Document of The World Bank · 12/19/2011 · achievement) Mean reservoir elevation of 62.73 m was achieved on completion of the Project Indicator 2 : ... achievement) Training programs

Document of The World Bank

Report No: ICR00001913

IMPLEMENTATION COMPLETION AND RESULTS REPORT (IBRD-48040)

ON A

LOAN

IN THE AMOUNT OF US$100 MILLION TO THE

PEOPLE’S REPUBLIC OF CHINA

FOR A

FIFTH INLAND WATERWAYS PROJECT

December 19, 2011

China and Mongolia Sustainable Development Unit Sustainable Development Department East Asia and Pacific Region

CURRENCY EQUIVALENTS

(Exchange Rate Effective April 5, 2011)

Currency Unit = Renminbi (RMB) 1.00 = US$0.15

US$1.00 = RMB6.55

FISCAL YEAR January 1-December 31

CCMO Cuijiaying Complex Management Office CPS Country Partnership Strategy dwt Deadweight ton (for vessels) EIA Environmental Impact Assessment EIRR Economic Internal Rate of Return FIRR Financial Internal Rate of Return GWh Gigawatt hour HPTD Hubei Provincial Transport Department ICB International Competitive Bidding ICR Implementation Completion and Results Report IWT Inland Waterway Transport kwh Kilowatt hour M&E Monitoring and Evaluation MOF Ministry of Finance MOT Ministry of Transport NDRC National Development and Reform Commission PAD Project Appraisal Document PDO Project Development Objective QAG Quality Assurance Group RAP Resettlement Action Plan RMB Renminbi (Chinese currency) WBFPO World Bank-Financed Projects Office

Vice President: James W. Adams

Country Director: Klaus Rohland

Sector Manager: Paul Kriss

Project Team Leader: Wenlai Zhang

ICR Team Leader: Wenlai Zhang

COUNTRY Project Name

Fifth Inland Waterways Project

CONTENTS

Data Sheet A. Basic Information B. Key Dates C. Ratings Summary D. Sector and Theme Codes E. Bank Staff F. Results Framework Analysis G. Ratings of Project Performance in ISRs H. Restructuring I. Disbursement Graph

1. Project Context, Development Objectives and Design ............................................... 1 2. Key Factors Affecting Implementation and Outcomes .............................................. 4 3. Assessment of Outcomes ............................................................................................ 7 4. Assessment of Risk to Development Outcome ........................................................... 9 5. Assessment of Bank and Borrower Performance ....................................................... 9 6. Lessons Learned ....................................................................................................... 11 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners .......... 11 Annex 1. Project Costs and Financing .......................................................................... 13 Annex 2. Outputs by Component ................................................................................. 14 Annex 3. Economic and Financial Analysis ................................................................. 15 Annex 4. Bank Lending and Implementation Support/Supervision Processes ............ 17 Annex 5. Summary of Borrower's ICR and/or Comments on Draft ICR ..................... 19 Annex 5. Summary of Borrower's ICR and/or Comments on Draft ICR ..................... 19 Annex 6. List of Supporting Documents ...................................................................... 28 MAPs: 1. IBRD 33930 2. IBRD 33931 3. IBRD 33932 4. IBRD 34053

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A. Basic Information

Country: China Project Name: China: Fifth Inland Waterways

Project ID: P085333 L/C/TF Number(s): IBRD-48040

ICR Date: 12/19/2011 ICR Type: Core ICR

Lending Instrument: SIL Borrower: P.R. CHINA

Original Total Commitment:

USD 100.0 million Disbursed Amount: USD 100.0 million

Revised Amount: USD 100.0 million

Environmental Category: A

Implementing Agencies: Hubei Provincial Transport Department

Cofinanciers and Other External Partners: B. Key Dates

Process Date Process Original Date Revised / Actual Date(s)

Concept Review: 06/09/2004 Effectiveness: 12/13/2005 12/13/2005

Appraisal: 01/24/2005 Restructuring(s): - -

Approval: 10/11/2005 Mid-term Review: - -

Closing: 06/30/2011 06/30/2011 C. Ratings Summary C.1 Performance Rating by ICR

Outcomes: Satisfactory

Risk to Development Outcome: Low or Negligible

Bank Performance: Satisfactory

Borrower Performance: Satisfactory

C.2 Detailed Ratings of Bank and Borrower Performance (by ICR)Bank Ratings Borrower Ratings

Quality at Entry: Satisfactory Government: Satisfactory

Quality of Supervision: Satisfactory Implementing Agency/Agencies:

Satisfactory

Overall Bank Performance: Satisfactory Overall Borrower

Performance:Satisfactory

C.3 Quality at Entry and Implementation Performance Indicators

Implementation Performance Indicators QAG Assessments

(if any)Rating

Potential Problem Project at any time (Yes/No):

No Quality at Entry (QEA): Satisfactory

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Problem Project at any time (Yes/No):

No Quality of Supervision (QSA):

None

DO rating before Closing/Inactive status:

Satisfactory

D. Sector and Theme Codes

Original Actual

Sector Code (as % of total Bank financing)

Ports, waterways and shipping 50 50

Renewable energy 35 35

Sub-national government administration 15 15

Theme Code (as % of total Bank financing)

Administrative and civil service reform 17 17

Infrastructure services for private sector development 33 33

Other rural development 33 33

Water resource management 17 17 E. Bank Staff

Positions At ICR At Approval

Vice President: James W. Adams Jemal-ud-din Kassum

Country Director: Klaus Rohland David R. Dollar

Sector Manager: Paul Kriss Jitendra N. Bajpai

Project Team Leader: Wenlai Zhang Graham Smith

ICR Team Leader: Wenlai Zhang

ICR Primary Author: Kek Choo Chung F. Results Framework Analysis

Project Development Objectives (from Project Appraisal Document)

The project's development objective is to enhance the standard of living in the Han River region by developing its potential water resources, including:

(a) increasing the waterway transport capacity along the Han River and its cost-effectiveness; (b) ensuring the availability of sustainable hydropower and water resources for use in the Xiangfan area and the Tangdong farmland region. Revised Project Development Objectives (as approved by original approving authority)

The development objective has remained unchanged throughout the implementation of the Project. There was also no revision of the key indicators.

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(a) PDO Indicator(s)

Indicator Baseline Value Original Target Values

(from approval documents)

Formally Revised

Target Values

Actual Value Achieved at

Completion or Target Years

Indicator 1 : Navigation

Value quantitative or Qualitative)

Mean reservoir elevation (m): 62.73

Availability of the lock: 85%

Mean reservoir elevation:62.73m

Availability of the lock: 95%

Date achieved 12/31/2010 12/31/2010 Comments (incl. % achievement)

Mean reservoir elevation of 62.73 m was achieved on completion of the Project

Indicator 2 : Power

Value quantitative or Qualitative)

Total hours per turbine: 23,600

Cost per kW capacity installed: US$2150

Total hours per turbine:23,600

Cost per kW capacity installed: US$2132


Power generation was achieved as designed and in line with estimated cost.

(b) Intermediate Outcome Indicator(s)

Indicator Baseline Value

Original Target Values (from

approval documents)

Formally Revised Target

Values

Actual Value Achieved at

Completion or Target Years

Indicator 1 : Cuijiaying complex Value (quantitative or Qualitative)

% of civil works completed (physical % complete)

100% 100%

Date achieved 12/31/2010 12/31/2010 Value (quantitative or Qualitative)

% of equipment contracted (by value)

100% 100%


Physical construction of the Cuijiaying complex was completed on schedule.

Indicator 2 : Institutional Development

Value (quantitative or Qualitative)

(a) Training and study tours. (b) Three studies: ‘Inland waterway transport development in Hubei’,

100%

100%

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‘Navigation safety and waste management’, and ‘Financing IWT in Hubei’.


Training programs (overseas and domestic) were implemented as planned. The three studies included in the Project for institutional capacity building were completed as required.

G. Ratings of Project Performance in ISRs

No. Date ISR Archived DO IP Actual Disbursements

(USD millions) 1 12/15/2005 Satisfactory Satisfactory 0.25 2 05/10/2006 Satisfactory Satisfactory 0.25 3 06/12/2007 Satisfactory Satisfactory 25.01 4 06/28/2008 Satisfactory Highly Satisfactory 45.80 5 03/17/2009 Satisfactory Highly Satisfactory 75.17 6 02/02/2010 Satisfactory Satisfactory 90.957 04/11/2011 Satisfactory Highly Satisfactory 100.00

H. Restructuring (if any)

Not Applicable

I. Disbursement Profile

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1. Project Context, Development Objectives and Design

1.1 Context at Appraisal Rapid growth of the Chinese economy following its open-door policy and economic reforms has overloaded its transport network. In the five years preceding the appraisal of the project, vast improvements had been made in transport infrastructures and services in the coastal provinces, but investments in transportation networks in the inland provinces bottlenecks were lagging. It was estimated that due to the inadequate transport services China’s logistics costs (transportation, warehousing and distribution) were a high 18% of GDP compared to 9.5 % in the USA. Coastal provinces enjoyed a considerable advantage in competition with inland provinces. Intermodal logistic chains were weak. Special efforts were necessary to improve inland provinces’ access to seaports and to overcome resistance to cooperation across institutional boundaries. China has large navigable rivers linking many of its major concentrations of population, which are suitable for developing inland water transport (IWT). Rivers carry large volumes of bulk cargoes, especially coal, construction materials such as sand and gravel, timber, and mineral ores. Many of these cargoes are hauled from rural areas (mines, quarries and forests) to urban centers for processing. These mines, quarries and forests are often important sources of employment in poor rural areas. However, on the rivers' upper reaches limited water depth prevents safe year-round access by vessels over 100 tons. At relatively modest cost the navigation channels on these rivers can be deepened sufficiently to enable larger vessels to reach upstream. Larger vessels and sets of barges pushed by a single power unit can offer substantially lower transport costs. Separating the power unit from the barges allows the former to be kept in revenue-earning operation while the barges are being loaded or unloaded. Inland waterway transport (IWT) also has the advantage of a lesser impact on the environment than rail or road transport. Specific issues in the sector that framed the design of the Project included the following:

(a) Coordinating multiple uses of rivers. Rivers in China have been useful not only for transport but also for urban water supply, farm irrigation, and generation of electricity. Dams built for flood protection, electricity generation and irrigation impose a need for ship locks and integrated management of water releases throughout the year.

(b) Promotion of independent power producers. Following the launch of a major

restructuring of the power sector in 2003 hydro dams they acquired the right to deliver power directly to major customers at privately negotiated prices. All generators, hydro or thermal, became legally independent of the distribution companies. Hydro plants could also focus on peak production and this would give them an opportunity to increase their revenue substantially.

(c) Steering IWT operators toward larger vessels. A large number of vessels operating on

China’s waterways were small barges or self-powered boats owned by individuals and operated by the owner and his family living on board. They lacked the financing to trade up to larger vessels. Upgrading of the fleet would require a shift from small family-based

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ownership to larger corporate ownership, a willingness to invest in newer technology, and access to financing. Entrepreneurs contemplating investing in barges and tows wanted to be assured of a steady demand from cargo owners and of uniform and assured navigating conditions on the routes sought by the cargo owners. The Government could encourage new enterprises to enter the IWT market by: (i) providing the infrastructure; (ii) pricing it appropriately; (iii) licensing operators for safety; and (iv) providing transitional assistance in promoting the market between cargo owners and vessel operators and ensuring the dissemination of market information (logistics centers and inland container terminals).

(d) Cost recovery for waterway infrastructure. Most provinces with large waterway

systems levied annual fees on vessels to cover channel maintenance and charges for the use of shiplocks. The remaining finance had to come from power sales revenues, or where the shiplocks were not combined with power plants, from general revenues available to the province, with some funding also from the national budget. Those provinces which had borrowed from the World Bank also aimed to cover their debt service on the Bank loan, which typically had been about 40% of the capital cost. This resulted in a level of cost recovery for waterway investment and maintenance that had been one of the highest in the world.

(e) Institutional reforms. Since the Bank’s first intervention in the IWT sector in 1995,

considerable progress on institutional reforms had been made in the sector. Inland waterways management was decentralized from the central to the provincial governments. IWT services such as cargo handling, shipping, freight forwarding and shipbuilding were commercialized. Waterway tariffs were partly liberalized. These reforms started to create a more competitive environment for the sector.

1.2 Original Project Development Objectives (PDO) and Key Indicators (as approved) The project's development objective is to enhance the standard of living in the Han River region by developing its potential water resources, including:

(a) increasing the waterway transport capacity along the Han River and its cost-effectiveness; and

(b) ensuring the availability of sustainable hydropower and water resources for use in the Xiangfan area and the Tangdong farmland region.

The key indicators for monitoring and evaluating performance were

Navigation - This would be measured by the mean elevation of the reservoir and the availability of the lock for operation.

Power - Efficiency in construction of electric generating capacity would be measured by

the cost per kW capacity, while efficiency in operation and maintenance of the powerhouse would be measured by the hours the turbines would be in use.

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1.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification The PDO and the key indicators were not revised during implementation.

1.4 Main Beneficiaries The main beneficiaries of the Project were the people and businesses engaged in waterway transportation, farming communities in the vicinity of the municipality of Xiangfan and the local population that took advantage of the employment opportunities generated by the Project. Benefits resulting from increases in wages and profits of the navigation community and other waterway-dependent businesses would raise consumption that in turn would stimulate economic development in counties along the Han River. In addition, the use of larger vessels would provide a better living environment for families and crew who lived on board the vessels.

1.5 Original Components (as approved) The Project consisted of two components: Part A: Cuijiaying Navigation and Power Complex

Construction of the Cuijiaying Navigation Complex on the Han River downstream from the city of Xiangfan, including construction of a dam of about 18 meter high, a shiplock capable of accommodating vessels of up to about 1,000 tons capacity, and a power station with a capacity of about 90 Megawatt, and strengthening of reservoir embankments with a length of about 30 kilometers.

Part B: Institutional Development

(a) Strengthen the capacity of HPTD, the Project Management Office and Hubei Provincial Cuijiaying Navigation and Power Complex Management Office to operate and maintain inland waterways, including provision of technical assistance, training and study tours.

(b) Carry out studies for the development of the Han River Region, including: (a) promoting the waterway sector in Hubei Province; (b) logistics planning in Hubei Province; and (c) pricing of power to be supplied by the Cuijiaying Navigation Complex.

(c) Support Hubei Provincial Cuijiaying Navigation and Power Complex Management Office in the implementation of the Project, including provision of goods and technical assistance.

1.6 Revised Components Part B was revised to replace the two original studies on ‘logistics planning in Hubei Province’ and ‘pricing of power to be supplied by Cuijiaying Complex’ with two studies on ‘navigation safety and waste management within the Cuijiaying reservoir’ and ‘financing for development of waterway transport in Hubei’.

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1.7 Other significant changes There was no other revision of the Project’s components.

2. Key Factors Affecting Implementation and Outcomes

2.1 Project Preparation, Design and Quality at Entry This was the Bank’s fifth intervention in the IWT sector in the country and the first in Hubei Province. Experience in preparing and implementing the preceding four projects enabled the preparation of this Project in an efficient manner. Lessons drawn from the experience of the previous Bank-financed waterway projects in China and two recent hydro-electric projects were reflected in the design of the Project. They included the following:

Thorough investigation of geotechnical conditions for the dams’ foundations, as deficiencies have led to redesign and delays.

Appointment of a dam safety panel to provide expert guidance on design and operational issues.

Coordination and good information exchange among the various agencies involved in managing water resources in a given river valley for flood control, irrigation, power generation and navigation. Confidence that the market would take advantage of the increased navigation capacity through larger vessels and increased use of ‘tows’ (pusher units) propelling a set of un-powered barges.

Modest aspirations regarding the contribution toward the development in its service area of a competitive market among independent power producers that a single investment project could make

Adequate consideration was given to several alternatives in arriving at the design of the Cuijiaying Complex. The design firm chose the axis line which offered the best geological conditions, the turbine configuration which offered the lowest cost per kW of power capacity, and the storage capacity which maximized power generation during peak hours. Social assessment for the project included: (a) a project impact analysis; (b) gender aspects of the project preparation; (c) assessment of possible fishery impacts downstream; (d) identify possible ethnic minority communities in the project areas and recommend necessary actions in line with the Bank policy; and (e) project beneficiary assessment. A resettlement action plan (RAP) was developed in line with national laws, policies and Bank OP 4.12, with active participation of and consultation with the affected population.

The laws, regulations, policy and administrative requirements for environmental assessments of development projects in China were adhered to, as were the Bank’s OP4.01 on Environmental Assessment. An environmental management framework that included environmental monitoring and institutional strengthening was established within the project management hierarchy to

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ensure smooth implementation and quality performance. Measures to safeguard the environment were included in contract documents.

Project preparation, design and quality at entry were rated satisfactory by the Bank’s Quality Assurance Group (QAG).

2.2 Implementation HPTD was the executing agency of the Project. HPTD’s World Bank-Financed Projects Office (WBFPO) which had successfully managed four World Bank transport projects was responsible for coordinating project preparation and was the Bank’s main counterpart during implementation. HPTD created a special purpose unit, the Cuijiaying Complex Management Office (CCMO), to implement and manage the construction of the Cuijiaying complex. CCMO’s key staff came from HPTD. The institutional arrangement proved to be effective. CCMO was also responsible for managing and operating the facility upon the completion of its construction. Procurement packaging and bid documents for major contracts were finalized ahead of loan approval so that bids for major contracts could be called as soon as the loan became effective on December 13, 2005. The Project was completed satisfactorily and on schedule by HPTD and the CCMO at a cost of US$254.18 million (US$1=RMB8.11), about 20.4% higher than the cost estimated at appraisal ($211.11 million). The increase was largely due to much higher costs of civil works and equipment, and higher compensation rates for land acquisition and resettlement. The full amount of the loan of US$100 million was disbursed.

2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization The key performance indicators for the navigation investments were the mean elevation of the reservoir and the availability of the lock. For power generation, efficiency in construction of electric generating capacity would be measured by the cost per kW capacity installed compared with generating units of similar size elsewhere in China. Efficiency in operation and maintenance of the powerhouse would be measured by the hours the turbines would be in use. Given the features of the Project, these indicators were proved appropriate. Values for the various indicators were determined at appraisal and agreed upon for purpose of monitoring project performance (Annex 1, PAD). Mechanisms for monitoring the project implementation included twice-a-year supervision missions, the review of semi-annual reports and a mid-term report. Progress was closely monitored against the indicators. Actions were taken by the CCMO to address delays compared with projected progress. The review of the mid-term report concluded that project implementation was proceeding satisfactorily and no revision of the project implementation plan was necessary.

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2.4 Safeguard and Fiduciary Compliance Safeguard and fiduciary compliance was good. Project financial management by the project entity met acceptable standards. Comments of independent auditors on annual financial statements, when they arose, were satisfactorily explained and clarified. Compliance with the RAP could be considered highly satisfactory. Implementation of the RAP was completed in September 2009 without rancor or dispute. In total, 37,541 mu (2,503 ha.) of land were acquired, 57 households with 223 people were relocated, 23 business enterprises were compensated, and affected community assets were satisfactorily replaced. To minimize social impact, all 57 households were relocated within the same village and provided with new cement-brick houses with modern amenities that were much better than their old homes. At the dam site, the affected farmers who lost the most land and had their livelihood most affected were compensated higher than provided in the RAP; 34 vulnerable people were provided with a monthly pension of RMB100-300; 24 small family businesses that provided employment for 55 farmers were relocated along National Road 207 with each household being able to rent out part of their houses for extra income. These livelihood measures resulted in more than full income restoration. In the reservoir area, the affected villages lost less than five percent of their land. The few affected were fully compensated. A large majority (77.5%) of the interviewed households by external monitor affirmed that their current life was better than that before the Project. The Environmental Management Plan was implemented in a satisfactory manner. Environmental monitoring of the project was carried out appropriately by the provincial government’s Environmental Inspection Center.

2.5 Post-completion Operation/Next Phase The Project, upon its completion, would be operated and maintained by the CCMO which would be corporatized for the purpose. CCMO has sufficient experienced personnel and is not expected to have any difficulty in operating and maintaining the facilities in the post-operation phase. The CCMO has prepared and adopted the Operation and Maintenance Plan and Emergency Preparedness Plan in compliance with the Bank policy on Dam Safety. A complete set of monitoring equipment has been installed; and a professional institute has been assigned to conduct the routine dam safety monitoring. The Cuijiaying Complex generated 431 GWh in 2010, and would reach an annual average amount of 446 GWh or above under normal operation. This will provide reliable revenues to cover the expenses for normal operation and maintenance of the Complex.

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3. Assessment of Outcomes

3.1 Relevance of Objectives, Design and Implementation QAG in its review of Quality at Entry considered that the definition of the Project’s development objective was set too high relative to what the Project could actually deliver. However, there was little doubt that the Project would alleviate transportation constraints in the Hubei section of the Han River, and contribute to some degree towards the higher level objectives of: (a) improving the business environment and helping accelerate China’s transition to a market economy; (b) addressing the needs of the poorer and disadvantaged people and regions (mainly central and western provinces; and (c) facilitating a more environmentally sustainable development process.

The Project's development objective remains relevant in the context of China's present transport needs. IWT is a viable mode of transportation, demonstrated by its increasing share of the freight market. Between the identification of the Project (2004) and 2008 (the year of the most recent published data available), IWT freight traffic intensity in ton-kms increased by 22.5% annually which is higher than the national total annual increase of 17.4% .

China Freight Transport by Modes (2004-2008) (in units of billion ton-km)

Year Railways Highways Waterways Civil

Aviation Pipelines Total

Ocean Coastal IWT Subtotal 2004 1,928.88 784.09 3,225.50 698.88 218.44 4,142.87 7.18 81.5 6,944.50

2005 2072.6 869.32 3,855.20 849.49 262.57 4,967.23 7.89 108.8 8,025.80

2006 2,195.44 975.42 4,257.70 988.3 302.5 5,548.57 9.43 155.1 8,884.00

2007 2,379.70 1,135.47 4,868.60 1204.6 355.3 6,428.48 11.64 186.6 10,141.90

2008 2,510.63 3,286.82 3,285.10 1,326.06 415.15 5,026.27 11.96 194.4 1,1030.08Average Annual Growth

7.5% 79.8% 0.5% 22.4% 22.5% 5.3% 16.6% 34.6% 14.7%

Source: China Statistic Yearbook, 2009

IWT is the least energy intensive, most cost effective, and lowest contributor to green house gases of all transport modes. Inland water transport also contributes towards the promotion of greater efficiency, productivity and competitiveness in the use of inland water resources. The Project meets the strategic objective of Pillar 3 (Managing Resource Scarcity and Environmental Challenges) as well as Pillar 4 (Financing Sustained and Efficient Growth) of the Bank’s County Partnership Strategy (CPS) for China for 2006-2010. The project objective and design are expected to be still relevant to the most current government strategy and the new CPS for 2011-2015.

3.2 Achievement of Project Development Objectives The project development objectives are largely achieved through the successful completion and operation of Cuijiaying Complex. Based on the key performance indicators for monitoring and evaluation, the Project has fully achieved its primary objectives. (see Data Sheet - Results Framework Analysis)

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The Project has contributed to the increase of waterway transport capacity by improving the navigation standard of 33 kilometers waterways upstream of the Cuijiaying Complex which can allow navigation of 1,000 tons vessels. Traffic on the project waterways has exceeded expectations, reflecting improvement in services and reduction in transport cost. The improved reliability and reduced costs makes IWT more competitive as compared with the other transport modes. With the installation of six turbines and a total generation capacity of 90 MW, the hydropower generation by the Cuijiaying Complex was 431 GWh in 2010, equivalent to a reduction of about 322,800 tons of CO2. It is anticipated that the annual average amount of electricity generated by the Cuijiaying Complex be 446 GWh or higher during the normal operation period. The Cuijiaying Dam increases a live water storage of about 40 million tons in the reservoir to provide more reliable water resources for Xiangfan Municipality and for an irrigated area of 118,000 ha. in Tangdong farmland region, in particular during the dry seasons. The Project has particularly contributed to the improvement of living standard of local populations through providing infrastructures, market access and development opportunities for local economy. Although the Project is only one of the contributors, according to the Borrower’s report, income per capita has been increased in the dam area from just more than 3,000 Yuan before the Project to over 5,000 Yuan in 2010.

3.3 Efficiency The investment in the Project was efficient. Economic. The cost-benefit analysis conducted at appraisal arrived at an Economic Internal Rate of Return (EIRR) of 22.2%. Following exactly the same valuation approach and taking the same assumptions of travel cost saving per ton and the economic benefit of electricity generated per kWh, the post completion EIRR is estimated at 21.3%. The slightly lower EIRR is mainly due to higher than anticipated capital investments. Based on the above outcomes, it is concluded that the Project’s economic expectation has been met efficiently. Financial. A Financial Internal Rate of Return (FIRR) of 6% was estimated at appraisal under the assumption that the electricity sale price would be RMB0.42 per kWh. However, the generated electricity was sold to the grid at a lower government-controlled price of RMB0.36 per kWh. Also, the actual cost of capital investments was higher than estimated at appraisal. The post completion FIRR, as a result, has decreased to 1.4%. The lower financial return of the investment is acceptable.

3.4 Justification of Overall Outcome Rating The overall outcome rating of the Project was satisfactory, based on:

(a) the satisfactory achievement of its objective;

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(b) the consistency of the project development objective with the Bank's strategy for improving transport services to alleviate bottlenecks and in line with the CPS objectives;

(c) the attention given to lessons learned from the previous inland waterway and other transport projects;

(d) efficiency; and (e) the compliance with Bank safeguards and fiduciary policies.

3.5 Overarching Themes, Other Outcomes and Impacts (a) Institutional Change/Strengthening As previous inland waterway projects, the impact of the Project on institutional development in the sector was very positive. With improvements in the navigational channel, larger vessels were being used, and single self-propelled vessels were being replaced by tows of two to four barges, a more efficient and cost effective form of operation. The three TA studies were appropriately defined to deal with the pressing issues faced with the IWT development in Hubei Province. The TA studies and the well-implemented training programs under the Project will contribute to the institutional development of the IWT sector of Hubei. (b) Other Unintended Outcomes and Impacts (positive or negative): None

3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops No beneficiary survey or stakeholder workshops were conducted in the Project.

4. Assessment of Risk to Development Outcome The risk to development outcome is negligible to low. Central and project provincial governments' commitment to the Project has been strong. Economic conditions in the country and in Hubei remain robust. Traffic on the project waterways has exceeded expectations, reflecting improvement in services and reduction in transport cost. Increased attention is being paid to the maintenance of the waterway transport facilities in recent years. The risk that the development outcome would not be sustained either in terms of the demand for the facilities provided or in terms of the ability and capacity of the executing agency to properly manage, operate and maintain them, is low.

5. Assessment of Bank and Borrower Performance

5.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry Bank performance in ensuring quality at entry was satisfactory. The Project was technically sound. Lessons learned in past Bank financed projects were taken into account. Risks were identified and appropriate measures were taken to mitigate them. Care was exercised to prepare

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the CCMO for project implementation. Key indicators which were selected to monitor and evaluate the performance and outcome of the Project provided targets that helped the implementing entity to focus its attention towards achieving the Project objective. The Resettlement Action Plan (RAP) included processes for consultation and participation of the various stakeholders in the planning, adverse impact analysis, legal framework for resettlement, strategy and implementation program for compensation, relocation and livelihood development, monitoring, and airing and resolution of grievances. In its assessment of Quality at Entry, QAG rated Bank inputs and processes satisfactory; the handling of poverty, gender and social development aspects highly satisfactory; and all other quality at entry dimensions moderately satisfactory. QAG felt improvements could have been made in: financial analysis of the power aspects; evaluation of the potential impact of the upstream dams and the South-North Water Diversion Project; the definition of the PDO; and the mixed value-added from the peer review process. (b) Quality of Supervision The quality of Bank supervision was satisfactory. Regular implementation review missions, focusing on the quality and progress of works and their impact on the achievement of the development objective, were conducted throughout the period of project implementation. Issues that emerged during implementation were attended to in an efficient and prompt manner. Compliance with safeguards and fiduciary policies was closely monitored and recommendations for improving the implementation of the EMP and the RAP were given readily. Resettlement implementation was closely monitored throughout the period of project implementation. (c) Justification of Rating for Overall Bank Performance Overall Bank performance was satisfactory, based on its performance in preparing and supervising the Project.

5.2 Borrower Performance (a) Government Performance Government performance was satisfactory, based on the level of commitment to the Project. At the provincial government level, HPTD closely monitored progress of project implementation and the quality of work, and provided effective co-ordination between the project implementing entity and other governmental agencies. (b) Implementing Agency or Agencies Performance CCMO was highly motivated and competently completed the construction on schedule. Bids for major civil works contracts on the critical path were called and awarded as soon as the loan was effective and contractors were on site by November 2005. The quality of construction was very good. Cooperation between CCMO and the Bank team was close; consultations were extensive and meaningful. Issues were promptly raised and jointly resolved, although contract variations

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and claims could have been addressed and resolved in a more efficient and appropriate manner. CCMO discharged its fiduciary responsibilities conscientiously and properly. Compliance with Bank requirements during project implementation was satisfactory. (c) Justification of Rating for Overall Borrower Performance Overall Borrower performance was satisfactory based on the performance of the Government and implementing agency.

6. Lessons Learned There is a demand for inland waterway transportation in China especially for low-value commodities in large consignments from and to origins alongside or near an inland waterway. Measures to increase efficiency and cost effectiveness in the sector are well received by the market. Developments similar to the Project can be replicated by taking advantage of experience gained in inland waterway network planning, macro-economic considerations, technical design, safety provisions and environmental and social safeguards. As in previous inland waterway projects, cost recovery mechanisms are rarely sufficient to cover all costs, but these costs are usually very small compared to other transport modes, in either absolute terms or in proportion to traffic handled. In general, permanent government subsidies for transport infrastructure should be avoided but inland waterway systems are somewhat different, because for the most part they are appropriately treated as public goods which are provided free of charge to the users. Given this fact, and inland waterways’ greater energy efficiency and smaller environmental footprint, government subsidies appears appropriate. Contrary to expectations, the price for power sold to the grid could not be determined by negotiation, but was set by the relevant government agency. Capacity building studies should focus on issues that are directly related to the substance of the Project. The number of people to be trained overseas, the courses and the countries of training should be carefully determined to reflect the specific needs of the loan beneficiary, as well as Government policies on overseas training.

7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/implementing agencies Several issues regarding procurement were raised by the implementing agency, which are listed below with the comments of the Bank team. ‘Contract packaging for navigation and hydropower project should take technical

specialties into consideration. Navigation and hydropower engineering usually applies technical standards and specifications regarding quality assessment and acceptance which

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are issued by two or more line ministries. For convenience of contract management, we recommend that the contract packaging be made with consideration of the different technical standards and specifications which are applied in the specific contracts.’ Bank’s Comments: The Bank team agrees that contract packaging should be made with consideration of the different technical standards and specifications which are applied in the specific contracts.

‘The procurement principle of the World Bank is to award contract to the lowest evaluated bidder. This is not well suited for the current market in engineering construction in China. Many bidders bid at prices lower than the actual cost due to the fierce market competition. The concerned government agency has issued instructions on the methods of selecting successful bidders for domestic competitive bidding and bid evaluation. Based on the recent performance of its execution, it is recommended that the Bank adopt a ‘reasonable-lowest-bidder-win’ principle for the bid evaluation of international competitive bidding (ICB) in China.’ ‘To forbid the undesirable features of vicious bidding at low prices or the grouping of bidding at high prices, it is suggested that the Bank procurement guidelines applicable to ICB in China allow for setting a reasonable range of bidding price.’ Bank’s Comments: The basis for contract award in Bank-financed procurement is that the contract is awarded to the bidder who has submitted the lowest evaluated responsive bid. Issues relating to procurement principles and Procurement Guidelines need to be discussed at the Country Program level with the relevant public procurement policy makers in Government.

(b) Cofinanciers: Not applicable. (c) Other partners and stakeholders: Not applicable.

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Annex 1. Project Costs and Financing

(a) Project Cost by Component (in US$ Million equivalent, US$ 1 = RMB 8.11)

Components Appraisal Estimate

(US$ million)

Actual/Latest Estimate

(US$ million)

Percentage of Appraisal

Cuijiaying Complex 197.68 251.68 127.3% Institutional development 1.47 0.84 57.1%

Total Baseline Cost 199.15 252.51 126.8% Contingencies (physical and price) 11.71 0.00

Total Project Costs 210.86 252.51 119.8% Front-end fee IBRD 0.25 0.25 100.0%

Total Financing Required 211.11 252.76 119.7%

(b) Financing

Source of Funds Type of

Cofinancing

Appraisal Estimate

(US$ million)

Actual/Latest Estimate

(US$ million)

Percentage of Appraisal

Borrower 111.11 152.76 137.48% International Bank for Reconstruction and Development

100.00 100.00 100.00%

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Annex 2. Outputs by Component Project Outputs

Description Planned Outputs Actual Outputs

Shiplock Class III Shiplock: 180m×23m×3.5m; capable of accommodating vessels of up to 1,000 dwt.

Class III Shiplock: 180m×23m×3.5m; capable of accommodating vessels of up to 1,000 dwt.

Powerhouse

Installed capacity of 90 MW, comprising 6 bulb turbines of capacity 15 MW each, with an average annual generation of 390 GWh, net of internal losses.

Installed capacity of 90 MW, comprising 6 bulb turbines of capacity 15 MW each, with an average annual generation of 390 GWh, net of internal losses. The powerhouse is connected to the gird for Xiangfan at two transformer stations.

Dam and sluices

Dam with 20 sluice gates of width 20m each. Top dam elevation is 66.0m. The sluice gates have a discharge capacity of 25,380 cubic meters per second.

Dam with 20 sluice gates of width 20m each. Top dam elevation is 66.0m. The sluice gates have a discharge capacity of 25,380 cubic meters per second.

Access road/bridge

A 200m long access road and a 60x6m concrete bridge connecting the Complex to the west river bank. A 26x6m steel lifting bridge spans over the shiplock to complete the dam crest linkage between the river banks.

A 200m long access road and a 60x6m concrete bridge connecting the Complex to the west river bank. A 26x6m steel lifting bridge spans over the shiplock to complete the dam crest linkage between the river banks.

Reservoir bank protection

About 30 km of reservoir banks have stone pitching to ensure slopes stability to protect farmlands and villages against flooding.

About 30 km of reservoir banks have stone pitching to ensure slopes stability to protect farmlands and villages against flooding.

Training 117 person-months of domestic and 62.5 person-months of overseas training were implemented.

117 person-months of domestic and 62.5 person-months of overseas training were implemented.

Technical studies

Three technical studies were conducted including (i) inland waterway transport development in Hubei Province; (ii) logistics planning in Hubei Province; and (iii) pricing of power to be supplied by Cuijiaying Complex.

Three technical studies were conducted including (i) inland waterway transport development in Hubei Province; (ii) navigation safety and waste management in the Cuijiaying reservoir; and (iii) financing the development of waterway transport in Hubei Province.

Land acquisition and Resettlement

39,602 mu land was acquired; and 67 households were relocated and provided with better homes.

37,541 mu land was acquired; and 57 households were relocated and provided with better homes.

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Annex 3. Economic and Financial Analysis Economic Analysis The project's development objective is to enhance the standard of living in the Han River region by developing its potential water resources, including: (a) increasing the waterway transport capacity along the Han River and its cost-effectiveness; and (b) ensuring the availability of sustainable hydropower and water resources for use in the Xiangfan area and the Tangdong farmland region. With the successful construction and operation of Cuijiaying navigation and hydropower complex along the Han River, the project’s objectives are largely met. The main beneficiaries of the Project were the people and businesses engaged in waterway transportation, farming communities in the vicinity of the municipality of Xiangfan and the local population that took advantage of the increased electricity and employment opportunities generated by the Project. The project’s beneficiary areas are mainly inland and poor areas in China (these areas are the source of raw materials that many of the cargoes carried on the river). The economic benefits identified at appraisal have remained unchanged. The principal measured benefits of the Project are: savings in transport costs by using the inland waterway with large vessels; the economic value of the hydropower; and the value of increased farm output due to the reliable irrigation. Compared with the alternative of coal- and gas-fueled plants, hydropower also avoided the emission of air pollutants. The net benefits of local air pollution reduction are estimated at 2% of total benefits, about $1 million per year. At appraisal, the local air pollution reduction and potential global environmental benefits due to avoided CO2 emission from both transport fuel savings and hydropower generation were not included in EIRR calculation. Monitoring indicators for Cuijiaying have met their target values as shown in the results framework table in a previous section. The six turbines, with a total generation capacity of 90 MW, generated 431 GWh in 2010 (higher than the 405 GWh estimated at appraisal); it is anticipated that the annual average amount of electricity generated by the Cuijiaying Complex would be 446 GWh or higher during the normal operation period. This represents a slightly higher hydropower output than the appraisal target value. Cost-benefit analysis conducted at appraisal estimated an EIRR of 22.2%. Following exactly the same evaluation approach and taking the same assumptions of travel cost saving per ton and the economic benefit of electricity generated per kWh, the EIRR at completion is 21.3%. The slightly lower EIRR is mainly due to higher than anticipated capital investment costs and a slight delay of full capacity power generation. In addition, the important global environmental benefits were not quantified at appraisal. In 2010 alone the hydro-electricity generation of 431 Gwh is equivalent to a reduction of about 322,800 tons of CO2, which is worth US$3.2 million on the conservative assumption that CO2 emission reduction is worth $10 per ton. The global environmental benefit is about 8% of the net benefit. In summary, the project economic objectives have largely been achieved.

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Financial Analysis A FIRR of 6% was estimated at appraisal under the assumption that electricity sale price would be RMB0.42 per kWh. However, the generated electricity was sold to the grid at a preliminary and temporary price RMB0.36/kWh which was controlled by the relevant government agency. Also, the actual cost of capital investment is RMB1.86 billion , 6.7% higher than the cost estimated at appraisal. As a result, the project implementing entity, which is 100% owned by the provincial government, is facing a lower than expected financial return. The table below presents the revised FIRR calculation based on the latest data and projection of power outputs and sale prices. The FIRR has decreased from 6% to 1.4% but still in a positive zone.

2005 2006 2007 2008 2009 2010 2011 2015 2020 2030 2035

I. Cash Inflow (million Yuan) 0.00 4.86 151.16 151.46 151.46 151.46 151.46 151.46

0.00 4.86 151.00 151.46 151.46 151.46 151.46 151.46

0.00 18.19 430.68 446.20 446.20 446.20 446.20 446.20

0.00 0.28 0.36 0.36 0.36 0.36 0.36 0.36

II.Cash Outflow (million Yuan) 70.82 221.30 297.00 270.00 182.14 169.52 108.85 112.62 118.83 65.11 65.30

70.82 221.30 297.00 270.00 180.00 110.00 0.00 0.00 0.00 0.00 0.00

0.00 0.91 21.35 21.72 21.72 21.72 21.72 21.72

0.00 0.32 20.44 34.99 35.16 35.38 35.85 36.10

0.00 0.00 4.76 14.20 11.33 7.83 0.00 0.00

0.00 0.00 0.00 33.73 39.53 48.20 0.00 0.00

World Bank loan 0.00 0.00 0.00 33.73 39.53 48.20 0.00 0.00

0.00 0.91 12.96 4.21 4.89 5.71 7.55 7.49

(70.82) (221.30) (297.00) (270.00) (177.28) (18.36) 42.61 38.83 32.62 88.53 86.15

IV. FIRR 1.40%

Construction Period

Item\Year

1. Electricity Sales Revenue

Electricity sold to grid systems (Gwh)

Operation Period

6. Income Tax

III. Net Cashflow

Electricity Sale Price (yuan/Kwh)

1. Capital Investment (own source)

2. Sales Tax and Associated Charges

3. Operating Cost

4. Financial Cost（loan interest paid）

5. Principal Payment

Since the ultimate objective of the Project is to provide public goods, both local and global, the lower financial return to the government-owned project implementing entity in this Project is acceptable.

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Annex 4. Bank Lending and Implementation Support/Supervision Processes

(a) Task Team members

Names Title Unit Responsibility/

Specialty Lending Graham Smith Consultant SASDT Task Team Leader John Carter Scales Lead Transport Specialist EASCS Alternative Task Team Leader Xin Chen Senior Program Assistant EACCF Team Assistance Emmanuel Py Infrastructure Specialist EASIN Project Assistance Wenlai Zhang Senior Transport Specialist EASCS Civil Engineering Xiaowei Guo Senior Procurement Specialist EAPPR Procurement Emmanuel Py Infrastructure Specialist EASIN Project Assistance Naoya Tsukamoto Senior Environmental Engineer EASEN Environmental Assessment Han-Kang Yen Research Analyst EASIN Financial Analysis Chaohua Zhang Senior Social Sector Specialist SASDS Social Assessment Kek Choo Chung Consultant EASCS Navigation Hongyun Liu Consultant EASIN Hydropower Richard Y. Scheiner Consultant AFTTR Civil Engineering

Supervision/ICR

Wenlai Zhang Senior Transport Specialist EASCS Task Team Leader (2008 to 2011) John Carter Scales Lead Transport Specialist EASCS Task Team Leader (2006 to 2008) Graham Smith Consultant SASDT Task Team Leader (2004 to 2005) Xin Chen Senior Program Assistant EACCF Team Assistance Teresita Ortega Program Assistant EASIN Team Assistance Xuan Peng Program Assistant EACCF Team Assistance Hong Chen Operations Officer EASSD Project Assistance

Yi Geng Senior Financial Management Specialist

EAPFM Financial Management

Jianjun Guo Procurement Specialist EAPPR Procurement Xiaoping Li Senior Procurement Specialist AFTPC Procurement Hongkun Yang Consultant EASCS Procurement Haiyan Wang Senior Finance Officer CTRDM Disbursement Ning Yang Environmental Specialist EASCS Environment

Songling Yao Senior Social Development Specialist

EASCS Social Assessment

Han-Kang Yen Research Analyst EASIN Financial Analysis Richard Y. Scheiner Consultant AFTTR Civil Engineering Peishen Wang Consultant EASCS Environment Jianming Zhao Consultant EASCS Geotechnical Kek Choo Chung Consultant EASCS Navigation Jiang Dai Consultant EASCS Hydropower

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(b) Staff Time and Cost

Stage of Project Cycle Staff Time and Cost (Bank Budget Only)

No. of staff weeks USD Thousands (including travel and consultant costs)

Lending FY04 17.28 89.08 FY05 44.30 223.97 FY06 11.55 63.11 FY07 0.00 FY08 0.00

Total: 73.13 376.16 Supervision/ICR

FY04 0.00 FY05 0.00 FY06 9.60 59.07 FY07 9.23 45.67 FY08 8.03 57.22 FY09 7.74 40.15 FY10 6.89 41.85 FY11 5.13 41.86

Total: 46.62 285.82

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Annex 5. Summary of Borrower's ICR and/or Comments on Draft ICR 1. Project Overview 1.1 Project Objectives The objective of the Project was to develop water resources to improve the living standard of people at Han River Basin by increasing of the shipping capacity and cost-effectiveness of Han River basin and providing sustainable hydropower and water resources for use in the Xiangfan area and the Tangdong farmland region. The Project would accelerate the development of Hubei’s inland waterway network of providing navigation channel for 1,000 dwt vessels on the Han River. Once the project is completed, more than 33km waterway will be upgraded to the planned standard, thereby reducing the cost of water transport in that area. Due to revenues generated by the power plant, the Project would continuously provide financial support for the improvement of the waterway of the Han River Basin. Living standard in the Xiangfan area and the Tangdong farmland region will improve. The Project would also strengthen and enhance the institutional capacity of agencies concerned with the planning, development, management, operation and maintenance of Hubei’s inland waterway networks. 1.2 Project Context The main component of the Project is the Han River Cuijiaying Navigation and Hydropower Complex consisting of (i) the construction of locks, sluice gates, power plant, a fish way, earth-rock dam, power transmission, access system and district management facilities, (ii) procurement and installation of equipment, such as locks, sluice gates, power houses, power transformer, access system and fish way etc.,(iii) consulting services for project management and supervision of construction, equipment procurement and installation and installation of management facilities, communicational facilities, monitoring and control system; and (iv) technical training and research. Han River is the main tributary of the Yangtze River, the main water transport channel connected to the Yangtze River within Shaanxi, Henan and Hubei Provinces, and also the main river under the national inland waterway transport planning. Cuijiaying Navigation and Hydropower Complex is located 17km downstream of Xiangfan City. It is the fifth of nine cascades of the Han River in Hubei Province; and is 142km away downstream from Dangjiangkou Hydropower plant and 515km away from the Hekou Hydropower plant. The main purpose for the development of Cuijiaying Navigation and Hydropower Complex is for shipping; the secondary purposes being for power generation, irrigation, environmental improvement, and tourism development. It is the first navigation and hydropower engineering conducted by the Hubei Provincial Transport Department, and also the first inland waterway development project financed by the World Bank in Hubei Province. Its successful construction helps upgrade the navigational standard and minimize the constraints on shipping along the Han

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River, improves the irrigation in Tangdong and the environment in Xiangfan City, and promotes the economic and social development in the central and western areas.

The main layout of the Complex from right to left is: right connection section (89.5m long), lock (44.0m long), sluice gate (474.5m long)，powerhouse (167.55m long), platform of portal crane (40m long), earth-rock dam of left open channel (574.55m long), earth-rock dam on the left bank (784.25m long, approved). The total length of the dam is 2,213.4m. 1.3 Project Cost and Finance The project cost of engineering and consulting services was financed by two sources, counterpart fund by Hubei Province and Ministry of Transport’s (MOT) subsidy, and the World Bank loan. The approved budget of this project was RMB2.06141 billion, of which RMB1.25441 billion, accounting for 60.85% of the total investment, came from domestic funding; and US$ 100 million, accounting for 39.15%, came from the World Bank loan. 1.4 Project Executive Institution The World Bank Loan Project Office of HPTD was in charge of preparations for the Project. On July 10th 2003, Hubei Provincial government established the work leading group for the preliminary work for the Han River Cuijiaying Navigation and Hydropower Complex. In August 2005, the Project Management Office of Hubei Cuijiaying Navigation and Hydropower Complex was established as the construction department; and in October 2005, the construction headquarters office was also established for the Project. Additionally, as a part of the project management, the general supervisor office was established for the Project as well. Headquarters office, project management office, and general supervisor office worked at the same place, and had direct management of the various operations and implementation of the project. Under the general supervisor office, six offices were established, including comprehensive office, contracts management office, technology office, mechanical and electrical management office, financial office, displacement and compensation office. The six offices mainly coped with the problems in the project construction process, such as Three Controls, Three Management, One Coordination, material procurement, censor and claims of major design changes, displacement and relocation etc. 2. Project Implementation

2.1 Project Preparation In May 2003, Cuijiaying Navigation and Hydropower Complex was included in the three-year rolling plans for World Bank financing (from year 2003 to 2005) by the National Development and Reform Commission (NDRC) as the World Bank’s Fifth Inland Waterway Project.

During February 24- 27, 2004, a World Bank team consisting of 7 staff and consultants conducted an identification mission on the Project. During January 24-27, 2005, the Bank team of 5 staff and consultants conducted an appraisal on the Project. On September 6, 2005, the Chinese delegation, consisting of Ministry of Finance (MOF), MOT and HPTD staff, negotiated and reached agreement on the terms of the loan, and initialed the loan agreements with World Bank in Washington D.C. On October11, 2005, the Board of the World Bank approved the loan for the Cuijiaying Project.

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2.2 Domestic Preparation Procedure On December 9, 2004, NDRC approved the project proposals for Han River Cuijiaying Navigation and Hydropower Complex in accordance with NDRC-Water Transportation Doc [2004] No. 2861. On July 26, 2005, NDRC approved the feasibility study report of Cuijiaying Navigation and Hydropower Complex in accordance with NDRC-Transportation and Communication Doc [2005] No.1373. On November 15, 2005, MOT approved the preliminary design of Han River Cuijiaying Navigation and Hydropower Complex in accordance with MOT-Water Development Doc [2005] No.539. In 2007, HPTD approved the construction drawing design of Han River Cuijiaying Navigation and Hydropower Complex in accordance with Hubei Transport Code Doc [2007] No.492. 2.3 Project Construction, Equipment Procurement and Installation Civil works were divided into 8 contract segments, and the equipment engineering was divided into 16 contracts. Separately, contractors were selected under the domestic or international open bidding. According to the situations on-site, the construction was commenced in November 2005. The first river closure was completed on Nov.30th 2006; the first generating unit worked and combined to the grid on Nov.11th 2009; the ship lock passed the acceptance test on Jan.28th 2010; all the six generating units worked and combined to the grid on July 30th 2010; the press conference on the completion of the project was held on Aug.26th 2010; the main work passed the acceptance test during handing over on Nov.24th 2010. The project quality was rated as good. 2.4 Project Supervision Han River Cuijiaying Navigation and Hydropower Complex is the first inland waterway transport project funded by World Bank loan in Hubei Province. The supervision work was delegated to three supervision consulting companies, Hydrochina Zhongnan Engineering Corporation, Hubei Supervising & Consulting Company of Highway & Waterway, MWR Quality Inspection Center of Hydraulic Metal Structure. The performance of the three companies was satisfactory, exercising good control of project quality, progress and investment, safety, contracts and information management under their own contract segments. The project supervision adopted two stages of management: the first stage of management was the general supervising engineer, while the second stage of management was the general supervising office and advanced residential supervising office under the leadership of the former. On the whole, project supervision including control of project quality, cost, time, safety, contract management and progress-reporting were well undertaken. 2.5 Project Closing Progress in the execution of Cuijiaying Navigation and Hydropower Complex so far has been very good. The Bank loan closing on Jun.30th 2011 was maintained.

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3. Environmental Protection, Monitoring and Assessment

3.1 Fishery Protection The main fishes in the Xiangfan section of the Han River are Ctenopharyngodon idellus, Hypophthalmichthys molitrix, Aristichthys nobilis, Coreius, Elopichthys bambusa, and Siniperca (Chuatsi). This aspect of the development consisted of the construction of the fish passage, long-term fry release and a fish breeding station. The fish passage has been put into service; the breeding station was completed in April 2011. 3.2 Environmental Monitoring Environmental Inspection Center of HPTD was appointed to conduct regular monitoring of the Cuijiaying Navigation and Hydropower Complex during its construction. From November 2005, atmosphere environment (TSP), acoustic environment (noises), water environment upstream and downstream of the project (SS, BOD5, Imn, crude oil etc.) and health of construction workers were monitored during construction. Eighteen parameters of the project were regularly taken into account and the frequency of monitoring was twice a year. The eighteen parameters were atmosphere environment (TSP, SO2, NOx), acoustic environment (noises), water environment upstream and downstream of the project (SS, BOD5, pH, crude oil, potassium permanganate index, ammonia nitrogen index, total phosphorus), water conservation (rehabilitation of disturbance of soil and water, treatment of soil and water loss, soil and water loss rate, debris retaining rate, vegetation recovery coefficient, vegetation coverage), health of construction workers. From the results of the regular monitoring, conclusions can be drawn that the environmental quality of the surrounding of the dam was good and met the standard in accordance with National Ambient Air Quality Standards (GB3095--1996). The measured values of noise in the two environmental monitoring sensitive points upstream and downstream the dam did not outnumber the values in the third standard (daytime 65Db, night 55Db) in the State Standard of Environmental Noise in Urban Areas. Therefore, the quality of acoustic environment at the points around the dam is good. The various measured values of density of the water environment did neither outnumber the reference values of the Class III in the State surface water quality standard (GB3838 –2002), nor outnumber the values of water quality assessment recommended by EIA. Therefore, the water quality is good. The monitoring results of water conservation in June 2010 were as follows: rehabilitation of disturbance of soil and water was 99.26%; treatment of soil and water loss was 98.82%; soil and water loss rate was 0.89; debris retaining rate was 98.27%; vegetation recovery coefficient was 92.18%; vegetation coverage was 37.48%. All the parameters met the target values.

No infectious disease has been found in the construction area so far.

The environment acceptance inspection of Cuijiaying Navigation and Hydropower project was scheduled to be conducted in July 2010 by Department of Environmental Protection of Hubei Province.

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In March 2005, Second Harbor Consultants Co., Ltd. completed the Reports on environmental Impacts of Hubei Han River Cuijiaying Navigation and Hydropower Complex; on May 16th 2005, State Environmental Protection Administration gave an approval on the environmental protection plan, with a doc [2005]401, Returning Letter of Inspection on Report on Environmental Impacts of Han River Cuijiaying Navigation and Hydropower Engineering; on Sep. 6th 2005, Ministry of Water Resources gave an approval on the water protection plan, with a doc [2005]343, Returning Letter on Soil and Water Reservation of Han River Cuijiaying Navigation and Hydropower Complex. 4 Land Acquisition and Resettlement

4.1 Resettlement (1) In October 2005, the project office released the policy statements on the strategies for land acquisition and resettlement. (2) In November 2005, the project office held a meeting on land acquisition with affected communities and other stakeholders that heard the various advices on land acquisition work. Based on the hearing, the project office respectively signed the compensation agreement with the farmers or units involved. (3) In December 2005, work on resettlement started. Based on the initial survey, the project office commenced the distribution of funds for displacement to all levels of local resettlement offices. (4) In second half of 2008, the project office and the co-operation office released the detailed instructional views and planned targets on resettlement in the reservoir area. It facilitated the work of resettlement and satisfactory results were obtained. (5) On Sep.25th 2009, Cuijiaying reservoir officially started reservoir filling. It marked the official end of resettlement in Cuijiaying reservoir area.

4.2 Extent of Resettlement Farmland: It had a permanent acquisition of 37,541.64 mu farmland, which was 2060.86 mu less than the planned extent of 39,602.5 mu. The reduction in the land acquired was due to more detailed planning and a revision of the planning norm from 1 in 5 to 1 in 10. Houses: A total of 11,000.45 square meters of housing was resettled. 57,900.4 square meters were to be resettled in the plan for resettlement, but 46,899.55 square meters were in fact acquired due to Qinghekou not being relocated as a result of design changes of retaining wall and a more detailed mapping of the area. Many houses ready for relocation in the early investigation survey were eliminated from the list of homes to be displaced. 4.3 Process for Resettlement (1) Internal Monitoring Mechanism The project office established the work program and prepared a list of tasks for the proposed resettlement, and all relocation setting points were required to furnish resettlement status reports to the project office. (2) Supervision and Inspection The project office had unscheduled inspections on the working process of resettlement and resolved problems at site immediately.

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(3) External Supervision Immediate reaction and treatment were carried out on the problems put forward by the World Bank mission and independent external monitoring organization. (4) Public Information and Consent The progress and news of the Project were regularly publicized by means of newspaper, radio, and mobile louder-speaker in order to gain public understanding and support. (5) Reaction and Treatment The public’s appeals and complaints were given timely attention and resolved to the satisfaction of the affected persons. 4.4 Resettlement Results (1) The dam area has turned into a well planned modern town from an undeveloped rural area. (2) Affected persons’ livelihood changed from mono-agricultural activities to integrated production mode of agricultural production and commercial activity. (3) Income per capita has been increased from just more than 3,000 Yuan in the past to over 5,000 Yuan in 2010. (4) Agricultural facilities and urban irrigation facilities were upgraded, production capacity was increased, and shipping facilities were also improved. (5) The follow-up investigation of people’s living standard has shown that public assessment of the measures taken were positive.

5 Institutional Development

5.1 Training HPTD organized oversea training of 62.5 man-months and domestic training of 117 man-months. The main training programs were the management and procurement of World Bank projects, operation and maintenance management of navigation and hydropower engineering, financial management and disbursement, engineering supervision, construction quality control, safety control, environmental protection and resettlement. The training greatly improved the management level of the HPTD, particularly with regard to navigation and hydropower engineering which laid a good foundation for the smooth implementation of the project. 5.2 Scientific Researches Three technical studies were undertaken as follows within this Project.

(1) Inland waterway transport development in Hubei; (2) Financing for development of waterway transport in Hubei; and (3) Navigation safety and waste management within the Cuijiaying reservoir.

6 Project Achievements

6.1 Objective The Project was a great success in all elements of the Project as designed. The Project will greatly help to improve the capacity and decrease the cost of water transport in the Xiangfan section of Han River, ensure the sustainable development of irrigation and water resource in Xiangfan and Tangdong area, and improve the local living standards.

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6.2 Progress, Quality and Cost The Cuijiaying complex was contracted and constructed based on FIDIC conditions of contract. A construction supervision organization was established and charged with the control of progress, quality and cost in project implementation. In the control of progress, the detailed construction organization plan was compiled according to the overall construction schedule. A timeframe for generating electricity was established, and the importance was put on all construction nodes. With the help of standardized management and scientific schedule, the project was completed within the construction period. In the control of quality, strict implementation was placed on the three-level quality management system. Based on scientific and technological innovations, the quality of the project was greatly improved. Nine unit projects have received the acceptance after rigorous checks and evaluation. Of 118 project elements in eight of the nine unit projects, lock, sluice gate and power houses etc, the quality was assessed as good; of the four part projects of the navigation aspects of the Project, the quality was assessed as qualified; the part projects qualified ratio was 96.7%. In the control of costs, changes in design were made to optimize investment costs. In addition, the tight work measurement and contract payments ensured the smooth progress of the Project. The total cost of the Project was controlled within the budgetary estimate. 6.3 Financial Achievements Management office has strengthened its financial management organization and built a financial management system in accordance with Accounting System for State-owned Construction Corporation, Financial Management for Fundamental Construction, and Methods of Assessing Accounting in Projects with World Bank Loan released by the State Treasury. Based on the funds management, project budget estimate and contracts, constant insistence was put on accountability and that all approvals have been obtained before disbursement of funds and proper accounts and financial records were kept. According to the audits of accounts, quality including reliability, promptness, and recording keeping was satisfactory. Financial management has demonstrated the capability to raise counterpart funding to supplement the World Bank loan proceeds. Based on the specific situation of the Project, the dual control of funds with guidance from the HPTD was further improved to ensure that the funds allocated were used for the purpose specified. 6.4 Safety Achievements Since the first operation of Cuijiaying Navigation and Hydropower Complex, the ship lock has safely worked for 620 days and the powerhouse has safely been running for over 400 days. As for navigation on the waterway, after the reservoir filling, the occurrence rate of accidents and economic losses have both decreased to a large extent in the project area.

6.5 Operation Achievements Up to Dec.31th, 2010, about 13,000 shipping vessels (for a total of 3 million tons) have gone through the ship lock; and the accumulative electricity generated has amounted to 432.48 GWh. 7 Relationship with the World Bank

7.1 Cooperation with World Bank Since the inclusion of the Fifth Inland Waterway Project in the World Bank’s

26

lending program, HPTD has had close and fruitful cooperation on the Project with the World Bank. Because of the differences of economic development and cultural backgrounds, both parties initially had some different understanding and cognition on construction management, land acquisition and resettlement, environmental protection and so on when the project was under construction. The World Bank team therefore had considerable discussions with HPTD. Through these discussions, the World Bank had a better understanding of the specific situation in China and Hubei Province and of Hubei’s operation procedures. Additionally, on the basis of the preparation and implementation of the Project, HPTD was able to apply advanced ideas and scientific development concepts in the design, construction, resettlement, environmental protection and institutional capacity building of the Project. 7.2 Further Understanding of FIDIC and Benefits According to the requirements of World Bank, contractors and supervising engineers were selected under the international open competitive bidding. Strict technical and organizational measures in the project management and controls were applied taking into consideration the specific situations of China and Hubei Province. 7.3 Benefits through Training In most training programs, the participants mainly consisted of the related engineers and technicians. The training courses were designed, on a macro level, to keep pace with the good international management experience and practice by combining with the characteristic local conditions of Hubei Province. After the training, the learned technology, knowledge and methods were used and disseminated by the trainees. Therefore, the training program has provided an opportunity to obtain and update knowledge and to broaden the horizons of the trainees. It was considered as a key point of capacity building. 7.4 Improvement on Environmental Awareness The Project has taken into account environmental protection and treatment on the floodplain in the reservoir area as well as the river channel. Also, the project office made plans on integrated land acquisition and protection of cultivated land of some fertile area in Xiangcheng and Xiangyang districts in order to decrease the areas of inundation land. That is to build bank protection inside with filled soil, in a certain range under the normal water level, and to reconstruct (fill) the land above the normal water level. Because of the effective implementation of the protection and treatment of the floodplain, some floodplains which were used mainly dependent on weather before, have been turned into stable and guaranteed farmland. Ten places in Xiangfan City were included in the plan of land treatment and floodplain protection. Statistics have shown that 14,754 mu of land in reservoir area have been treated, 8,764 Mu more than the planned output of 6,000 mu of land. Among the protected land, 11,540 mu land could be used for agriculture, and 3,700 mu of land could be used for development and new construction with the approval of the Planning Bureau. Environmental protection is very important in navigation and hydropower engineering. Every step of the Cuijiaying project identification, preparation and implementation taken by HPTD has met China’s and World Bank’s requirements, codes and standards of environmental protection on navigation and hydropower engineering. When the Project was under construction, HPTD and the related contractors paid great attention to environmental protection. The enhancement of

27

people’s environmental protection consciousness is very good for the implementation of China’s policies on the sustainable development of other navigation engineering in Hubei. 7.5 Promotions of Local Water Transport and Economy Cuijiaying project has a great influence on Xiangfan City. The completion and operation has improved overall Xiangfan City’s environment, improved the irrigation of farmland in Tangdong area, upgraded 33km waterway in Han River and 17.5km in Tangbai River, and promoted the soft and hard environments in economy of Xiangfan City positively. 7.6 Suggestions to the World Bank 7.6.1 Contract packaging for navigation and hydropower project should take technical specialties into consideration. Navigation and hydropower engineering usually applies technical standards and specifications regarding quality assessment and acceptance which are issued by two or more line ministries. For convenience of contract management, we recommend that the contract packaging be made with consideration of the different technical standards and specifications which are applied in the specific contracts. 7.6.2 Assessment Methods The procurement principle of the World Bank is to award contract to the lowest evaluated bidder. This is not well suited for the current market in engineering construction in China. Many bidders bid at prices lower than the actual cost due to the fierce market competition. When the project owner selects the bidder with the lowest price, it could bring many problems to the execution of the project. Because of the imposition of this procurement principle, the project owner has difficulty to select the best bidder by well balancing the qualification and bidding price. However, the concerned government agency has issued instructions on the methods of selecting successful bidders for domestic competitive bidding and bid evaluation. Based on the recent performance of its execution, it is recommended that the Bank adopt a ‘reasonable-lowest-bidder-win’ principle for the bid evaluation of international competitive bidding (ICB) in China. To forbid the undesirable features of vicious bidding at low prices or the grouping of bidding at high prices, it is suggested that the Bank procurement guidelines applicable to ICB in China allow for setting a reasonable range of bidding price.

28

Annex 6. List of Supporting Documents

1. The World Bank, Project Appraisal Document, Fifth Inland Waterways Project, September 14, 2005Hubei Project Management Office, “Borrower’s Comments”, Draft received on March 7, 2011.

3. The World Bank, Fifth Inland Waterways Project, Aide-Memoires, Management Letters, 2005-2011.

4. Hubei Project Management office, “Semi-annual Project Progress Report”, 2005-2010. 5. Hubei Project Management office, Environment Impact Assessment, January 2005. 6. Hubei Project Management office, Environment Management Plan, January 2005. 7. Hubei Project Management office, Resettlement Action Plan, December 2004 8. Hubei Project Management office, Audit Reports, 2007-2010.

GrandCanal

Bo Hai

East

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For detail, seeIBRD 33931

XiniuDam

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20°

100° 110° 120°

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BaiseDam(BMP)

Channel Improvements

(IWW1)

Guigang Dam (IWW1)

Channel Improvements (IWW2)


(IWW1)Dayuandu Dam (IWW1)

Zhuzhou Dam/Shiplock (IWW3)


(IWW1)

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MAJOR NAVIGABLE WATERWAYS

RIVER PORTS

PREVIOUS BANK FINANCED RIVER PORTS

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PREVIOUS BANK FINANCED SEA PORTS

PREVIOUS BANK FINANCED SHIPLOCKS

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CHINA

FIFTH INLAND WATERWAYSPROJECT

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This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other informationshown on this map do not imply, on the part of The World BankGroup, any judgment on the legal status of any territory, or anyendorsement or acceptance of such boundaries.

IBRD33930

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ST2005

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108° 109° 111° 112° 113° 114°106° 107°


0 25 50

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CHINA

WATER SYSTEM ONTHE HAN RIVER

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AUGUST 2005

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IBRD 33932

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Sluice Gates

Ship

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CHINA

GENERAL LAYOUT OF THE CUIJIAYING NAVIGATION & HYDROPOWER COMPLEX

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METERS

CuijiayingDam

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CHINAIMPACT OF RESERVOIR INUNDATION

62.23 METERS (ALTERNATIVE ANALYZED)

62.73 METERS (LEVEL ADOPTED)

63.23 METERS (ALTERNATIVE ANALYZED)

URBAN ZONES

MAIN ROADS

RAILROADS

IBRD 34053

AUGUST 2005


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METERS(scale approximate)

CHINA