ASIAN DEVELOPMENT BANK

PPA: PRC 26462

PROJECT PERFORMANCE AUDIT REPORT

ON THE

JING-JIU RAILWAY TECHNICAL ENHANCEMENT PROJECT (Loan 1305-PRC)

IN THE

PEOPLES REPUBLIC OF CHINA

December 2002

CURRENCY EQUIVALENTS Currency Unit yuan (CNY) At Appraisal (6 March 1994) CNY1.00 $1.00 = = $0.19149 CNY5.2221 At Project Completion (26 March 1999) = = $0.12080 CNY8.2778 At Operations Evaluation (14 September 2002) = = $0.12082 CNY8.2770

ABBREVIATIONS ADB EIRR FCTIO FIRR FYP JJR km MOR OEM PCR PPAR PRC RA TA Asian Development Bank economic internal rate of return Foreign Capital and Technical Import Office financial internal rate of return five-year plan Jing-Jiu Railway kilometer Ministry of Railways Operations Evaluation Mission project completion report project performance audit report Peoples Republic of China Railway Administration technical assistance

NOTE In this report, "$" refers to US dollars.

Operations Evaluation Department, PE-614

CONTENTS Page BASIC DATA EXECUTIVE SUMMARY MAP I. BACKGROUND A. Rationale B. Formulation C. Purpose and Outputs D. Cost, Financing, and Executing Arrangements E. Completion and Self-Evaluation F. Operations Evaluation PLANNING AND IMPLEME NTATION PERFORMANCE A. Formulation and Design B. Achievement of Outputs C. Cost and Scheduling D. Procurement and Construction E. Organization and Management ACHIEVEMENT OF PROJECT PURPOSE A. Operational Performance B. Performance of the Operating Entities C. Financial and Economic Reevaluation D. Sustainability ACHIEVEMENT OF OTHER DEVELOPMENT IMPACTS A. Socioeconomic Impact B. Environment and Safety Impacts C. Impacts on Institution and Policy OVERALL ASSESSMENT A. Relevance B. Efficacy C. Efficiency D. Sustainability E. Institutional Development and Other Impacts F. Overall Rating G. Assessment of Asian Development Bank and Executing Agency Performance ISSUES, LESSONS, AND FOLLOW -UP ACTIONS A. Key Issues for the Future B. Lessons Identified C. Follow-Up Actions and Recommendations iii iv vii 1 1 1 2 2 3 3 4 4 6 7 7 7 8 8 10 11 11 12 12 14 15 16 16 16 16 16 16 17 17 17 17 18 19

II.

III.

IV.

V.

VI.

ii APPENDIXES 1. Project Cost Estimates and Actual Costs 2. Appraisal and Actual Implementation Schedules of the Project 3. Pro Forma Financial Statements of the Jing-Jiu Railway 4. Operational and Financial Performance of the Ministry of Railways 5. Financial and Economic Reevaluation 6. Socioeconomic and Environmental Impacts

21 22 23 26 27 35

BASIC DATA
Project Preparation/Institution Building TA No. Technical Assistance Name 1909 2122 Jing-Jiu Railway Policy Support to the Ministry of Railways Type PPTA ADTA PersonMonths 21 41 Amount ($) 400,000 600,000 Approval Date 20 July 1993 14 July 1994

Key Project Data ($ million) As per ADB Loan Documents Total Project Cost Foreign Exchange Cost ADB Loan Amount/Utilization ADB Loan Amount/Cancellation Key Dates Fact-Finding Appraisal Loan Negotiations Board Approval Loan Agreement Loan Effectiveness First Disbursement Project Completion Loan Closing Months (effectiveness to completion) Rates of Return (%) Economic Internal Rate of Return Financial Internal Rate of Return Borrower Executing Agency Mission Data Fact-Finding Appraisal Project Administration Inception Review Project Completion 1 Operations Evaluation Expected 532.0 220.0 200.0 Actual

552.5 226.4 193.9 6.1 Actual 22 Nov9 Dec 1993 21 Feb6 Mar 1994 68 Jun 1994 14 Jul 1994 27 Oct 1994 5 Jan 1995 15 Feb 1995 Dec 1998 26 Mar 1999 48

27 Jan 1995 Dec 1996 30 Jun 1997 23

Appraisal Railway Project 15.4 19.8 7.9 17.1

PCR Railway Project 15.6 14.6 6.2 8.8

PPAR Railway Project 14.3 14.1 6.2 9.0

Peoples Republic of China Ministry of Railways No. of Missions 1 1 1 5 1 1 Person-Days 108 98 18 89 34 63

ADB = Asian Development Bank, ADTA = advisory technical assistance, PCR = project completion report, PPAR = project performance audit report, PPTA = project preparatory technical assistance, TA = technical assistance. 1 The Operations Evaluation Mission comprised C.C. Yu, Evaluation Specialist and Mission Leader; Lorne Danchuk, International Consultant; and Chen Ajiang, Domestic Consultant.

EXECUTIVE SUMMARY During the 1980s, economic reforms in the Peoples Republic of China (PRC) and the consequent rapid economic growth, averaging 9% per annum, resulted in a significant increase in transport demand. Despite substantial investment, capacity constraints were evident in all modes of transport. Railway operations, in particular, were constrained by obsolete track, equipment, and information technology, including signaling and railway telecommunications. Transport bottlenecks contributed to the increasing shortage of some key bulk commodities such as coal in the southern provinces. From 1980 to 1992, the railways carriage of freight traffic, though growing at 6.1% per annum, experienced a decline from 67% to 57% in its market share, partly due to a policy that encouraged use of road transport to reduce pressure on the overburdened railway network. The operational strategy of the Asian Development Bank (ADB) for the PRC at the time identified the removal of transport bottlenecks as a priority area for economy-wide efficiency improvement, through relaxing policy and institutional constraints, and introducing modern technology and managerial practices. Another important dimension was to channel assistance to the development of infrastructure in the poorer inland provinces so as to help create the conditions necessary to foster economic growth. In January 1993, the Government started to construct the $3.5 billion, 2,539-kilometer (km) Jing-Jiu Railway (JJR). JJR was to originate in Beijing, run through seven provinces (including four poorer inland provinces) and two municipalities, and terminate in Kowloon, Hong Kong Special Administrative Region. The Project, which formed an important component of JJR, aimed to (i) enhance the operational efficiency of JJR by acquiring modern technology, including associated training; and (ii) support the Ministry of Railways (MOR) in formulating and implementing policy reforms to improve efficiency of, and commercialize, railway operations. The scope of the Project comprised (i) modernizing railway technology, including provision of modern equipment for signaling, telecommunications, railway operation systems, track maintenance, and special quality (heat-treated and hardened) rails, and training of staff in the advanced technologies involved in the equipment; and (ii) improving JJRs organizational and institutional arrangements, tariff policy and tariff structure, and financial management and accounting systems. To help achieve the second objective, an advisory technical assistance (TA) grant of $600,000 was attached to assist MOR in (i) developing recommendations for appropriate arrangements to operate and manage JJR in a commercial manner; (ii) formulating an appropriate tariff policy and tariff structure; and (iii) developing systems for financial management, accounting, and financial settlements based on an appropriate distribution of revenues and expenses for JJR. A loan of $200.0 million approved by ADB in July 1994 for the JJR Technical Enhancement Project became effective in January 1995. The total project cost was estimated at $532.0 million equivalent, including $220.0 million foreign exchange cost and $312.0 million equivalent local currency cost. The foreign exchange cost was to be jointly financed by ADB ($200.0 million) and MOR ($20.0 million for interest during construction), while the local currency cost was to be financed by MOR. The Operations Evaluation Mission visited Beijing, and Jiangxi and Guangdong provinces, during August and September 2002, and confirmed that project components were generally implemented as envisaged at appraisal and the quality of implementation was satisfactory to excellent, with some minor exceptions . Despite the complexities of JJR, its construction was completed in September 1996, 4 months ahead of schedule. For the ADB-financed components, the loan closing was extended by almost 2 years to allow procurement of additional track machines. The actual cost of the Project, at $552.5 million equivalent, was 4% higher than the appraisal estimate due to the additional procurement. Nevertheless, ADBs financing amount was kept at $193.9 million. The balance of $6.1 million was cancelled.

v JJRs operation and maintenance to date has been satisfactory. Passenger traffic increased from 7.4 billion person-km in 1997 to 22.7 billion person-km in 2001. The latter was almost seven times the appraisal forecast of 3.3 billion person-km. Freight traffic increased less rapidly from 28.1 billion ton-km in 1997 to 58.3 billion ton-km in 2001, 37% below the appraisal forecast of 92.3 billion ton-km. The performance of the equipment financed by the Project has been generally satisfactory. The expected life of the special q uality rails is 30% to 50% longer than that of regular rails. The longer service life means cost savings in maintaining and replacing the rails, and fewer disruptions to train operations. The heavy on-track rail maintenance equipment procured has been used to equip one overhaul gang and two regular maintenance gangs. In addition, the equipment has been widely replicated throughout the MOR network as a domestic manufacturer has gained the required technology know-how through a joint venture with an international manufacturer. The highly efficient equipment has been widely credited as a key factor in the significantly improved track quality and much faster train services. Express passenger trains are typically operating at 120140 km per hour and freight trains at 8090 km per hour on JJR, compared to the MOR average speed of about 60 km for all trains in 1999. The new equipment is not only cost effective compared to the traditional manual or semiautomatic track maintenance equipment, but is also capable of achieving quality that would never have been possible with the traditional methods. The signaling equipment, mainly the computer-based hump process control system, has mostly achieved its design purpose. The system has been operating for approximately 7 years in Fuyang and Xiangtang marshaling yards, handling a much larger volume of wagons than was possible using the traditional technology. However, there have been problems in procuring spare parts after the key supplier withdrew from the PRC market. MOR is seriously considering replacing the imported system with a domestic system. This implies that the imported system would only be used for half of its design life if the issue of spare parts cannot be resolved. The digital telecommunications systems procured under the Project, which have higher capacities and require less maintenance than the traditional relay systems, have also contributed to the efficient and safe operation of JJR. JJR has had significant socioeconomic impacts in stimulating development and reducing poverty in the adjacent provinces through (i) providing, at much lower cost, access to outside markets for local agricultural and mining products, and to products from other regions; (ii) improving the environment for external investments; and (iii) enabling more migrant workers from rural areas to work in Guangdong Province. As an example, key economic indicators for Ganzhou Prefecture, a key beneficiary in Jiangxi Province, have exhibited a substantial upward trend since 1992. This reflects both direct impacts from JJR in the form of demand for local products, services, and labor, and indirect impacts of foreign and domestic investments. Within Ganzhou, the seven counties along JJR have experienced faster economic growth than Ganzhou as a whole. The impact appears to have been more pronounced on urban income than rural income, reflecting greater economic opportunities in the urban areas. The construction of JJR involved acquisition of 10,800 hectares of land and resettlement of more than 200,000 people, 10 schools/clinics, and several factories. A socioeconomic survey and interviews with representatives of affected families indicate that most of them were fairly compensated. Many interviewees reported better living and working conditions after resettlement. In general, the income level of the affected families has increased or at least remained the same due to the unprecedented economic opportunities created by JJR and the fact that income from land had always been limited in the region due to very low arable land availability. JJR and the Project have been highly relevant to achieving the development objectives of the Government and ADB through providing a vital railway link between the inland provinces

vi and the more developed coastal provinces. Since its commissioning, JJR has eased the congestion on the alternative lines by capturing a significant amount of traffic, particularly passengers. The technical enhancement components financed under the Project have achieved their purpose of improving operational efficiency and safety, as reflected by a much faster average train speed on JJR compared to the rest of the MOR network. The execution of JJR was ahead of schedule despite its complexities. With economic internal rates of return of about 14%, both JJR and the Project are efficient. They are likely to be sustainable in view of MORs proven record in track and equipment maintenance and the satisfactory financial internal rates of return of 6% and 9%, respectively. By providing income-generating opportunities, JJR has had a significant impact on the economic outlook of the inland regions it traverses. JJRs environmental impacts have been moderate. Through the attached advisory TA, the Project has made a limited contribution to the ongoing market-oriented reforms in the railway sector. Overall, JJR and the Project are rated successful, and the TA partly successful. Several issues, related to reforms and restructuring, may affect the performance of JJR and the Project, including delayed implementation of a point-to-point accounting system, the current mechanism of internal revenue allocation, and the need to separate MORs government function from its commercial function. The experience of JJR demonstrates that railways and roads can be more mutually complementary than competitive, especially at early development stages. The principal lesson learned is the importance of strong government commitment and leadership as key to successful implementation of such a complex and huge investment project. Along with its ongoing support for physical investments in the PRCs railway sector, ADB should continue its policy dialogue and provide TA, as needed, for policy reforms and sector restructuring. Despite the noteworthy progress in improving its efficiency and the quality of its services, MOR needs to do more to meet increasing competition from road transport, particularly in the freight market. MOR should deepen the market-oriented reforms and sector restructuring, and address problems related to spare parts, traffic safety, and compensation procedures for resettled families and enterprises.

vii Map

I. A. Rationale

BACKGROUND

1. During the 1980s, economic reforms in the Peoples Republic of China (PRC) and consequent rapid economic growth, averaging 9% per annum, resulted in a significant increase in transport demand. Despite substantial investments, capacity constraints were evident in all modes of transport. From 1980 to 1992, total freight transport by all motorized modes grew from 849.4 billion ton-kilometers (ton-km) to 2,084.4 billion ton-km, at 7.8% per annum, while total passenger traffic grew at 9.7% per annum, from 214.0 billion passenger-km to 649.9 billion passenger-km. During the same period, railway freight traffic, growing at 6.1% per annum, experienced a decline from 67.3% to 57.4% in its market share due to a combination of policy and economic factors that encouraged use of road transport to reduce pressure on the overburdened railway system. Nevertheless, the railway sector was expected to maintain its dominant role in freight transport, given the countrys large geographic area and the need to transport huge quantities of coal and other bulk commodities. Railway operations, however, had been constrained by obsolete track, equipment, and information technology, including signaling and railway telecommunications. Transport bottlenecks had contributed to the increasing shortage of some key bulk commodities such as coal in the southern provinces. 2. During the Eighth Five-Year Plan (FYP) of 19911995, the Government continued to accord high priority to transport development, including railways. The Governments strategy for the transport sector was mainly directed at infrastructure capacity expansion and efficiency improvement with an emphasis on structural reform and cost recovery. Large amounts of investment resources, approximately $10 billion, were allocated to the transport sector in the Eighth FYP, a 46% increase over the Seventh FYP period. The operational strategy of the Asian Development Bank (ADB) for the PRC at the time identified the removal of transport bottlenecks as a priority area for economy-wide efficiency improvement, through addressing policy and institutional constraints, and introducing modern technology and managerial practices. Another important dimension was to channel assistance to the development of infrastructure in the poorer inland provinces so as to help create the conditions necessary to foster economic growth. For the railway sector, ADBs operational strategy at the time mostly focused on increasing the capacity of provincial railways, which were organized and operated separately from the national railway system but filled key gaps that the national railway system could not reach. Improvement of the capacity of the national railway system itself was only supported by ADB if it would significantly contribute to poverty reduction in the less-developed inland provinces. B. Formulation

3. The Project was formulated as the fifth ADB-financed intervention in the PRCs railway sector, and the first related to the national railway system. During the 1993 Country Programming Mission, the Government requested ADB assistance for technical advancement and institutional reform components of the Jing-Jiu Railway (JJR). The 2,539-km JJR, the longest railway ever to be built under a single project in the PRC with an estimated cost of over $3.5 billion, was identified as one of the top priority projects by the Government. JJR was to originate in Beijing, run through seven provinces (including four poorer inland provinces) and two municipalities, and terminate in Kowloon, Hong Kong Special Administrative Region. Connecting with major existing railway trunk lines and ADB-financed local lines (i.e., Guang-

2 Mei-Shan Railway,1 and Jiujiang-Hefei Railwaysee Map), it was designed to relieve the significant pressure on the existing north-south transport capacities (e.g., Jing-Guang and JingHu lines, see Map), mainly resulting from demand for transport services between the energyrich provinces in the north and industrialized but coal-deficient provinces in the southern and eastern coastal areas. By running through some of the least developed provinces, JJR was to have significant repercussions in developing local mineral and other resources and stimulating economic growth. ADB provided technical assistance (TA) to review the Governments feasibility study for JJR and to strengthen project preparatory work. 2 A Fact-Finding Mission visited the PRC during November and December 1993, followed by an Appraisal Mission during February and March 1994. The Appraisal Mission confirmed that the Government accorded a very high priority to JJR, the technical enhancement components identified by the Ministry of Railways (MOR) and the Fact-Finding Mission were suitable for ADB financing, and MOR was the appropriate Executing Agency. In July 1994, ADBs Board approved a loan of $200.0 million for the Project.3 C. Purpose and Outputs

4. The objectives of the Project were to (i) enhance the operational efficiency of JJR by acquiring modern technology, including associated training; and (ii) support the MOR in formulating and implementing policy reforms to improve efficiency of railway operations and to commercialize them. The scope of the Project comprised (i) modernizing railway technology, including provision of modern equipment for signaling, telecommunications, railway operation systems, track maintenance, and special quality (heat-treated and hardened) rails, and training of staff in the advanced technologies involved in the equipment; and (ii) initiatives for improving JJRs operational efficiency. Under ADBs strategic development objectives, the Project was classified in the economic growth category. Poverty reduction, though implied, was not listed as a secondary objective. 5. In addition to the project preparatory TA to help validate MORs feasibility study and design (footnote 2), an advisory TA was attached to the ADB loan.4 The TA was designed to assist MOR in (i) developing recommendations for appropriate arrangements to operate and manage JJR in a commercial manner; (ii) formulating an appropriate tariff policy and tariff structure; and (iii) developing systems for financial management, accounting, and financial settlements based on an appropriate distribution of revenues and expenses for JJR. D. Cost, Financing, and Executing Arrangements

6. Appendix 1 provides details of cost breakdown by project component. At appraisal, the project cost was estimated at $532.0 million equivalent, including $220.0 million foreign exchange cost and $312.0 million equivalent local currency cost. The foreign exchange cost was to be jointly financed by ADB ($200.0 million) and MOR ($20.0 million to cover interest during construction); the local currency cost was to be financed by MOR. 7. A project management office was established in MOR at the time of loan approval to implement JJR. In addition, MORs Foreign Capital and Technical Import Office (FCTIO) was to

1 2 3 4

Part of Guang-Mei-Shan, between Changping and Longchuan, forms a section of JJR. TA 1909-PRC: Jing-Jiu Railway, for $400,000, approved on 20 July 1993. Loan 1305-PRC: Jing-Jiu Railway Technical Enhancement Project, for $200.0 million, approved on 14 July 1994. TA 2122-PRC: Policy Support to MOR, for $600,000, approved on 14 July 1994.

3 act as the counterpart of ADB, responsible for all the administrative work for the ADB-financed components in coordination with the project management office. E. Completion and Self-Evaluation

8. The project completion report (PCR), circulated in April 2000, stated that the Project was mostly implemented as envisaged at appraisal. There was only a minor overrun in the total project cost and a delay in completion, both due to procurement of equipment not envisaged at appraisal. As planned, modern equipment was provided on the JJR route. Special quality rails 5 were installed on a 600 km section of JJR, which passes through mountainous terrain in Jiangxi Province. Track maintenance teams were equipped with heavy on-track machines that have improved quality of track maintenance, safety, and operational efficiency, increased train speeds, and reduced train operating costs. A hump process control system,6 using computer and electronic equipment for controlling and carrying out humping operations and forming freight trains for various destinations, was installed in major marshaling yards at Fuyang and Xiangtang. Both marshaling yards were equipped with microcomputer interlocking systems, automatic humping facilities, track occupation monitors, information management systems, and wagon monitoring systems. The new information management system facilitated decision making for operation in the marshaling yards and helped improve the statistical database and operational planning. Through these technological enhancements, the productivity of the marshaling yards had been increasedthe maximum capacity of the yards was 8,000 wagons per day compared with 4,000 wagons per day before the Project. A centralized train control system installed on a section of JJR north of Jiujiang enabled automatic control and supervision of train operations. Significant improvements were made in telecommunications, which together with modern train operations equipment enhanced the efficiency and safety of operations. 9. The PCR was exceptionally comprehensive in addressing aspects not only related to the Projects implementation, as well as financial and economic analysis, but also to impacts of JJR in terms of environment and resettlement, socioeconomic development, and poverty reduction. The Project Completion Review Mission, which visited selected counties affected by JJR in Jiangxi Province, found that improved housing and new employment opportunities had been provided for affected persons. As a result, living conditions and income for these people had mostly increased. The PCR rated the Project successful and noted that the two related TAs (footnotes 2 and 4) had achieved their respective objectives. F. Operations Evaluation

10. This project performance audit report (PPAR) will assess various aspects of project formulation, design, implementation, and sustainability, as well as the Projects socioeconomic, environmental, and institutional impacts. The assessment is based on a review of ADB documents, discussion with ADB staff, and findings of the Operations Evaluation Mission (OEM), which visited Beijing, and Jiangxi and Guangdong provinces during 26 August15 September 2002. The OEM held discussions with MOR and the Ministry of Finance, and took the passenger train along JJR from Beijing to Guangzhou with stops in Nanchang, Ganzhou, and Longchuan. During the field trip, the OEM inspected the track and rail; visited Xiangtang marshaling yard; and held discussions with Nanchang Railway Administration (RA) and Guangzhou Railway
5 6

These rails are heat-treated and can withstand more wear than the conventional rails. They also require less maintenance, have longer replacement cycles, and enhance safety. The hump process is to regroup wagons according to their destinations at major marshaling yards (similar to air hubs in the civil aviation industry), through controlling the numerous turnouts (interlocking) below the hump track.

4 Corporation (two key entities responsible for operating JJR), as well as with representatives of affected persons, relocated schools and factories, and local governments. A socioeconomic survey, carried out independently by the domestic consultant among affected persons, and at schools and factories, focused on issues related to resettlement and land acquisition. Copies of the draft PPAR were sent to the Government and the concerned ADB departments for review; all comments received have been considered in finalizing the PPAR. II. A. PLANNING AND IMPLEMENTATION PERFORMANCE

Formulation and Design

11. The rapid economic growth in the 1980s and the consequent explosive demand for transport services imposed severe stress on the PRCs transport system. Railways, despite the fast improving road network in the country, remained the backbone of the transport system. ADBs operational strategy for the railway sector focused almost exclusively on building local/provincial railways to supplement the national railway system as ADB took the view that the former would have a strong impact on economic growth and poverty reduction. The decision to partly finance JJR as the backbone of the north-south railway corridor was an exception to this view. The main justification was the provision by JJR of badly needed transport access to several underdeveloped inland provinces it would traverse. Four of the seven provinces had lower than national average per capita income, and parts of Jiangxi Province n particular i suffered from severe poverty due to its mountainous terrain and geographic isolation caused by poor transport. From this point of view, the Project was considered consistent with the central theme of ADBs operational strategy, which was to assist the country to achieve economic growth in an efficient, equitable, and sustainable manner, and to channel increased assistance to the development of infrastructure in the poor inland provinces. 12. The feasibility study for JJR was carried out by MORs Fourth Design Institute with the assistance of the Third Design Institute. The line was designed to MOR Class I standards.7 The consultants under the project preparatory TA (footnote 2) reviewed and validated the design. Their final report noted that JJR was to be within a geographically defined north-south corridor connecting Beijing and Kowloon, Hong Kong Special Administrative Region. The corridor lies between the existing Jing-Hu (Beijing-Shanghai) and Jing-Guang (Beijing-Guangzhou) railways. JJR was to be composed of a number of connected railway line segments, both existing and planned. About 1,700 km of the proposed 2,539 km were to be newly constructed, and the balance involved either upgrading existing MOR lines or local railway segments. The section from Beijing to Xiangtang was designed as double-track line with automatic block signaling. The section from Xiangtang to Longchuan was to have double-track substructure (subgrade, bridges, and tunnels) with single-track superstructure and semi-automatic block signaling. 8 All stations on JJR were to be equipped with electric interlockings. 13. On the whole, the OEM regards JJR, including the civil works, as well designed. While the northern section (Beijing to Shangqiu) and the southern section (south of Longchuan) are relatively flat, the middle section from Shangqiu to Longchuan is characterized by more complex
7

MOR uses clearly defined infrastructure standards to govern the design of track, bridges, tunnels, and support facilities. The standards are rigorous and generally consistent with those of other Asian and North American railways. MOR track design standards are based on the classification of lines using long-term traffic projections (up to 10 years): Class I (long-term tonnage >15 million tons/year), Class II (long-term tonnage >7.5 million tons/year), and Class III (long-term tonnage <7.5 million tons/year). At the time of the OEMs visit, the second track on the southern section was being laid and was expected to be completed by the end of 2002.

5 geological conditions such as soft marshy land and mountainous areas. Effective engineering measures were applied to overcome the difficult geological conditions. 14. As to the design of the components financed by ADB, the following features were appropriate and forward-looking in view of their positive impact on operational costs, train speed, and quality of service: (i) the use of 600 km special quality rails for certain mountainous sections, (ii) heavy on-track rail maintenance equipment, (iii) signaling equipment (e.g., computer-based hump process control system), and (iv) modern digital telecommunications and train operations equipment. 15. MOR had past positive experience with the use of special rails on other lines and was already aware of their benefits. JJR is well suited for the use of special heat-treated rails because more than 36 million tons of freight traffic run annually through the southern portion that has numerous curves, bridges, and tunnels. Although heat-treated rails are approximately 20% more costly than standard rails, they are designed to last 30% to 50% longer. MOR also had some prior experience with heavy on-track maintenance equipment and decided to gradually shift from the manual and semi-automatic methods of track maintenance to full mechanization, given the technical and economic superiority of the modern machines.9 16. MOR did not have prior experience with the computer-based hump process control system. A computer-based system controls the interlocking by monitoring (with track occupation monitors) and controlling (with the use of automatic speed retarders) the speed at which a wagon travels down its designated track. With this system, the designated route for a wagon can be determined and physically set up at a much faster rate than with a semi-automatic control system in which the route is set-up by a hump control operator. This allows a wagon to proceed over the hump at a higher speed and accuracy and thereby increases daily wagon throughput. The OEM believes that it was a prudent and forward-looking decision to include the system as a key component of the Project, which has not only improved the work efficiency, but has also facilitated the transfer of this technology to MOR employees and domestic suppliers (para. 27). 17. The state-of-the-art telecommunications systems procured under the Project included a fiber optic transmission system, a special switch exchange system, and a radio dispatching system with associated communication equipment for stations. The modern digital telecommunications equipment has increased capacity and reliability (and thus safety) compared to the older analog technology as it uses digital instead of mechanical relay switches and has no moving parts to wear out. With the use of fiber optic cable as the medium for transmission, security of communication is improved as these lines are difficult to tap. The excess capacity can be sold to private and commercial users. Added benefits are that the cable is more environmentally friendly because it is buried, and allows remote diagnosis and repair which can usually preclude the need for more costly on-site visits. The decision to adopt the digital telecommunications systems has resulted in efficiency and safety gains in MORs operations. 18. Although the Project itself did not have any significant environmental and social impacts, JJR involved environmental disruptions, large-scale land acquisition, and resettlement. On this
9

These machines are best suited for busy lines where work time on the track is limited due to the frequency of rail traffic. The machines can travel to a certain location on the track at a high speed (usually 80 km per hour to 100 km per hour), perform the required maintenance work, and then quickly return to a location off the main track. The length of track that can be maintained in the same time frame by the machines is much more than if the work were performed manually. In addition, the quality of the track work is far superior to manual methods because these modern maintenance machines use on-board computers to control their processes. The quality is critical for the tight track geometry tolerances for high-speed tracks such as JJRs.

6 basis, the Project was classified as Category A in environmental impact, which called for full environmental impact assessment to be carried out. Based on a review of MORs report, MOR assumed the responsibility, under a loan covenant, for environmental monitoring during JJR implementation. Furthermore, despite the fact that JJRs construction was well under way when the Project was formulated, ADB provided timely and needed assistance to MOR in carrying out land acquisition and resettlement in accordance with law and generally accepted practices (para. 37). B. Achievement of Outputs

19. The ADB-financed technical enhancement components were scattered in different locations along JJR. Most of the special rails were installed in the southern half of JJR (on the border of Jiangxi and Guangdong Provinces) on mountainous sections with numerous curves. Access to the area by roads (necessary for the inspection) was not available at the time of OEMs visit. Nevertheless, the train that the OEM took passed through the sections. These mountainous sections have many tunnels and bridges for which the special rails are well suited. An ultrasonic inspection carried out by MOR in August 2002 found no defects, no measurable wear on the inside or gauge face of the head of the rail, and no corrugation on the head of the rail. The modern track maintenance machines procured under the Project were used to outfit one overhaul gang and two regular maintenance gangs.10 The equipment has been assigned to the Shanghai RA, which is responsible for operating a small portion of JJR. Although this specific equipment was not accessible,11 the OEM visited an overhaul gang of Beijing RA with identical equipment. The OEM observed a ballast replacement program in operation where 500 meters of track was undercut, re-ballasted, surfaced, lined, and compacted within a 3-hour work block (window).12 Of the two sets of computer-based hump process control systems procured under the Project, one was installed at the southern Xiangtang marshaling yard and the other at the northern Fuyang marshaling yard. The OEM visited the former and observed that the equipment was generally performing well, handling a large volume of wagons. The system consisted of three main components: (i) humping control, (ii) wagon dispatching indication, and (iii) wagon tracing and allocation. While the quality of the system was generally satisfactory and met operational needs, the third component, wagon tracing and allocation, had never been functional due to sensor failure and other technical problems. The second component, wagon dispatching indication, has also experienced some critical software problems that were later solved. The digital telecommunications equipment procured under the Project was assigned to Railway Communication Corporation, which was recently separated from MOR.13 The equipment consists of (i) high-capacity transmission, (ii) digital switching, (iii) radio dispatching, and (iv) yard communication.

10

11

12

13

While the two types of track maintenance gangs have the same type of equipment, overhaul gangs have almost twice as many large machines and about 50% more track workers. They take care of large, planned maintenance projects while regular maintenance gangs handle smaller planned projects and emergency works. Currently, MOR has over 300 track maintenance machines. There are 19 maintenance depots under MORs jurisdiction specifically for the maintenance of these track machines. It is difficult to arrange visits to track maintenance machines because they are very heavily used, often across a RA rather than being confined to a particular line. This was an impressive achievement in accordance with international standards of modern railways, and required good planning and execution. As part of MORs effort to spin off some of its non-core operations including telecommunications, railway construction companies, equipment manufacturing, and universities. These separated entities continue to provide the same services to MOR but for a fee, just like any other supplier.

7 C. Cost and Scheduling

20. As indicated in Appendix 1, the actual cost of the Project was $552.5 million equivalent, accounting for about 10% of the actual total cost for JJR of $5.3 billion. 14 The cost overrun of 4% relative to the appraisal estimate of $532.0 million was mainly attributable to procurement of additional track maintenance machines and higher interest during construction. Nevertheless, ADBs financing was kept at $193.9 million, lower than the approved amount of $200.0 million, and the balance of $6.1 million was cancelled.15 21. Despite the complexities of JJR, its construction, which commenced in January 1993, was completed in September 1996, 4 months ahead of schedule. For the ADB-financed components, completion was in December 1998, 2 years behind schedule, because of the procurement of additional maintenance equipment (Appendix 2). D. Procurement and Construction

22. MOR engaged and financed, from its resources, domestic consultants for the design of facilities, construction supervision, environmental monitoring, and international procurement. For the implementation of TA 1909-PRC (footnote 2) and TA 2122-PRC (footnote 4), international consultants were engaged in accordance with ADBs Guidelines on the Use of Consultants. MOR expressed satisfaction with the services of both the domestic and international consultants. 23. The procurement of ADB-financed components was carried out in accordance with ADBs Guidelines for Procurement, with assistance from experienced procurement companies. Interviews and the OEMs field visit confirmed that the quality of equipment and installation was generally satisfactory. Nevertheless, some problems were encountered with installation of certain equipment, and one component of the computer-based hump control system was never functional due to sensor failure and other technical problems (para. 19). The fact that the equipment was procured from suppliers in 20 different countries posed considerable challenge for maintenance and procurement of spare parts (para. 27). The engineering and civil works were generally done in accordance with international standards or generally accepted practices, and in some cases exceeded them. E. Organization and Management

24. MOR implemented JJR including the Project through its project management office. FCTIO was responsible for all the administrative work for the ADB-financed components in coordination with the project management office. JJR was highly complex and involved more than 25 domestic design institutes, engineering/railway bureaus, and international agencies. The expeditious construction was mainly due to the high political importance attached to JJR for the return of Hong Kong, China to the PRC, strong leadership from the central Government, the commitment by MOR and all participating parties and their strong expertise and experience in implementing large complex railway projects. MOR recognized its limitation as a coordinating agency for such a complex project involving many provinces and agencies. As a result, the State Council, under the leadership of a vice-premier, led the overall coordination and MOR
14

15

This was much higher than the initial estimate of $3.5 billion. The unit cost of about $2 million per km was twice the average cost of constructing railways in North America. This was partly due to the difficult geological conditions and expensive slope-control measures. This included $3.6 million for signaling equipment, which MOR financed from its own resources, and $2.5 million in surplus loan proceeds at loan closing.

8 conducted much of the day-to-day execution. The highly centralized model of project organization and management, which bore traits of a planned economy, proved to be effective in pulling resources and efforts together in a coordinated manner for timely execution. III. A. ACHIEVEMENT OF PROJECT PURPOSE

Operational Performance

25. Table 1 provides key operational indicators for JJR. Since its commissioning on 1 September 1996, the freight traffic has slowly built up, increasing from 28.1 billion ton-km in 1997 to 58.3 billion ton-km in 2001, the latter being 37% below the appraisal target. By contrast, the total passenger traffic has fared significantly better than expected, increasing from 7.4 billion person-km in 1997 to 22.7 billion person-km in 2001. The latter was almost seven times the appraisal target of 3.3 billion person-km. The lower-than-expected freight traffic is due to (i) slowdown in economic growth as a result of the Asian financial crisis (from over 9% before 1997 to about 7.5% between 1997 and 1999); (ii) higher freight tariff for JJR and the Jing-Guang line compared to the rest of the national railway network (to cover JJRs construction costs, see para. 39); and (iii) the rapidly improving road network and transport services. The higher-thanexpected passenger traffic has resulted significantly from rural migrant workers traveling from Sichuan, Jiangxi, and other nearby provinces to Guangdong, Beijing, and other labor-receiving destinations. Unlike the freight tariff for JJR, the prices for passenger services are uniform throughout the railway network.
Table 1: Operational Indicators for Jing-Jiu Railway
1997 AppraisalActual 47,127 28,10 6 1,723 7,377 48,850 35,48 3 39,868 29,58 5 5,428 13,34 0 1,182 950 317 18.6 0.7 19.2 553 11.1 2.9 14.0 1998 Appraisal Actual 58,066 41,570 2,485 12,547 60,551 54,117 48,383 35,990 6,092 19,210 1,200 408 22.9 1.0 23.8 1,155 653 16.4 4.9 21.3 1999 AppraisalActual 71,549 53,150 2,831 15,141 74,380 68,291 58,718 44,664 6,837 22,200 1,219 414 28.2 1.1 29.3 1,190 682 20.9 6.0 26.9 2000 Appraisal Actual 88,170 54,565 3,226 19,128 91,396 73,693 71,254 45,471 7,673 38,580 1,237 420 34.7 1.3 36.0 1,200 496 21.5 7.5 29.0 2001 AppraisalActual 92,323 58,258 3,321 22,690 95,644 80,948 74,342 48,147 7,873 42,090 1,241 422 36.4 1.3 37.7 1,210 539 22.9 8.9 31.9

Item Freight ton-km (million) Passenger-km (million) Converted ton-km a (million) Freight (000 tons) Number of Passengers (000) Average Freight Distance (km) Average Passenger Journey (km) Ton-km per routekm (million) Passenger-km per route-km (million) Converted ton-km a per route-km (million)

km = kilometer. a Sum of freight ton-km and passenger-km. Source: Ministry of Railways.

9 26. The operation of the four equipment components financed under the Project has been generally satisfactory. The longer life expectancy of special rails compared to the regular rails (para. 15) means cost savings in maintaining and replacing the rail,16 and fewer disruptions toas well as fasterrail operations. Following procurement of the heavy on-track rail maintenance equipment for the Project, similar equipment has been widely adopted by all RAs as a domestic producer has gained the technology through a joint venture with an international manufacturer. The cost of the domestic equipment is about 25%30% lower than that of imports. The highly efficient equipment has been widely credited as a key factor for the significantly improved track quality and much faster train services on JJR and other key routes throughout the railway network. Express passenger trains are typically operating at 120140 km per hour and freight trains at 8090 km per hour on JJR.17 The new equipment is not only cost effective compared to the traditional manual or semi-automatic track maintenance equipment, but also capable of achieving quality that would have never been achieved with the traditional manual methods. 27. The computer-based hump process control system has been operating for approximately 6 years in Fuyang and Xiangtang marshaling yards, handling a larger volume of wagons than would have been possible using the traditional technology. At Xiangtang, on average 11,563 wagons were handled on a daily basis in 2001, higher than the 8,000 wagons indicated in the PCR for 1999 (para. 8) and 1.7 times the average 6,801 wagons per day in 1996 (the first year of commercial operations). Higher efficiency at marshaling yards means less turnaround time for wagons and faster train speed. The operators of the system described it as powerful, informative, interactive, safe, reliable, and generally well tailored to the PRC market. However, in addition to the software problem and the fact that one of the components (wagon tracing and allocation) has never functioned (para. 19), a key problem associated with the system is the difficulty and very high cost of acquiring spare parts, especially after the key supplier withdrew from the PRC market. The problem has reached such a severe level that MOR is seriously considering replacing the imported system with a domestic one. 18 This implies that the system with a 15-year design life may only be used for 7 or 8 years if the issue is not properly addressed. Finally, the digital telecommunication system procured under the Project not only requires much less maintenance, but also provides communications capacity several times that of the old system. For example, for yard communication at Xiangtang marshaling yard, the previous mechanical relay system had 48 channels, which was inadequate to meet demand and sometimes several small users had to share channels, compromising communications security and even causing safety hazards. With the new digital system, the total number of channels has increased to 448, i.e., four sets with 112 channels each. Compared to the old system, the digital system does not have mechanical parts that wear out and need to be replaced regularly. However, repairing the digital system tends to be more expensive and, thus, the total maintenance costs for the two systems are about the same. The digital telecommunications system has greatly contributed to the faster and safer train operation at JJR. According to officials interviewed, the Xiangtang marshaling yard has not had any accidents resulting in fatalities.

16 17

It has been in operation for about 6 years and so far no replacement has been needed. In comparison, for the entire MOR network in 1999, the average speed was 56 km per hour for passenger trains and 66 km per hour for freight trains. 18 The PRC has since developed a similar system. At Xiangtang marshaling yard, a domestic system is running side by side with the imported system. The domestic system is said to be less reliable than the imported one, but the system and spare parts are much cheaper and, in particular, after-sales service is better than from international suppliers.

10 B. Performance of the Operating Entities

28. Under the present organizational structure of railways, the operations and maintenance of JJR are integrated within five RAs ? Beijing, Jinan, Zhengzhou, Shanghai, and Nanchang? and one railway corporation? Guangzhou. This makes it difficult to assess JJRs impact on one or all operating entities. The OEM visited Nanchang RA, which is responsible for 1,101 km of the 2,539 km JJR, and Guangzhou Railway Corporation (Group). The creation of Nanchang RA, from a subadministration under Shanghai RA, in August 1996 was largely due to the commissioning of JJR. The 1,101 km section of JJR in Jiangxi Province accounts for 44% of the total 2,484 route-km railways operated by Nanchang RA. More than half of its total operating revenue in 2001, CNY3.6 billion, was accrued from JJR. The main outbound freight included grain, minerals, metals, and fertilizer, and the main inbound cargos included coal, metals, minerals, and construction materials. The establishment of a point-to-point accounting system in 1999 at MOR19 has allowed the separation of the passenger service from the rest of the RAs operations. The Passenger Service Company was founded in 2000, and separation of the freight service will start by the end of 2002. For 2001, Nanchang RA made an operating profit of CNY236 million (after deducting depreciation). However, in 2002, it is likely to run at a loss even though both freight and passenger traffic has been increasing. This is because the MOR procedure of revenue reallocation among different RAs 20 has been revised to reduce the cross subsidies from richer RAs to poorer RAs. 29. Despite the fact that no single RA is responsible for operating JJR, Appendix 3 provides an income statement, balance sheet, and cash-flow statement for JJR on a pro forma basis. Although a loan covenant called for furnishing such pro forma financial statements to ADB at the end of each fiscal year, it was not complied with by MOR due to the fact that the operation of JJR rests with five RAs and the point-to-point accounting system has not been fully functional. The results in Appendix 3 were estimated by ADB staff using financial models and the updated traffic and tariff information provided by MOR. Another loan covenant stipulated for JJR an operating ratio (ratio of total operating expenses including depreciation to operating revenues) not higher than 70% from 1998 onwards. This target was met in 1998 and 1999. In 2000, the operating ratio exceeded the target significantly and in 2001, marginally. The return on net fixed assets in operation, which was not covenanted, ranged between 3.1% and 6.8% during 1998 2001. The debt service coverage ratio, also not covenanted, was at comfortable levels exceeding 2.5%. 30. Appendix 4 shows the operational a financial performance of MOR as the ultimate nd operating entity of JJR. With a 68,000 route-km rail network (compared to 2,539 km for JJR), MORs performance has been improving steadily since 1994. The freight traffic has increased at a slower pace than the passenger traffic. In fact, due to the lower demand for transport caused by the Asian financial crisis and increasing competition from road transport (particularly in the short-haul market), freight traffic declined slightly in 1998 and did not recover to the 1997 level until 2000. In contrast, passenger traffic experienced a steady increase, as evidenced by the

19 20

MOR officials interviewed indicated that it was still in the experimental stage. The revenue reallocation procedure is designed to bring different RAs into parity in their revenues through cross subsidies. Under this procedure, the revenues from passenger and freight transport of RAs are submitted to MOR, which reallocates them by applying a regionally adjusted coefficient, with poorer regions receiving higher revenues for the same traffic.

11 average annual growth rate of 6.9% between 1997 and 2001. MOR has been making a net profit after tax since 1998. In 2001, the net profit was CNY3.1 billion. 21 C. Financial and Economic Reevaluation

31. Appendix 5 contains a recalculation of the financial and economic internal rates of return (FIRR and EIRR) for both JJR and the Project. All financial costs and benefits are denominated in the local currency at 2002 constant prices, while the economic costs and benefits are valued at economic prices using the world price numeraire. As summarized in Table 2 below, the recalculated FIRRs for JJR and the Project are 6.2% and 9.0%, respectively, in line with the respective PCR estimates but lower than the appraisal estimates. The FIRRs exceed the recalculated weighted average cost of capital of 5.8%. The recalculated EIRRs for JJR and the Project are 14.3% and 14.1%, respectively, below both the PCR and appraisal estimates but still satisfactory. JJRs main economic benefits are accrued from resource savings for the diverted traffic (from buses and other alternative railway routes) and the net production values for the newly generated traffic. By including only benefits of direct users of JJR, the recalculated EIRR does not capture indirect benefits to non-users, particularly in terms of stimulating local economic growth and reducing poverty by attracting investment and creating employment (paras. 3437). For the Project, the main benefits, both financial and economic, are associated with resource savings in purchasing rolling stock and in operating capital that result from the higher train speeds achieved. Table 2: Summary of Financial and Economic Reevaluation of Jing-Jiu Railway (%)
Appraisal JJR Project 7.9 15.4 17.1 19.8 PCR Project 8.8 14.6 PPAR Project 9.0 14.1

Item FIRR EIRR

JJR 6.2 15.6

JJR 6.2 14.3

EIRR = economic internal rate of return, FIRR = financial internal rate of return, JJR = Jing-Jiu Railway, PCR = project completion report.

D.

Sustainability

32. Proper and efficient maintenance is essential for JJRs operation and its long-term sustainability. MOR generally has a sound record of track and equipment maintenance. The OEM visited an overhaul gang and observed that the work was done in accordance with international standards. The OEM also observed that the tracks and equipment along JJR were in good to excellent condition. The modern heavy-track maintenance equipment procured under the Project, together with 300 sets of such equipment throughout MOR, has helped improve both the efficiency and quality of track maintenance. The special quality rails and the digital telecommunications equipment have helped reduce the need for frequent maintenance. A potential risk for the sustainability of the Project is the high cost and long waiting time for procuring additional spare parts. Fortunately, domestically made substitutes are increasingly available at lower cost for the various components procured under the Project.

21

Although the amount is small relative to the vast network and total traffic, the fact that MOR has made a net profit at all (allowing for certain accounting errors and data inaccuracy) is commendable in view of the unsatisfactory financial performance of many railways worldwide.

12 33. With respect to financial sustainability, the recalculated FIRRs for JJR and the Project are satisfactory. An area of concern is the potentially declining competitiveness of r transport ail compared to road transport for freight. Experience in other countries suggests that the trucking industry will become more competitive, through its door-to-door services, as the road network improves and the industry itself consolidates.22 The higher freight tariff for JJR and the JingGuang line than for the rest of the MOR network may exacerbate the situation by pushing more freight traffic to competitors. On the other hand, JJRs own competitiveness will also improve as more lines are connec ted to it, (e.g., the Ganzhou-Longyan line that is under construction). The financial health of MOR is satisfactory. The strong commitment of the Government to railway transport in general and to JJR in particular suggests that JJR is likely to be sustainable. IV. A. ACHIEVEMENT OF OTHER DEVELOPMENT IMPACTS

Socioeconomic Impact

34. The OEM investigated socioeconomic impacts of JJR through (i) site visits and discussions with various stakeholders in Jiangxi and Guangdong provinces, including local government officials and representatives of JJR-affected families, schools, and factories; and (ii) a separate socioeconomic survey by the domestic consultant (Appendix 6).23 This dual approach allowed verification of the findings from discussions with official representatives and interviews at the village level. The investigations found no negative impacts on indigenous peoples or other social minority groups, and led to a clear conclusion that the socioeconomic impacts of JJR, particularly in terms of stimulating economic development and poverty reduction for the impoverished counties along the line, were rather significant. JJR has benefited these regions through (i) providing access to outside markets for local products; e.g., agricultural and mineral products; (ii) providing access to products from other regions at a much lower cost; (iii) improving the environment for external investments; and (iv) enabling more migrant workers to work in Guangdong Province, which has greatly increased rural income levels. 35. Table 3 provides selected economic indicators for Ganzhou Prefecture, a key beneficiary in Jiangxi Province. It indicates that, for both Ganzhou as a whole and the seven counties along JJR, gross domestic product, government revenue, external investment, and income exhibited a strong upward trend. The growth rapidly accelerated during 19921995, which covered most of JJRs preparation and construction, and was typically around 30% per annum, reflecting direct impacts from JJR in terms of demand for local products (e.g., cement), services/tertiary industry (e.g., food, accommodation), and labor; and indirect impacts from surging external investments. Although the growth rates slowed during 19952001, they continued to be remarkably high considering the larger base they were achieved from. The sectors that received major investments included fruit processing (orange juice), mineral development, and shoe manufacturing. According to officials interviewed, all this would not have happened without JJR. The orange juice production, for example, resulted from investment by a Beijing-based company and was mainly targeted at the Beijing market. 36. With respect to different impacts within Ganzhou, the economy and income generally grew faster in the seven counties than Ganzhou as a whole after 1992. JJR had more pronounced impacts on urban than rural income, reflecting greater economic opportunities in
22 23

Presently, the average number of trucks per company is only 1.4. A questionnaire survey was planned but proved to be unsuccessful due to the fact that most educated young and middle-aged villagers were working in cities and elsewhere, and the people remaining in villages were mostly elders and children. The consultant, however, was able to conduct a series of interviews and focus group discussions, and gather statistics from various sources.

13 urban areas. On average, the annual urban income growth after JJR was 3%4% higher than before JJR. In contrast, the annual rural income growth rates after JJR were lower than before JJR, even though the increases in absolute terms were higher. Statistics provided by the Ganzhou government indicate that the total poverty population 24 decreased from 380,000 in 1997 to 240,000 in 2001, or by 37%. The decrease for the seven counties along JJR was marginally higher at 39% during the same period. In addition, data in Appendix 6, which contains more information on socioeconomic impacts of JJR, indicate that the rural income for Ganzhou Prefecture as a whole increased 4.0 times between 1990 and 2001, compared to the provincial and national averages of 3.3 times and 3.5 times, respectively.
Table 3: Impact of Jing-Jiu Railway on Economic Development of Ganzhou Prefecture, Jiangxi Province
Average Annual Increase (%) 19901992 19921995 19952001

Item A. Economy GDP for All Prefecture (CNY million) Tertiary Industry for All Prefecture (CNY million) GDP for 7 Counties Along JJR (CNY million) Tertiary Industry for 7 Counties (CNY million) B. Government Revenue For All Prefecture (CNY million) For 7 Counties Along JJR (CNY million) C. External Investment Foreign Investment ($ 000) Domestic Investment (CNY 000) D. Income Annual Urban Wages for All Prefecture (CNY/person) Annual Urban Wages for 7 Counties (CNY/person) Annual Rural Net Income for All Prefecture (CNY/person) Annual Rural Net Income for 7 Counties (CNY/person)

1990

1992

1995

2001

6,265 1,523 2,927 760

7,857 2,151 3,523 981

16,182 4,123 8,035 2,223

28,458 10,622 14,258 4,935

12.0 18.8 9.7 13.6

27.2 24.2 31.6 31.3

9.9 17.1 10.0 14.2

517 338

606 394

1,431 863

2,335 1,336

8.3 8.0

33.2 29.9

8.5 7.6

1,249 20,039

11,024 49,480

64,780 249,930

106,450 3,100,000

197.1 57.1

80.5 71.6

8.6 52.1

1,717 1,682 602 605

2,049 1,996 709 714

3,775 3,771 1,478 1,511

7,570 7,825 2,113 2,199

9.2 8.9 8.5 8.6

22.6 23.6 27.7 28.3

12.3 12.9 6.1 6.5

GDP = gross domestic product, JJR = Jing-Jiu Railway . Source: Ganzhou Municipal Statistic Bureau.

24

The poverty line in Jiangxi is currently set at CNY685/year/person or $83/year/person, substantially less than the widely used international standard of $1 per day. The main reasons provided by the officials interviewed for such a low poverty line were lower price levels and the subsistence nature of the economy.

14 37. The construction of JJR involved the acquisition of 10,800 hectares of land and resettlement of 211,174 persons,25 10 schools/clinics, and several factories. The PCR indicated that for most persons affected, the compensation provided resulted in better living/working conditions and higher income (para. 9). Interviews conducted by the OEM with representatives of the persons and entities affected confirmed this observation. MOR had reportedly prepared a written resettlement plan, but the OEM could not locate it. 26 However, available documents suggest that, with assistance from ADB, MOR carried out land acquisition and resettlement activities in accordance with the law and generally accepted practices. These included, among others: (i) careful selection of the railway route to avoid densely populated areas; (ii) ensuring that resettled people were at least as well off as without JJR; (iii) land and housing compensation based on market rates; and (iv) assistance in restoring their livelihood. On average, a typical house in Ganzhou was compensated with CNY40,000CNY50,000, which was more than the amount that was needed to build a similar (often bigger and better) house. The relocated houses are often near their previous locations and the original village communities were generally preserved. Farmers were compensated for their land acquired, priced at CNY6,000/mu,27 although payments were delayed in some cases. The income level for the affected families has mostly increased after resettlement. The reasons are twofold. First, due to the very low arable land availability of less than 1 mu per person, income from land had always been low and unreliable. Second, the economic opportunities presented by the construction and operation of JJR, including operating eateries, renting out houses for construction workers, working at railway stations as porters, and working in cities, are more than enough to compensate for the loss of agricultural income. B. Environment and Safety Impacts

38. As covenanted, MOR furnished annual environmental monitoring reports to ADB from 1994 to 1999. The reports outlined key environmental issues during construction and operation, and mitigation measures adopted. Two main types of environmental issues were encountered during construction: (i) soil erosion control and slope stabilization, and (ii) pollution of soil by construction activities. Additional environmental and safety issues during operation included sewage discharge (from various railway locomotive and equipment depots and service stations) and treatment, littering along the line, and potential traffic accidents for local people when crossing the line. The monitoring reports and the OEMs own observation in traveling along JJR indicate that the engineering for slope stabilization and soil erosion control, mostly in the mountainous Jiangxi section, is of very high quality. The expensive erosion control measures are one of the main reasons for the relatively high cost of JJR (para. 20). The various sewage plants built as a part of JJR were reported to be operating well. Littering along JJR was evident but limited in scope. However, several villagers interviewed in the survey reported occurrence of traffic accidents, including fatal ones, due to either poorly designed or inadequate passages. In addition, although not mentioned in the monitoring reports, construction and operation of JJR may have altered the drainage patterns and facilitated depletion of groundwater in some locations. However, the adverse impacts appear to be limited in scope (Appendix 6). In general, the environmental impacts of JJR have been moderate.

25

26 27

MOR confirmed that the total area of land acquired permanently and the total number of affected persons, as reported here, decreased slightly from the 11,732 hectares and 212,000 pers ons stated in the appraisal report and PCR. At the time, ADB had yet to develop its policy on resettlement. Its R179-95: The Banks Policy on Involuntary Resettlement was issued in September 1995. 15 mu = 1 hectare.

15 C. Impacts on Institution and Policy

39. The policy and institutional impacts of the Project were mainly achieved through the attached advisory TA (footnote 4). Moderate progress has been made in all three areas covered, i.e., organizational structure, tariff setting, and accounting reforms. The final recommendation, i.e., integration of JJR into the present organization structure, was followed. The tariff policy study under the TA concluded that, to implement the new line, new tariff policy to recover the costs of JJR, the tariff for the alternative route in the north-south transport corridor, i.e., Jing-Guang line, should be increased in a synchronized manner. This was done, making the tariffs for JJR and Jing-Guang line higher than those of other lines (para. 25). To improve MORs accounting practice, a methodology was developed to allocate revenues and expenses in a way allowing MOR to prepare annual financial statements for JJR. Although this particular objective was not achieved at the time of project completion, progress has been made on implementation of a point-to-point accounting system. Finally, the consultants recommended several pilot programs for improving the operational efficiency of JJR, including applying the profit-center approach to major stations, central assigning of locomotives to trains to reduce the number of locomotive changes along JJR to reduce operating costs,28 and setting up a permanent equipment management center responsible for management and leasing of track machines for the entire JJR. MOR officials believed that these recommendations, though valid, were not practical under the current organization structure of different RAs operating JJR. Overall, the impacts of the advisory TA appear to be positive but limited. This was partly due to the fact that the TA focused on JJR, whereas many issues dealt with were network-wide and, hence, could not be resolved in isolation. The advisory TA is rated partly successful by the OEM. 40. MOR is currently developing a plan for sector restructuring to be submitted to the State Council for approval. 29 With assistance from ADB and other development agencies, MOR has been studying different models of commercializing railway operations, i.e., separation of rail ownership from transport companies (typically seen in Europe), different railway companies that own their own lines and rolling stock competing with each other (North America), and the breakup of the national railway into regionally based railway companies (Japan). Although no specific model and timetable has been set for the restructuring, reforms have been taking place in an incremental manner, including spinning off certain non-core operations (footnote 13). 30 There seems to be a consensus among the officials interviewed of the need to reform MOR toward separation of its government function from its commercial function, introduction of more competition into railway operations, and strengthening of MORs role in regulation and supervision to ensure a fair and level playing field for all participants. 41. The project preparatory TA (footnote 2) has had limited role in institutional capacity building since it mainly served to validate MORs own feasibility study. Additional institutional impacts of the Project arose from a series of training activities conducted by the suppliers on the use and maintenance of the equipment procured under the Project.

28

29 30

Under the current system, a train will change its locomotive after entering the territory of another RA since the locomotives are owned and operated by individual RAs. This approach is not only cumbersome in terms of revenue reallocation among RAs for the use of each others locomotives, but also implies that a higher than necessary number of locomotives is maintained by the RAs, thus increasing operating costs. Most likely to be finalized after the scheduled change of the cabinet in March 2003. PRC generally adopts an incremental approach in carrying out reforms, normally spearheaded by some pilot regions or work units. For railways, this approach is even more justified due to the unusually large role of railway transport in the national economy.

16 V. A. Relevance OVERALL ASSESSMENT

42. Although poverty reduction was not an explicit objective of the Project, in practice JJR and the Project have had a major impact on stimulating economic development and reducing poverty in some of PRCs poorest counties by providing a fast and reliable railway link in these regions. JJR and the Project have been consistent with ADBs operational strategy in the PRC, which aims to enhance economic efficiency and reduce poverty through, among other measures, removing transport bottlenecks. In particular, the rapid economic development in the PRC and the resultant widening gaps between the relatively developed eastern provinces and the underdeveloped interior provinces have underlined the strong need for JJR that links them. Consequently, JJR and the Project are assessed as highly relevant. B. Efficacy

43. Since its commissioning, JJR has formed one of the main trunk lines in the north-south transport corridor, and helped alleviate congestion of the Jing-Guang line. JJRs passenger traffic in 2001 was about seven times the appraisal forecast. Its freight traffic was, however, 37% below the target for 2001. The operation of the four technology components financed under the Project has not only enabled JJR to operate with greater efficiency, speed, reliability, and safety, but also has facilitated the replication of sim ilar technologies in other parts of the railway network. The advisory TA, together with a series of efforts by ADB and other development agencies, has played a positive, though limited, role in setting the course of reforms toward more market-oriented railway operation. Both JJR and the Project are assessed as efficacious. C. Efficiency

44. Despite the technical complexities, the construction of the 2,537 km JJR was completed 4 months ahead of schedule. The delay in completing the ADB-financed Project was caused by the time needed to procure additional equipment using loan savings. With the recalculated EIRRs of 14.3% and 14.1% for JJR and the Project, respectively, both of them are assessed as efficient. D. Sustainability

45. MOR has a proven record of track and equipment maintenance. The Project has contributed to the maintenance of JJR through procuring modern heavy-track maintenance equipment. The well-maintained track has been widely credited as a key factor for the much improved and faster passenger trains. Although the financial performance of both JJR and MOR has generally been satisfactory, the growth in freight traffic has been slower than expected and the higher tariff for JJR and Jing-Guang line than for the rest of MOR network may have further decreased JJRs competitiveness vis--vis road transport. The main problem facing the ADBfinanced components is the difficulty and high cost in procuring spare parts, but measures such as sourcing from domestic suppliers are being taken to address this problem. Overall, JJR and the Project are likely to be sustainable. E. Institutional Development and Other Impacts

46. JJR has had major socioeconomic impacts in terms of stimulating economic development and poverty reduction in the adjacent provinces. Gross domestic product and incomes have

17 increased significantly for the counties along JJR visited by the OEM. In some villages, net income for farmers nearly tripled in 10 years due to improved market access for their produce and increased opportunities to work in cities. In terms of resettlement and land acquisition, available information, albeit limited, indicates that most affected families, schools, and enterprises have been satisfied with the compensation received, and enjoy better living and working conditions after the resettlement. The resettled persons have been given top priority in employment related to construction and operation of JJR. Protection of the environment during construction was well monitored and managed. However, traffic accidents including fatal ones were reported by villagers due to either poorly designed or inadequate passages. The Projects impact on institutional development has been limited and mainly achieved through the attached advisory TA and a series of training activities conducted by the suppliers on the use and maintenance of the equipment procured under the Project. In sum, JJR and the Project have had substantial socioeconomic and moderate institutional and environmental impacts. F. 47. G. Overall Rating Based on the above considerations, JJR and the Project are rated successful. Assessment of Asian Development Bank and Executing Agency Performance

48. A total of nine missions were fielded by ADB related to project preparation, implementation, and completion. ADB provided assistance to MOR in validating the technical design of JJR and the Project through the project preparatory TA, explaining ADBs policies on involuntary resettlement and environmental protection, implementing ADBs guidelines on procurement, and bringing new technologies and managerial concepts to PRCs railway construction and operation. MOR is highly appreciative of ADBs assistance in all of these areas. In particular, the dedication of successive mission leaders and members for loan processing and implementation was credited by MOR as a key factor for the smooth working relationship. Despite the relatively small portion of ADBs financing in the overall JJR cost, ADBs policies on resettlement and environmental compliance and continuous monitoring during construction and after commissioning appeared to have played an important role in safeguarding the environment and the interests of the affected families. Overall, ADBs performance was highly satisfactory. MORs performance was also highly satisfactory as JJR was built in record speed in the PRC railway construction history with excellent to satisfactory quality, and its operation and maintenance have been generally satisfactory as well. VI. A. ISSUES, LESSONS, AND FOLLOW-UP ACTIONS

Key Issues for the Future 1. Issues Related to Reforms and Restructuring

49. The much-anticipated point-to-point accounting system is still not fully operational. Such a system is essential for tariff setting and making key management decisions on investments and planning. The current tariff structure and ways of internal settlement and reallocation of operating revenues have hindered the full commercialization of railway operations. For most RAs, the revenues are not directly collected from customers, but rather from MOR through an internal revenue reallocation mechanism, and the tariffs for both passenger and freight traffic are largely determined by the Government. Therefore, whether RA is profitable or not depends not only on the quantity and quality of its services, but also on the reallocation mechanism.

18 50. The restructuring of MOR toward separation of its government function from its commercial function and introducing more competition is currently being studied in a plan to be submitted to the State Council. In this regard, the pioneering experience of Guangzhou Railway Corporation (Group), which was corporatized from the formerly Guangzhou RA in 1993, may be valuable for the extrapolation of commercial model to the entire MOR network. The group has a corporate structure with numerous subsidiary and holding companies. Guang-Mei-Shan Railway Corporation is one of the holding companies, responsible for operating a section of JJR in Guangdong Province and the connecting G uang-Mei-Shan railway, financed by an ADB loan (footnote 1). The Corporation is capturing an increasing share of the growing passenger market (mostly migrant workers) in Guangdong Province and has been making an operating profit since 2000. 2. Roads versus Railways or Roads with Railways?

51. There is a widely held view among development agencies that state-owned and operated railways will eventually lose out in competition with road transport, which is often dominated by private operators. While this may be true in some smaller countries, for larger continental countries like the PRC, properly managed railways have clear competitive advantages in long-haul bulk traffic. Furthermore, t e experience of JJR demonstrates that h railways and roads may be more complementary than competitive, especially in the early development stage. This was best exemplified by the case of Ganzhou, where before JJR, inland waterway was the main mode of transport; however, the transport was seasonal and subject to destination and capacity constraints. After the commissioning of JJR, investments (including some by investors from Taipei,China which were previously located in the more developed southern province of Guangdong where labor is getting increasingly expensive) started to move north to Ganzhou. To meet the increasing demand for road transport, many new roads are being built by the various levels of government, and the trucking industry has also started to develop. The complementarity of roads and railways implies that ADB should adopt a balanced policy in providing support to both sectors. B. Lessons Identified 1. Spare Parts during Equipment Procurement

52. MOR reported frustration with the high costs and long waiting time for procuring spare parts from some foreign suppliers. MOR also stated that, under the Project, ADB imposed a maximum amount of spare parts that could be procured with new equipment. 31 After these spare parts are used up, it is expensive and difficult to purchase replacements. For the computer-based hump control system, lack of spare parts has threatened shortening its service life from 15 years to 78 years. Fortunately, in this particular case, a domestically produced system, perhaps less powerful, is available at much lower cost. For similar projects in the future, adequate amounts of spare parts should be procured with the equipment. Requests for such procurement should be included in the procurement packages prepared by executing agencies for ADBs approval. In addition, the costs of additional spare parts and quality of after-sale service should be taken better account of in evaluating bids.

31

According to ADBs Central Operations Services Office, there is no such limit in ADBs Guidelines for Procurement.

19 2. Strong Central Coordination as a Key to Smooth Implementation

53. The PRC has long been known for its centralized project management style. The construction of JJR best exemplifies the advantages of such a model in terms of speedy execution of complex projects. The transferability of such a model to other developing member countries is debatable. However, an important lesson here is that strong commitment at the very top is necessary to deliver a complex project on time. 3. Better Preparation and Implementation of Resettlement Program

54. Although the land acquisition and resettlement were generally carried out in accordance with laws and generally accepted practices, several aspects call for further improvement. These include (i) lack of basic documentation, at ADB and MOR, of resettlement activities (e.g., written resettlement plan, and lists of persons and entities affected); (ii) greater participation by persons and entities affected in designing a resettlement program and transparency in compensation distribution; and (iii) better monitoring of resettlement implementation. C. Follow-Up Actions and Recommendations 1. Asian Development Bank

55. ADB has been providing significant support to the railway sector in the PRC. Along with physical investments, it should continue its policy dialogue with MOR on sector restructuring and provide TA as needed in several key areas, including identification of the most suitable model based on other countries experience, introduction of competition without jeopardizing operational safety and causing social disruptions, training of personnel, and accounting and tariff reforms. 2. Ministry of Railways

56. MOR has made notable progress in improving its efficiency and the quality of its services in the past decade, particularly in the passenger market. However, its freight services, which account for about 60% in terms of revenue, lag behind in competitiveness. Further improvements in this area depend on deepening market-oriented reforms through restructuring and establishment of a customer-first business culture. The reform plan currently being prepared should be submitted to the State Council for approval and implementation once the new cabinet is formed in March 2003 with no further delays. Related to this, under a loan covenant, MOR is required to maintain an operating ratio less than 70% for JJR. Commercialization and reforms in the railway sector will help achieve this target. 57. At the wrap-up meeting held on 13 September 2002, MOR indicated that it would soon set up a team to study the problem of obtaining spare parts for the computerized hump control system and to examine why the wagon tracing and allocation system had not been functional yet. The OEM recommends that representatives from the railway design institutes also participate in such a study so that they are aware of the causes to these problems. With their involvement, the solutions can be used in future designs, thus avoiding the same problems in the future. The study should be completed by March 2003. 58. Several issues and lessons have been identified regarding resettlement and land acquisition, as well as JJRs impacts on traffic safety, daily lives, and agricultural production of the villagers along the line. These include, among others, excessive intermediary links in

20 compensation payments, occurrence of traffic accidents, and difficulty for villagers to traverse the railway due to inadequate or poorly designed passages. On resettlement and land acquisition, it should be noted that the legal framework has been significantly improved with the passage of the 1998 amendments to the Land Administration Law, drafted with ADBs assistance. The new Law provides for higher compensation rates and requires public consultation, disclosure of the resettlement plan, and a grievance process. In compliance, MOR has adopted a more transparent approach in implementing land acquisition and resettlement in the ongoing Ganzhou-Longyan Railway Project, and should continue to adopt such an approach in all of its subsequent railway projects. On the other issues, in addition to continuing its information campaign on traffic safety, MOR should start to inspect all the passages along JJR and complete the inspection by March 2003. An action plan should be developed based on the inspection results, and implemented immediately to minimize or mitigate any further negative impact on peoples lives and production activities.

Appendix 1

21

PROJECT COST ESTIMATES AND ACTUAL COSTS ($ million)

Appraisal Actual Foreign Local Total Foreign Local Total 53.7 14.0 0.0 0.0 53.7 14.0 48.8 54.4 0.0 0.0 48.8 54.4 % Overrun (Underrun) Foreign Local Total (9.1) 288.6 0.0 0.0 (9.1) 288.6

Item Special Rails Track Machines Signaling (Hump Process Control Systems) Telecommunications and Train Operations Equipment Subtotal Physical Contingencies Price Contingencies Subtotal IDC Total

50.0 144.7 194.7

33.3

165.5 198.8

(33.4)

14.4

2.1

65.0 134.4 199.4 182.7 279.1 461.8 9.8 7.5 17.3 20.0 15.3 12.5 27.8 5.1 25.1 20.0 45.1 25.1

57.4 193.9 0.0 0.0 0.0 32.5 226.4

153.1 210.5 318.6 512.5 0.0 0.0 0.0 7.5 0.0 0.0 0.0 40.0

(11.7) 6.1

13.9 14.2

5.6 11.0

(100.0) (100.0) (100.0) (100.0) (100.0) (100.0) (100.0) (100.0) (100.0) 62.5 2.9 47.1 4.5 59.4 3.9

220.0 312.0 532.0

326.1 552.5

IDC = interest and other charges during construction. Source: Ministry of Railways.

22
Appendix 2

APPRAISAL AND ACTUAL IMPLEMENTATION SCHEDULES OF THE PROJECT

1994 Item Telecommunications and Train Operations
* *

1995

1996

1997

1998

1999

A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D

Signaling (Hump Process Control Systems)

*

Special Rails

Track Maintenance Machines

Start-Up of Project Facilities

Start of commercial operations

Appraisal Actual * Advance procurement action under international competitive bidding procedures approved by the Asian Development Bank for this equipment. Source: Ministry of Railways.

PROFORMA FINANCIAL STATEMENTS OF THE JING-JIU RAILWAY (Y million) Table A3.1: Proforma Income Statement Year Item Operation Statistics Freight tons (thousand) Passengers (thousand) Freight ton km (million) PKM (million) Converted ton km (million) Average Freight Distance (km) Average Passenger Journey (km) Unit Freight Revenue Unit Passenger Revenue TKM per Route-km (million) PKM per Route-km (million) Number of Staff Operating Revenue Freight Passenger Other Businesses Gross Total Operating Revenue Transfer of Surcharge to Railway Incremental Revenue from Jing-Guang Net Operating Revenue Operating Expenses Salaries and Wages Materials Fuel Utilities Others Provision for Major Repair Business tax Total Working Expenses Depreciation Expenses Total Operating Expenses Operating Profit (Loss) Non-Operating Income (Expenses) Profit (Loss) Before Interest and Tax Interest Payable Pre-Tax Profit (Loss) Income Tax (33%) Net Profit for the Year Operating Ratio (%) 1997 Appraisal Actual 39,868 5,428 47,127 1,723 48,850 1,182 317 0.0800 0.0650 18.6 0.7 39,083 3,770.2 112.0 310.6 4,192.8 (1,272.4) 2,920.4 29,585 13,340 28,106 7,377 35,483 950 553 0.0710 0.0400 11.1 2.9 27,800 1,995.5 295.1 0.0 2,290.6 0.0 0.0 2,290.6 1998 Appraisal Actual 48,383 6,092 58,066 2,485 60,551 1,200 408 0.0800 0.0650 22.9 1.0 42,204 4,645.3 161.5 384.5 5,191.3 (1,567.8) 3,623.5 273.2 184.7 274.7 54.6 154.1 434.8 117.4 1,493.5 1,300.1 2,793.6 829.9 (79.6) 750.3 573.8 176.5 58.2 118.3 77.1 35,990 19,210 41,570 12,547 54,116 1,155 653 0.0770 0.0780 16.4 5.0 27,800 3,200.9 978.7 146.8 4,326.3 0.0 1,399.0 5,725.3 418.5 424.3 390.1 58.8 587.8 139.0 78.9 2,097.2 1,667.5 3,764.7 1,960.6 (125.5) 1,835.1 1,476.6 358.5 0.0 358.5 65.8 1999 Appraisal Actual 58,718 6,837 71,549 2,831 74,380 1,219 414 0.0800 0.0650 28.2 1.1 45,416 5,723.9 184.0 472.6 6,380.5 (1,931.8) n/a 4,448.7 313.1 217.1 359.4 66.8 178.4 533.8 144.1 1,812.8 1,300.1 3,112.9 1,335.8 (96.3) 1,239.5 554.8 684.7 226.0 458.7 70.0 44,664 22,200 53,150 15,141 68,291 1,190 682 0.0830 0.0823 21.0 6.0 27,800 4,411.5 1,245.7 249.1 5,906.3 0.0 1,454.9 7,361.2 422.6 396.7 447.6 87.0 609.1 291.1 238.5 2,492.7 2,051.1 4,543.9 2,817.4 (104.2) 2,713.2 753.9 1,959.3 254.8 1,704.5 61.7 2000 Appraisal Actual 71,254 7,673 88,170 3,226 91,396 1,237 420 0.0800 0.0650 34.8 1.3 48,880 45,471 38,580 54,565 19,128 73,693 1,200 496 0.0841 0.0833 21.5 7.6 28,000 2001 Appraisal Actual 74,342 7,873 92,323 3,321 95,644 1,241 422 0.0800 0.0650 36.4 1.3 49,637 48,147 42,090 58,258 22,690 80,948 1,210 539 0.0841 0.0992 23.0 9.0 27,800

7,053.6 4,588.9 209.7 1,594.1 581.1 318.8 7,844.4 6,501.9 (2,380.6) (1,800.7) 1,513.1 5,463.8 6,214.4 358.0 257.2 469.2 82.2 208.1 655.7 177.0 2,207.4 1,445.0 3,652.4 1,811.4 (118.1) 1,693.3 533.9 1,159.4 382.6 776.8 66.8 435.3 436.4 514.8 104.4 626.7 309.2 259.7 2,686.4 2,082.9 4,769.3 1,445.1 (109.8) 1,335.3 755.6 579.7 191.3 388.4 76.7

7,385.8 4,899.5 215.9 2,250.0 608.1 450.0 8,209.8 7,599.5 (2,492.7) (1,922.5) 1,573.7 5,717.1 7,250.6 385.4 279.7 520.4 90.1 225.5 686.0 185.2 2,372.4 1,456.7 3,829.1 1,888.0 (123.1) 1,764.9 492.6 1,272.3 419.9 852.4 67.0 776.7 373.4 338.7 510.4 333.5 357.5 297.2 2,987.4 2,116.6 5,104.0 2,146.7 (121.1) 2,025.5 757.7 1,267.9 418.4 849.5 70.4

236.8 454.9 157.8 528.1 207.4 357.6 44.7 58.2 133.7 493.0 350.4 56.1 94.6 72.3 1,225.5 2,020.2 1,075.8 863.3 2,301.3 2,883.5 619.1 (592.9) (67.6) (89.1) 551.5 (681.9) 573.8 1,291.3 (22.3) (1,973.2) 0.0 0.0 (22.3) (1,973.2) 78.8 125.9

Appendix 3

23

= not available, PKM = passenger-kilometer, TKM = ton-kilometer.

24

Table A3.2: Proforma Balance Sheet (Year ending on 31 December) Year Item Assets Current Assets Cash Account Receivable Inventory Others Total Current Assets Fixed Assets Gross Fixed Assets in Operation Accumulated Depreciation Net Fixed Assets in Service Construction in Progress Total Tangible Fixed Assets Other Long-Term Assets Total Assets Current Liabilities Accounts Payable Others Total Current Liabilities Long-Term Liabilities Foreign Local Total Long-Term Borrowing Other Long-Term Liabilities Total Liabilities Paid-In Capital Retained Earnings Total Capital Total Capital and Liabilities Return on Net Fixed Asset in Operation (%) 1997 Appraisal Actual 1998 Appraisal Actual 1999 Appraisal Actual 2000 Appraisal Actual 2001 Appraisal Actual

Appendix 3

574.8 243.4 0.0 0.0 818.2 34,908.4 1,075.8 33,832.6 0.0 33,832.6 0.0 34,650.8 45.3 0.0 45.3 3,476.0 5,136.7 8,612.7 0.0 8,658.0 26,058.1 (65.3) 25,992.8 34,650.8 1.90

16.0 46.9 56.4 2.7 122.0 19,992.5 863.3 19,129.3 28,382.5 47,511.7 0.0 47,633.8 639.7 536.3 1,176.0 2,684.1 15,797.6 18,481.7 56.1 19,713.8 29,893.3 (1,973.3) 27,920.0 47,633.8 (6.20)

1,742.1 302.0 0.0 0.0 2,044.1 34,908.4 2,375.9 32,532.5 0.0 32,532.5 0.0 34,576.6 55.7 0.0 55.7 3,438.9 4,971.0 8,409.9 0.0 8,465.6 26,058.1 52.8 26,110.9 34,576.5 2.70

155.1 47.7 68.6 4.4 275.8 41,476.0 2,530.7 38,945.3 8,925.1 47,870.4 0.0 48,146.2 599.6 0.0 599.6 3,275.4 15,797.6 19,073.0 195.1 19,867.7 29,893.3 (1,614.8) 28,278.5 48,146.2 6.75

1,198.6 370.7 0.0 0.0 1,569.3 36,933.0 3,676.0 33,257.0 0.0 33,257.0 0.0 34,826.3 68.5 0.0 68.5 3,399.3 4,788.7 8,188.0 0.0 8,256.5 26,058.1 511.7 26,569.8 34,826.3 4.10

2,862.6 306.7 87.6 4.5 3,261.4 51,539.7 4,581.9 46,957.9 0.0 46,957.9 0.0 50,219.3 282.0 0.0 282.0 3,251.2 15,797.6 19,048.8 477.9 19,808.7 29,893.3 517.4 30,410.7 50,219.4 6.56

2,083.4 455.3 0.0 0.0 2,538.7 37,446.4 5,121.0 32,325.4 0.0 32,325.4 0.0 34,864.1 84.7 0.0 84.7 3,357.1 4,075.6 7,432.7 0.0 7,517.4 26,058.1 1,288.4 27,346.5 34,863.9 5.50

5,079.1 334.0 90.0 4.5 5,507.5 52,068.9 6,664.8 45,404.2 0.0 45,404.2 0.0 50,911.7 303.3 0.0 303.3 3,224.6 15,797.6 19,022.3 787.1 20,112.7 29,893.3 905.7 30,799.0 50,911.7 3.13

2,475.5 476.4 0.0 0.0 2,951.9 38,487.3 6,577.7 31,909.6 0.0 31,909.6 0.0 34,861.5 93.0 0.0 93.0 3,245.5 3,324.0 6,569.5 0.0 6,662.5 26,058.1 2,140.9 28,199.0 34,861.5 5.90

7,706.1 382.2 96.1 4.6 8,188.9 52,630.4 8,781.3 43,849.1 0.0 43,849.1 0.0 52,038.0 336.3 0.0 336.3 3,111.0 15,797.6 18,908.6 1,144.6 20,389.5 29,893.3 1,755.2 31,648.5 52,038.0 4.81

Table A3.3: Proforma Cashflow Statement Year Item Source of Funds Operating Income Depreciation Change in Working Capital Funds from Operations Term Loan Capital from Railway Construction Fund Working Capital Facility/Overdraft Other Short-Term Loan Total Source of Funds Application of Funds Civil Works Purchase of Rolling Stock Interest during construction Total Capital Expenditure Interest of Foreign Loan Repayment of Foreign Loan Interest of Domestic Loan Repayment of Domestic Loan Interest on Short-Term and W/C Borrowing Total Debt Service Non-Transport Cost Taxes paid Total Application of Funds Net Cash Position Cash at the beginning of the Year Cash at the End of the Year Debt Service Coverage Ratio = not applicable, W/C = working capital. Source: ADB staff estimates. 1997 Appraisal Actual 1998 Appraisal Actual 1999 Appraisal Actual 2000 Appraisal Actual 2001 Appraisal Actual

619.1 1,075.8 (198.1) 1,496.8 0.0 2,093.1 (285.0) 0.0 3,304.9 0.0 2,093.1 2,093.1 162.2 0.0 411.7 0.0 0.0 573.9 67.6 0.0 2,734.6 570.3 4.4 574.7 2.0

(592.9) 919.4 533.7 860.2 4,668.7 0.0 536.3 0.0 6,065.2 3,497.9 1,170.8 0.0 4,668.7 119.7 0.0 1,133.0 0.0 38.6 1,291.3 89.1 0.0 6,049.1 16.0 0.0 16.0 0.7

829.9 1,300.1 (48.2) 2,081.8 0.0 0.0 0.0 0.0 2,081.8 0.0 0.0 0.0 0.0 162.2 37.1 411.7 165.7 0.0 776.7 79.6 58.2 914.5 1,167.3 574.7 1,742.0 2.7

1,960.6 1,806.4 (54.7) 3,712.3 613.4 0.0 0.0 0.0 4,325.7 1,621.8 940.7 0.0 2,562.6 126.8 22.1 1,311.2 0.0 38.6 1,498.7 125.5 0.0 4,186.7 139.0 16.0 155.1 2.5

1,335.9 1,300.1 (56.0) 2,580.0 0.0 0.0 0.0 0.0 2,580.0 0.0 2,024.7 0.0 2,024.7 159.7 39.6 395.1 182.2 0.0 776.6 96.3 226.0 3,123.6 (543.6) 1,742.0 1,198.4 3.3

2,815.8 2,334.0 (595.8) 4,554.0 0.0 0.0 0.0 0.0 4,554.0 645.8 65.1 0.0 710.9 122.0 24.2 631.9 0.0 0.0 778.1 102.6 254.8 1,846.4 2,707.5 155.1 2,862.6 5.9

1,811.4 1,445.0 (68.3) 3,188.1 0.0 0.0 0.0 0.0 3,188.1 513.4 0.0 0.0 513.4 157.1 42.2 376.9 713.1 0.0 1,289.3 118.1 382.6 2,303.4 884.7 1,198.4 2,083.1 2.5

1,445.1 2,392.0 (8.3) 3,828.9 0.0 0.0 0.0 0.0 3,828.9 0.0 529.2 0.0 529.2 123.7 26.5 631.9 0.0 0.0 782.1 109.8 191.3 1,612.4 2,216.5 2,862.6 5,079.1 4.9

1,888.1 1,456.7 (12.9) 3,331.9 0.0 0.0 0.0 0.0 3,331.9 232.4 808.5 0.0 1,040.9 154.3 111.7 338.4 751.6 0.0 1,356.0 123.1 419.9 2,939.9 392.0 2,083.1 2,475.1 2.5

2,146.7 2,474.1 (21.5) 4,599.3 0.0 0.0 0.0 0.0 4,599.3 0.0 561.5 0.0 561.5 125.8 113.6 631.9 0.0 0.0 871.3 121.1 418.4 1,972.3 2,627.0 5,079.1 7,706.0 5.3

Appendix 3

25

26

Appendix 4

OPERATIONAL AND FINANCIAL PERFORMANCE OF THE MINISTRY OF RAILWAYS (CNY million)

For the Year Ended Traffic Volume Freight ton-km (billion) Passenger-km (billion) Converted ton-km (billion) Operating Revenue Freight Revenues of which: Tariff Revenue Surcharge Revenue Passenger Revenues Other Revenues Total Gross Operating Revenue Business Tax Other Contribution Total Net Operating Revenue Working Expenses Wages and Salaries Materials Fuel Electricity Provision for Major Repair Others Total Working Expenses Depreciation Expenses Operating Expenses Operating Profit (Loss) Nonoperating Expenses Profit (Loss) from Subsidiaries Profit (Loss) before Transfer of Surcharge Transfer of Surcharge Pretax Profit (Loss) Income Tax Net Profit (Loss) after Tax Performance Indicators Working Ratio (%)a Operating Ratio (%)b 1994 1995 1996 1997 1998 1999 2000 2001

1,243 363 1,606

1,284 354 1,638

1,292 319 1,611

1,305 355 1,660

1,226 369 1,595

1,258 405 1,663

1,334 441 1,775

1,425 464 1,889

68,535 34,600 33,935 17,328 7,745 93,608 3,033 0 90,575

70,369 35,607 34,762 20,160 8,838 99,367 3,220 0 96,147

75,422 40,103 35,319 23,716 12,866 112,004 3,629 0 108,375

81,196 46,081 35,115 26,093 13,994 121,283 3,958 985 116,340

84,663 48,878 35,785 28,677 14,702 128,042 4,153 985 122,904

86,673 50,303 36,370 33,289 16,247 136,209 4,413 1,091 130,705

91,986 53,623 38,363 36,931 20,084 149,001 4,828 1,151 143,022

108,880 68,865 40,015 45,997 21,059 175,936 5,701 1,200 169,035

11,578 7,011 9,764 3,003 11,581 7,569 50,506 6,580 57,086 33,489 3,564 0 29,925 32,835 (2,910) (4) (2,914)

13,956 8,553 10,108 3,218 11,689 9,159 56,683 7,373 64,056 32,091 4,011 (858) 27,222 33,635 (6,413) (6) (6,419)

16,141 8,048 10,598 4,038 13,067 8,877 60,769 9,684 70,453 37,922 4,090 (1,036) 32,796 34,176 (1,380) 0 (1,380)

18,484 9,039 12,132 4,833 15,398 10,024 69,910 11,316 81,226 35,114 4,310 (453) 30,351 32,964 (2,613) 0 (2,613)

18,602 8,957 10,496 5,173 15,159 14,070 72,457 12,379 84,836 38,068 4,614 1,993 35,447 33,636 1,811 546 1,265

20,110 9,039 11,003 5,571 15,364 16,468 77,555 12,735 90,290 40,415 5,582 2,589 37,422 32,470 4,952 786 4,166

21,435 9,354 14,198 6,285 16,127 17,145 84,544 15,982 100,526 42,496 5,288 3,369 40,577 34,463 6,114 985 5,129

25,942 10,824 15,670 7,388 43,733 103,557 19,853 123,410 45,625 6,635 3,121 42,111 37,925 4,186 1,059 3,127

54.0 61.0

57.0 64.5

54.3 62.9

57.6 67.0

56.6 66.3

56.9 66.3

56.7 67.5

58.9 70.1

a b

= not available. Gross operating revenues from all operational sources divided by total operating expenses excluding depreciation and non-cash charges. Gross operating revenues divided by operating expenses including depreciation.

Appendix 5

27

FINANCIAL AND ECONOMIC REEVALUATION A. General

1. This appendix presents the financial and economic reevaluation of both Jing-Jiu Railway (JJR) and the related Project financed by the Asian Development Bank (ADB) for JJRs technical enhancement. The reevaluation was carried out in terms of with- and without-project scenarios. All prices and costs are expressed in the 2002 constant yuan values. The costs and benefits incurred before 2002 were adjusted using the Peoples Republic of China consumer price index. B. Jing-Jiu Railway 1. Financial Internal Rate of Return

2. Although JJR itself did not include purchasing of rolling stock, the analysis includes an allocation of costs for purchasing additional rolling stock for generated traffic. The data for costs of purchasing rolling stock were provided by the Ministry of Railways (MOR). A deduction of 20% from the MOR cost estimates was applied in the calculation to account for the benefits of the Project in savings of capital for purchasing rolling stock due to the higher average train speed achieved. Similarly, a 3% reduction of total operating capital cost was also assumed to account for the operating cost savings resulting from higher speeds (see para. 8). In addition, the following assumptions were used. Average unit revenue for 2002 is CNY0.0841 per tonkilometer (t-km) for freight and CNY0.1011 per passenger-km for passengers. The unit revenue is assumed to increase in real terms by 2% annually from 2002 for passenger and by 0.1% every 3 years starting from 2003 for freight. These annual growth rates were estimated based on the historical records for the past 15 years.1 Based on the most recent traffic data obtained by the Operations Evaluation Mission (OEM), the assumed annual growth rate of traffic volume was adjusted downward compared with the forecast of the project completion report (PCR). Freight volume in tons is forecast to grow at 3% for 2002, 2% for 2003, 1.5% from 2004, 1.5% from 2006, and 1% from 2012 onward. The number of passengers is assumed to grow at 4% from 2002 to 2007, 3% from 2008 to 2014, and 2% from 2015 onward. 3. Based on the above assumptions, the recalculated financial internal rate of return (FIRR) for JJR is 6.2% (Table A5.1), higher than the recalculated weighted average cost of capital for JJR at 5.8%. 2 2. Economic Internal Rate of Return

4. The economic internal rate of return (EIRR) was recalculated using the world price numeraire. In estimating the economic costs of constructing and operating JJR, the financial costs were converted to border prices. For civil work, tax and duties were deducted. To estimate the economic costs of rolling stock (traded goods), as virtually all o the rolling stock was f domestically made, for which the price is assumed to be approximately the same as world prices (or less in some cases), no adjustment was made, or the economic price is assumed to be the same as financial price. For major rehabilitation, residual value, and operating costs
1 2

At appraisal and completion, the unit revenue was assumed to increase according to the domestic inflation rate. The weighted average cost of capital represents the cost incurred by the borrower in raising the capital necessary to implement a project. Marginal costs of different sources of capital for JJR were used in the calculation, including those of the Railway Construction Fund, ADB, Japan Bank of International Cooperation, and the Government's domestic bonds.

28

Appendix 5

(nontradable), the financial costs were multiplied by the standard conversion factor of 0.926 to obtain the economic costs. 5. The direct economic benefits of JJR are mainly derived from two sources: (i) resource savings for diverted traffic, and (ii) net production value by rail transport services for the newly generated traffic. The second type of benefits, net production value, can be approximated by the willingness to pay of passengers and freight transport users. In the absence of detailed user survey information, the following assumptions were used in calculating the benefits. For passenger traffic, the nearly explosive growth indicates that most of the passenger traffic has been newly generated. Specifically, a breakdown of 75% generated and 25% diverted (from buses) was assumed. For freight traffic, the growth has been much slower and it is likely that most freight traffic has been diverted from alternative train routes of much longer distances. A reverse ratio of traffic breakdown was thus assumed: 75% diverted and 25% newly generated. Resource savings from diverted passenger traffic was the economic costs of operating buses with approximately the same distance, which was estimated at 70% of the bus fare or CNY0.146/passenger-km (the other 30% being profit and tax). Resource savings from diverted freight traffic was the economic costs of transporting the same freight using alternative railway routes. The unit economic cost per t-km was assumed to be 70% of the train freight tariff but the average distance traveled with alternative routes was assumed to be twice the distance of using JJR. For the willingness to pay associated with the generated traffic, based on the information obtained by the OEM on the economic profile of JJR passengers, i.e., many migrant workers and local residents, and freight composition, i.e., coal, mineral, construction materials, metal, and some agricultural products, the average willingness to pay was estimated at 1.5 times the prevailing train tariff for both passenger and freight traffic on a per passenger-km or per ton-km basis.3 6. C. Based on these assumptions, the EIRR for JJR was recalculated as 14.3% (Table A5.2). The Project 1. Financial Internal Rate of Return

7. As an integrated part of JJR, the Project has had a major impact on improving JJRs operational efficiency, particularly raising the average train speed. Presently, the average train speed on JJR is about 8090 km per hour for freight trains and 100140 km per hour for passenger trains, compared to an average passenger train speed of 56 km per hour for passenger trains and 66 kilometers per hour for freight trains for the whole MOR network. This represents no less than a 50% improvement on the average speed of passenger and freight trains. Faster trains imply less turnaround time and, thus, less rolling stock is needed to meet the same traffic demand. The four technical enhancement components, through improving rail and track quality, reducing wagon waiting time at two key marshaling yards, and faster and safer telecommunications, have contributed to the increased speed. 8. The following assumptions were made in the calculation. First, the OEM estimated that 20% less rolling stock is needed (compared to the without-project scenario), attributable to the Project. Although total savings in rolling stock capital resulting from 50% improvement in average train speed may exceed 20%, the assumption of 20% reflects the fact that not all the speed improvement is attributable to the Project. Other factors such as quality of embankment
3

The unit economic benefits per ton-km for generated freight traffic estimated in this manner are approximately identical to the appraisal and PCR estimates based on net production values of the transport services.

Appendix 5

29

also affect train speed. Second, although the track machines procured under the Project were allocated to Shanghai Railway Administration (RA) and are mostly used on other routes, other RAs responsible for JJR use similar track machines and the total number of machine-hours used on JJR is the same as the machine-hours that could have been available from the machines procured under the Project and allocated to Shanghai. Third, the OEM estimated that at least 3% of the total operating costs can be saved due to less rolling stock to maintain and operate. Other potential benefits from the Project, including fewer traffic accidents and less damage to rolling stock due to smoother ride, were not included for lack of reliable data. The effects of faster and better train services in terms of attracting more traffic (particularly passengers) were already accounted for in the analysis for JJR and were not included here to avoid double counting. 9. Based on the above assumptions, the FIRR for the Project was recalculated as 9.0% (Table A5.3). 2. Economic Internal Rate of Return

10. The financial cost of the equipment procured under the Project was converted to economic cost by deducting tax and duties. The financial cost of rolling stock was assumed same as the economic cost. The total financial operating cost was multiplied by the standard conversion factor to obtain the economic cost (para. 4). 11. Based on the above assumptions, the EIRR for the Project was recalculated as 14.1% (Table A5.4).

30

Appendix 5

Table A5.1: Financial Internal Rate of Return of the Jing-Jiu Railway (CNY million)
Revenue Purchase of Rolling Stock Major Rehabilitation Total Operating Cost After Business Tax and Surcharges Net Cash Flow (7,994.9) (12,193.8) (9,506.0) (8,269.9) (4,043.9) 1,765.3 3,585.0 2,941.2 3,424.1 3,571.1 3,713.8 3,860.5 4,188.1 4,266.9 3,416.6 4,527.5 4,464.9 5,209.7 5,383.8 2,892.9 4,949.2 5,609.5 4,200.0 5,822.8 6,411.4 6,227.9 8,203.5 6.2%

Year 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Civil Works 7,994.9 12,193.8 9,506.0 5,525.1 3,445.2 1,597.4 636.0

Residual Value

Income Tax

2,744.8 922.6 318.6 388.3 417.0 442.4 501.7 560.2 613.2 441.0 511.9 544.6 578.6 608.0 0.0 0.0 2,744.8 922.6 318.6 388.3 417.0 0.0 378.1 415.6

985.0

1,477.4

211.6 15.9 19.4 20.9 22.1 25.1 2,735.5

1,861.1 1,928.4 2,155.2 2,318.5 2,570.2 2,727.4 2,906.5 3,132.8 3,402.5 3,678.9 3,981.2 4,298.3 4,641.2 5,056.5 5,469.0 5,905.3 6,383.2 6,911.8 7,495.2 8,082.2 8,716.1 9,415.4 10,168.6

2,185.0 5,609.7 7,015.6 5,865.2 6,848.8 7,292.1 7,747.9 8,244.7 8,724.3 9,198.9 9,724.0 10,251.3 10,820.9 11,430.9 12,093.6 12,796.9 13,523.2 14,318.7 15,090.7 15,922.2 16,812.3 17,787.1 18,822.3

251.0 188.4 412.1 492.0 567.4 638.2 692.6 741.2 796.6 846.8 1,106.7 1,164.8 1,240.8 1,253.9 1,479.9 1,494.7 1,549.2 1,621.0 1,706.9 1,790.8 2,770.1 FIRR

FIRR = financial internal rate of return.

Appendix 5

31

Table A5.2: Economic Internal Rate of Return of the Jing-Jiu Railway (CNY million)
Cost Savings with Diverted Traffic Willingness to Pay with Generated Traffic

Year 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Civil Works 5,996.2 9,145.3 7,129.5 4,143.8 2,583.9 1,198.1 477.0

Purchase of Rolling Stock

Major Rehabilitation

Residual Value

Total Operating Cost

Total Net Benefit (5,996.2) (9,145.3) (7,129.5) (6,888.6) (2,161.6) 2,154.4 4,503.5 5,481.8 6,382.9 6,696.8 6,967.6 7,246.1 7,657.3 7,879.3 7,224.0 8,383.7 8,650.1 9,525.8 9,852.4 7,429.6 9,782.1 10,568.6 9,413.5 11,094.6 11,860.5 11,869.4 14,722.0 14.3%

2,744.8 922.6 318.6 388.3 417.0 442.4 501.7 560.2 613.2 441.0 511.9 544.6 578.6 608.0 0.0 0.0 2,744.8 922.6 318.6 388.3 417.0 0.0 378.1 415.6

912.1

1,368.1

196.0 14.8 18.0 19.3 20.5 23.2 2,533.0

1,723.3 1,785.7 1,995.7 2,146.9 2,380.0 2,525.5 2,691.4 2,901.0 3,150.7 3,406.7 3,686.6 3,980.2 4,297.8 4,682.3 5,064.3 5,468.3 5,910.9 6,400.4 6,940.6 7,484.1 8,071.1 8,718.6 9,416.1

2,083.0 3,357.8 4,577.6 4,840.5 5,220.9 5,422.3 5,585.4 5,759.1 5,891.3 6,069.5 6,213.6 6,364.1 6,517.1 6,670.5 6,834.7 6,978.4 7,122.6 7,283.1 7,432.8 7,592.1 7,747.9 7,931.0 8,100.1

985.3 2,099.0 2,787.0 3,205.3 3,984.4 4,301.8 4,633.8 5,001.2 5,357.7 5,728.4 6,153.6 6,578.4 7,038.9 7,537.6 8,081.9 8,664.4 9,296.9 9,989.7 10,659.7 11,384.4 12,163.2 13,011.9 13,920.6 EIRR

EIRR = economic internal rate of return.

32

Appendix 5

Table A5.3: Financial Internal Rate of Return of the Project (CNY million)
Savings in Rolling Stock Due to Higher Speed

Year 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Equipment Procured Under the Project

Savings From Operating Cost

Net Cash Flow 0.0 0.0 (378.4) (722.8) 4.7 (929.5) 146.9 176.0 190.1 209.8 229.9 250.2 215.5 241.8 259.3 277.6 295.6 156.4 169.1 868.8 49.6 293.4 328.9 354.2 269.6 385.7 418.4 9.0%

378.4 1,409.0 283.5 1,068.7 16.8

378.4

686.2 230.6 79.6 97.1 104.3 110.6 125.4 140.0 153.3 110.2 128.0 136.2 144.7 152.0 0.0 0.0 686.2 230.6 79.6 97.1 104.3 0.0 94.5 103.9

57.6 59.6 66.7 71.7 79.5 84.4 89.9 96.9 105.2 113.8 123.1 132.9 143.5 156.4 169.1 182.6 197.4 213.8 231.8 250.0 269.6 291.2 314.5 FIRR

FIRR = financial internal rate of return.

Appendix 5

33

Table A5.4: Economic Internal Rate of Return of the Project (CNY million)
Savings in Rolling Stock Due to Higher Speed

Year 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Equipment Procured Under the Project

Savings From Operating Cost

Total Net Benefit 0.0 0.0 (283.8) (370.5) 71.3 (666.7) 146.2 170.6 184.2 203.5 223.3 243.0 207.7 233.3 250.2 267.8 284.9 144.8 156.6 855.3 129.6 277.6 311.7 335.7 249.6 364.2 395.1 14.1%

283.8 1,056.7 212.6 801.6 12.6

283.8

686.2 230.6 79.6 97.1 104.3 110.6 125.4 140.0 153.3 110.2 128.0 136.2 144.7 152.0 0.0 0.0 686.2 230.6 79.6 97.1 104.3 0.0 94.5 103.9

53.3 55.2 61.7 66.4 73.6 78.1 83.2 89.7 97.4 105.4 114.0 123.1 132.9 144.8 156.6 169.1 182.8 197.9 214.7 231.5 249.6 269.6 291.2 EIRR

EIRR = economic internal rate of return.

34

Appendix 5

D.

Sensitivity Analysis

12. The preceding financial and economic reevaluation was based on a series of assumptions due to lack of actual survey data. To examine the impact of variation in these assumptions on the recalculated FIRRs/EIRRs, a sensitivity analysis was carried out. As a number of variables on traffic composition, level of willingness to pay, and resources savings affect the estimation, two highly aggregated scenarios were created to reduce the total number of analyses required, namely, high scenario and low scenario. The high scenario clusters the value changes in key variables that are likely to result in higher FIRRs/EIRRs and vice versa. Specifically, the following changes were assumed in the high scenario: (i) percentage of diverted passenger and freight traffic lowered to 10% and 65%, respectively, instead of 25% and 75% in the base scenario; (ii) percentage of generated passenger and freight traffic increased to 90% and 35%, respectively, instead of 75% and 25%; (iii) willingness to pay for both generated passenger and freight traffic increased to 1.8 times of prevailing tariffs, instead of 1.5 times; and (iv) 26% savings in capital for purchasing rolling stock, instead of 20%, and 4% savings in operating costs, instead of 3%. Conversely, the following changes were assumed in the low scenario: (i) percentage of diverted passenger and freight traffic increased to 35% and 90%, respectively, instead of 25% and 75% in the base scenario; (ii) percentage of generated passenger and freight traffic decreased to 65% and 10%, respectively, instead of 75% and 25%; (iii) willingness to pay for both generated passenger and freight traffic decreased to 1.2 times of prevailing tariffs, instead of 1.5 times; and (iv) 14% savings in capital for purchasing rolling stock, instead of 20%, and 2% savings in operating costs, instead of 3%. 13. Table A5.5 indicates that in general the impact of these assumed changes on the base case is much less pronounced for JJR than for the Project. In other words, the recalculated FIRR and EIRR for JJR, with a range of 6.0%6.4% and 12.6%14.6%, respectively, are not sensitive to changes in traffic composition and the level of willingness to pay assumed. This implies that for JJR, once total traffic forecast is established, the financial and economic returns can be estimated with reasonable confidence. In contrast, the recalculated FIRR for the Project ranges from 3.8% to 14.2%, and the recalculated EIRR from 7.2% to 22.5%. This is partly due to the fact that the Projects cost accounts for a relatively small portion of the total cost for JJR. As a result, even a minor change assumed for the Projects benefits in terms of cost savings for JJR is likely to affect the financial and economic returns of the Project in a substantial manner. Overall, the sensitivity analysis indicates that the confidence level of the estimates for JJR is higher than that for the estimates for the Project. Table A5.5: Sensitivity Analysis (%) Item Base Scenario High Scenario Low Scenario Jing-Jiu Railway FIRR EIRR 6.2 6.4 6.0 14.3 14.6 12.6 Project FIRR EIRR 9.0 14.2 3.8 14.1 22.5 7.2

EIRR = economic internal rate of return, FIRR = financial internal rate of return.

Appendix 6

35

SOCIOECONOMIC AND ENVIRONMENTAL IMPACTS A. Introduction

1. To assess the impacts of Jing-Jiu Railway (JJR) on the affected families and entities, and to assess the socioeconomic and environmental impacts within its zone of influence, a domestic consultant was engaged. The consultant undertook to examine the resettlement plan developed by the Ministry of Railways (MOR) with respect to compensation and livelihood programs implemented, and to evaluate their fairness and long-term sustainability. Specifically, the consultant was to carry out the following tasks: (i) conducting a survey among households, schools, local farmers, and industries in selected communities in Jiangxi Province, which were affected during the construction of JJR and/or benefit f om JJRs operation due to improved r transport services and access to outside markets, products, and capital; (ii) gathering additional information on socioeconomic and environmental impacts of JJR particularly on income level, employment, accidents, noise level, soil erosion for before and after the completion of JJR from published and non-published sources; and (iii) assessing the adequacy of the measures taken to mitigate the adverse socioeconomic and environmental impacts of JJR and identifying key lessons to be learned from the JJR experience. This appendix describes the key findings. B. Methodology 1. Sample Areas

2. JJR traverses seven provinces and two municipalities, one third in Jiangxi Province and one ninth (262 kilometers) in Ganzhou Prefecture. Ganzhou Prefecture has 18 counties/ districts, including 8 state-designated poverty counties, as against a total of 34 such officially designated poverty counties along JJR. Consequently, Ganzhou Prefecture was selected as a focus of the study. Within Ganzhou, Xinfeng County and Xingguo County were selected for the survey. Xinfeng is known for its navel oranges; Xingguo suffers from severe poverty. In addition to focusing on issues related to resettlement and environment, the study aimed to assess how JJR has affected economic development and poverty alleviation in the two counties, including the development of the navel orange industry in Xinfeng. Six directly affected villages from the two sample counties were visited. In each village, in-depth interviews and focus group discussions were held. Schools and enterprises affected by the construction of JJR were visited and discussions with local governments were held, including Xinfeng Fruit Bureau and Xingguo Poverty Alleviation Office. Xingguo and Ganzhou railway stations were also visited. 2. Data Gathering Approaches

3. Two types of data gathering techniques were used in the study: (i) collection of published and non-published socioeconomic data; and (ii) participatory rural appraisal, which consisted of a series of interviews and focus group discussion with affected persons of different age, gender, and social clusters.1

A third type of approach, i.e., a questionnaire survey, was also tried. However, there was no success with this approach for two reasons . First, almost all the young and middle-aged people were working in the cities or elsewhere, and only the elders and children were left in the villages. It was virtually impossible to carry out such a questionnaire survey with them. Second, it was observed that JJRs impacts on different households in the same villages exhibited little variation, which reduced the need to carry out such a survey.

36 C.

Appendix 6

Jing-Jiu Railways Impacts on Economic Development and Poverty Reduction 1. Importance of Jing-Jiu Railway for Ganzhous Transport Network

4. Inland waterways have historically been the most important transport means for Ganzhou. Through a complex and all-year-navigation river system, people have traditionally been able to reach different surrounding provinces including Hunan, Hubei, Guangdong, Fujian, Sichuan, Anhui, and Jiangsu. Despite its relatively developed inland waterway transport system, Ganzhou? without railways? has greatly lagged behind in economic development. The completion of JJR removes a key bottleneck for economic development. It now takes less than one day to reach major cities including Guangzhou, Hong Kong, Beijing, Shanghai, and Xiamen, as opposed to at least 2 days previously via buses and then alternative railways. With the GanLong (Ganzhou-Longyan) Railway Project financed under another Asian Development Bank (ADB) loan (under construc tion),2 and the Gan-Shao (Ganzhou-Shaoguan) Railway (planned), Ganzhou is likely to become a key railway hub in the southern part of the Peoples Republic of China (PRC). Furthermore, with accelerated construction of highways in rec ent years, a more dramatic improvement of Ganzhous transport network can be expected. 2. Acceleration of Commodity Exchange and Labor Movement

5. Table A6.1 indicates that the passenger traffic of JJRs Ganzhou section increased from 1.6 million people in 1997 (first year in full operation), to 3.1 million people in 2000, nearly doubling in 3 years. The freight tonnage more than doubled between 1997 and 2000. Table A6.1: Freight and Passenger Traffic of JJR (Ganzhou Section)
Passenger (Persons) Outbound Inbound Total 119,342 831,433 1,159,740 1,372,894 1,771,227 129,808 804,335 1,228,763 1,194,002 1,372,114 249,150 1,635,768 2,388,503 2,566,896 3,143,341 Freight (Tons) Inbound 35,614 656,022 1,489,355 1,842,882 1,564,175 1,557,156

Year 1996 1997 1998 1999 2000 2001

Outbound 13,405 321,061 530,970 901,003 512,617 634,120

Total 49,019 977,083 2,020,325 2,743,885 2,076,792 2,191,276

= not available. Source: Ganzhou Government.

a.

Better Market for Local Mineral Product

6. Ganzhou has rich mineral resources. The local fluorite is highly competitive in terms of production costs in the domestic market. However, before JJR, the transport cost was prohibitive and the market limited. The commissioning of JJR has significantly reduced the transport cost, and sales of fluorite have increased dramatically. b. Better Market for Local Agricultural Produce

7. Development of the navel orange industry in Xinfeng County benefits greatly from JJR. Due to suitable weather and soil, the local oranges have a more favorable taste than other
2

Loan 1850-PRC: Ganzhou-Longyan Railway, for $200 million, approved on 30 October 2001.

Appendix 6

37

competing domestic and imported brands. Together with JJR construction, Xinfeng County planted orange trees along JJR and National Highway 105. According to officials at Xinfeng Fruit Bureau, its total orange yield reached 40,000 tons in 2001, and more than 10,000 tons were sold to other areas, e.g., Beijing, Shanghai, and Nanjing, via JJR.3 c. Cheaper and More Abundant Supply of Products from Other Areas

8. With JJR, local residents can now enjoy fruits such as apples produced in the northern PRC all year round and at much lower prices. Imported goods from other areas also triggered price competition. For instance, the price for local peanuts has decreased substantially due to the increasing competition of peanuts from Shandong Province via JJR. Cost savings are well reflected by the enterprises importing large amounts of materials from other areas. For example, prior to the commissioning of JJR, the industrial salt purchased by Ganzhou Pesticide Factory from Shandong Province had to be transported through an alternative railway line via a third railway station. Presently, the direct shipment to Ganzhou via JJR has reduced the transport cost by CNY2 million per year. The price for fertilizers has also decreased. A focus group discussion in Wenyuan village, Xingguo County indicated that the price for urea fell from CNY2.0 per kilogram to CNY1.4 per kilogram. d. Increased Opportunities for Rural Migrant Workers

9. Migrant workers have long been a main source of income for many rural families even before the commissioning of JJR. In Xinfeng County, due to the proximity of industrialized Guangdong Province? a key destination for migrant workers? most workers choose buses. In addition to short distances, which favor bus travel, buses are more convenient by starting from villages or nearby towns, delivering the workers directly to their final destination. In addition, train tickets are often not available, especially during Spring Festivals, as trains to Guangdong Province often have very few seats kept available for local people. In Xingguo County, by comparison, which is about 150 km from Xinfeng County, migrant workers traveling to Guangdong go mainly by train as train tickets are typically half the price of bus tickets. 10. Considering JJR as a whole, passenger transport plays a crucial role in rural labor movements. Jiangxi and Anhui on JJR are two major provinces that experience significant export of labor, mostly to Guangdong. JJR and Hefei-Jiujiang Railway (also financed by ADB)4 improved the connections between Anhui, Jiangxi, and Guangdong provinces, with eight pairs of regular train services along JJR serving a large number of rural migrant workers. Interviews with some of these workers revealed that they were generally satisfied with the services. However, the trains are very congested and tickets are difficult to obtain before and after main national holidays. e. Improved Investment Environment

11. Communication with key business centers including Guangzhou, Nanchang (the capital city of Jiangxi Province), Beijing, and Shanghai has been greatly improved by JJR. It used to take one day to go to Nanchang by bus, now only four hours via JJR, which makes it possible to make a one-day return business trip to Nanchang. This has helped explain the significant increase of foreign and domestic investments in Ganzhou in recent years (Table 3 in the main text).
3 4

Those sold in Guangdong and Jiangxi provinces were transported mainly by truck. Loan 1221-PRC: Hefei-Jiujiang Railway, for $110 million, approved on 30 March 1993.

38

Appendix 6

3.

Impacts on Income

12. Table A6.2 indicates that the per capita rural income in Ganzhou has been increasing faster than the provincial and national averages during 19902001, i.e., the ratio was 4.0 times for Ganzhou, 3.3 times for the provincial average, and 3.5 times for the national average. Within Ganzhou, Xinfeng County is geographically closer to the more developed Guangdong Province and fares better than Xingguo County, where rural income increased less rapidly than the provincial and national averages.5 Table A6.2: Rural Income in 1990 Constant Prices (CNY/person/year)
Xinfeng County 612 1,568 1,916 2,165 2,232 2,223 2,238 3.7 times Xingguo County 508 1668 1,676 1,354 1,358 1,364 2.7 times Ganzhou Prefecture 532 1,478 1,915 2,034 2,044 2,095 2,110 2,113 4.0 times Provincial Average 670 1,537 1,869 2,107 2,048 2,129 2,135 2,231 3.3 times National Average 686 1,577 1,926 2,090 2,162 2,210 2,253 2,366 3.5 times

Year 1990 1995 1996 1997 1998 1999 2000 2001 2001/1990

= not available. Note: Data for 19911994 were unavailable for the analysis. Source: Ganzhou Government.

13. The rapid urbanization of Ganzhou after JJR has in itself demonstrated the effects of JJR in stimulating economic growth. Both Xinfeng and Xingguo county townships have grown in terms of land area by about five times since 1993, and land prices have increased significantly. Many rural migrant workers have been purchasing land in county towns to build houses in search of better living conditions and education facilities. 14. As shown in Table A6.2, there was a significant increase in rural income between 1990 and 1995, largely due to the fact that the construction of JJR provided significant economic opportunities for the local people, including manufacturing cement and other materials used by the railway. Farmers along the route were able to find work near their home, avoiding the need to travel far to new places and incurring costs . Others rented out part of their houses to construction workers for extra income. Demand for eateries and other services also increased during construction. In addition to construction jobs, railway stations also provided farmers with employment opportunities. In Dahe village, Xingguo County, the railway offered 20 positions as porters to villagers. Priority was given to those whose land was acquired. Although the work is physically demanding, many of them can earn Y10,000 within 6 months. Farmers whose land was acquired were also given high priority in leasing locations near the railway station for eateries and restaurants. At present, two thirds of the 32 eateries are operated by farmers in the village, while another 80 farmers are engaged in operating motorcycles to transport goods or passengers. The average per capita income for the village increased from CNY706 in 1994 to CNY1,828 in 1999.
5

The rural income for Xingguo reached a high in 1998 but has been declining since then. Assuming the data were reliable, this could be due to other factors such as lack of economic resources including major marketable products (navel oranges ), and poor policies or leadership.

Appendix 6

39

Similarly, Ganzhou Railway Section recruited more than 500 farmers as loaders. As they can still tend their land in their spare time, the farmers can earn additional income of CNY600 to CNY1,000 per month. D. Evaluation of Resettlement

15. The construction of JJR involved acquisition of 10,800 hectares of land and resettlement of 211,174 affected persons, 10 schools/clinics, and several factories. Land acquisition and resettlement were implemented in Xinfeng and Xingguo in the early 1990s. Although there was no written resettlement plan, the consultant observed that the resettlement was generally well executed and that the affected persons were properly compensated in accordance with law.6 1. Land Acquisition

16. According to the law, when the state acquires rural land for construction, the acquiring party must pay for (i) land compensation, (ii) compensation for crops, and (iii) compensation for labor reemployment. For Jiangxi Province, MOR paid an aggregated amount of Y6,000 per mu of land acquired to local governments, who worked out detailed distribution schemes (after drawing a management fee). Specifically, land compensation was jointly determined by township governments, and village committees, or village committee groups. The compensation scheme for crops and reemployment in Xinfeng County was as follows. The county government worked out the rate according to land type, crop type, and investments already made in the land. In all the villages visited by the consultant, the crop compensations were paid to affected persons who were generally satisfied with the scheme. In Xingguo County, the compensation for reemployment and that for crops were integrated with land compensation and paid directly to the affected persons, who received the compensation in several payments, the last before the Spring Festival of 1999. 17. In general, land acquisition has not seriously affected farmers livelihoods, and on average their living standards have improved substantially. There are two main reasons for this. First, income from land has always been limited due to low per capita arable land availability. JJR helps further increase farmers nonagricultural employment. As one villager indicated: Had I depended solely on farming, my family would have starved to death a long time ago. In some villages surveyed, more than half the laborers work as migrant workers, mostly in Guangdong Province. For many of them, Farming is only a means to provide enough rice to eat, and if you need cash, you go out to work. Among the 5.7 million rural population (out of 6.5 million total population) in Xinfeng County, approximately 1 million work as migrant workers. In Liushu village, several hundred farmers (about 90%) work outside the area as migrant workers. Only the elderly and children who attend school remain. Many young people only plan to return to the village after they have made enough money to start a business. 18. Second, land acquired by JJR was in the form of a line or stripe and accounted for a small proportion of the total arable land. In Liushu village, Xinfeng County, there was about 1,500 mu cultivated land and 2,000 mu forestland before land acquisition, and only 77 mu was acquired. In some villages, land acquired accounted for a higher proportion, but it was mostly for major facilities, such as railway stations and marshaling yards. These facilities have created

Land Administration Act of the PRC (1986).

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Appendix 6

ancillary employment opportunities for the villagers affected, e.g., operating eateries and motorcycles, and collecting empty bottles and cans.7 2. Compensation for Houses

19. The compensation amount for houses was based on total expenditures required for house relocation, i.e., replacement. It was confirmed, through interviews and observation, that the relocated families have not only restored their houses, but also greatly improved their living conditions through relocation. In Wenyuan village, Xingguo County, one villager indicated that his former house was 180 m 2 with an earth-timber structure. The newly constructed house was bigger and better: 198 m 2 with a brick-concrete structure. In Malukang village, Xinfeng County, a villager indicated that the compensation rate for earth-structured houses was CNY50/m 2, and for brick houses CNY100/m 2. His house was demolished in 1992, and he received CNY11,000 as compensation. With this money, he built a brick-tile house of more than 100 m2 with five rooms in the same year. Generally, affected persons were satisfied with the compensation received for their houses, and the payments were made on time. With the amounts received, most of them have built bigger and better new houses, often close to their previous location. 3. Resettlement of Schools and Enterprises

20. Efforts were made during construction of JJR to minimize the need to relocate schools and other enterprises. Compensation was made in case of unavoidable relocation. In Xinfeng County, one third of a schools total area was acquired and the school received a satisfactory amount of compensation. The school was later moved to a new site about 5 km away from the railway to avoid noise from passing trains. As the new location is about the same distance to their houses as the old school, most students are not affected by the relocation. In Xingguo County, half of the original site of Longkou High School was acquired, and the other half could not be used as it was too close to the railway. The township government reconstructed the school 1 km away from the original site using the compensation amounts and other contributions. The new school, with one teaching building, three dormitory buildings, and one administrative building, has facilities far superior to the previous school. The school now has 1,200 students and 50 teachers. However, t e cost of the new school, as suggested by an h official interviewed, has far exceeded the compensated amount. 21. Six enterprises in Zhanggong District of Ganzhou City had to be relocated due to JJR. They fell into three categories. First, some enterprises had part of their operating sites acquired with no serious effect on production. These received some compensation but relocation was not needed. For example, more than 20 mu of land (or one eighth of its total) at a depot for Ganzhou Petroleum Corporation was acquired, but this had no impact on its operation. Second, some enterprises were relocated to new sites and production restored, as with a branch of Ganzhou Telecom Bureau. Third, other enterprises affected moved to new locations and restored production, but later moved into a different type of business for commercial reasons. For example, after part of its land was acquired for JJR, a factory engaged in carpentry enlarged its remaining area by acquiring more land n earby. The factory is now engaged in the ore7

In Dahe village, a villager has only 0.3 mu paddy field after land acquisition, and the rice produced in the field would not be enough to meet his needs. Instead, he raises fish in a paddy field (which makes CNY1,000 a year) and domestic animals in his house. His wife collects plastic-bottles and cans (making CNY10 per day). The total income allows him to have enough money to buy food and send two children to school. Another villager in the same village had 2 mu land acquired by JJR. He contracted an eatery at the railway station. Although the competition is fierce, he made more than CNY20,000 last year and now employs two female workers.

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41

processing business (thanks to JJR which provides cheaper transport) but with no change in personnel. E. Impacts on Environment and Safety

22. Several environmental and safety issues are associated with the operation of JJR. First, noise caused by passing trains has affected people, particularly in the first few years after commissioning. Some houses are only 20 meters away from the line. Most reported they are now more used to the noise and do not notice it as much as before. Second, littering along the railway is evident. Third, traffic accidents, including several fatal ones, were reported by villagers interviewed.8 However, there has been increasing awareness of safety issues among villagers. As reported in a focus group discussion, railway police now frequently put up posters on traffic safety, and even sign safety contracts with township and village heads to provide guardians for the aged, disabled, and mentally handicapped. 23. Due to some errors in engineering design and implementation, the railway causes disruptions for villagers. An underpass in Changgang village of Xinfeng County is flooded all year around, which makes it difficult to pass through. It is unsafe for villagers to cross the railway above the underpass, and very difficult to transport fertilizer and crops through the underpass. The railway has also divided Wenyuan village of Xingguo County into two parts, and virtually every household has its land on both sides. The two closest passages are at least 2 km away, with no passage constructed for the road that most people use to cross the track. 24. In some villages, the railway construction altered the drainage pattern and the original farmland irrigation channels. In Liushu, the railway divides the paddy field into two parts. The railway prevents water flow from one side to the other. As a result, about 20 mu of the paddy field on one side become dry land whose harvest is more dependent on the weather. Meanwhile, the yield on the other side has also decreased due to too much water. Different problems exist in Dahe village, Xingguo County. A well was dug in the paddy field of 500 mu to supply water to a railway station. Because of the water drawn by the station, the water table has been lowered. During dry years, the groundwater is seriously depleted and the field becomes dry, which reduces the yield. F. Overall Evaluation, Lessons, and Recommendations 1. Overall Evaluation

25. Although a very small sample of villages were visited in two counties in Jiangxi Province, the interviews and site visits allow the conclusion that the construction and operation of JJR have promoted local socioeconomic development and poverty reduction in a substantial manner. Through providing vital access to outside markets of local products and labor, as well as to outside products at much cheaper costs, JJR has achieved its main goal of promoting economic development in some of the PRCs poorest regions. Although a large number of affected persons, schools, and enterprises were relocated, they have generally been compensated in accordance with the law, and most reported better living, working, and studying conditions after resettlement. More importantly, the unprecedented economic opportunities created by JJR have enabled most of them to double or even triple their income in a matter of 10 years.
8

One accident involved two elderly men collecting bottles and cans along the railway who were struck and killed by a train. Another elderly man was struck and killed as he attempted to cross the railway instead of using the nearest underpass 1 km away.

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2.

Lessons Identified a. Reduce Intermediaries in Compensation Distribution

26. The compensations for demolished houses were delivered to the households directly and the households were generally satisfied with the amounts received. However, the compensation for crops and reemployment was delivered through several intermediate links, including a county project office, a branch office in the township, and a village committee. In some cases, payments were not made in full and timely manner to the households affected. In other cases, a portion of land compensation was kept by township enterprises and governments to operate collectively owned enterprises, which were never profitable. Learning a lesson from this, Ganzhou government is now applying a new distribution method in the ongoing GanzhouLongyan Railway Project, in which money is delivered directly from county project offices to households affected and payment amounts are made public to increase transparency. b. Improving Public Consultation and Participation

27. Some of the problems identified, e.g., passage problems and adverse impacts on irrigation, could have been minimized through better public consultation and participation during design and implementation of JJR. Continual communication between JJR and local communities is also crucial to deal with emerging problems such as traffic safety. 3. Recommendations

28. Both MOR and local governments should continue the information campaign on traffic safety for those living along JJR. 29. MOR should start to inspect all the passages along JJR and complete the inspection by March 2003. An action plan should be developed based on the inspection results, which should be implemented immediately to minimize or mitigate any further negative impact on peoples lives and production activities. 30. In compliance with the 1998 amendment to the Land Administration Law, MOR should continue to improve its public consultation and participation procedures in designing and constructing all of its future railways, particularly in designing passages and railway routings to minimize disruption in peoples lives and production activities. MOR has adopted a more transparent approach in compensation payments by paying families affected directly in the ongoing Ganzhou-Longyan Railway Project, and should continue to adopt such an approach in all of its subsequent railway projects that involve land acquisition and resettlement. 31. There is a large unmet demand for train tickets from the two counties visited. From 2003, MOR should consider increasing the number of train services starting from Ganzhou, especially during holiday seasons.