Document of The World Bank Report No: 33620 IMPLEMENTATION COMPLETION REPORT (SCL-44440) ON A LOAN IN THE AMOUNT OF US$71 MILLION TO THE PEOPLE'S REPUBLIC OF CHINA FOR A CONTAINER TRANSPORT PROJECT November 18, 2005 CURRENCY EQUIVALENTS (Exchange Rate Effective January 1, 2005) Currency Unit = Renminbi Renminbi 1.0 = US$ 0.12 US$ 1.0 = Renminbi 8.28 FISCAL YEAR January 1 - December 31 ABBREVIATIONS AND ACRONYMS CAS Country Assistance Strategy CCTA China Communications and Transportation Association CPMO Central Project Management Office EDI Electronic Data Interchange EIRR Economic Internal Rate of Return FIRR Financial Internal Rate of Return ICB International Competitive Bidding ICD Inland Container Depot ICR Implementation Completion Report MIS Management Information System PAD Project Appraisal Document PPMO Provincial Project Management Office SETC State Economic and Trade Commission SPC State Planning Commission TEU Twenty-foot Equivalent Unit THCC Tianjin Habor Container Company TOR Terms of Reference WTI Waterborne Transportation Institute Vice President: Jemal-ud-din Kassum Country Director David R. Dollar Sector Manager Jitendra Bajpai Task Team Leader Graham Smith CHINA China Container Transport Project CONTENTS Page No. 1. Project Data 1 2. Principal Performance Ratings 1 3. Assessment of Development Objective and Design, and of Quality at Entry 1 4. Achievement of Objective and Outputs 2 5. Major Factors Affecting Implementation and Outcome 5 6. Sustainability 7 7. Bank and Borrower Performance 7 8. Lessons Learned 9 9. Partner Comments 9 10. Additional Information 14 Annex 1. Key Performance Indicators/Log Frame Matrix 15 Annex 2. Project Costs and Financing 17 Annex 3. Economic Costs and Benefits 21 Annex 4. Bank Inputs 22 Annex 5. Ratings for Achievement of Objectives/Outputs of Components 24 Annex 6. Ratings of Bank and Borrower Performance 25 Annex 7. List of Supporting Documents 26 Annex 8. Beneficiary Survey Results 27 Annex 9. Stakeholder Workshop Results 28 Project ID: P003653 Project Name: China Container Transport Project Team Leader: Graham Smith TL Unit: EASTR ICR Type: Intensive Learning Model (ILM) of ICR Report Date: November 21, 2005 1. Project Data Name: China Container Transport Project L/C/TF Number: SCL-44440 Country/Department: CHINA Region: East Asia and Pacific Region Sector/subsector: Ports, waterways and shipping (100%) Theme: Access to urban services and housing (P); Export development and competitiveness (S) KEY DATES Original Revised/Actual PCD: 09/04/1997 Effective: 12/24/1999 12/24/1999 Appraisal: 07/06/1998 MTR: Approval: 03/16/1999 Closing: 06/30/2005 06/30/2005 Borrower/Implementing Agency: PEOPLE'S REPUBLIC OF CHINA/STATE ECO & TRADE COMM.& FOUR PROVINCES Other Partners: STAFF Current At Appraisal Vice President: Jemal-ud-din Kassum Jean-Michel Severino Country Director: David R. Dollar Yukon Huang Sector Manager: Jitendra Bajpai Jitendra Bajpai Team Leader at ICR: Graham Smith ICR Primary Author: Kek Chung 2. Principal Performance Ratings (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible) Outcome: S Sustainability: L Institutional Development Impact: SU Bank Performance: S Borrower Performance: S QAG (if available) ICR Quality at Entry: S Project at Risk at Any Time: No 3. Assessment of Development Objective and Design, and of Quality at Entry 3.1 Original Objective: The project aimed at facilitating inland penetration of seaborne containers from gateway ports to inland cities, thus contributing to a reduction in economic disparity between coastal and inland areas. Supplementing the primary objective, the project also sought to increase productivity of existing facilities to expand container handling capacity at the gateway port of Tianjin. The project development objective was clear and in line with the Country Assistance Strategy (CAS) presented to the Board on March 18, 1997 and further discussed in the Progress Report (CAS document number R98-107) of May 28, 1998. It also met the government's objective of promoting greater economic development in the interior regions. The project, which was intended to be a pilot development, was complex due to the large number of project entities, the wide geographical dispersion of the project sub-components and the broad range of policy actions to foster institutional improvements. 3.2 Revised Objective: The development objective remained the same throughout the implementation of the project. 3.3 Original Components: The project had two main components and numerous sub-components: (a) ICD Development consisting of the development of inland container depots (ICDs) in Baoding, Cangzhou, Handan, Tangshan and Qinhuangdao in Hebei Province; Baotou in the Autonomous Region of Inner Mongolia; and Hangzhou, Huzhou and Xiaoshan in Zhejiang Province and comprising - civil works, - the provision of equipment for operating the depots, - technical assistance for the development of an EDI/MIS, a business plan and an operational manual as well as training in various aspects of inland terminal management and operation. The ICDs would operate under a Customs regime in which import and export containers would be cleared at the ICDs. Embedded in the project were several policy actions to remove impediments to the movement of containers between gateway ports and inland cities; and (b) Upgrading Tianjin Port Container Handling Capacity through - structural improvements of existing berths, container yard and ancillary facilities, - the acquisition of additional container handling equipment for Tianjin Harbor Container Company (THCC) and - technical assistance to establish a better institutional environment for container operations. 3.4 Revised Components: There were no major changes in project components. There was a minor adjustment in the ICD Development component when Hebei decided not to proceed with the construction of a depot at Baoding shortly after the Loan became effective. This led to an amendment of the Loan Agreement on September 18, 2000 to cancel USD3.13 million from the Hebei sub-component of the Loan. The Loan Agreement was also amended on October 28, 2002 to cancel USD15.48 million from the Tianjin component as a result of savings achieved in the procurement of equipment. 3.5 Quality at Entry: Quality at entry is rated satisfactory. The assessment is based on the (a) consistency of the project development objective with the Bank's strategy for alleviating transport bottlenecks and China's policy and plan for increased economic development in interior regions; (b) attention given to lessons learned from past projects implemented by multiple agencies in the preparation and design of the project; and (c) comprehensive range of policy actions for institutional improvements. 4. Achievement of Objective and Outputs - 2 - 4.1 Outcome/achievement of objective: The development objective of the project has substantially been met. The indicator for measuring performance is the value of imports and exports to and from project cities. At project appraisal, it was expected that the ICD cities would generate some US$49.1 billion of imports and exports by 2003. Actual performance for the year turned out to be US$25.3 billion, increasing to US$ 31.7 billion the following year. The essence of the ICD component of the project was the development of an institutional and infrastructure framework in which containers could move inland without regulatory and physical impediments or constraints. When the project was conceptualized, import and export containers underwent quarantine and Customs inspections prior to delivery or shipment only at gateway ports. "Off-port" inspection and clearance of cargo were not available and there were little or no proper facilities for the handling of containers under bond in inland cities. The project overcame these impediments at the selected cities by providing them with common user container handling facilities and a system and procedure for cross-border inspections and clearances of cargo. Several policy actions were also implemented to remove certain regulatory constraints on the trucking of containers. These included declassifying sea-borne containers as heavy cargo and separating the registration of trailers from prime movers, thus providing greater flexibility in the use of vehicles. While the development objective may have been substantially achieved, the outcomes for the project are mixed. For the ICD Development component, the outcome is rated unsatisfactory. Although the framework to facilitate the inland penetration of containers between gateway ports and inland cities has been put in place, the throughput of the ICDs was disappointingly low. In 2003, only 32,918 teus were handled compared with the forecast of 572,000 teus. The low volume of containers handled by the ICDs could be due to the late commencement of operation of the ICDs and the availability of "off-port" clearance of cargo at local Customs offices of the project cities and premises of importers/exporters who could meet certain eligibility criteria. Because of delays, by 2003 most ICDs were just getting started instead of in their third year of operation as foreseen at appraisal. They would require time to grow the business. On the whole, relative to forecast, the Baotou ICD (2005, 32%) has performed better than the Zhejiang (7.9%) and Hebei (7.3%) ICDs due to lesser competition. Baotou's longer distance from the gateway port of Tianjin also makes it more compelling for the through transportation of containers. In contrast to the ICD Development component, the project outcome of the Tianjin Port component has been highly satisfactory. Productivity gains in container handling at berth exceeded 300% from 18 teus per vessel hour in 1996 to 83.3 teus in 2004. Total throughput at the Tianjin Harbor Container Company (THCC) tripled between 1996 and 2004 from some 0.5 million teus to 1.5 million teus. Productivity gains came about mainly as a result of the equipment provided under the project. THCC has also become more competitive. By 2002, the number of containers handled by THCC at 1.13 million teus exceeded the number handled by its competitor, the CSX Orient Terminal, by some 200,000 teus. Taking into account the complexity of the project, and despite the poor performance of the ICD Development component, the outcome of the project, overall, is rated satisfactory in light of the fine performance of the Tianjin Port component. 4.2 Outputs by components: A. ICD Development Outputs achieved under this component comprised: (a) civil works that included a container yard, a container freight station, a workshop, a vehicle weighing station, an administrative building and security fencing that meets the standard of the Customs for bonded cargo of varying sizes depending on the traffic at each of the cities of Hangzhou, Huzhou and Xiaoshan in Zhejiang Province; Cangzhou, Handan, Qinhuangdao and Tangshan in Hebei Province and Baotou in the Autonomous Region of Inner Mongolia. Total investment in civil works amounted to US$15.96 million; - 3 - (b) equipment consisting of top-loaders, forklift trucks, tractor/trailers, hardware for an MIS/EDI, communication and office equipment, electronic weighing scales, a security monitoring system and ancillary equipment at a total cost of US$20.09 million; and (c) technical assistance in the form of the development of a business plan, an operational manual, an MIS/EDI and training at a total estimated cost of US$0.42 million. Bank financed training was supplemented by a program funded by the Canadian International Development Agency to enhance the environmental and financial management capabilities of the project entities. B. Upgrading Tianjin Port Container Handling Capacity The primary objective of this component was to increase capacity and enhance the productivity of existing container handling facilities operated by Tianjin Harbor Container Company (THCC). Outputs of the investment towards the achievement of this objective were: (a) Civil Works: upgraded electrical substation and ancillary works financed locally at a cost of US$1.60 million; (b) Equipment: the procurement of three quay-side container cranes, 13 rubber tired gantry cranes, 5 forklift trucks and ancillary equipment at a total cost of US$22.56 million; and (c) Technical assistance: consulting services to establish an institutional and operational environment for intra-port competition between terminal operators, institute measures to increase productivity at berths and foreign training for Tianjin Port staff at a total cost of US$142,000. The investments in this component provided THCC the means and the capability to handle 30,000 dwt container vessels over four berths with a total length of some 1,200m. 4.3 Net Present Value/Economic rate of return: The economic evaluation covers the two components separately as well as the entire project combined. Both costs and benefits reflect December 2005 prices. The economic internal rate of return (EIRR) of the project is estimated at 25 percent, and the net present value (NPV), at a discount rate of 12 percent, is estimated at RMB 868 million; compared to the PAD estimate of 39 percent and RMB 950 million, respectively. Component-wise, the Tianjin Port (THCC) component has an EIRR of 51 percent, compared to the PAD estimate of 44 percent. The EIRR of the ICD component is estimated at 11 percent, compared to the PAD estimate of 33 percent. EIRR (in %) and NPV (12%, RMB million) Summary The ICR The PAD EIRR NPV EIRR NPV Upgrading Tianjin Port Container Handling 50.7 1,003 43.8 625 Capacity ICD Development 11.4 (27) 32.7 324 Total Project 24.7 868 39.4 950 THCC: The recalculated EIRR and NPV of the Tianjin Port component are higher than anticipated at appraisal mainly because of: (a) the lower project cost (about 30 percent lower than the PAD estimate), and (b) the higher container traffic demand (about 60 percent higher than the PAD estimate). ICD: The recalculated EIRR and NPV of the ICDs are lower than the estimates mainly due to the lower container traffic demand (average only about 9 percent of the PAD forecasted at appraisal), despite the project cost of the ICDs being lower than estimated by about one third. The detailed economic analysis is in the project file. - 4 - 4.4 Financial rate of return: THCC and the eight ICDs are financially independent companies in their provinces, responsible for the day-to-day management, operations and maintenance of the facilities. The main incomes of these companies come from container handling, transportation, warehousing, and freight forwarding. The companies plan to use operation revenue to cover their financial obligations, including the Bank and domestic loans. Based on the current revenue and operating costs, the eight ICDs may have difficulties in generating enough internal cash flow over the loan period to finance the operation, maintenance, and debt services due to the low demand for container services. The financial evaluation so far for the project finds that the project as a whole has a FIRR of 7.4 percent with a NPV of RMB 126 million, of which the Tianjin Port component is estimated to have a FIRR of 35.4 percent while the ICDs (taken together) are expected to have a negative net cash flow at least in their early years and perhaps longer. Compared with the PAD, the re-evaluated FIRR for THCC at 35.4 percent is higher than forecasted (23.5 percent), and the re-evaluated FIRR for the ICDs (negative value) is much lower than expected (22.8 percent). As a result, the re-evaluated FIRR for the entire project (7.4 percent) is less than one third of the PAD's estimated 23.2 percent at appraisal. The detailed financial analysis is in the project file and summarized as follows. FIRR (in %) and NPV (4.5%, RMB million) Summary The ICR The PAD FIRR NPV (@4.5%) FIRR NPV Upgrading Tianjin Port Container 35.4 1,246 23.5 297 Handling Capacity ICD Development -- (1,027) 22.8 171 Total Project 7.4 126 23.2 464 4.5 Institutional development impact: Despite the wide gap between forecasted and actual container traffic at the inland terminals, the project has had a positive institutional development impact. The availability of "off-port" clearances of cargo will promote the through-transportation of containers, thereby relieving congestion at the gateway ports, expediting the turnaround of containers and, in the process, reducing logistics costs of China's export/import trade. By requiring that the ICDs be developed and operated by limited liability companies, a demonstrative model for private sector participation in trade and transport logistics is in place. 5. Major Factors Affecting Implementation and Outcome 5.1 Factors outside the control of government or implementing agency: There were two major factors outside the control of both the government and the implementing agencies that had a significant impact on the ICD Development component of the project. The first was the response of the shipping, transport and trading communities to the facilities and services provided by the project. So far, the extent of use of the facilities and services available at the ICDs has been limited. This could be attributed to the ICD enterprises being new and had yet to demonstrate the level of consistency and reliability in service acceptable to the shipping and trading communities. The second factor was the degree of competition provided by local trucking companies. Intense competition has lowered the rate for the haulage of containers. At the time of project preparation in 1997, the cost for hauling a container was estimated at RMB 6 per teu-km. Actual market rate was of the order of RMB 5 per teu-km. Local competitors used locally manufactured trucks that cost much less than the imported tractors/trailers - 5 - procured by the ICD enterprises. Local trucking companies also tended to use under-powered trucks to reduce registration fees and the payment of road tolls. Cost-wise, ICD enterprises had difficulty in competing with local private trucking companies in the haulage of containers. 5.2 Factors generally subject to government control: The major factor in the project that was subject to government control concerned "off-port" clearance of import/export containers at the ICDs. Prior to loan approval, the provincial governments of Hebei, Inner Mongolia and Zhejiang had signified their intent to designate the ICDs as Class 2 ports upon their completion. This entailed the stationing of Customs officers at the ICDs. However, the power of the provinces to designate ports was transferred to the Customs General Administration (CGA) in February 2002. Consequently the provinces could not fully implement their plan and only Baotou, Hangzhou and Xiaoshan were able to persuade Customs to station officers at their ICDs. For the rest, Customs officers from the local Customs office were available to inspect and clear cargo at the ICDs upon request until such time as the volume of traffic handled at the ICDs justified stationing them full time at the ICDs. At the same time, "off-port" inspections and clearances of cargo were extended to enterprises located at export processing zones and large importers/exporters who met certain criteria. Customs clearance could also be undertaken at local Customs offices of the project cities. The availability of such alternative sources for "off-port" clearance was not envisaged at the time of project preparation. This deviation from the original design of the project impacted significantly on the business development of those ICDs without Customs officers on their premises. 5.3 Factors generally subject to implementing agency control: Factors subjected to implementing agencies' control were those that related directly to the execution of the project. Apart from Tianjin Port Authority, ICD enterprises, newly created to implement the project, had no experience in executing Bank-financed projects. Construction of facilities at the ICDs and the procurement of equipment could have been completed earlier had the implementing agencies and CPMO been familiar with Bank procedures and procurement guidelines. The delay in the procurement of equipment at the beginning of project implementation was particularly significant. Delays in the completion of ICDs ranged from 1½ - 2½ years, shortening the period for the generation of income before the grace period of the loan expired. 5.4 Costs and financing: The total cost of developing the ICDs and upgrading the container handling capacity of Tianjin Port amounted to US$73.66 million, of which US$48.05 million was financed by the Bank. Summary of Project Cost and Financing by Component Development Cost Amount financed by Bank Component (US$ million) (US$ million) ICD Development 49.36 26.50 Upgrading Tianjin Container 24.30 21.55 Handling Capacity Subtotal 73.66 48.05 Front End Fee 0.71 0.71 Total 74.37 48.76 - 6 - 6. Sustainability 6.1 Rationale for sustainability rating: The sustainability of the project is rated likely. With the growth in containerization, containers will move inland from gateway ports in increasing numbers. Government appears committed to the simplification of customs procedures for the clearance of goods. Customs inspection and clearance of cargo at importers/exporters' premises are likely to increase in line with the global trend to integrate land and sea transport services goods in international trade. The entry of foreign logistic companies into China will drive the use of "off-port" inspections and clearances further. For some of the ICD enterprises, some form of financial restructuring appears to be required. Due to the current low volume of containers handled, revenues have fallen far short of expectation. Until demand for their services picks up or new sources of revenue are found, additional financing is probably required in most ICD enterprises. This could take the form of cash injections from current shareholders of the ICD enterprises, new shareholders, or some form of working arrangement or joint venture with a foreign logistics company planning to enter the China logistics market. As for Tianjin Port, the increased productivity and enhanced capacity at THCC brought about by the project will enable Tianjin Port Authority to handle increasing throughputs until new container berths under the second stage of its development plan to increase port capacity are developed at the north port area. 6.2 Transition arrangement to regular operations: All project entities are fully in regular operation. 7. Bank and Borrower Performance Bank 7.1 Lending: The project arose out of a study on transport logistics jointly undertaken by the Bank and the State Economic and Trade Commission (SETC) in 1994. The study resulted in a sector report in October 1996 (China: Container Transport Services and Trade: Framework for an Efficient Container Transport System). Informal discussion between the Bank and SETC on the concept of the project was initiated as early as November 1996. The Bank mounted a project identification mission in May 1997 following the submission of proposals for investment by SETC. Formal project preparation commenced in November 1997. The project was appraised in July 1998 and the loan was approved on March 16, 1999. The Bank provided SETC with considerable inputs in the preparation and design of the project. During project identification, discussions were held with the State Planning Commission, Ministry of Finance, Ministry of Railways, Ministry of Communications, Ministry of Foreign Trade and Economic Cooperation, Customs General Administration and Commodity Inspection Bureau in addition to SETC. Bank performance at lending is rated satisfactory although the decision to create new project entities to implement the ICDs could have been subjected to greater debate. The risks in the project and their impact on the financial outcome for the ICDs were recognized. However, measures taken to mitigate the risks, mainly in the form of training, have proved inadequate. 7.2 Supervision: The Bank's performance in supervising the project is rated satisfactory. The Bank's team leader for the project was changed shortly after the loan became effective. The effect of the break in continuity was minimal. Bank supervision of the project was intensified after an initial period when it was apparent that project entities in the ICD component needed more support due to their lack of experience in managing the implementation of a project of this complexity. - 7 - 7.3 Overall Bank performance: Overall, Bank performance in the identification, preparation and appraisal of the project is rated satisfactory based on a) the consistency of the project with the government's development strategy/priorities and the Bank's CAS, b) the resources provided in developing the project and c) the account taken of lessons learned from past operations in the sector in China in the design of the project. Borrower 7.4 Preparation: The project was prepared by SETC on the premise that properly designed inland depots adequately equipped to handle containers and operated as "dry ports", with functions for commodity inspection and customs clearance of cargo, would overcome major constraints that inhibited the movements of containers inland of gateway ports. It was also predicated on the belief that such depots would be more efficient if they were owned and operated by the private sector. To this end, new enterprises, structured to accommodate future private sector participation, were incorporated as limited liability companies to develop and operate the ICDs. The development was to be a pilot project in two selected transport corridors. Criteria for the selection of the two corridors and cities where the depots would be located as well as criteria for the selection and incorporation of ICD enterprises were established in consultation with the Bank. SETC's preparation of the project was satisfactory. 7.5 Government implementation performance: The project required inputs from and the cooperation of several ministries and government departments. During the course of implementation, there were major changes in the administrative structure of the government that realigned responsibilities among ministries that directly or indirectly impacted on the project. In particular, SETC, the lead agency for the development of the project, was abolished and its functions redistributed among a newly created National Development and Reform Commission and the Ministry of Commerce and Trade, and responsibility for ports was transferred from provincial government to the Customs General Administration (CGA). In the circumstances, the provincial governments of Hebei, Inner Mongolia and Zhejiang could not carry out their intention to designate the ICDs as Class 2 ports. Except for this deviation from the original design of the project, appropriate and timely policy actions were taken to execute the project according to plan. Government implementation performance on the whole is rated satisfactory. 7.6 Implementing Agency: The lead agency in the preparation and management of implementation of the project was SETC. SETC's supervisory responsibilities were discharged through the Central Project Management Office (CPMO) established by government decree in July 1997. For the ICD component, management of implementation was multi-layered. At the top, CPMO was responsible for overall coordination and the compilation of reports for submission to the Bank, procurement of goods, and management of technical assistance and training. Day to day implementation of the project was undertaken by the individual ICD enterprises, coordinated and supervised by the respective provincial government through the Provincial Project Management Office (PPMO). In the case of the Tianjin Port component, day to day implementation of the project was undertaken by THCC. The structure was somewhat unwieldy but generally satisfactory. 7.7 Overall Borrower performance: Overall, the borrower's performance in project preparation and implementation by both government and the implementing agencies is rated satisfactory. The project was completed within the estimated cost and, except for the low volume of containers handled at the ICDs, the objective of the project was achieved. - 8 - 8. Lessons Learned In linking the development of a business enterprise (container handling and transportation) to a reform in government policy (Customs regime), it was not foreseen that a change of such significance might apply to the trade in general rather than just the project enterprises. The business model of the ICD enterprise, which relied heavily on the availability of "off-port" clearance of containers, did not take into account the competition that could come about when alternative sources for obtaining the service became available. The poor performance of the ICD Development component highlights the importance of technical assistance and the need for measures to mitigate risks when a new business is embarked upon by an enterprise with no prior experience. 9. Partner Comments (a) Borrower/implementing agency: A. General This report summarizes the main jobs, experiences and lessons learnt during the implementation of the Container Transport Project financed partly by the IBRD loan. B. Project Description Project Objective The objective of the project was to facilitate the penetration of containers from coastal ports to inland cities in China, thereby helping to balance development between the coastal and inland areas. Project Contents The scope of the project included: - the improvement of handling capacity of the container berths at Tianjin Port operated by the Tianjin Harbour Container Company (THCC); - the development of the eight inland container depots (ICDs) along two transport corridors and - policy reform and practice in container transportation. C. Achievement of the Objective The objective of the project was achieved. Inland container depots (ICDs) were developed as designed to handle containers in Hangzhou, Huzhou and Xiaoshan in Zhejiang Province; Handan, Cangzhou, Tangshan and Qinhuangdao in Hebei Province and Baotou in Inner Mongolia, and equipment to enhance the container handling capacity in Tianjin Port was provided as planned. The project involved various ministries and policy actions were taken to revise certain rules and regulations relating to the carriage of containers in international trade including: - the provision of Customs officers at the ICDs by the China Customs General Administration to undertake inspections and clearances of cargo; - separate registration of trailers and tractors to provide greater flexibility in the use of vehicles; - preferential toll charges for container transport vehicles in Zhejiang province; and - reduction in the percentage of containers opened for Customs' inspection to accelerate the speed of cargo clearance. D. Formation and Preparation of the Project A joint study on container transport was initiated by the former State Economic and Trade Commission (SETC) and the World Bank in March 1994 and resulted in a report in June 1996 which formed the basis for the development of the project. The study, though not a requirement of the Bank in project preparation, provided useful information for both the Chinese authorities and the Bank on the rationale and justification for the project. - 9 - In 1996, the former State Planning Commission (SPC) included the project in the list of candidate projects in the 3-year rolling plan (1997-1999) for Bank financing. The Bank sent a project pre-identification mission in November 1996, a project identification mission in May 1997 and two project preparation missions in November 1997 and February 1998. In March 1998, SETC approved the investment proposals submitted by the Tianjin, Inner Mongolia, Zhejiang and Hebei provincial economic and trade commissions. The approval was contained in four official documents with the references GUOJINGMAOGAI [1998]145, 146, 147, and 148, included (a) Tianjin port component and (b) an ICD Development component consisting of the development of ICDs in Baotou in Inner Mongolia; Hangzhou, Huzhou and Xiaoshan in Zhejiang; and Qinhuangdao, Tangshan, Cangzhou, Baoding, Shijiazhuang and Handan in Hebei. In March 1999, SETC approved the feasibility studies submitted by the Tianjin, Inner Mongolia, Zhejiang and Hebei provincial economic and trade commissions in its four official documents with the reference number of GUOJINGMAOTOUZI [1999]202, 203, 204 and 205, respectively. Shijiazhuang municipal government subsequently requested that Shijiazhuang ICD be deleted from the project due to a lack of internal financing for its development. The Bank in April 1998 sent a mission to pre-appraise the project and in July 1998 the project was appraised. The loan agreement was negotiated in January 1999 in Washington D.C. and signed in September 1999. SPC had in the meantime in July 1999 formally approved SETC's proposal to use a World Bank loan to finance the proposed project. In June 2000, the Baoding municipal government also requested that the development of the Baoding ICD be withdrawn due to financial difficulties in connection with the acquisition of land. The project was therefore left with eight ICDs from three provinces and the Tianjin port component. E. Project Implementation Management during project implementation Management of implementation of the ICD component faced difficulties mainly because of the involvement of various ministries and several provinces in the project, the many small operational entities with small amounts of loan granted and the inexperience of project managerial organizations in project management. These difficulties were overcome due principally to the structure for managing the project's implementation. The arrangements for supervision of the project were discussed and agreed upon between the Bank and the SETC during project preparation. In essence, the ICD sub-components were managed at various levels through the Central Project Management Office (CPMO) setup by the SETC in July 1997. The provincial and municipal project management offices (PPMO and MPMO) were also established in the provinces to monitor the implementation of their sub-components. The ICD enterprises were responsible for the daily management of implementation at their ICDs. The Managerial Rules of the Project Implementation of the World Bank Loan Project for Upgrading International Container Multimodal Transportation System, formulated by CPMO based on an official document issued by the former SETC with the reference number YUNXING [1999]07 on April 21, 1999, defined the managerial organization. CPMO was responsible for the liaison and coordination between the ministries, the Bank and the provinces as well as taking charge of the bidding processes. The responsibilities of CPMO, PPMO and project enterprises were well defined without duplication or overlapping to ensure an efficient management practice. Emphasis on financial supervision and disbursement Financial personnel from the three levels of management were trained by the Bank's resident mission in - 10 - Beijing. Civil Works Tianjin port: The project involved the upgrading of 835 meters of berths at the fourth harbor basin and the construction of an 800-meter long crane track using domestic funds as well as the purchase of container handling equipment procured by the Bank loan. Engineering design, construction and supervision of civil works in ICDs a) Design: Consultants for the designs of the ICDs were selected by the respective ICD entities. b) Construction: NCB procedure was adopted in the selection of contractors by PPMO and construction contracts were signed between ICD entities and the bid winners. The scope of work in each ICD included office buildings, container yards, warehouses, service roads and some infrastructure for environmental protection. All civil works reached the standard of acceptance and have been put into use. However, completion was delayed at some ICDs due to large contract variations resulting from design changes to meet potential users' requirements. c) Supervision: The majority of ICD enterprises selected supervision companies through a bidding process. Due to proper supervision, the quality of the construction met requirements specified in the construction contracts. Environmental Impact Statement and Evaluation The project was classified as Category B by the Bank. The Tianjin Environmental Impact Evaluation Center was selected by CPMO to undertake the environmental impact analysis in 1997. An environmental impact statement was submitted by SETC to the State Environmental Protection Administration for review and was subsequently approved by the state environmental protection body in September 1998 under reference number of HUANFA [1998] 326. Provincial environmental protection departments monitored construction to ensure that requirements contained in the statement were met. Equipment Procurement The ICB equipment procurement for Tianjin port (quayside cranes, rubber-tired gantry cranes, and forklifts) was tendered by CNTIC International Tendering Corporation and those of the ICDs were tendered by CMC International Tendering Corporation. All procedures were in accordance with the Bank's ICB procurement guidelines. There was a saving of approximately 30% in cost. Miscellaneous items of equipment which varied among ICDs were procured based on International Shopping (IS) procedure. Technical Assistance Staff training Key personnel from the nine project entities, and project officials from concerned ministries, provincial and municipal governments received overseas training financed by the loan, project entities' own funds and CIDA (Canadian government grant). Training programs included techniques, policy, rules and regulations in container yard/port management as well as regulations and method of environmental protection compliance. Such TA activities helped to widen the exposure of officials and enterprise leaders to modern operation and management of ICDs and provided the foundation for the long term planning and business development of the ICD enterprises. Financial training Training in financial management was financed by CIDA. CPMO also organized training on loan disbursement management. - 11 - Studies on specific subjects: a) Tianjin port: The study on improving Tianjin Port's berth productivity is being reviewed by experts. The study on establishing a competitive environment for container terminal operations was completed in March 2005. b) ICD: The preparation of the ICDs' operation manual and the business plan was completed. Development of MIS/EDI integrated system: Waterborne Transportation Institute (WTI) was awarded a contract in October 1999 to undertake the task of developing a uniform EDI/MIS for all eight ICDs. The system was first installed in 2001 followed by a series of fine tuning and debugging. It was inspected in 2004 and found to have a 95% compliance with the provisions of the contract. Land Acquisition and Resettlement No resettlement was required for all the nine project sub-components. Land acquisition took place in three project sub-components, namely: Handan, Hangzhou and Xiaoshan. Closing Date The loan for the project was closed on June 30, 2005. Main Experiences, Lessons and Suggestions Procurement Both the Chinese party and the Bank took considerable time in reviewing bidding documents and bid results, which consequently affected the construction schedules of a few ICDs, though the delays had no impact on the final cost of procurement. The application of NCB procedure for civil works was appropriate given the relatively small contract sums for works undertaken at the various ICDs. However, the Bank's requirement that the lowest evaluated bidder be awarded the contract created problems in some ICDs. There were many elements which were dependent on engineering design and these were difficult to define clearly in the bidding document. Bidders, who were mostly medium-sized enterprises with little experience in participating in international bidding, offered - as was usual in China -unreasonably low prices just to win the bids. After winning the contracts, they would begin to raise problems and a lot of energy and time were spent in ensuring that they complied with the specifications and requirements contained in the contracts. It is suggested that for NCB procurement in civil works the Bank give consideration to the fixing of a lowest acceptable price. Any bid that is lower than the bottom price should be rejected. This will eliminate the current unhealthy practice in procurement in China. Disbursements Disbursements by the Bank were on time during project implementation, reflecting that the project entities had complied with the Bank's rules as well as the Bank's effective supervision and control. MIS/EDI The development of the MIS/EDI should provide a good lesson for projects. Firstly, it was taken too early; secondly it was too idealistic to assume that the same MIS/EDI system could apply to all the eight ICDs. The shortcoming in the MIS/EDI could not be overcome even after deferring its commissioning from 1999 to 2004. The market for software development in China was immature and still growing. Users' requirements were apt to change even over a relatively short time. Users' preference for software differed widely and - 12 - there were no standard criteria for evaluating operating systems and application software. Information technology has been developing rapidly and people's knowledge and skill in network application has been improving. In such a situation it was a difficult task trying to satisfy all users. Long project cycle The project cycle was a little long. It took about nine years from the pre-identification mission in November 1996 to the submission of the Implementation Completion Report following the closing date of the loan on June 30, 2005. While the various steps for project preparation and implementation are necessary for both the Bank and the Chinese authorities, it is desirable that both parties reduce the time taken for project formulation and simplify project processing. Difficulty and experience in packaged project management The project, though a small one with a Bank loan of USD71 million, involved nine project entities from nine cities. It also involved various ministries and their subordinate departments including the former SETC, former State Planning Commission (SPC), MOF, MOR, MOC, Ministry of Public Security (MOPS), General Administration of Customs (CGA), Department of Sanitary Inspection and Quarantine and the former MOFTEC. Since project management had to meet the Bank's standard of supervision, careful consideration had to be given to the arrangements and cost involved. With this objective in mind, SETC decided to establish a Central Project Management Office and appointed China Communications and Transportation Association (CCTA) to form the nucleus of the unit. Staff of CPMO comprised professional staff from CCTA supplemented by specialists recruited from other organizations. The arrangements for project management were highly successful and cost effective. The establishment of a Central Project Management Office for coordination should be encouraged in future projects with similar complexities. F. Implication of the project The implementation of the project did not merely satisfy the need for the services and/or facilities rendered by the project. It also had wide ranging implications for container transportation in China. It drew the attention of the various ministries to the significance of containerization and trade logistics. It raised the awareness of the need for policy reform in the transportation and logistics sectors among the ministries, provincial and municipal governments. It also increased the knowledge and enhanced the skills of the staff of the project entities due to the training provided under the project. G. Communication The communication and cooperation among the CPMO, PPMOs, project entities and the Bank at every stage have been efficient and smooth despite the changes of staff in the parties over the period of project implementation. The occasional disagreements among the parties were resolved through objective discussions by the highly professional teams among the parties. H. Front-end Fee There are still objections from the project entities to the payment of the front-end fee of 1% of the loan amount. The project entities considered that the front-end fee was used to cover the Bank's management cost and should be funded by the Bank's internal resources instead of having it passed to the borrower. I. The World Bank's Work The Bank's suggested arrangement for project management was crucial to the successful implementation of the project and to the saving of supervision cost. The periodic visits by the Bank's supervision team offered assistance in resolving issues raised by - 13 - project entities and their supervising organizations and ensured timely implementation of the project. Merit of ICB procurement procedure The ICB procurement made it possible to obtain high quality equipment at a cost approximately 30% lower than estimated. It also demonstrated the merit of procurement in an open, transparent and corruption-free environment. The Bank's policy in aiding the development of inland cities/regions was in accordance with the policy of the Chinese government. It was for this reason that the Baotou ICD was included in the project by the borrower. (b) Cofinanciers: (Not Applicable) (c) Other partners (NGOs/private sector): (Not Applicable) 10. Additional Information - 14 - Annex 1. Key Performance Indicators/Log Frame Matrix (a) Project Development Objective Development Key Indicator Baseline Value Target Value Actual Value Objective (1996) (2003) (2003) (2004) Facilitate inland Value of imports and penetration of exports to and from 19.1 49.1 25.3 31.7 seaborne containers project cities from gateway ports to (US$ billion) inland cities (b) Project Outcome Project Outcome Key Indicator Baseline Value Target Value Actual Value (1996) (2003) (2003) (2004) Increase container Number of containers 148,000 572,000 32,918 55,110 movement along handled at project ICDs project corridors (teu) Average container cycle 11 8 9.8 9.6 time between gateway port and Hangzhou (days) Enhance berth Number of containers 500 974 1,351 1,547 productivity of THCC handled at THCC 50% by 2003 (000 teu) Number of boxes handled 18 34 72.5 83.3 per vessel hour at THCC (box) - 15 - (c) Project output Project Output Projected to Complete Actual Completion (PAD 1999) A. Develop common user ICDs in Zhejiang: Hangzhou April 2000 October 2001 Huzhou March 2000 September 2001 Xiaoshan February 2000 October 2002 Inner Mongolia: Baotou October 2000 July 2003 Hebei: Handan July 2000 October 2003 Qinhuangdao July 2000 November 2003 Tangshan July 2000 October 2002 Cangzhou July 2000 October 2001 B. Upgrade container handling capacity at THCC's container terminal: - reinforced 835 m of wharf apron for crane rail and expanded October 2001 container berths by 450 m - purchase of 3 quayside container cranes, 13 rubber tired gantry October 2000 February 2002 cranes, 5 forklift trucks and other ancillary equipment - technical assistance (i) to establish an institutional June 2005 and operational environment for intra-port competition (ii) for enhancing container berth productivity March 2003 - 16 - Annex 2. Project Costs and Financing Table 2.1 Project Cost by Component (in US$ thousand equivalent) Appraisal Actual Percentage of Project Component Estimate (US$ thousand) Appraisal (US$ thousand) I. ICD Development A. Equipment 22,606 20,085 88.8 B. Civil Works 17,574 15,958 90.7 C. Technical Assistance & Training 559 418 74.7 D. Other Investments 42,669 12,897 30.2 Subtotal 83,408 49,358 59.2 II. Upgrading Tianjin Port Container Handling Capacity A. Equipment 36,404 22,561 62.0 B. Civil Works 7,802 1,603 20.5 C. Technical Assistance & Training 177 142 80.2 D. Other Investments 27,649 0 0.0 Subtotal 72,032 24,306 33.7 Total Baseline Cost 155,440 73,663 47.4 Physical contingencies 2,186 0 0.0 Price contingencies 880 0 0.0 Taxes and duties 284 0 0.0 Total Project Cost 157,790 73,663 46.7 - 17 - Table 2.2A Project Costs by Procurement Methods (Estimated, PAD 1999) (US$'000) Component/ Total cost category ICB NCB Other NBF including contingency ICD Component: Civil Works 19,072 19,072 (9,345) (9,345) Goods 22,528 74 253 40 22,895 (22,528) (72) (253) (0) (22,854) Services 569 569 (569) (569) Other 42,670 42,670 Investments (0) (0) Tianjin Port Component: Civil Works 8,583 8,583 (0) (0) Goods 36,888 36,888 (36,888) (36,888) Services 179 179 (179) (179) Other 27,649 27,649 investments (0) (0) Total 59,416 19,146 1,002 78,942 158,50 (59,416) (9,417) (1,002) (0) (69,835) Figures in parentheses are amounts to be financed by the Bank loan - 18 - Table 2.2B Project Costs by Procurement Methods (Actual to June 30, 2005) (US$ `000) Component/ Total cost category ICB NCB Other NBF including contingency ICD Component: Civil works 15,958 15,958 (6,634) (6,634) Goods 18,874 0 638 574 20,085 (18,874) (0) (613) (0) (19,487) Services 380 38 418 (380) (0) (380) Other 12,897 12,897 investments (0) (0) Port Component: Civil works 1,603 1,603 (0) (0) Goods 22,561 22,561 (21,440) (21,440) Services 142 142 (106) (106) Other 0 0 investments (0) (0) Total 41,435 15,958 1,160 15,112 73,664 (40,314) (6,634) (1,099) (0) (48,047) Figures in parentheses are amounts financed by Bank loan - 19 - Table 2.3 Project Financing by Component (US$ `000) Component PAD estimate Actual Percentage of PAD Bank Loan Govt Bank Loan Govt Bank Loan Govt ICD Component: 1. Goods 22,854 41 19,487 599 59.5 1.2 2. Works 9,34 9,727 6,634 9,324 20.2 17.8 3. Services 569 0 380 38 1.2 0.0 4. Other Investments 0 42,670 0 12,897 0.0 24.6 Sub-total 32,768 52,438 26,501 22,858 80.9 43.6 Port Component: 1. Goods 36,888 0 21,440 1,121 57.8 3.1 2. Works 0 8583 0 1,603 0.0 4.5 3. Services 179 0 106 36 0.3 0.0 4. Other Investments 0 27,649 0 0 0.0 0.0 Sub-total 37,067 36,232 21,546 2,760 58.1 7.6 Total 69,835 88,670 48,047 25,618 68.8 28.9 - 20 - Annex 3. Economic Costs and Benefits Table 3.1: Economic and Financial Evaluation Summary ( RMB million) The ICR The PAD EIRR (%) ENPV FIRR (%) FNPV EIRR (%) ENPV FIRR (%) (12%) (4.53%) (12%) FNPV 1. Tianjin Port (THCC) 50.7 1,003 35.4 1,246 43.8 626 23.5 297 2. Inland Container Depots (ICD) 11.4 (27) -- (1,028) 32.7 325 22.8 171 Total project 24.7 868 7.4 127* 39.4 951 23.2 464 *NPVs for the component do not add to total because NPVs are calculated as of year when construction began, which varied from one project site to another; total assumes simultaneous start for all. Table 3.2: Traffic Data ( in `000 TEU equivalent) 1999 2003 2004 2005 2005 PAD ICR ICR/PAD (%) THCC 806 1,351 1,547 1,006 1,625 16 Baotou 1.5 6.1 26.0 8.7 33.2 Qinhuangdao 0.6 4.0 61.0 4.2 6.9 Tangshan 3.0 3.3 72.8 3.5 4.8 Cangzhou 3.7 5.5 33.0 5.7 17.2 Handan 0.2 1.1 33.5 1.3 3.7 Huzhou 1.8 1.4 57.9 1.0 1.7 Hangzhou 11.2 21.7 297.2 28.0 9.4 Xiaoshan 10.8 12.0 176.1 13.0 7.4 Sub total 32.8 55.1 757.5 65.4 8.6 Sources: THCC, ICD and the Bank staff. - 21 - Annex 4. Bank Inputs (a) Missions: Stage of Project Cycle No. of Persons and Specialty Performance Rating (e.g. 2 Economists, 1 FMS, etc.) Implementation Development Month/Year Count Specialty Progress Objective Identification/Preparation 10/30/1996 4 TEAM LEADER (1); SR. TRANSPORT ECONOMIST (1); ECONOMIST (1); PORT ENGINEER (1) 05/13/1997 3 TEAM LEADER (1); INTERMODAL SPECIALIST (1); PORT ENGINEER (1) 02/15/1998 2 TEAM LEADER (1); INTERMODAL SPECIALIST (1) Appraisal/Negotiation 07/15/1998 4 TEAM LEADER (1); SR. TRANSPORT ECONOMIST (1); INTERMODAL SPECIALIST (1); LEGAL COUNSEL (1) 01/25/1999 3 TEAM LEADER (1); LEGAL COUNSAL (1); DISBURSEMENT OFFICER (1) Supervision 05/09/1999 4 TASK TEAM LEADER (1); S S TRANSPORT ECONOMIST (1); PRORUREMENT SPEC. (1); COORDINATOR WITH PMO (1) 06/21/2001 1 FINANCIAL MANAGEMENT S S S (1) 09/23/2001 1 FINANICAL MAGT SPECL. (1) U S 05/24/2002 5 SR. TRANSPORT ECONOMIS U S (1); SR. TRANSPORT ENGINEER (1); PROCUREMENT SPECIALIST (2); DISBURSEMENT ANALYST (1) 12/06/2002 3 TASK LEAM LEADER (1); SR. S S TRANSPORT ENGINEER (1); TRANSPORT SPECIALIST (1) 10/16/2003 2 TASK TEAM LEADER (1); SR. S S TRANSPORT ENGINEER (1) 11/07/2004 5 SR. ECONOMIST/TTL (1); S S - 22 - LOGISTICS CONSULTANT (1); CIVIL ENGINEER (1); SECTOR LEADER/OBSERVER (1); PROCUREMENT (1) ICR (b) Staff: Stage of Project Cycle Actual/Latest Estimate No. Staff weeks US$ ('000) Identification/Preparation 126.5 409 Appraisal/Negotiation 30.5 123 Supervision 68.3 549 ICR 20.2 100 Total 245.5 1,181 - 23 - Annex 5. Ratings for Achievement of Objectives/Outputs of Components (H=High, SU=Substantial, M=Modest, N=Negligible, NA=Not Applicable) Rating Macro policies H SU M N NA Sector Policies H SU M N NA Physical H SU M N NA Financial H SU M N NA Institutional Development H SU M N NA Environmental H SU M N NA Social Poverty Reduction H SU M N NA Gender H SU M N NA Other (Please specify) H SU M N NA Private sector development H SU M N NA Public sector management H SU M N NA Other (Please specify) H SU M N NA - 24 - Annex 6. Ratings of Bank and Borrower Performance (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HU=Highly Unsatisfactory) 6.1 Bank performance Rating Lending HS S U HU Supervision HS S U HU Overall HS S U HU 6.2 Borrower performance Rating Preparation HS S U HU Government implementation performance HS S U HU Implementation agency performance HS S U HU Overall HS S U HU - 25 - Annex 7. List of Supporting Documents 1 The World Bank China: Container Transport Services and Trade: Framework for an Efficient Container Transport System , Feb 10, 1996 2 The World Bank Project Appraisal Document, Container Transport Project, Feb 14, 1999 3 The World Bank Amendment to the Loan Agreement, Oct. 26, 2000 4 CPMO Inland Container Depot, Operation Manual, Sept., 2001 5 CPMO Midterm Implementation Report, Container Transport Project, Dec. 21, 2001 6 The World Bank Cancellation & Loan Proceeds for Tianjin Port Conferment, Nov. 18, 2002 7 CPMO Semi-Annual Implementation Report of Container Transport Project, 2001 to 2005 8 CPMO Clause 9 of the Implementation Completion Report, June, 2005 9 The World Bank Supervision Report and Aide-memoires, 2001 to 2005 10 ICD Enterprises Project Implementation Report, 2001 to 2005 11 Nankai University An Analysis on the Fair Competition Status of Container Terminal Companies in the Port of Tianjin, June 2002 - 26 - Annex 8. Beneficiary Survey Results (Not Applicable) - 27 - Annex 9. Stakeholder Workshop Results (Not Applicable) - 28 - - 29 -