEC appreciated

17 Retroactive financing was allowed for $14 million. 18 Twelve contracts are shown on the map. The 13th contract, administered by way of force account, was to meet

additional works for design revisions and access roads.

the efforts of the international consultants, particularly in the area of training, and considered the performance of the international and domestic consultants satisfactory. 17. HHEC’s working relationship with ADB was satisfactory. Between April 1995 and August 1997, ADB conducted three review missions, one TA Inception Mission, and one PCR Mission. The timing of the review missions to monitor implementation progress might have been better. The first review mission in July 1995, over four days, was largely by way of administrative follow-up on inception arrangements and too early to reflect design concerns. The second was over nine days in November 1996, when heavy snow conditions prevented physical inspection. The third was conducted during the opening of the expressway. Problems relating to safety and pavement cracking were therefore not evident, but might have been with more timely reviews and relevant reporting requirements for the consultants.19 Coordination and progress meetings were held during review missions with the Ministry of Finance, HPCD, HHEC, and consultants to solve problems and minimize delays. 18. ADB’s loan and project agreements included 23 covenants relating to implementation and operations of the Project. Apart from requirements for due diligence, conduct, and scheduling, special covenants included (i) reviewing and disseminating the outcome of experience gained through TA support, (ii) implementing environmental measures, and (iii) establishing toll operations with regular review of charges. At project completion, five loan covenants had not been complied with. These related to reporting requirements and, although not detrimental to the Project per se, reflected weaknesses in organization and coordination as much as unfamiliarity with requirements. Since project completion and circulation of ADB’s PCR, all covenants have been complied with.

19 The overall effectiveness of the implementation consultants in ensuring that designs were made and implemented

to international traffic engineering standards was impaired by reporting requirements that did not provide for recommendations to be brought to the attention of the Borrower. Reporting was by way of monthly progress reports collated quarterly. These were forwarded to the EA with copies to ADB. Comments relating to the appropriateness of technical design and adequacy of safety features and alignments, while specific to the consultants’ terms of reference, were not reported. There was also no requirement under the consultants’ terms of reference for a final report covering the consultants’ specific responsibilities.

III. ACHIEVEMENT OF PROJECT PURPOSE

A. Operational Performance

19. Operational performance is measured in terms of the Project’s achievements relative to expectations at appraisal to meet traffic forecasts, relieve traffic congestion, and improve transport efficiency, pavement quality, and overloading. The adequacy of maintenance is also reviewed. The Project’s achievements and targets are summarized in Appendix 3. 20. Actual traffic volumes on the project expressway are significantly lower than projected at appraisal. The average number of vehicles per day (vpd) in 2000 was less than 3,000, as against the appraisal projection of about 4,500. The lower traffic volumes are attributed to completion delays in connecting highway links from Harbin and Jiamusi.20 21. In the first half of 2001, traffic flows increased significantly due to completion of the Jiamusi-Tongjiang expressway section, which provides additional port access to Japan, the Republic of Korea, and the Russian Federation.21 Traffic from 2000 onwards is expected to increase by approximately 1 percentage point more than the appraisal projection of 4 percent per annum to 2018, but that will still not be enough to catch up with the appraisal projection for that year.22 22. Approximately 60 percent of motorized traffic using Highway 101 (the existing road) was diverted to the project expressway. Actual diversion from the Harbin-Bin Xian section was lower than the appraisal projection of 70 percent, but higher for the remaining sections. Diverted traffic is mainly from the Harbin-Jiamusi railway (for passengers) and neighboring Shandong, Liaoning, and Jilin provinces for the transport of fruits, vegetables, and agricultural products to Jiamusi and Tongjiang port. Benefit assessment surveys confirm that vehicle operators choose to use the expressway because of savings in time and VOCs.23 23. Average journey times from Harbin to Jiamusi for a car are around 4-4.5 hours, implying an average traffic speed of 74-83 km per hour. Without the Project, this journey took on average 15 hours. Average VOC savings are around 40 percent. Users of the existing road also benefit from improved transport efficiencies.24 24. The riding quality of the road is high. The pavement is constructed with an estimated average international roughness index of 2.5.25 The geometric alignment has a design capability for average vehicle speeds of 120 km/hour, but to travel safely at this speed would require international safety features, dry weather, and moderate wind conditions. 25. The OEM visited the Project’s maintenance depot near Fangzheng, and discussed with the Manager the Project’s effectiveness in maintenance operations. The OEM also made several stops along the expressway where maintenance was being undertaken, and resealing and pavement replacement work was taking place. Maintenance teams from the five counties that the expressway crosses conduct expressway maintenance. Each maintenance team has a

20 Including links to Tongjiang, Dalian, and Dandong ports, Boli, and Changchun. 21 Highway access to Tongjiang port was completed in October 2000. 22 Estimated by HPCD’s Highway Planning Division. 23 Heilongjiang Harbin-Tongjiang Highway Company, Benefit Assessment After the Project, December 2000. 24 Reduced traffic congestion allowed the existing road to be maintained at a lower international roughness index (IRI)

and VOCs were reduced on average by 15-20 percent. Time savings were also identified as an important benefit. 25 Highway 101 has an estimated IRI of 6 to 8, except over the section Harbin-Fangzheng, which is paved and has an

IRI of 3 to 3.5.

staff of about 120 and six maintenance vehicles. These include a grader for snow removal and pavement regrading, a front-end loader for dealing with cutting slippages, one road cleaner and liquid disperser for reducing ice hazards, two general maintenance trucks, and one general service van. Routine maintenance for clearing drains and trimming foliage is organized as a lineman system with individuals responsible and engaged full-time for a specified 2-3 km of expressway. Daily patrol assessments report on the need for spot maintenance. Inspection of the depot vehicles and equipment on site suggests they were being used extensively. Spot maintenance was clearly in evidence. The overall approach to maintenance adopted by HHEC, including technical capability, equipment, and funding (paras. 26 and 27), appears effective.

B. Performance of the Operating Entity

26. At appraisal in 1994, the financial forecasts anticipated HHEC depending on the financial support of HPCD for five years until toll collection began. With tolls, toll revenue was expected to cover HHEC operating expenses, routine maintenance, and debt servicing but to be insufficient to meet periodic maintenance requirements and recover the full capital costs of the Project. Since 1996, the Government has committed to setting toll revenues on ADB-funded expressway projects at levels fully commensurate with satisfying debt service obligation, covering operation and maintenance (O&M) costs including periodic maintenance, and generating a satisfactory return on investment adjusted for inflation. 27. Actual revenues have been in line with appraisal projections. They have proved sufficient to meet operating expenditures, routine maintenance, plus significant unplanned rehabilitation expenditures.26 However, not until 2001 have they been sufficient to cover full debt-servicing requirements (Table 1). In the years 1998 to 2000, these had to be met by HPCD.27

Table 1: Projected versus Actual Revenues and Operating Profits Appraisal Projection

(Y million) Actual

(Y million) Year Ending Toll

Revenues Gross

Operating Profit

Net Profita

Toll Revenues

Gross Operating

Profit

Net Profita

1998 28 27 (56) 98 (3) (25) 1999 126 109 1 128 48 (98) 2000 143 101 (4) 131 51 (100) Forecast 2001 149 123 21 150b 90b 8 a Gross operating profit less debt service. b May 2001 estimate.

28. Toll charges per vehicle between Harbin and Jiamusi (330 km) are considered adequate. They are the same both ways, and range from Y120 for a car to Y265 for a large truck (over 15 tons).28 There have been no adjustments to the opening toll rates.29 The respective loan

26 Such expenditures covering the sealing of cracks and pavement repairs were approximately Y50 million in 1999

and Y40 million in 2000, and are expected to amount to around Y30 million in 2001 and following years. 27 From Heilongjiang Province’s road maintenance fee levied on vehicle owners. 28 Lesser toll charges of Y10 per car and Y20 for a heavy truck apply for travel on shorter sections. The price of

Grade 90 petrol is Y3.96 per liter. 29 In the year 2000, a new toll category for extra large vehicles between 25 and 39 tons laden was introduced.

covenant provides for tolls to be adjusted every five years taking into account inflation, increase in traffic volume, maintenance requirements, taxes, and loan servicing. The first adjustment is scheduled for 2004. HHEC has made recommendations for review thereafter every four years. The OEM found no evidence that tolls were prohibitive or causing traffic to use alternative routes. The existing road remains open, is lightly trafficked, and used predominantly for intertown movements.

C. Financial and Economic Reevaluation

29. The appraisal estimate for the Project’s FIRR was based on the anticipated investment costs, expected toll charges, O&M costs, and forecasts for the volume of traffic. For calculating the EIRR, taxes were excluded from the investment costs, and O&M costs were expressed in economic terms. The financial benefits were calculated as a revenue stream for the forecasts of volume of traffic multiplied by the expected toll charges. The economic benefits were calculated as (i) the savings in VOCs for diverted and generated traffic and reduced average travel distance of 18 km; and (ii) savings in VOCs for remaining vehicles using Highway 101 due to reduced traffic congestion. The PCR repeated the approach adopted at appraisal using actual inputs for investments costs, year of disbursement, traffic volumes, and O&M costs to FY1998. 30. Apart from including also time savings in the EIRR calculation because of their significance (para. 23), the OEM’s reestimates follow the same methodology and are calculated based on actual data covering operations to FY2000. Table 2 compares the appraisal estimates with the PCR and PPAR reestimates. The lower PCR and PPAR reestimates reflect the reduced traffic volumes compared with those forecast at appraisal, change in traffic mix, lower difference in VOC savings for cars compared with trucks, and higher maintenance expenditures. The FIRR reestimate of 1.1 percent includes a realistic provision for periodic maintenance and is based on the current toll levels.30 The EIRR reestimate of 14.6 percent confirms the economic viability of the Project.31 31. The FIRR and EIRR reestimates are robust and relatively insensitive to changes in the forecast volume of traffic after FY2001. A 10 percent decrease in the forecast volume of traffic after FY2001 will reduce the FIRR by 0.6 percentage points and the EIRR by 0.3 percentage points. Appendix 4 provides a detailed account of the methodology assumptions and sensitivity tests underlying the FIRR and EIRR estimates.

Table 2: FIRR and EIRR Estimates (percent)

Item Appraisal PCR PPAR

FIRR 3.7 3.3 1.1 EIRR 18.9 15.1 14.6

EIRR = economic internal rate of return, FIRR = financial internal rate of return, PCR = project completion report, PPAR = project performance audit report.

30 If provision for periodic maintenance were kept at the same relative level as for appraisal, the FIRR would increase

to 1.8 percent. 31 Without time savings, which were not considered in the appraisal and PCR calculations, the EIRR decreases to

12.7 percent, and is still above the opportunity cost of capital.

D. Sustainability

32. The civil works are sound, and should outlast the projected economic life of the Project. Revenues from tolls are sufficient to cover the costs of expressway O&M. Toll charges to meet these expenditures plus loan servicing and taxes will be subject to review in 2004 and every four years thereafter. The completion and opening of the connecting expressway links at Harbin and Jiamusi will help ensure that increases in traffic volume and economic viability are sustained. Improved transport efficiencies, notably time savings, have improved access to the region and markets; and with complementary planning programs of the Government (para. 36), the expressway promises to be an additional spur to economic growth. The training in safety, network planning, and operational management has brought to the Project (and other highway developments) a determined focus for meeting operating standards and reducing accidents. The FIRR/EIRR reestimates take into account the need for periodic maintenance in 2008 and 2014. Overall benefits from the Project are considered sustainable.

IV. ACHIEVEMENT OF OTHER DEVELOPMENT IMPACTS

A. Socioeconomic Impact

33. Insufficient information was available for the OEM to reliably assess the socioeconomic development impact of the project on poverty reduction, regional, and hinterland development. The Heilongjiang Harbin-Tongjiang Highway Company’s Benefit Assessment Report of December 2000 provides some idea of the benefits but offers no empirical evidence. The expected socioeconomic benefits from improved transport services to administrative, health, education, and commercial centers on which the Project was partly premised remain largely assumed, as does the anticipated growth in employment opportunities arising from expansion of industries, services, and commerce. Benefits derived from the Project for relieving poverty also remain unsubstantiated. 34. Some idea of the economic activity and social impact is derived from an origin-destination vehicle survey conducted over 24 hours in September 2000. The survey identified by vehicle type the cargoes carried, cargo capacity, passengers, passenger capacity, and origin-destination flows at eight toll points along the project expressway. Of 4,222 tons of cargo, coal accounted for 32 percent, construction materials 19 percent, food products 7 percent, farming and forestry products 5 percent, petroleum 4 percent, and general merchandise 33 percent. Average actual loading was 94 percent of rated loading capacity. For passenger vehicles, there were 48,936 passengers, representing 67 percent of vehicle carrying capacity. 35. The OEM collected statistics for the growth in regional gross domestic product before and after project completion for Harbin, Jiamusi, and the counties in between. Based on these statistics (Table 3), the project expressway has not provided any obvious spur to economic development. Many of the connecting links to the expressway have, however, yet to be completed, so that it may be too early to measure economic development in terms of regional gross domestic product growth.

Table 3: Average Annual Regional Gross Domestic Product Growth

(percent) Area 1994-1995

(Before Project Completion) 1998-2000

(After Project Completion) Harbin 10.6 11.1 Bin Xian County 20.5 10.9 Fangzheng County 15.8 4.9 Yilan County 17.5 2.8 Jiamusi 8.0 9.2 Source: Heilongjiang Ministry of Communications.

36. Promising to help stimulate economic growth along the project corridor is the Government’s promotion of the development of three economic and technical development zones at Harbin and Jiamusi. They are the Harbin Development Zone of Economy and Technique, Harbin Development Zone of High-Tech Industry, and the Jiamusi Development Zone of Economy and Technique.32 Also helping to stimulate economic development are the expansion of Tongjiang port for improving the efficiency of trade transfers with Japan, the

32 Approved by the State Council in 1991, these development zones are aimed at improving conditions for high-tech

industries in electronics, genetic engineering, energy development, and new materials development.

Republic of Korea, and the Russian Federation. The connecting highway to Tongjiang port from Jiamusi was opened in October 2000. For the first half of 2001, HHEC reported traffic volumes to be much higher than in previous years. The increase is attributed largely to the traffic generated for Tongjiang port.

37. The Project sustained the engagement of a large workforce over nearly three years. Construction works are estimated to have directly employed more than 4,000 people. Wages and salaries, together with local procurement of materials, totaled an estimated Y2.2 billion. Ongoing arrangements for management and O&M of eight toll plazas as well as traffic security created permanent positions for some 100 technical and 650 nontechnical staff. 38. The 262 households involved in resettlement proved much fewer than the 392 envisaged at appraisal (para. 4). Arrangements appear to have been to everyone’s satisfaction. Most residents are still working close to home due to the ample employment opportunities available.33 The OEM’s interviews with farmer representatives confirmed that residents were satisfied with their relocation arrangements, and that no remaining households needed to be relocated. Resettlement arrangements were found consistent with ADB’s policy. 39. The Project was gender neutral. An attitudinal survey of drivers, passengers, and people working at the tollway stations and in maintenance activities reflected overwhelming satisfaction with the Project.34 Topic areas included exhaust emissions, obstructions, noise, dealing with waste soil, and road condition. About half of those surveyed were aware of the additional safety measures introduced. 40. A negative and unintended impact of the Project has been the high incidence of serious accidents (262 in 1998, 222 in 1999, 187 in 2000) caused by the lack of adequate safety features in the design of the Project (paras. 9 and 10).35 Ninety-five percent of accidents occur on the Bin Xian-Jiamusi section. Many of them occur at grade crossings (footnote 12) where livestock, farmers, animal carts, and tractors cross between their homes and farmlands. Inadequate road signs, insufficient warning lights, no emergency stopping areas, narrow shoulders that force stopped vehicles to leave 2 or 3 feet of their vehicle protruding onto the expressway lane, and speeding were the major reasons for accidents. Following the release of ADB’s PCR, several measures were introduced to reduce the incidence of accidents. The gradual reduction in serious accidents is attributable in part to implementing recommendations of the PCR and TA 2177-PRC (para. 47).

B. Environmental Impact

41. An environmental impact assessment study was undertaken in October 1993 for the project appraisal. The study found no environmentally sensitive areas that could not be avoided through appropriate design considerations. The Government gave assurances that appropriate mitigation measures would be implemented against adverse impacts relating to landslides, soil erosion, and drainage disruptions. No other significant environmental risks were anticipated from the Project. 42. Monitoring after project completion included measuring the concentration of air pollutants from vehicle emissions and the asphalt road surface sections, and measuring noise levels from 33 Households were reported by officials to have been relocated to new homes with improved water piping, and

access to electricity, medical care, and supplies. 34 Conducted as part of the Benefit Assessment Survey (footnote 20). 35 The geometric alignment allows for average travel speeds of 120 km per hour, but because of the lack of safety

and warning features, driving at this speed is unsafe.

traffic movements. Emission and noise levels were within acceptable international limits and less than before the Project along the existing road. In response to environmental concerns, the Government introduced pollution-control measures for the Harbin-Yilan gasworks and Yilan textile mill, which were contributing to air and water pollution along the expressway corridor. 43. Site visits and interviews with HHEC officials confirmed that operation of the expressway met current national standards for air pollutant levels, and rehabilitation of borrow (excavation) pits. Special measures were in evidence for side slope protection and improving the natural setting.36

C. Impact on Institutions and Policy

44. The institutional capabilities of HHEC, HPCD, and the Heilongjiang Safety Management Organization were enhanced through the project preparatory TA, consultant guidance during implementation, and the two attached advisory TAs. 45. The Project’s feasibility study reviewed by international consultants in 1994 provided the basis of ADB’s appraisal (footnote 1). The review examined the engineering designs, cost estimates, organization and implementation arrangements, and concluded that they were sound. Heilongjiang experts in engineering design, construction, finance, and management prepared project details, including those for housing relocation. 46. The prime tasks of TA 2177-PRC (footnote 2) to review the scale and nature of the road accident problem in Heilongjiang Province and to prepare a strategic action plan and five-year master plan for road safety were successfully accomplished. The TA support included an overseas study course for 17 staff from Heilongjiang Public Security Bureau (HPSB) and 3 officials from other government agencies,37 and seminars to explain TA recommendations. The OEM’s interviews with three of the participants found that the study was well received and that seeing safety control in operation had been of benefit for the participants to appreciate the purpose and effect of recommendations under the TA. All except 1 of the 17 participants from HPSB continue to have road safety responsibilities. The TA recommendations for the Heilongjiang Province included plans for educating the general public in safety practices, enforcing regulation, and introducing road and vehicle safety standards. Detailed action plans for the cities of Daqing and Jiamusi were developed. TA 2177-PRC was independently postevaluated in January 2001 as part of a more general study of the effectiveness of TA road safety assistance to ADB developing member countries and rated highly successful. 47. Subsequent and ongoing safety actions arising from the recommendations under TA 2177-PRC include (i) safety education awareness programs for the public in Harbin and Jiamusi and for villagers along the expressway; (ii) an increase in the expressway patrol force from 8 to 32 cars; and (iii) the addition of electronic monitoring and surveillance equipment. Fines for speeding have been tripled from a nominal Y5. A new measure allowing apprehending officers to jail offenders for 15 days is reportedly proving effective. Coinciding with these actions, the number of serious traffic accidents on the project expressway fell by 16 percent in 2000, but is still too high (para. 40). Other recommendations, including the introduction of road safety and vehicle safety standards, are being pursued as part of HPCD’s Five-Year Safety Plan. Taking into account the overall achievement of TA objectives, extent of follow-up action, and staff

36 Side slope protection measures included an angle cut and a combination of stone pitching concrete lattice

emplacements, grass, and shrub plantings on the slope. Landscaping and reforesting were evident at borrow pits. 37 The study course in Victoria, Australia was arranged by the Australian Road Research Board and Transport

Research Limited.

commitment, TA 2177-PRC is rated successful. This assessment is less than adjudged in January 2001 on account of the fact the recommendations of TA 2177-PRC have yet to be fully implemented under HPCD’s Five-Year Safety Plan so that their impact and sustainability remain unproven.38 48. TA 2178-PRC aimed at helping HPCD enhance the skills of provincial transport planners in highway planning, and to prepare a 30-year investment program for a system of feeder roads linking to the expressway. The former was to be achieved through training in origin-destination surveys and the application of transport planning computer software. The OEM’s interview with officials and engineers from HPCD, HHEC, and the Heilongjiang Survey and Design Institute (HSDI) confirmed that the TA’s implementation provided appropriate skills in highway network planning.39 HPCD and HSDI applied the skills acquired for the planning of a new provincial highway in Heilongjiang. The knowledge and experience gained in Heilongjiang have since been disseminated to other provinces through the Ministry of Communications. HPCD advised that several provinces are using the Heilongjiang planning method. Taking into account the overall added effectiveness and sustainability of outputs, TA-2178 PRC is judged highly successful.40

38 OED’s assessment of January 2001 recognizes this in its report: TE-33, Table 7.5, p. 46. Though some reduction is

evident, the number of serious accidents on highways in Heilongjiang and other PRC provinces remains high. 39 The improved skills included (i) methodologies for designing origin-destination traffic surveys, (ii) instruction on

calibrating traffic counts, and (iii) how to evaluate the economic benefits of road investments. 40 While the high success of this TA is not in question, HPCD officials pointed out that the TransPlan computer

software provided under the TA was designed for a United Kingdom (UK) road system. The consultants for the TA were from the UK, and they were unfamiliar with the PRC’s transport system and language. In retrospect, it appears that it might have been more effective to have selected bilingual PRC nationals for training and familiarization in the UK. The computer software could have then been customized to suit the PRC’s transport systems before TA training in the PRC began.

V. OVERALL ASSESSMENT

A. Relevance

49. The Project’s rationale to support the Government’s investment program for developing a national highway system and improving transport efficiencies was consistent with ADB’s country operational strategy. The Project’s premise to relieve poverty and help develop Heilongjiang’s hinterland is also consistent with ADB’s current strategic agenda. The Project is assessed highly relevant. 50. Without the Project, traffic congestion along the existing corridor would have impeded access between the cities of Harbin and Jiamusi and slowed output through the northeast port of Tongjiang to Japan, the Republic of Korea, and the Russian Federation, and to the southern ports of Dalian and Dandong. Resource exports of coal mining and forestry would have remained dependent on slow road and rail haulage to Harbin and Jiamusi. Strengthening Heilongjiang Province’s institutional capacity for highway planning, construction, operation, and management would have been denied, as would the need to gain experience and understanding of road and pavement design to meet traffic loads and extreme weather conditions, and reduce accidents. The region’s farming communities would not have benefited from reduced transport costs and easier access to markets.

B. Efficacy

51. The primary purpose of improving transport efficiencies, reducing VOCs, relieving congestion along the existing road, and facilitating access for intercity traffic was achieved. The average journey time for cars between Harbin and Jiamusi was reduced from 15 hours to around 4.5 hours. The two TAs attached to the Project proved appropriate, enhanced safety awareness and planning and design knowledge, and resulted in recommendations that have been largely taken up. 52. The quality of civil works is sound. Problems observed in the PCR associated with pavement cracking and deformation have been adequately addressed through sealing and/or pavement reconstruction. Safety deficiencies in design have been prioritized for remedy under Heilongjiang Province’s five-year program, and actions to date have resulted in a reduction of accidents. The expressway is well maintained, and ongoing improvements aimed at reducing overloading and improving safety are a priority concern attended to with a strong commitment. 53. Technical inputs for review at appraisal and implementation were ineffective in identifying early design deficiencies associated with pavement construction and safety, and these inputs could have been managed with more focus. Overall, the Project is rated efficacious.

C. Efficiency

54. The Project benefited from a strong project management team. Implementation supervision proved effective and brought forward completion of the expressway by 13 months. The recalculated project EIRR of 14.6 percent attests to the overall efficiency of operations and confirms the economic viability of the Project. The Project is rated highly efficient.

D. Sustainability 55. Since the quality of the civil works is sound, they should long outlast the end of the projected economic life in 2018. Revenues from tolls are more than adequate to cover management operations and capital outlays for routine and spot maintenance. Toll charges are scheduled for review every four years starting in 2004. High economic growth, the Government’s trade and industrial development programs, completion of the connecting trunk links from Harbin and Jiamusi, and improved port facilities at Tongjiang will help ensure that traffic growth projections on the expressway are achieved. The FIRR/EIRR reestimates take into account the need for periodic maintenance, and with appropriate attendance, the economic benefits are sustainable. Any toll adjustments in 2004 and thereafter are not included in the FIRR recalculation. The Project’s sustainability is assessed as likely.

E. Institutional Development and Other Impacts

56. The Project advanced local capability in civil works for highway construction and enhanced HPCD’s planning capacity and implementation experience. Awareness of the need to incorporate safety features, promote safety awareness among residents, and enforce traffic rules were important outcomes of the attached TA. Savings in VOCs, which were expected to benefit farmers and reduce poverty, were only passed on to farmers in part because of controls by the Government on the price of key farm inputs (para. 61). Other socioeconomic benefits derived from reduced journey times were not monitored and as a result, the impact of improved transport efficiencies on production and on access to education and health services remains unsubstantiated, even though a generally accepted consequent benefit. Such impacts from the Project are, therefore, assessed as moderate.

F. Overall Project Rating

57. The Project is rated successful in the new four-category system (footnote 9). Detracting from a higher assessment are (i) the weaknesses in the pavement and highway safety design that would likely have been avoided with more attention paid to technical aspects (paras. 10 and 60), and (ii) the failure to demonstrate adequately that economic development and poverty reduction objectives were achieved (paras. 33 and 61).

G. Assessment of ADB and Borrower Performance

58. Taking into account ADB’s good working relationship with HHEC, and its effectiveness in ensuring that procurement and contracting was carried out in accordance with competitive bidding procedures, ADB’s performance is assessed as satisfactory. Detracting from this are weaknesses in project design procedures for evaluating and reviewing technical inputs, and the timing of review missions. These weaknesses resulted in a failure to detect design deficiencies early. 59. The Borrower’s performance is assessed as satisfactory. Detracting from a higher assessment is the lack of attention given to monitoring and substantiating benefits toward reducing poverty derived from the regional and hinterland development impact, on which the Project was partly premised.

VI. ISSUES, LESSONS, AND FOLLOW-UP ACTIONS

A. Key Issues for the Future

60. Technical Inputs. HSDI designed the project expressway in accordance with technical standards issued by the Ministry of Communications. The feasibility study was carried out by HPCD in 1993 and reviewed by ADB in 1994. The implementation consultants were required to ensure that designs and construction were carried out to internationally accepted engineering standards. Although the technical expertise was available, and the project expressway was a first of its kind in Heilongjiang Province, deficiencies in pavement design and rapid implementation led to a higher than expected incidence of pavement cracking and deformation. Important design features for road safety, such as emergency stopping were also left out. This could largely have been avoided with more rigorous attention, at appraisal and during implementation review, to technical inputs. 61. Poverty Impact. The Project was expected to improve livelihood opportunities in eight poverty areas. The benefit assessment report of HHEC and the PCR failed to evaluate the impact of the Project on reducing poverty and in so doing undermined an important premise of the Project. Sample evidence from the OEM’s interviews with farmers suggests that savings in VOCs were only partly transferred in the form of cheaper freight costs. Fertilizer and chemical prices, for example, were not reduced as a result of savings in VOCs because of rigidities in the Government’s pricing system. Farmers reported no change in production mix or their overall level of production. By failing to monitor the project impact on development of the region, an important element of feedback and policy implication was missed. If ADB and the Government are to be taken seriously in their common goal to reduce poverty, more comprehensive efforts must be undertaken in projects for measuring poverty reduction impacts.

B. Lessons Identified

62. Key lessons from the Project are the need for (i) more rigorous reviews of design features at appraisal and during implementation so as to identify early and/or avoid technical and safety design deficiencies (paras. 10 and 60); and (ii) more rigorous attention to elucidating the project rationale, purpose, targets, and how these will be realized, so that there is a clear basis for monitoring and evaluating benefits (para. 61).41

C. Follow-Up Actions

63. ADB should take into account the lessons identified and ensure that (i) all future reviews of feasibility studies comprise adequate technical review of engineering and safety design, (ii) future expressway projects are planned with greater attention to ensuring that design specifications are consistent with meeting project objectives and expectations for the quality of project outputs, and (iii) the responsibilities and specific advisory tasks of future implementation consultants are more diligently managed and evaluated for achievement of purpose.

41 These lessons are recognized within ADB’s Infrastructure Energy and Financial Sectors Department (East) and

have been addressed under Loans 1783/1784-PRC: Chongqing-Guizhou Roads Development Project, for $120 million and $200 million respectively, approved on 21 November 2000.

64. The Government should initiate as soon as possible measures to ensure that pavements and highways for remaining NTHS developments are designed to satisfy international safety standards and are constructed with a more durable pavement surface. For future corridor developments, a more responsive mechanism for transferring the gains from lower transport costs to the price of farm inputs such as fuel, fertilizer, and chemicals should be introduced. Finally, HHEC should continue its efforts aimed at reducing accidents, including introducing and enforcing more stringent road and vehicle safety regulations.

APPENDIXES

Number Title Page Cited on (page, para.)

1 Engineer’s Summary 18 4, 12 2 Implementation Schedule 25 4, 14 3 Purpose, Targets, and Actual Outcomes 26 6, 19 4 Financial and Economic Reevaluation 28 8, 31

18Appendix 1, page 1

ENGINEER’S SUMMARY1

A. Design

1. The project expressway was designed with two standards. The Harbin-Bin Xian section(53 kilometers [km]) was designed and constructed as part of a staged development as a fullycontrolled access expressway of four lanes. In the first stage of construction, two lanes wereconstructed with a carriageway width of 13 meters (m), including a hard shoulder width of2.25 m for each lane. Pavement thickness varies at 20-25 centimeters (cm).2 In the secondstage, two additional lanes are to be constructed to provide for an overall carriageway width of20.5 m. Construction is under way and several kilometers are now complete. The pavementfrom Harbin to Bin Xian is constructed of asphalt-concrete to expressway standard of thePeople’s Republic of China (PRC). The Bin Xian-Jiamusi (278 km) section is designed to thePRC’s class 2 highway standard. The carriageway was to be 9 m wide with a shoulder width of1.5 m.3 The pavement is of concrete structure except for 48.4 km, which is asphalt-concrete.The pavement thickness is 10-18 cm. Parallel to the project expressway runs Highway 101 (theexisting road) which remains open. Highway 101 is designed to class 3 and class 4 PRCstandard for unpaved gravel roads, and has an average carriageway width of 6 m.

B. Geometrics

2. The alignment is of a high standard and appropriate for average vehicle speeds of120 kilometers per hour (kph). Although the alignment is designed for such speeds, designaspects relating to safety were inconsistent with international practices. These remain eitherunderdesigned or omitted (para. 11).

C. Earthworks

3. The project earthworks were substantial, reflecting a need to elevate the pavementabove areas subject to flooding.4 Much of the earth fill was obtained from borrow pits and metalquarries near the road. Where earthwork cuts were required, the batter face is decorated withstonework and planted with grass or shrubs. Superficial failure of the stonework is commontogether with surface slips, and are caused by a combination of frost heave and design failureas a result of cutting slopes at too steep an angle.

D. Drainage

4. Drainage provisions appear appropriately designed with no obvious problems due toinsufficiency of culverts to cope with flooding and snow runoff. Side ditch drainage along cuttingareas is surfaced with stonework that is breaking with frost heave. The stonework failures are ofminor consequence and do not seriously impair drainage function. Damaged slopes and sidedrains were being reconstructed at the time of the site visit of the Operations Evaluation Mission(OEM).

1 Technical reports relating to the feasibility study, the project completion report of the Heilongjiang Hatong

Expressway Corporation, mission reviews, discussion inputs with national engineers as well as the OperationsEvaluation Mission’s site inspection are used to draw overall conclusions.

2 Also known as the surface course.3 The proposed carriageway width of 9 m was too narrow. To better reflect international design practices, the

pavement width was expanded, with an approved change of scope, to 12 m.4 Earthworks involved the excavation and fill of a reported 22.9 million cubic meters.

19Appendix 1, page 2

E. Pavement

5. Sixty-eight percent of the expressway is paved with concrete and the balance withasphalt-concrete. Inspection of the pavement conditions revealed (i) pavement deformation onthe hilly Fangzheng-Yilan asphalt-concrete pavement section (about 25 km) as highlighted inthe project completion report (PCR); (ii) some surface unevenness on the Harbin-Bin Xian(53 km) asphalt-concrete section with an international roughness index (IRI) between 3 and 4;(iii) an abnormally high incidence of transverse cracking along the asphalt-concrete pavementsections that had been sealed; and (v) minor pavement cracking and deformation on thecement-concrete sections.

6. The concrete pavements are uniformly constructed with twin 4.5 m wide slabs, and 1 mwidening strips each side plus 0.5 m concrete carriageway edging strips. The widening stripsshow no signs of cracking and are functioning satisfactorily.

7. The initial performance problems with asphalt-concrete have been remedied withappropriate attention to resealing and relaying of damaged surface areas. As settlement of theearth base has compacted, the incidence of damage has decreased. Experimentation by theHeilongjiang Hatong Expressway Corporation (HHEC) with various pavement constructions forasphalt-concrete point to a lower incidence of pavement cracking and deformation on futurehighways (which may include the widening of the project expressway from Bin Xian to Jiamusito four lanes).5 Asphalt-concrete pavement is preferred to concrete as a pavement surfacebecause of its better riding quality, easy repair, and closeness to asphalt-concretemanufacturing plants.6

8. The settlement problem observed by the PCR Mission between kilometer pegs 345 and369 (see Map) was due to the inadequate geotechnical survey and pavement design,deficiencies in quality control during the construction stage, and insufficient time for earthcompaction. Crackings and ruttings are attributed to an inferior quality of pavement construction,and thermal shrinking of the base surface associated with extreme weather conditions.Notwithstanding the observed technical failures associated with pavement cracking anddeformation, the overall quality of the project expressway has been restored with appropriatemaintenance, and is of a high standard. Average road roughness by the IRI is estimated to be2.5.

F. Pavement Loading

9. The OEM was advised that the legal maximum (all-up) truck loading for expressways is30 tons, and that standard design axle loadings are 10 tons for expressways and 8 tons forclass 1 highways. Ten-ton axles would normally relate to an all-up 30-ton loading. Truckstypically freighting coal, forest logs, and vegetables are overloaded. The OEM found, however,

5 Different pavement structures were used, reflecting differences in availability of materials, soil-testing results, and

trials. For the concrete pavement, four different base courses were applied (with varying mixes of cement stabilizedsand, gravel, and crushed stone) and three different subbase courses. The total base and subbase depth rangedfrom 58 to 78 cm. For the asphalt-concrete pavement, two different bases and subbase courses were applied.These consisted of (i) a subbase course (layer) mix of cement, and lime-stabilized soil and gravel over a sand-gravel bedding; (ii) a base course of lime, flash, and cement-stabilized sand and crushed stone; and (iii) a surfacecourse consisting of 4-7 cm of hot mixed asphalt macadam over 4-9 cm of medium-course graded asphaltconcrete. The total base and subbase depth ranged from 46 to 73 cm.

6 Construction cost is reported to be about the same.

20Appendix 1, page 3

only isolated evidence of pavement failure caused by overloading. Obvious damage wasobserved at bridge approaches and where earth settlement remained soft. The Project was notdesigned with weigh facilities for checking overloading; overloading is difficult to control.

G. Maintenance

10. The county jurisdictions through which the expressway passes carry out maintenance ofthe project expressway. Five maintenance construction teams, each with some 120 staff, areresponsible. Each maintenance division is equipped with vehicles to carry out grading (usedlargely for snow clearing), loading, trucking, and transporting equipment materials and workers.At the time of the OEM’s site visit, all maintenance divisions were actively deployed on routineand spot maintenance, including pavement reconstruction. The OEM saw no evidence of areasrequiring maintenance and repair that had been long unattended.

H. Safety Design

11. The PCR reported on specific safety deficiencies, including narrow shoulders, noemergency stopping areas, no emergency telephones, no hazard warning lights, unprotectedbridge piers, and 80 uncontrolled access points. To these may be added insufficientunderpasses, unprotected and untied guardrail terminals, unprotected drainage ditches,inadequate signage, low-standard entry and exit lanes, uncontrolled road intersections, andinadequate signage and markings for no passing. The overwhelming need to control speed forthe prevailing conditions is also evident. Many vehicles are in an unsafe condition to travel atspeed.

12. Although recommendations of the PCR and TA 2177-PRC relating to implementing aroad safety improvement program, closing of uncontrolled access roads, providing additionalsafety and engineering features, and enforcing the speed limit more strictly have all been actedupon and the number of accidents has fallen, the accident rate is still high, and the need tomore strictly enforce speeding regulations and address the wider causes of accidents includingunsafe vehicles is apparent.7 As the recommendations of TA 2177-PRC have yet to be fullyimplemented under HPCD’s Five-Year Safety Plan, their overall effectiveness remainsunproven.

I. Highway 101 (Existing Road)

13. The OEM conducted several site visits to the parallel Highway 101. The visits confirmedinformation from the Heilongjiang Provincial Highway Administration Bureau that the existingroad, except the Harbin-Fangzheng section, is unpaved with an estimated IRI of between 6 and8 (see photographs). The Harbin-Fangzheng section is paved and well maintained with anestimated IRI of less than 4.

7 The Heilongjiang Public Security Bureau statistics for the period 1997 (opening) to October 2000 show

671 “extremely harmful” accidents resulting in 359 deaths. Ninety-five percent of these accidents occurred on theJiamusi-Bin Xian section, which is not completely access restricted and does not have a center divide separatingoncoming traffic. The accident and fatality rates are respectively 83 and 44 per 108 vehicle-km, approximately threetimes the international norm for an open access rural highway with substantially higher traffic volumes, and some15 times that for a controlled safety-designed expressway.

21Appendix 1, page 4

14. With and without project scenarios of the likely road maintenance strategies andresulting conditions were programmed to calculate the economic internal rate of return(Appendix 4) based on the above assessment of road conditions, and a review of maintenance.

Photograph A1.1: Existing Road (Highway 101)

J. Recommendations

15. Recommendations reflected in the follow-up actions of the main text (para. 64) include(i) continued experimentation with pavement design and materials to achieve a more durablepavement surface, (ii) introducing safety audits on all proposed road projects, and (iii) treatingas a matter of urgency the need to complete requisite safety features including measures forintroducing and enforcing more stringent road and vehicle safety regulations.

22Appendix 1, page 5

Photograph A1.2: Asphalt Pavement Cracking

Photograph A1.3: Asphalt Pavement Cracking Repaired

23Appendix 1, page 6

Photograph A1.4: Transverse Cracking

Photograph A1.5: Lateral and Transverse Cracking Repaired

24Appendix 1, page 7

Photograph A1.6: Safety Design Hazard:Stopped Truck and Car Wider than Road Shoulder

Photograph A1.7: Overloaded Truck

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25

Appendix 2

PURPOSE, TARGETS, AND ACTUAL OUTCOMES a

Purpose/Scope Targets Actual Outcomes and Impact

1. Sector

� Link provincial capitals and all cities withpopulations of more than 500,000.

� Construct an expressway linking the industrial citiesof Harbin (3.5 million) and Jiamusi (2.2 million).

� Completed August 1998.

� Improve national transport efficiencies. � Reduce vehicle operating costs (VOCs) andaverage transit times.

� VOCs reduced on average by 40percent. Average travel time reducedfrom 15 hours to 4.5 hours.

� Relieve congestion on existing routes(Highway 101).

� Divert through traffic (motorized) to newexpressway.

� Achieved.

� Promote equitable growth of the regionand hinterland.

� Provide all-weather access and induce transportsavings to industries and farmers.

� Expressway open all year. Transportsavings only partly transferred tofarmers.

� Strengthen Heilongjiang Province’sinstitutional capacity for highway planning,construction, and operation, andmanagement.

� Technical assistance (TA) for network planning.International implementation consultants forconstruction supervision and training.

� Achieved.

2. Project� Improve capacity and integration of the

road network system in HeilongjiangProvince.

� Construct a two-lane expressway of approximately350 kilometers (km), connecting Harbin and Jiamusicities, with seven interchanges and toll facilities,service areas, and eight bridges.

� Achieved with changes in scope.Actual length was 331 km. Additionalinterchanges and underpassesadded.

� Strengthen Heilongjiang Province’sinstitutional capacity for highway planning.

� TA support to prepare a 30-year investmentprogram for development of Heilongjiang Province’soverall road network.

� Train staff in origin-destination surveys andcomputer modeling of the network system.

� Completed.

� Overseas training for 20 participants;skills and knowledge disseminated toother provinces.

� Relieve congestion on existing Highway101 and railway systems.

� Divert 70 percent of motorized traffic from Highway101 to project expressway.

� Induce expressway freight traffic to use roadtransport in preference to rail.

� Actual diversion is close to thatprojected.

� Significant diversion from rail forcoal, forestry products, andvegetables.

� Reduce traffic accidents and introducepolicy reforms related to safety.

� TA support to develop a five-year strategic plan for(i) educating the public in safety practices, enforcingregulations, and introducing road and vehicle safetystandards; and (ii) a specific plan for the cities ofDaqing and Jiamusi. In addition, to provide trainingin safety for staff on an overseas study course.

� Recommendations of TA accepted.Expressway accidents fell during2000 but accident rate forexpressway and province still high.Elements of safety plan includingextensive public awarenesscampaigns have been adopted. Five-year program not yet complete.

a Although similarity in format exists, this comparison is not intended to represent a logical framework. A logical framework was not prepared for this Project atappraisal.

Appendix 3, page 1

26A

Purpose/Scope Targets Actual Outcomes and Impact

3. Project Activities/Inputs

� Procurement of materials, plant, andequipment for construction, laboratories,and toll operations.

� 13 contract packages (civil works).� No specific targets for equipment.

� 13 contract packages (civil works).� 15 contract packages (equipment).

� Construction of expressway, interchanges,and toll facilities

� Implementation consultants for supervisionand training

� Project costs ($ million)Civil works 208.2Equipment 11.8Land acquisition 21.3Implementation consultants 5.3Contingencies 63.4Interest during construction 20.0

330.0

� Project costs ($ million)Civil works 261.2Equipment 9.6Land acquisition 22.1Implementation consultants 2.7Interest during construction 13.6

309.2� Consultant inputs for safety and highway

planning strengthening� Financing plan ($ million)

ADB 142.0Government 158.0

330.0

� Financing source ($ million)ADB 141.5Government 167.7

309.2� TA costs

Road Safety Program $600,000Highway Network Planning $600,000

� Actual TA costsTA 2177-PRC $569,278TA 2178-PRC $513,523

Appendix 3, page 2

27

28Appendix 4, page 1

FINANCIAL AND ECONOMIC REEVALUATION

A. Background

1. Before the project expressway was opened to traffic on 30 August 1997, vehicle trafficused Highway 101 (existing road). Highway 101 extended from Harbin to Jiamusi linking severalcounty towns and villages. The highway was 360 kilometers (km) long, 5-6 meters (m) narrow,unpaved except for 62 km between Harbin and Bin Xian, and prone during the winter topavement damage in the form of large mud and gravel holes and wheel gouging. Averageroughness by the international roughness index (IRI) was 10, an index generally indicating abad road condition. The average daily traffic volume in 1993 was 1,847 motorized vehicles,about half of which were trucks. Traffic volume was increasing at around 12 percent per annum.Because of the bad road condition and congestion near the towns, average vehicle speedswere less than 30 km per hour. The total time to travel from Harbin to Jiamusi was around15 hours.

2. Without the project expressway, the volume of traffic on Highway 101 was expected toreach the road design capacity of 2,000 vehicles per day (vpd) in 2002, after which majorreconstruction to accommodate future traffic growth and congestion would be required.

B. Appraisal Methodology

3. The appraisal team considered the volume of traffic using Highway 101 and costs ofupgrading to accommodate anticipated future traffic. As about 80 percent of the traffic onHighway 101 was intercity traffic, it was predicted that 70 percent of this traffic would use theproject expressway because of the lower transport costs and shorter travel time.1

4. The economic benefits from the project expressway were calculated as the sum of(i) vehicle operating cost (VOC) savings for vehicles using the highways that would otherwisehave to travel on Highway 101, (ii) savings in road maintenance costs, (iii) VOC savings fromreduced congestion accruing to traffic that remained on the old road, and (iv) VOC savings fordiverted and generated traffic. Time savings, while acknowledged, were not included in theeconomic internal rate of return (EIRR) estimate.

C. PCR and PPAR Methodology

5. Calculation of the EIRR for the Asian Development Bank’s (ADB’s) project completionreport (PCR) and project performance audit report (PPAR) follow the appraisal methodology,but are imputed with data reflecting actual investment costs, year of investment, and first-yeartraffic volumes. The PPAR reestimate reflects the actual volume of traffic for three years to June2001.

1. Vehicle Operating Costs

6. VOCs were estimated using the Ministry of Communications’ VOC model, calibratedfrom the World Bank’s Highway Design and Maintenance model version IV (HDM-IV). Datainputs for VOCs were compiled from the Research Institute of Highways’ study on road user

1 Intercity traffic included origin-destination movements between Harbin, Bin Xian, Fangzheng, Jiamusi, and Yilan.

Because tolls were to be installed on the project expressway, some uncertainty prevailed as to the proportion oftraffic that would divert and use the expressway.

29Appendix 4, page 2

costs for different vehicle types and road conditions (gradient, curvature, and roughness).2

Table A4.1 shows the average VOC by vehicle for different roughness in the project area(covers expressway and Highway 101).

Table A4.1: Average VOCs for Different Road Roughness in the Project Region(Y/km)

Roughness Trucks Passenger VehiclesIRI Small Medium Large Car Minibus Large Bus Trailer

2 2.57 5.61 4.95 1.34 4.49 5.51 7.413 2.61 5.72 5.06 1.36 4.55 5.62 7.584 2.66 5.84 5.17 1.38 4.61 5.73 7.765 2.71 5.95 5.29 1.40 4.67 5.84 7.946 2.76 6.07 5.41 1.42 4.74 5.96 8.137 2.81 6.19 5.53 1.43 4.80 6.08 8.328 2.87 6.32 5.65 1.45 4.87 6.20 8.519 2.92 6.44 5.78 1.47 4.94 6.32 8.7110 2.97 6.57 5.91 1.49 5.01 6.44 8.9111 3.03 6.71 6.04 1.51 5.08 6.57 9.1212 3.09 6.84 6.17 1.53 5.15 6.70 9.3313 3.15 6.98 6.31 1.56 5.22 6.84 9.5514 3.20 7.12 6.45 1.58 5.30 6.98 9.7715 3.27 7.27 6.60 1.60 5.38 7.12 10.00

IRI = international roughness index.

7. Inherent in the VOC model, the costs of tradables (e.g., fuel, oil, and rubber) areexpressed in border prices with provision for internal transport and administration costs. Thecosts of nontradables are converted to economic costs by excluding taxes and applying astandard conversion factor of 0.9.

8. All costs (capital investment, operating maintenance, and VOCs) are expressed in localcurrency at the world price numeraire. A residual value of 50 percent of construction costs isincluded in the last year of evaluation, i.e., 2018.

2. Scenarios in Maintenance Costs

9. Scenarios of the likely road conditions for Highway 101 were programmed based on thesite visits of the Operations Evaluation Mission (OEM) and conditions applying at appraisal.Without the Project, Highway 101 was assumed to remain with an average IRI of 10.Maintenance costs, adjusted to 2001 prices, were as applied at appraisal. For the with-projectcase, maintenance costs reflect those currently needed to maintain Highway 101 with an IRI of6 to 8 (depending on section). The difference for the with- and without-project case is imputedas the maintenance savings on Highway 101.

3. Savings in Travel Time Costs

10. Savings in travel time costs were not included in the appraisal and PCR calculations ofthe EIRR. However, because of (i) the stated importance of time savings as the motivating

2 The Research Institute of Highways is a division of the Ministry of Communications.

30Appendix 4, page 3

reason for using the project expressway, and (ii) the data research available relating to timevalues, an imputation is made in the VOC planning model and included in the PPAR calculation.

D. Economic Internal Rate of Return Results

11. Table A4.2 summarizes the appraisal, PCR, and PPAR results. Table A4.3 comparesthe PPAR actual and forecast traffic volumes with those at appraisal. Tables A4.4 and A4.5provide details of the recalculation of the financial internal rate of return (FIRR) and EIRR.Differences between the appraisal, PCR, and PPAR estimates are largely explained by thedifferences in investment cost, implementation period, traffic volumes, and traffic mix. Inaddition, the PPAR calculation for the EIRR includes an estimate for time savings benefits, asimputed under the Highway Design Institute’s HDM-IV model.

Table A4.2: Comparison of FIRR and EIRR Results

Item Appraisal PCR PPAR

FIRR 3.7 3.3 a 1.1EIRR 18.9 15.1 14.6

EIRR = economic internal rate of return, FIRR = financial internal rate of return, PCR = projectcompletion report, PPAR = project performance audit report.a PCR result excludes realistic provision for periodic maintenance.

Table A4.3: Actual and Forecast Traffic on the Harbin-Jiamusi Corridor

Average Daily TrafficAppraisal PPAR

Year Expressway Highway 101 Total Expressway Highway 101 Total

1998 3,775 1,096 4,871 2,760 322 3,0811999 4,128 1,199 5,327 2,932 512 3,4442000 4,520 1,313 5,833 2,964 1,305 4,2692001 4,728 1,373 6,101 3,129 1,332 4,4602002 4,946 1,436 6,382 3,303 1,358 4,6612003 5,173 1,502 6,675 3,486 1,385 4,8722004 5,411 1,571 6,982 3,680 1,413 5,0932005 5,660 1,644 7,304 3,885 1,441 5,3262006 5,921 1,719 7,640 4,101 1,470 5,5712007 6,193 1,799 7,992 4,329 1,500 5,8292008 6,478 1,881 8,359 4,570 1,530 6,1002009 6,776 1,968 8,744 4,824 1,560 6,3852010 7,088 2,059 9,147 5,093 1,591 6,6842011 7,317 2,125 9,442 5,307 1,623 6,9302012 7,552 2,193 9,745 5,530 1,656 7,1862013 7,796 2,264 10,060 5,763 1,689 7,4522014 8,047 2,337 10,384 6,006 1,723 7,7282015 8,306 2,412 10,718 6,258 1,757 8,0152016 8,574 2,490 11,064 6,521 1,792 8,3142017 8,850 2,570 11,420 6,796 1,828 8,6242018 9,136 2,653 11,789 7,082 1,865 8,946

PPAR = project performance audit report.

31Appendix 4, page 4

Table A4.4: FIRR Recalculation(Y million)

YearEnding

CapitalInvestment

Costs

Operationand

Maintenance

TollRevenueBenefits

NetBenefits

1995 1,051.3 (1,051.3)1996 1,046.8 (1,046.8)1997 880.7 15.1 35.7 (860.2)1998 25.6 101.2 98.2 (28.6)1999 80.1 128.2 48.12000 70.1 131.2 61.12001 60.0 150.0 90.02002 60.0 156.8 96.82003 60.0 163.8 103.82004 60.0 171.2 111.22005 60.0 178.9 118.92006 60.0 186.9 126.92007 60.0 195.3 135.32008 237.2 60.0 204.1 (93.1)2009 60.0 213.3 153.32010 60.0 222.9 162.92011 60.0 230.0 170.02012 60.0 237.4 177.42013 60.0 245.0 185.02014 611.0 60.0 252.8 (418.2)2015 60.0 260.9 200.92016 60.0 269.3 209.32017 60.0 277.9 217.92018 (1,502.3) 60.0 286.8 1,729.1

Financial internal rate of return = 1.1%

32Appendix 4, page 5

Table A4.5: Project Economic Internal Rate of ReturnCosts (Y million) Benefits (Y million)

VOC Savings Avoided InvestmentNew Road Existing Road

YearCapital

Investment

Operationand

MaintenanceCosts Total

DivertedTraffic

GeneratedTraffic

DistanceReduction

ReducedCongestion

MajorMaintenance

TimeSaving

NetBenefits

1995 951 — 951 — — — — — — (951)1996 947 — 947 — — — — — — (947)1997 797 — 797 — — — — — — (797)1998 23 26 51 112 19 179 — — 35 2961999 — 47 47 116 20 189 — — 40 3182000 — 58 58 118 20 172 32 — 47 3312001 — 25 25 125 21 181 32 — 51 3852002 — 25 25 132 22 191 33 — 56 4092003 — 25 25 139 23 201 34 — 61 4332004 — 26 26 146 25 212 34 — 67 4582005 — 26 26 154 26 224 35 — 74 4872006 — 26 26 162 28 236 36 — 81 5172007 — 26 26 171 29 249 36 442 89 9902008 — 217 217 181 31 262 37 274 98 6662009 — 27 27 190 32 277 38 90 108 7082010 — 27 27 201 34 292 39 — 119 6682011 — 28 28 209 35 304 39 — 130 6892012 — 28 28 218 37 317 40 — 142 7262013 — 28 28 227 38 330 41 — 155 7632014 — 559 559 236 40 344 42 — 169 2722015 — 29 29 246 42 358 43 — 185 8452016 — 29 29 256 43 373 43 — 202 8882017 — 29 29 267 45 388 44 — 221 9362018 (1,359) 30 (1,329) 278 47 404 45 — 242 2,345

Economic internal rate of return = 14.6%

12. Table A4.6 compares the results of the base case FIRR and EIRR and sensitivity tochanges after 2001 in traffic growth, VOC savings, maintenance savings, and inadequatemaintenance. Sensitivity of the base case estimate to exclusion of time savings is also shown.

Table A4.6: FIRR and EIRR Sensitivity(percent)

Item FIRR EIRR

A. Base Case 1.1 14.6B. With the following changes:

10 percent lower traffic growth after 2001 1.0 14.310 percent lower VOC savings after 2001 — 13.510 percent higher maintenance cost savings after 2001 0.9 14.7Reducing the expressway IRI after 2001 from 2.5 to 7.0 by 2006(with reduced/inadequate maintenance)

— 12.2

C. With exclusion of time savingsa — 12.7

EIRR = economic internal rate of return, FIRR = financial internal rate of return, IRI = international roughness index,VOC = vehicle operating cost.a Average time values imported for Heilongjiang Province are Y3.5 per hour for cars, Y2.5 per hour for buses, and

Y1.8 per hour-ton for trucks. The average vehicle time savings for cars using the project expressway is 4-4.5 hours and 5-5.5 hours for other vehicles. The average occupancy for cars is 3 and buses 10. The averageloading for trucks is about 3.5 tons per vehicle. Imputation based on these figures provided in 2001 for timesavings amounting to Y50.9 million. If included in the EIRR reestimate, together with time savings for theremaining economic life of the Project, the EIRR improves from 12.7 percent to 14.7 percent.