PRC: Hunan Xiangjiang Inland Waterway1 Project Preparatory Technical Assistance Concept Paper

Date: 23 November 2009

1. Country partnership strategy (CPS) / Regional cooperation strategy (RCS):

Year included in CPS/RCS/COBP/ROBP/CPS or RCS Midterm Review Report: 2008 Country Program Mission Document reference number and date approved: CSPU-PRC-2007-2008 (Sec.M.75-06)

In case of change in the PPTA title, type, or amount, please state reason: n/a 2. Coverage

Country Subregional Interregional

Hunan Province, PRC sovereign non-sovereign

3. Assistance Focus

a. Sector(s): Agriculture and natural resources Industry and trade Education Public sector management Energy Transport and ICT Finance Water supply and other municipal infrastructure and services Health and social protection Multisector

Subsector(s): (i) Water Transport, (ii) Large hydropower.

b. Targeting classification Targeted intervention

TI-H TI-M TI-G General intervention (more indirectly addressing poverty reduction)

c. Theme(s) Economic growth Gender equity Social development Private sector development Environmental sustainability Governance Regional cooperation and integration Capacity development

Subthemes: (i) Promoting economic efficiency and enabling business environment, (ii) Natural Resource Conservation, (iii) Institutional development. Yes, this project addresses climate change through Mitigation.

d. Location impact

Relative weight of spatial impact of the project

High Medium Low

Rural

Urban

National

Regional

4. Partnership: n/a 5. Name of the Specialist (project team leader) in

charge of the project: Xiaohong Yang Name of the Alternate Specialist: Adrien Veron

Local Number: 6939 Local Number: 5966 Email Address: xyang@adb.org

Email Address: averon@adb.org

1 In preparing any country program or strategy, financing any project, or by making any designation of or reference to a

particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.

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6. Department/Division:

EARD/EATC

7. Key Development Issues to be addressed: Background. The PRC's Inland Waterway Transport (IWT) network, with 123,000 km navigable waterways, of which 24,000 km are considered commercially significant, is the world's longest. Since 2000, the sector has experienced fast growth, with annual increases of over 9% in traffic tonnage and 10% in ton-kilometers. IWT is the cleanest transport mode, and the least costly and most efficient in the PRC for many commodities. Transport costs for a container on the Yangtze river are one third to one fifth those on parallel expressways, and 20–40% lower than rail, for an equivalent transit time. IWT uses a quarter the energy and thus releases a quarter the carbon dioxide (CO2) compared with the road transport. Furthermore, IWT infrastructure construction and maintenance costs are also usually lower than for alternative road or rail projects. Despite these advantages, the potential for river navigation has not been optimally exploited. The waterway network is underutilized. Its freight density (tons per waterway km) is only 40% of that of the United States and some European countries. To address climate change and meet the country's sustainable development objectives in 2007, the Government of the PRC formulated a National Inland Waterways and Ports Plan to 2020. The Government wishes to implement this plan to increase the contribution of IWT to meet its transport needs. The intended development along the Xiangjiang River is an outcome of this plan. Hunan Context. Upgrading of the Hunan waterway network is part of the PRC Government's effort to extend inland waterway transport benefits to the poorer central provinces. Hunan is a central PRC province with a per capita GDP at 77% of national average and with 20 nationally designated poverty counties. In the Province, the 773 km-long Xiangjiang River is a major lifeline which carries 83 million tons of freight per annum. The river basin covers 40% of Hunan's territory; it connects 70% of the large and medium-sized enterprises with the Yangtze River. The river serves the fast-growing industrial centers of Changsha (6.1 million inhabitants), Xiangtan (2.8 million), Zhuzhou (3.6 million), and Hengyang (7.1 million). The Xiangjiang waterway, however, is currently underutilized in its middle and upper reaches beyond the city of Hengyang, as shallow depth currently prevents the use of vessels larger than 500 dwt (Class IV navigational channel standard). In its lower reaches, traffic has grown at 20% per annum since 2000. Further growth is constrained by insufficient port infrastructure and land connections. Insufficient institutional capacity to handle inland waterway transport of dangerous goods also prevents IWT from serving some of its "natural" markets. Those include liquids and fireworks—an industry which employs 300,000 persons in the project area. Overall, in Hunan as in the rest of the PRC, the IWT sector has played a role much below its potential due to a lack of investment in infrastructure development. IWT has several features that distinguish it from road or rail: (i) institutional arrangements involve multiple agencies for transport, water resources management, flood control, power generation, irrigation, environmental protection, mining, fishery and forestry; (ii) the cost-recovery of the IWT sector is generally low (around 40–50%), although this is significantly higher than in other comparable countries; and (iii) IWT competitiveness is directly linked to external factors, such as port and intermodal connections. Common policy and institutional issues include the need to separate regulatory and implementing functions within the administrations; to strengthen private sector participation in port development; and to improve environmental management of navigation. The sector also needs to find new ways to promote its image, develop intermodal transport and encourage traffic to shift from other modes. Xiangjiang River Master Plan. Hunan Provincial Government (HPG) has recently put a new emphasis on IWT infrastructure development, regulation improvement and institutional strengthening. The Government plans to gradually raise the standard of the Xiangjiang waterway to allow all-season access to barges of up to 1,000 dwt (Class III navigational channel standard) in its middle and upper reaches, and up to 2,000 dwt in its lower reaches, permitting transport costs to be reduced to between one half and one third of present levels. The 2007 Xiangjiang River Master Plan (2008–2030) includes 9 shiplocks and powerhouse complexes. Five complexes are already in operation, including two financed by the World Bank. The Government plans to initiate three in 2009 and 2010: Changsha Junction, Xiangqi Junction and Tugutang Navigation and Hydropower Junction (the proposed Project). When the plan is completed the plan by the middle of next decade, the Xiangjiang waterway will become a major artery accessible all-year-round for large barges. To effectively translate into increased IWT traffic and reduced IWT costs, a parallel increase in port capacity will be required, particularly in Zhuzhou and in the upper reaches of the Xiangjiang.

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The Proposed Project. The proposed Project will significantly reduce the cost of inland waterway transport in Hunan. This will be achieved by supporting the implementation of two major components of the Xiangjiang River Master Plan: Component 1: Tugutang Complex. This component will upgrade the navigational channel standard to Class III and improve the navigation conditions on a 50 km stretch of the Xiangjiang River between Jingweizhou and Dayuandu. The cost of this component is estimated at CNY1,886 million ($277 million). The main investment in the project consists of the development of a navigation-cum-hydropower complex at Tugutang, about 4.2 km downstream of the Hengnan Bridge in Hengnan County in the upper reaches of the Xiangjiang River. This will create the storage of water that would provide a constant minimum water depth in the channel to allow the navigation by 1,000 dwt vessels. The complex comprises a dam of about 30 m in height, a shiplock, a power plant with an installed capacity of 80 MW, and substation and transmission lines to connect with the regional high-voltage transmission grid. Other investments will include the installation of navigational aids and minor dredging works. To provide access to the Tugutang Complex, an access road on both river banks and a bridge over the river at the crest of the dam will be constructed. The proposed development will also include resettlement and environmental protection measures, including compensation to affected persons. Supplementing the improvement to the waterway are the development of a 1,000 dwt berth each at Yunji in Hengnan County and at Sonbai in Changning, and a series of landing stages in the upstream remote areas accessed by the waterway to serve the poorer communities. To a limited extent, the Component would also help Hengnan County, Changning County, and Hengyang Municipality meet the area’s growing demand for power by supplying electricity from a hydroelectric generating station able to produce about 330 million kWh per year. Component 2: New Zhuzhou Port. This component will provide the necessary port capacity in Zhuzhou municipality to meet the increased traffic demand after the completion of the Xiangjiang River Master Plan. The new port will replace the two existing berths located in the city center. The investment includes the construction of seven berths for containers, general cargo and bulk cargo, as well as a separate terminal for dangerous goods. The port area will be adjacent to a logistic park currently under development, an existing industrial area. It would be linked to the Zhuzhou rail node (the largest in south PRC) by a 3km rail spur line. The cost of this component is estimated at CNY512 million ($75 million). It could be undertaken in two parts. The first part could include the general and bulk cargo terminals, and will be financed by the Government and ADB (to be confirmed by the Government). The second part could cover the specialized terminals, to be structured as a private sector participation (PSP) investment. The Government requested ADB support for the preparation of the PSP framework, the design of the dangerous goods handling procedures, and the integration of intermodal and logistic connections. Poverty Reduction Benefits. Hunan is a relatively less advanced province of central PRC. The per capita GDP in Hunan Province was CNY14,405 in 2007. There are a total of 88 counties and county-level cities in the Province, of which 20 are designated as national poverty counties, and another 18 are provincial poverty counties. In the Project area, there are 4 national poverty counties and 4 provincial poverty counties in Yongzhou and Chenzhou prefectures, which are located in the upstream areas of Xiangjiang River. The Project will contribute to poverty reduction in Xiangjiang River basin by generating economic and employment opportunities through improved waterway transportation. The proposed Project will substantially improve waterway transportation and will facilitate economic development, which will provide more employment and income generation opportunities for local people. Project Schedule. The Government is currently following a tight schedule, with some activities to be undertaken in parallel. This is intended to enable ADB Board consideration in the first quarter of 2011, taking into account advance contracting and retroactive financing, although the time frame for bidding and award of civil works contracts may be optimistic and will have to be firmed up during further processing.

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Government's Project Schedule: Completion of the project proposal Jul 2009 Government approval for the project proposal Oct 2009 Completion of technical feasibility studies Nov 2009 Commence bidding preparation Mar 2010 Government approval of EIA May 2010 Government approval of the feasibility study report Jun 2010 Approval preliminary design Aug 2010 Approval of detailed design Sep 2010 Commence construction Nov 2010 8. TA Description The PPTA will produce agreed design and implementation arrangements suitable for ADB financing for an IWT project. The main PPTA activities will include: (i) project preparation activities for the Tugutang Navigation and Hydropower Junction development and Zhuzhou Port, and (ii) institutional strengthening activities. In accordance with paragraph 5 of OM Section D12/OP, Director General, EARD, approved retroactive TA financing for PPTA scoping in an amount of $135,000 on 4 September 2009.

a. Link to Country Partnership Strategy/Regional Cooperation Strategy The Project will support the Government’s Central Region Development Strategy. It is consistent with the objective of ADB's PRC Country Partnership Strategy (2008–2010) which supports inclusive growth and environmentally sustainable development. In particular, the Project meets the objectives of the CPS's main strategic pillars of: (i) inclusive growth and balanced development, (ii) resource efficiency and environmental sustainability, and (iii) enabling environment for private sector development.

b. Impact The impact of the Project will be an efficient, safe, affordable, and sustainable inland waterway transport system developed in the Xiangjiang River.

c. Outcome The outcome of the PPTA will be improved project design and feasibility studies to a level suitable for ADB financing and agreed by the Government and ADB.

d. Outputs The outputs of the PPTA will be completed products which include: (i) sector assessment and scoping, (ii) technical assessments, (iii) technical preparation of value-added components, and (iv) project design requirements. 1. Scoping Phase. The proposed Project represents an opportunity for ADB entry into the IWT sector in the PRC. Since this is a new subsector for ADB transport support in the PRC, it was decided to initiate the PPTA by conducting a limited scoping study, to be subsequently charged retroactively to the TA budget submitted for approval by Management.2 The objective of the PPTA scoping work was to undertake a sector assessment and identify activities or Project features that can be undertaken as part of (or in parallel with) the proposed Project and subsequently prepared during the PPTA phase. The PPTA scoping work has been conducted by individual consultants. The TA scoping work has included a brief sector assessment of the IWT sector in the province including: (a) IWT sector potential in Hunan Province, (b) financing of infrastructure construction and O&M, (c) inland port development, including private sector participation, (d) market characteristics of supply and demand for IWT, (e) IWT transport operations and services, (f) institutional development, and (g) environmental impact analysis. On each topic, the consultants prepared a working paper summarizing findings and elements of project scope. Two

2 In accordance with paragraph 5 of OM Section D12/OP, this phase would initially be financed through retroactive financing not

exceeding $225,000.

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workshops were organized to facilitate consultation between the Government and ADB. The consultants assessed the current level of preparation of the project components. This TA scoping work was implemented from September 2009 to November 2009. Its findings are reflected in this revised concept paper. 2. Project Preparation Phase. Based on the findings of the PPTA scoping work, the overall project preparation activities will be conducted following the approval of the PPTA. The TA will be implemented over 12 months, from January to December 2010. It will include two main types of activities:

(i) Technical and Safeguards Preparation. Consultants will support the Implementing Agencies (IAs) in the preparation for ADB financing of the physical components of the Project related to the Tugutang navigation-cum-hydropower complex and Zhuzhou Port component with potential private sector participation. This will mostly cover a review of the technical, environmental, social safeguard, economic, and financial aspects of the draft feasibility studies including (a) reviewing and strengthening the feasibility studies to meet ADB's requirements for: (1) technical aspects related to construction and operation of the facilities; (2) economic and financial analysis, including a review of the traffic forecasts, power pricing strategy, economic and financial analysis to assess whether the proposed investment is economically and financially sustainable; and (3) identification and design review of upgrading of access roads and small ports for local communities or local markets; (b) reviewing the Government's environmental assessment documents and guiding the environmental assessment consultants hired by the Government to ensure the quality of their assessments and environmental management plans, in accordance with ADB requirements; (c) reviewing and refining the resettlement plans in accordance with ADB requirements; and (d) carrying out a detailed poverty and social analysis, including a baseline socioeconomic profile of the population living in the project area, and preparing a social development action plan to mitigate adverse impacts and enhance inclusive benefits.

(ii) Preparation of Sector Support. Building on the agreements reached during PPTA scoping, the

consultants will provide policy advisory and technical support to the HPG on the preparation of policy related and investment components to help realize the full potential improvement in IWT under the Project. Based on the agreements reached during the PPTA Fact-finding Mission, a list of agreed topics to be included in the PPTA is given in Table 1.

Quality Assurance. Given the potential complexity of this Project, the PPTA will include a strong quality assurance mechanism in the form of individual consultants, peer reviewers and resource persons. Their objectives will be: (i) prior to the fielding of the consulting firm: (a) monitor and provide guidance upon the conduct of the project preparation activities by the Government, and (b) follow-up on the preparation by the Government of the activities to be prepared by the consulting firm; and (ii) during the consulting firm's works: (a) ensure the quick start of the consulting firm works, (b) provide guidance and feedback on the work methods and outputs of the consulting firm assignment, to ensure quality, (c) ensure continuity of activities after the end of PPTA works, and (d) prepare policy notes on PPP in port development and other institutional strengthening topics based on the findings of the PPTA (Table 1). Tripartite meetings will be held after the submission of the inception, interim, and draft final reports. Workshops will be held before submission of the interim and draft final reports to present the proposed project to the Government and other stakeholders. The consultants will conduct seminars on ADB safeguard policies and requirements to raise awareness of process and implementation requirements.

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Table 1: List of Institutional Strengthening Topics to be Covered During PPTA

Topics Items Public private partnerships in port development

Preparation of a framework for private participation in port development in the Province

Preparation of the term sheet for a potential PSP participation in Zhuzhou port Recommendation on the main features of the concession agreement(s) for the

Zhuzhou port.

Safety and dangerous goods

Recommendations on the elements of a dangerous goods management system, particularly for transport of fireworks

Recommendations for the design and operational procedures of the dangerous goods terminal of Zhuzhou port

Waste management

Preparation of a framework for ship waste management in Hunan Province

Institutional development

Identification of models for fostering IWT development, through the analysis of sector obstacles and review of international experience in:

o Incentives for realizing the modal shift to IWT and IWT promotion o Prepare a strategic marketing plan to promote IWT's image, develop inter-

modal transport and incentive modal shift. Arrangements for comprehensive management of Xiangjiang inland waterway

including institutions, navigation, and power generation (to be coordinated by HMAB).

o Identification of potential models for waterway operational management o Institutional arrangement between XNCD and HMAB o Proposition of technical, financial or strategic directions for XNCD to leverage

additional resources for the sector

9. Assumptions and Risks Major assumptions of the project impacts are (i) IWT becomes more competitive and attracts more cargo in line with market forces, (ii) private sector has confidence to operate in the IWT sector, (iii) legal and legislative framework are in place, and (iv) project design effectively implemented. Safeguard issues will be assessed during project preparation (see outline terms of reference for consultants in Appendix 2) and necessary mitigation measures will be included in safeguard documents as required by ADB's Safeguard Policy Statement (2009). Based on the TA Reconnaissance Mission's preliminary assessment, the Project is category A in involuntary resettlement, environmental category A, and indigenous peoples category C. According to the initial screening, there are no minority groups living in the project area. The Project will acquire a total 398 ha of land including 140 ha of cultivated area, will affect 6,000 people and require the relocation of 25 households (105 people). Environmental impact analysis will need to address issues such as fish spawning, pollution of the river bed, and dam safety. A dam safety panel will be set up by the IA. It will (i) review the feasibility study of Tugutang Complex, terms of reference for further studies, detailed design documents and operational procedures; (ii) prepare and implement of a plan for construction supervision and quality assurance, an instrumentation plan, an operation and maintenance plan, and an emergency preparedness plan; (iii) prepare prequalification of bidders; and (iv) conduct periodic safety audits.

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10. Implementation Arrangements

a. Proposed executing/implementing agency (EA/IA) Hunan Provincial Department of Transport (HPDOT) will be the executing agency for the TA. The implementing agencies (IAs) will be Xiangjiang Navigation Construction and Development Company Limited (XNCD) for the preparation of the Tugutang subproject, and Hunan Maritime Affairs Bureau (HMAB) for the preparation of the Zhuzhou Port Development (through its local subsidiary in Zhuzhou municipality) as well as for policies and institutional development activities.

b. Institutional/organizational/procurement and financial management assessments on the EA/IA

previously conducted Yes No

HPDOT has been the EA for various ADB and World Bank projects. XNCD has implemented two World Bank projects. These assessments will be updated during the PPTA implementation. The PPTA will also assess HMAB's capacity. As HMAB does not have previous IFI experience, the PPTA includes resources to guide HMAB in ADB's procedures and avoid implementation delays.

c. ADB inputs The PPTA Scoping phase required individual consultant inputs of about 9 person-months (3 months international, 6 months national). Consultants were engaged by ADB and all procurement was done in accordance with the Guidelines on the Use of Consultants and Procurement Guidelines (2007, as amended from time to time). In accordance with OM Section D12/OP (2007, as amended from time to time), this phase was financed through retroactive financing in an amount of $135,000 subsequently charged to this TA budget submitted for approval by Management. The PPTA Project Preparation Phase will require about 54 person-months of consulting services (26 international and 28 national consultants). To ensure quality, it is proposed to hire both a consulting firm and individual consultants. For the main part of the PPTA work, an international consulting firm in association with a national firm will be hired according to ADB's Guidelines on the Use of Consultants (2007, as amended from time to time). ADB will select and hire the consultants through simplified technical proposal procedures according to the quality (90%) of their proposal and the cost (10%) of the services to be provided (quality- and cost-based selection). The 90:10 weighting is considered appropriate because the proposed project is a complex, multidisciplinary assignment that requires innovation and creativity, and the quality of the consulting services will have a high impact on the ensuing loan. It will require the firm to provide 18 person-months of international consultants and 24 person-months of national consultants. The outline of terms of reference is in Appendix 2. The international consultants will have expertise in the fields of (i) IWT, (ii) port planning, (iii) traffic forecast and economic analysis, (iv) financial analysis and financial management, (v) private sector development, (vi) environmental protection, (vii) dangerous goods transport management, (viii) institutional development, and (ix) IWT policy advice on IWT infrastructure development. The national consultants will have expertise in the fields of (i) IWT, (ii) traffic forecasts, (iii) financial analysis and financial management, (iv) port engineering, (v) structural engineering, (vi) hydro engineering, (vii) procurement, (viii) environmental management, (ix) resettlement planning, (x) dangerous goods handling, (xi) social and poverty analysis, (xii) institutional development, and (xiii) IWT policy advice. Given the complexity of the Project, ADB will hire individual consultants to coordinate and provide quality assurance to the PPTA activities: (i) an IWT specialist (international, 4 person-months), (ii) IWT management specialists (international, 3 person-months, national 3 person-months), and (iii) resource persons (international, 4 person-weeks, national 4 person-weeks). All individual consultants will work intermittently from March 2010 to June 2011. The proceeds of the PPTA will be disbursed in line with ADB's TA Disbursement Handbook (2008, as amended from time to time).

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d. Complementary inputs to be provided by Government and/or other TA providing agencies

The Government will finance part of the local currency cost, equivalent to $285,000, by providing counterpart staff, office facilities, and other support services. 11. Nature/extent of government/beneficiary involvement in identifying or conceptualizing the assistance: During the PPTA Reconnaissance and Fact-Finding Missions, the Mission met with officials from the Ministry of Transportation (MOT), Hunan Provincial Development and Reform Commission, Hunan Provincial Finance Department, HPDOT, XNCD, HMAB, Zhuzhou Government and Zhuzhou Department of Transport. Further consultations with local governments, communities and stakeholders are planned during the PPTA stage. 12. Cost Estimates The total cost of the TA preparation/development is estimated at $1,420,000 equivalent. It is proposed that the ADB provides $1,135,000 equivalent on a grant basis from TASF-Others. The Government will finance the remaining $285,000 equivalent, by providing counterpart staff, office facilities, and other support services.

Source Amount ($) ADB Financing TASF-Others 1,135,000 Government Financing 285,000

Total Cost 1,420,000 Source: ADB estimates.

13. JSF Amount Requested $ 0.00

a. Elements that justify JSF financing: n/a b. Coordination with local Japanese Embassy or any other embassy when external funding is involved : n/a

Name of the staff of the local Japanese Embassy/external partner embassy whom you have briefed: n/a Date of the discussion: n/a Results of the discussion: n/a

14. Estimated period of TA implementation:

a. Approval of TA: December 2009 b. Physical completion of TA: June 2011 c. Closing of TA: December 2011

15. Expected Year of Ensuing Loan/Grant: 2011 16. Indicative Amount of Ensuing Loan/Grant: $100,000,000.003 17. Description of Ensuing Loan: The proposed Project is described in Section 7. The total cost of the Tugutang investment, including contingencies, is provisionally estimated at CNY1,886 million ($277 million). The Project will be funded 37.2% by equity and 62.8% by long-term loans from domestic sources ($74 million) and ADB ($100 million). The equity to be provided by Ministry of Transport (CNY400 million), the HPDOT (CNY100 million), XNCD self financing (CNY150 million) and revenues from power generation during construction (CNY50 million), is estimated at about CNY700 million. The cost of the Zhuzhu Port investment will be assessed during further project processing. 18. Indicative loan/grant modality: Project Loan

3 The loan amount is subject to further review and may be increased during further project processing subject to the approval of

Government and ADB.

Appendix 1 9

DESIGN AND MONITORING FRAMEWORK

Design Summary

Performance Targets/Indicators

Data Sources/Reporting

Mechanisms

Assumptions and Risks

Impact An efficient, safe, affordable, and sustainable inland waterway transport system developed in the Xiangjiang River

IWT freight traffic in Tugutang area increased by 240% by 2016 from 1.55 million tons in 2007 and by 250% in Zhuzhou area. IWT transport costs in project area are reduced by 50% by 2016 from 2007 levels. Net carbon savings of XX Mt per annum compared to without scenario are generated in 2016. a

HMAB and XNCD

statistics and operating data before and after the project

Post evaluation

surveys and economic analysis.

Local government

statistics

Assumptions IWT becomes more competitive

and attracts more cargoes in line with market forces

Private sector confidence in the IWT sector

Legal and legislative framework are in place

Project design effectively implemented

Outcome Improved project design and feasibility studies to a level suitable for ADB financing and agreed by the Government and ADB.

Memorandum of understanding signed by the Government and ADB during appraisal mission of September 2010

Memorandum of understanding

Assumptions Government willing to address necessary changes in priorities Government obtains necessary additional sources of funding

Outputs 1. Sector assessment

completed 2. Technical assessments

completed 3. Technical preparation

of value-added components completed

4. Project design requirements completed

Sector assessment report submitted by November 2009.

EIA/EMP, social and poverty analysis, resettlement plan, and SDAP. Detailed project design and institutional strengthening components by July 2010 Draft final report submitted by August 2010 Policy notes submitted by June 2011.

Consultants reports Feedbacks from ADB and Government ADB Mission Back to Office Reports Project Concept Paper

Assumption Effective stakeholder participation and ownership developed Risk Restricted availability and access to information and government personnel

Activities with Milestones 1.1 Analyze IWT sector and project environment (by November 2009) 1.2 Propose outline of project activities (by November 2009) 2.1 Provide coordination, quality assurance and policy notes (by June 2011) 2.2 Conduct tripartite meetings and workshops on inception, interim, and draft final

reports (March 2010 to August 2010) 3.1 Undertake preliminary social analysis (by May 2010) 3.2 Review technical aspects related to the Tugutang Junction and Zhuzhou Complex

(by June 2010) 3.3 Complete environmental impact assessment/EMP (by May 2010) 3.4 Carry out social and poverty analysis (by May 2010) 3.5 Prepare resettlement plan (by Jun 2010) 3.6 Prepare social development action plan (by June 2010) 3.7 Prepare the institutional strengthening components (by July 2010) 3.8 Carry out stakeholder consultations (February–June 2010) 3.9 Carry out financial and economic analysis (by July 2010) 3.10 Carry out financial management and procurement assessment (by July 2010) 3.11 Prepare project design and monitoring framework (by July 2010)

Inputs 29 person-months international consultants, 34 person-months, national consultants (PPTA Scoping and PPTA Project Preparation Phases) ADB: $1,135,000 Government: $285,000

a This baselines and targets of this project outcome indicator will be calculated during the PPTA.

10 Appendix 2

OUTLINE TERMS OF REFERENCE FOR CONSULTANTS A. Scoping Phase

1. The PPTA scoping was undertaken in the objective to activities that can be undertaken as part of (or in parallel with) the proposed Project and subsequently prepared during the PPTA phase. Individual consultants were engaged under this phase of the TA.

Table 1: Consultants Engaged under PPTA Scoping Phase (person-months)

Consultants International National Inland waterway specialist/Team Coordinator 1.25 1.25 Inland waterway management specialist 1.25 Environmental specialist (fisheries) 2.00 Environmental specialist (river sedimentation) 2.00 Resource persons 0.50 0.75 Total 3.00 6.00

B. Quality Assurance System

2. Given the potential complexity of the Project, ADB will engage individual consultants to provide guidance and coordinate PPTA activities from January 2010 to June 2011.

1. Inland Waterway Transport Specialist (international, 4 person-months) 3. The consultant will, prior to the fielding of the consulting firm: (i) monitor and provide guidance upon the conduction of the project preparation activities by the Government, and (ii) follow-up on the preparation by the Government of the activities to be prepared by the consulting firm. During the consulting firm works, the consultants will: (i) ensure the quick start of the consulting firm works; (ii) provide guidance and feedback on the work methods and outputs of the consulting firm assignment, to ensure quality; (iii) prepare the outline of terms of reference of consulting services that will be contracted as part of the Project, including for capacity building and supervision; and (v) prepare a short policy note on PPP in port development.

2. Inland Waterway Management Specialist (international, 3 person-month, national 3 person-month)

4. The consultant will provide peer review services to the project by controlling quality commenting upon the various reports produced by the PPTA consultants as well as the PPTA and project papers, and provide specialized expertise on a need basis. The consultant will prepare two short policy notes based on the findings of the institutional strengthening topics to be covered during PPTA (see Table 1 above).

3. Resource persons (4 international consultants, 1 person-week each, 4 national consultants, 1 person-weeks each)

5. Resource persons may be used during the scoping phase to provide specialized expertise.

Appendix 2 11

Table 2: Consultants Required under PPTA Quality Assurance System (person-months)

Consultants International National Inland waterway specialist/Team coordinator 4 Inland waterway management specialist 3 3 Resource persons 1 1 Total 8 4

C. Project Preparation Phase

6. ADB will select and hire an international firm in association with a national firm recruited through simplified technical proposal procedures according to the quality of their proposal (90%) and the cost (10%) of the services to be provided (quality- and cost-based selection). The consultant's specific tasks are described below.

1. Technical Due Diligence 7. Traffic, Economic, and Financial Forecasts. The consultant will review and update the analysis for the Tugutang complex and the Zhuzhou port: (i) propose a methodology for bringing the existing traffic, economic and financial analysis of up to ADB standards; (ii) adjust transport traffic forecasts on the base of IWT demand and market trends, infrastructure development and port capacity, and IWT competitiveness; (iii) review of the adequacy of fleet operational requirements and perhaps estimates of additional fleet acquisition requirements and costs; (iv) assess transport benefits, based on differential transportation costs and travel times, valuation of the reduction of externalities, and quantification of energy savings; (v) assess power generation benefits of an estimate of the current and projected power demand and of the incremental energy supplied; (vi) assess flood control, irrigation and environmental benefits; (vii) calculate economic costs and EIRR, prepare sensitivity analysis, risk analysis, distribution analysis and alternative analysis; (viii) establish project rationale, propose a logical framework and a design and monitoring framework; (ix) prepare a PPMS and identify baselines, (x) undertake the financial analysis of the two components and prepare the financial projections to assess whether the proposed investment is financially sustainable; (xi) perform financial management and procurement assessment of the EA and IAs; and (xii) identify all financial risks, and conduct relevant sensitivity analyses. 8. Tugutang Complex Engineering Due Diligence. A hydro-engineer and mechanical engineer consultants will review the pre-feasibility and feasibility reports for the Tugutang complex, assess the cost estimates and prepare a joint procurement plan: (i) identify residual technical challenges and risks, validate the assumptions made, verify the flow data utilized in the feasibility reports; and (ii) update the cost estimates, recommend procurement packages and mode of procurement for these packages. 9. Zhuzhou Port Planning and Engineering Due Diligence. A port planner and a port engineer consultants will review the pre-feasibility reports for the Zhuzhou port and the associated transport connections and logistic facilities, assess the cost estimates and prepare a joint procurement plan: (i) identify residual technical challenges and risks, validate the assumptions made, verify the flow data utilized in the feasibility reports; (ii) update the cost estimates, recommend procurement packages and mode of procurement for these packages; (iii) analyze the port functionality in regard with associated traffic and the role of other ports in the vicinity; and (iv) review and advise on the design standard, lay out, and phasing of the port and associated facilities.

12 Appendix 2

2. Institutional Strengthening 10. Private Sector Participation in the Port Sector. The consultant will: (i) analyze the lessons of the previous experiences in private sector participation in port development in the Province and in the country; (ii) recommend the main features of a port sector private participation framework; (iii) prepare the term sheet for a potential PPP transaction on part of the Zhuzhou port; and (iv) recommend the main features of a concession agreement for the said transaction and for a concession of operations on the rest of the Lanzhou port (landlord model). 11. Dangerous Goods Management. The consultant will, with a special focus on fireworks handling: (i) recommend improvements to the existing management processes; (ii) outline the building blocks and main features of a comprehensive management system; and (iii) recommend operational procedures, equipment and lay out features for the dangerous goods terminal of Zhuzhou port. 12. Waste Management. The consultant will prepare a framework for the management of the waste generated by IWT vessels. 13. Policies for IWT Development. The consultants will: (i) identify the main obstacles to IWT development in the province; (ii) transfer the knowledge of international experience (US, EU) in policies supporting sector development, such as sector promotion, knowledge constitution, or incentives to modal shift; and (iii) recommend models that could apply to Hunan Province. 14. Corporate Development of XNCD. The consultant will: (i) prepare a concession agreement between XNCD and HMAB; (ii) propose technical, financial or strategic directions for XNCD to leverage additional resources for the sector, and (iii) identify potential models for waterway operational management that could apply to the Xiangjiang river. 15. Lessons Learned. The consultants will assess how the lessons and experience of past and ongoing World Bank inland waterways projects in the PRC are to be factored into the sector review and project design.

3. Implementation Preparation 16. Procurement and Implementation Planning. The consultant will: (i) prepare a global procurement plan for the whole project; (ii) prepare a detailed EA/IA procurement capacity assessment and suggest remedial actions to build EA/IA capacity under the loan to minimize or eliminate procurement management risks; (iii) assist the EA and IA in the preparation of the bidding documents and preparation for advance procurement; (iv) prepare a project implementation schedule and sequencing of subproject implementation; (v) prepare a project procurement plan identifying procurement packages, procurement modes, bidding sequence, and timing, based on the procurement capacity assessment; and (vi) propose a functioning implementation mechanism. 17. Financial Management. The consultant will: (i) review the most current financial statements and project accounts of the IAs; (ii) prepare a project cost estimate and financing plan for the Project; (iii) recommend appropriate financial performance measures/ratios for the IAs in pro forma statements; (iv) assess the IAs’ financial management capabilities, and prepare a related institutional strengthening plan; (v) prepare a pro forma projection; and (vi) propose a fund-flow mechanism and prepare a draw-down schedule.

Appendix 2 13

4. Safeguards 18. Environmental Management. The environment management consultants will: (i) Assist the EA prepare the environmental impact assessment on the basis of the

Government's EIA in accordance with ADB’s Safeguard Policy Statement (2009); (ii) Review the draft EIA; (iii) Prepare an environmental management plan, based on the EIA document. The

consultant will (a) determine costs of the proposed environmental measures, (b) appraise the level of cost against expected environmental benefits, (c) assist the EA in incorporating appropriate mitigating measures into the project design, (d) prepare contractor specifications for environmental management and monitoring, and (e) prepare terms of reference and budget for independent environment monitoring and evaluation;

(iv) Review the environmental management capabilities, and recommend institutional strengthening measures; and

(v) Assist the EA in conducting appropriate public consultation, as required. 19. Social, Poverty and Gender Aspects. Based on the IPSA, conduct a social analysis including poverty and gender analysis as appropriate and prepare a comprehensive Social Development Action Plan (SDAP): (i) Prepare socioeconomic and poverty profiles for the project areas; (ii) Carry out a detailed gender assessment to promote the following gender

benefits: (a) targets for women's employment and training; (b) improved market access for women; (c) gender-sensitive design in port/terminal/landing stages to ensure women's usage of the facilities; and (d) strategies to ensure and maximize women's participation in all project activities;

(iii) Recommend and cost measures to enhance social benefits and minimize adverse impacts;

(iv) Assess other potential social issues including ethnic minorities, gender, vulnerable groups and, where appropriate, recommend appropriate measures to address impacts, improve the gender balance and promote opportunities for inclusive development;

(v) Assist the EA to establish consultation and participatory processes, prepare a public participation and consultation status report, and plan for project implementation;

(vi) Review the local government’s policy, strategy and programs for poverty reduction and development, and consult with local governments to identify initiatives that could complement the IWT project, particularly those targeted at the poor and women;

(vii) Assess the implementation of national labor laws (such as equal pay for equal work, no gender discrimination, and no child labor) in order to ensure that the laws are complied with during project preparation, construction and operation;

(viii) Prepare the HIV/AIDS prevention implementation plan which includes specific measures to address women's vulnerabilities to the disease in the project areas;

(ix) Prepare a SDAP, including costs, sources of funding, and implementation arrangements; and assist the EA and IAs in conducting appropriate public consultation; and

(x) Assist with the preparation of the DMF and PPMS.

14 Appendix 2

20. Resettlement. The consultants will assist the IAs and local officials to: (i) Review the draft RP and prepare modifications as required to comply with ADB’s

Safeguard Policy Statement (2009). Review the results of the socioeconomic surveys and analysis prepared by the Design Institute. If required, conduct additional resettlement household surveys to ensure adequate understanding of social impacts. Quantify the types and degree of impacts on the affected people; determine and document in the RP the extent to which the project design avoids or minimizes adverse impacts;

(ii) Define categories for impact and compensation eligibility of affected people, and prepare an entitlements matrix. If there is any seriously affected village, prepare village economic rehabilitation plans;

(iii) Assist in the initiation and expansion of the consultations; (iv) Assess and justify that (a) the compensation standards are based on

replacement value, and (b) the overall resettlement budget is sufficient to acquire the land and implement the RP;

(v) Review implementation arrangements and recommend actions prior to the start of land acquisition;

(vi) Assist the EA to prepare a detailed resettlement implementation schedule; (vii) Recommend an effective grievance redress mechanism; (viii) Prepare terms of reference for independent resettlement monitoring and

evaluation; (ix) Train the EA and IAs in ADB's resettlement procedures and requirements; and (x) Assist the EA to finalize the RPs to meet ADB's requirements, including an

executive summary.

5. Team, Schedule and Reporting Requirements 21. The works would be performed between March 2010 and August 2010. A summary of consultants required is shown in Table 3.

Table 3: Summary of Consultants Required by the Consulting Firm (person-months)

Consultants International National Inland waterway specialist/Team Leader 3 3 Port planner 1 Traffic forecast and economic analyst 2 2 Financial analyst and management 1 1 Port engineer 1 Structural engineer 1 Hydro engineer 1 Procurement specialist 1 Environmental specialist 2 2 Social specialist 3 Resettlement specialist 4 Dangerous cargo handling specialist 1 1 PPP adviser 2 2 Institutional strategic adviser 3 2 IWT policy advisor 3 2 Total 18 24

Appendix 2 15

22. Deliverables. An inception report will be submitted within 3 weeks. An interim report, including a draft EIA and a supplement to the EIA, a draft RP and a draft SDAP will be submitted within 3 months. Three monthly progress reports will be submitted and the draft final report will be submitted within 4 months of works. The final report will be submitted within 2 weeks of such meeting. All reports will be submitted to ADB in the English language (in three copies) and to the EA in the English (one copy) and the Chinese languages (in three copies). Reports will be submitted in both electronic and in hard copy. All data and analyses will be consolidated and provided in electronic form. There are three workshops planned to present and discuss the findings of the reports.

16 Appendix 3

COST ESTIMATES AND FINANCING PLAN ($'000)

Total Item Cost A. ADB Financing: Scoping Phasea 1. Consultants a. Remuneration and Per Diem i. International Consultants 58.0

Number of Person-months 3 ii. National Consultants 36.0

Number of Person-months 6 b. International and Local Travel 25.0

2. Translation 2.0 3. Contingencies 14.0 Subtotal (A) 135.0 B. ADB Financing: Technical Review and Quality Assurancea 1. Consultants a. Remuneration and Per Diem i. International Consultants 168.0

Number of Person-months 8 ii. National Consultants 26.0

Number of Person-months 4 b. International and Local Travel 30.0 2. Contingencies 26.0 Subtotal (B) 250.0 C. ADB Financing: Project Investment and Sector Support Preparationa 1. Consultants a. Remuneration and Per Diem i. International Consultants 378.0

Number of Person-months 18 ii. National Consultants 156.0

Number of Person-months 24 iii. Resource Assistants and Translators 42.0 b. International and Local Travel 48.0 c. Reports, Translation, and Communications 8.0 2. Equipment (Computer, Printer, etc.)b 10.0 3. Workshops, Training/Seminars and Conferencesc 6.0 4. Surveys 20.0 5. Miscellaneous Administration and Support Costs 5.0

6. Representative for Contract Negotiationsd 6.0 7. Contingencies 71.0 Subtotal (C) 750.0 Subtotal (A)+(B)+(C) 1,135.0 D. Government Financing 0.0 1. Office Accommodation and Transport 130.0 2. Remuneration and Per Diem of Counterpart Staff 130.0 3. Contingencies 25.0 Subtotal (D) 285.0 Total 1,420.0

Appendix 3 17

a Financed from ADB TASF-other sources b Equipment

Type Quantity Cost Hardware (e.g. computer, facsimile machine, copier and printer) and software to be procured under the consultant contract, in accordance with ADB's Procurement Guidelines (2007, as amended from time to time) and to be turned over to EA on project completion.

Tbd. during PPTA negotiations

10,000

c Workshops, Training/Seminars and Conferences Purpose Venue

Project investment and sector support preparation: Inception Hunan, PRC Project investment and sector support preparation: Interim Hunan, PRC Project investment and sector support preparation: Final Hunan, PRC

18 Appendix 4

INITIAL POVERTY AND SOCIAL ANALYSIS

Country and Project Title:

PRC: Hunan Xiangjiang Inland Waterway Project

Lending or Financing Modality:

Project Loan Department and Division:

EARD/EATC

I. POVERTY ISSUES

A. Linkages to the National Poverty Reduction Strategy and Country Partnership Strategy 1. Based on the country poverty assessment, the country partnership strategy and the sector analysis describe how

the project would directly or indirectly contribute to poverty reduction and how it is linked to the poverty reduction strategy of the partner country.

Hunan Province, one of six central poor provinces in the PRC, has been included in the “Rising Central Region

Strategy" in the PRC Government 11th Five-Year Plan. Underdeveloped waterway and high transportation costs of highways are becoming major barriers to the reduction of poverty in Hunan, particularly in those poor remote areas located upstream. The development of waterway contributes to poverty reduction directly through lower transportation cost, improved access to markets, employment opportunities, and indirectly by stimulating regional economic development.

The proposed waterway project is located in lower and middle reaches of Xiangjiang River in Hunan. Xiangjiang

River, the fifth largest tributary of Yangtze River, is the largest river in Hunan. 40% of Hunan territory is located in Xiangjiang River Basin. According to approved Xiangjiang Navigation Development Master Plan, a total of nine navigation complexes are planned to be constructed in order to upgrade navigation standard and promote the waterway transportation development along the Xiangjiang River. So far five complexes have been constructed and opened to traffic, of which two complexes were financed by the World Bank. The proposed Project has two components: (i) Tugutang Navigation Complex will include low dam, ship lock, hydropower plant, and associate waterway service facilities, and (ii) Zhuzhou new port development, which will jointly promote and facilitate social and economic development in Xiangjiang River Basin.

B. Targeting Classification 1. Select the targeting classification of the project:

General Intervention (GI) Individual or Household (TI-H); Geographic (TI-G); Non-Income MDGs

(TI-M1, M2, etc.)

2. Explain the basis for the targeting classification:

The per capita GDP in Hunan Province was CNY14,405 in 2007. There are a total of 88 counties and county-level cities in the Province, of which 20 counties are designated as national poverty counties, and another 18 counties are provincial poverty counties. In the project area, there are 4 national poverty counties and 4 provincial poverty counties in Yongzhou and Chenzhou prefectures, which are located in the upstream areas of Xiangjiang River.

The Project will indirectly contribute to poverty reduction in the upstream of Xiangjiang River by generating

economic and employment opportunities through improved waterway transportation. The proposed Project will substantially improve waterway transportation and will facilitate economic development, which will provide more employment and income generation opportunities for local people.

C. Poverty Analysis 1. If the project is classified as TI-H, or if it is policy-based, what type of poverty impact analysis is needed? 2. What resources are allocated in the project preparatory technical assistance (PPTA)/due diligence? If GI, is there any opportunity for pro-poor design (e.g., social inclusion subcomponents, cross subsidy, pro-poor

governance, and pro-poor growth)? The Project could directly contribute to poverty reduction in the project area by generating large amount of

construction employment opportunities in the short term, and some operation employment in the long term, and

Appendix 4 19

improving access to markets for local agriculture products. The project would not charge ship lock levies, which will directly reduce the waterway transportation cost for local communities and local people. A detailed poverty analysis will be carried out to assess poverty incidence in the project area and demonstrate how the Project will help reduce poverty by incorporating specific measures in the project scope. The analysis will be based on the ADB's Handbook on Poverty Analysis and Handbook on Social Analysis.

II. SOCIAL DEVELOPMENT ISSUES

A. Initial Social Analysis Based on existing information: 1. Who are the potential primary beneficiaries of the project? How do the poor and the socially excluded benefit from

the project?

The primary beneficiaries of the Project will be the people and businesses in cities, counties, towns and villages along the Xiangjiang River. Local industrial and agricultural materials and products will be transported from/to market with lower transport cost. Investments from the Pearl River Delta will be attracted to locate in the Xiangjiang River Basin as a result of improved and convenient waterway transport. Employment opportunities are expected to increase significantly.

2. What are the potential needs of beneficiaries in relation to the proposed project?

The people and local communities along waterway alignment are disadvantaged by poor waterway transport

condition which makes it difficult to benefit from economic interactions with the Yangtze River Delta; the local people desire improved markets and employment opportunities in enterprises that the proposed Project will promote.

3. What are the potential constraints in accessing the proposed benefits and services, and how will the project

address them?

The main potential constraint will be access to the waterway for local people and local communities. During PPTA stage, it is suggested that a study look into a possible a component regarding upgrading and construction of access roads and small ports for local communities or local markets along waterway alignment.

B. Consultation and Participation

1. Indicate the potential initial stakeholders:

Stakeholder analysis: Major stakeholders include HPDOT, XNCDC, HMAB, local governments (particularly in Zhuzhou), local enterprises, local communities, and local residents.

2. What type of consultation and participation is required during the PPTA or project processing (e.g., workshops,

community mobilization, involvement of nongovernment organizations and community-based organizations, etc.)?

Consultation and participation will be conducted with various stakeholders during the project preparation focusing on dam site selection, environment impact assessment, resettlement planning, and social measures. Stakeholder workshops will be conducted through workshops, questionnaires, and focus group discussion at PPTA inception, midterm, and final tripartite meeting. Further consultation will be also conducted during loan processing.

3. What level of participation is envisaged for project design?

Information sharing Consultation Collaborative decision making Empowerment

4. Will a consultation and participation plan be prepared? Yes No Please explain.

Local communities and local people will (i) be consulted during feasibility study and EIA regarding the selection of dam site, (ii) participate in the preparation and implementation of resettlement plans, and (iii) be provided employment opportunities for the Project construction and operation.

20 Appendix 4

C. Gender and Development

1. What are the key gender issues in the sector and/or subsector that are likely to be relevant to this project or program?

The proposed Project will lead to better access to markets and more employment opportunities for the local

community including women. The PPTA will investigate opportunities to enhance the benefits to women (e.g., improved waterway transport services which lead to better access to markets). The Resettlement Plan (RP) will also include special measures to mitigate adverse impacts and improve the conditions for women, including training and project-related employment.

2. Does the proposed project or program have the potential to promote gender equality and/or women’s

empowerment by improving women’s access to and use of opportunities, services, resources, assets, and participation in decision making? Yes No Please explain.

During PPTA, all potential measures will be identified through consultation and participation, and a Social

Development Action Plan (SDAP) will be prepared to address special measures to improve the conditions for women.

3. Could the proposed project have an adverse impact on women and/or girls or widen gender inequality?

Yes No Please explain

The Project will cause adverse impacts due to land acquisition and resettlement, which will be addressed in the RP, and increased risk of communicable diseases, which will be addressed in the SDAP and EIA. Livelihood opportunities and training requirements will be included in the RP.

III. SOCIAL SAFEGUARD ISSUES AND OTHER SOCIAL RISKS

Issue Nature of Social Issue Significant/Limited/No Impact/Not

Known

Plan or Other Action Required

Involuntary Resettlement

About 25 households (about 105 persons) will be relocated, and 398 ha (5,984 mu) land will be acquired permanently by low dam and reservoir. Construction of the port facilities may also induce resettlement impacts.

Significant Full Plan Short Plan Resettlement

Framework No Action Uncertain

Indigenous Peoples

The main investment of the proposed Project is located in Hengyang Prefecture, which only has 14,300 minority people accounting for 0.21% of total population. There are no minority groups present in project locations, which will be reconfirmed during the PPTA stage.

No impact Plan Other Action Indigenous Peoples

Framework No Action Uncertain

Labor Employment

Opportunities Labor Retrenchment Core Labor Standards17

The Project will contribute to creating employment opportunities during construction and operation. In addition, the development of navigation subsector will also generate large amount of employment opportunities.

Significant positive impacts

Plan Other Action – in

SDAP No Action Uncertain

Appendix 4 21

Issue Nature of Social Issue Significant/Limited/

No Impact/Not Known

Plan or Other Action Required

Affordability The Project will reduce the cost of waterway transportation and ship locks would not be levied.

Significant positive impacts

Action No Action Uncertain

Other Risks and/or Vulnerabilities

HIV/AIDS Human Trafficking Others (conflict, political

instability, etc.), please specify

The major construction activities under the proposed Project will be conducted in Hengyang and Zhuzhou Cities, both HIV/AIDS high incidence area in Hunan Province. In addition, the workers for civil work may come from all over country, and they might also cause potential risk. PPTA will assess the risk and formulate the preventive measures.

Potential risk of communicable diseases. No other social risks are anticipated as a result of the proposed project.

Plan Other Action – in

SDAP, EMP and contract documents

No Action Uncertain

IV. PPTA OR DUE DILIGENCE RESOURCE REQUIREMENT

1. Do the terms of reference (TOR) for the PPTA (or other due diligence) include poverty, social and gender analysis and the relevant specialist(s)?

Yes No If no, please explain why.

2. Are resources (consultants, survey budget, and workshop) allocated for conducting poverty, social and/or gender analysis, and consultation and participation during the PPTA or due diligence? Yes No If no, please explain why.