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Quadripartite Meeting on the Chiang Rai-Kunming
via Lao PDR Road Improvement Project
Greater Mekong Subregion
Bangkok, Thailand
14 November 2001
Summary of Proceedings
I. Introduction
1. The Quadripartite Meeting (the Meeting) on the Chiang Rai-Kunming via Lao PDR Road Improvement Project (CLK Road Project) was held in Bangkok, Thailand on 14 November 2001. The Meeting was hosted by the Royal Thai Government, with the assistance of the Asian Development Bank (ADB). The participating countries and the Asian Development Bank (ADB) expressed their appreciation to the Royal Thai Government for the hospitality, organization, and assistance provided to the Meeting.
2. The objective of the Meeting was to discuss project-related issues, including alignment, design standards, and financing arrangements for the Lao section of the CLK Road Project (hereinafter referred to as "R3") benefiting the Greater Mekong Subregion (GMS). The Meeting Agenda is attached as Appendix 1.
3. The participants of the Meeting included delegations from the People's Republic of China (PRC), Lao PDR, Kingdom of Thailand, and representatives from the ADB. The list of participants is attached as Appendix 2.
4. The Meeting was chaired by Mr. Preben Nielsen, Deputy Director, Infrastructure, Energy, and Financial Sectors Department (West), ADB.
II. Opening Session
5. Mr. Nielsen welcomed the participants of the Meeting. Mr. Nielsen informed the Meeting about the successful conclusion on 5 November 2001 of the mediation agreement between the Government of Lao PDR and Business Siam Co., Ltd, concerning the Lao section of the CLK Road Project. He expressed appreciation to Mr. Noritada Morita, former ADB Director of Programs Department (West), who helped ADB in facilitating the successful conclusion of the Agreement. Mr. Nielsen explained that the Meeting's purpose is to come up with a clear implementation plan for the R3 Project, which is one of the high-priority flagship initiatives under the ADB-assisted GMS Economic Cooperation Program. Mr. Nielsen expressed the need to update the feasibility study conducted in 1998, including social and environmental impact analysis, and finalize the options to be considered for road development. Mr. Nielsen expressed the hope that the Meeting could come up with suggestions on the financing arrangements for the R3 Project, which are important in the conduct of the feasibility study update. Mr. Nielsen noted with appreciation the interest that had been expressed by the Governments of the PRC and Thailand for the development of the R3 Project. Mr. Nielsen also informed the Meeting that ADB, which has always been a lender of last resort, has included in its lending pipeline to Lao PDR for 2002 a tentative amount of $20 million from the concessional ADF resources to help implement the R3 Project.
III. Country Statements on Developments on the Project Road
6. The delegations presented their country statements on developments on the CLK Road Project in their respective countries. Presentations were made by the heads of the country delegations as follows:
- Mr. Ju Chengzhi, Deputy Director General, Department of International Cooperation, Ministry of Communications, PRC;
- Mr. Math Sounmala, Director General of Cabinet, Ministry of Communication, Transport, Post and Construction, Lao PDR; and
- Dr. Pornchai Rujiprapa, Deputy Secretary-General, National Economic and Social Development Board (NESDB), Thailand
7. The Meeting noted the country statements, highlights of which were as follows:
- The CLK Road Project is an important transport and economic corridor that would link PRC with countries of the Association of Southeast Asian Nations (ASEAN).
- With the resolution of the concession issue, the R3 Project should be implemented as soon as possible.
- The PRC Government has expressed its willingness to provide official assistance to finance one-third of the total length, closest to the Lao/PRC border. Implementation will be undertaken bilaterally under a framework to be coordinated by ADB.
- The detailed status of the section of the CLK Road in the PRC, i.e., from Kunming to Mohan is as follows:
- Kunming-Yuxi: Upgrading to a 6-lane expressway was completed in 1994;
- Yuxi-Yuanjiang: Upgrading of this 114-km section to a 4-lane expressway was completed in 2000;
- Yuanjiang-Mohei: Upgrading of this 147-km section to a 4-lane expressway is underway and is expected to be completed in 2003;
- Mohei-Simao: Upgrading of this 71-km to a class 2 standard was completed in 1996;
- Simao-Xiamenyang: Upgrading of this 124-km section to a 4-lane expressway is expected to be completed in 2004 and would reduce the length to 97 km; and
- Xiaomenyang-Mohan: Upgrading of this 217-km section is planned; the improvement would reduce the length to 186 km.
The total length of the Kunming-Mohan road will be reduced from 838 km to 701 km after completion of all construction activities. By 2005, this section would have been upgraded to Class 2 or higher standard, commensurate to the level of traffic and economic activity in the area of influence.
- PRC's recent accession to the World Trade Organization and the agreement to establish a free trade area within PRC and ASEAN within the next 10 years would provide a conducive environment for the full implementation of the CLK Road Project.
- The Lao Government is committed to improving international road connections, in recognition of the country's strategic location as a landlocked country that could take advantage of increasing linkages with its neighbors.
- The 263-km R3 Project between Houei Sai and Boten via Luang Namtha is important, not only in a subregional perspective, but also to the social and economic development of the northern area in Lao PDR, which is relatively less developed and where ethnic minorities reside.
- The ownership of the R3 Project is back with the Lao Government following successful conclusion of a mediation agreement; ADB involvement in this regard was appreciated.
- The condition of R3 is essentially the same as 3 years ago, except for some slope protection and minor maintenance works done on certain sections.
- Investment required for the R3 Project is beyond the financing capacity of the Government of the Lao PDR. As catalyst of the GMS Program, ADB is requested to coordinate and help finance the R3 Project. The Government of Lao PDR is pleased to learn about the willingness of the PRC and Thai Governments to help finance the R3 Project.
- The Governments of PRC and Thailand, and ADB are committed to provide assistance to Lao PDR to complete the missing link.
- The Chiang Rai-Bangkok road connection is a 4-lane divided highway and is in good condition. The 150-km Bangkok-Laem Chabang road connection is a 4-lane divided highway and is in good condition. The road from Bangkok to Phuket port is 700 km long and is a 4-lane highway.
- The road connections from Chiang Rai to Chiang Khong are well developed, and are not seen as constraints to cross-border movement. Rehabilitation of this road corridor will be implemented during the 9th National Development Plan (2002-2006).
- A joint cross-border agreement should be pursued to bring efficient and reliable transport in the GMS.
- CLK is one of the most important initiatives under the GMS Program.
IV. Alternative Alignments and Standards and Related Costing; and Design and Construct Alternatives
8. Mr. Preben Nielsen, ADB, presented the alternative alignments and standards for R3. He expressed the need for the Meeting to agree on design standards, and limit the alternative alignments to be considered under a technical assistance (TA) feasibility study update. He informed the Meeting that a TA to Lao PDR is being processed by ADB to update the feasibility study on R3 as well as conduct detailed environmental and social impact assessment. This TA will commence very soon. Mr. Nielsen noted the following developments:
- The public-private concession on R3 (EQJDC) has built five bridges between Luang Namtha to Vieng Poukha.
- An alternative alignment (bypass) at Luang Namtha is being built by the World Bank to rural access road standard.
- From Vieng Poukha to Houei Sai, improvements on this section, particularly in the mountain areas, have been undertaken by a lignite mining company.
- A major alternative alignment was proposed, as part of the original feasibility study between Ban Nam Nguen and Houei Sai. However, this should consider recent work that has already been done on the existing alignment by the lignite mine, including some bridge works at the point where the two alignments converge. There is a need to carefully examine the options in crossing the Mekong River, i.e., whether to use expanded ferry service or construct a bridge. Future traffic will have to be considered once there is full connection along the entire length.
- The design standards for a Class 2 road are almost similar for Lao PDR and PRC.
9. Thailand noted that the ASEAN countries have adopted the ASEAN Highway Standard (4 classes). Thailand proposed the use of the ASEAN Highway Standard for the R3 Project.
10. Lao PDR agreed with the observation of ADB that except for the bypass at Luang Namtha, the R3 Project should follow the existing alignment because of much work (considered sunk cost in an economic context) that has already been done by the lignite company on the road. Lao PDR proposed to consider the international bridge early in anticipation of increased traffic. Lao PDR proposed staged construction, initially for a two-lane highway with a provision to eventually expand to four lanes.
11. PRC suggested that the technical standards should be uniform among the parties involved in the rehabilitation of R3. The alignment considerations should take into account that the project road would pass close to forest areas in some sections, which was not reflected in the 1998 feasibility study. PRC noted the importance of conducting a satellite survey in determining the proper alignment. PRC distributed to the Meeting proposed technical guidelines for the improvement of R3. PRC proposed the establishment of an expert group under the coordination of ADB to discuss technical standards and preliminary work including satellite survey maps. The Lao delegation agreed to call for such meetings in Vientiane between the PRC experts and the ADB consultants.
12. Mr. Nielsen noted that the project implementation should avoid disturbing the environmental and social "hotspots", and the need to design the project in a way that minimizes disturbance to the environment and social fabric of the society in the villages. In this regard, Mr. Nielsen suggested the use of the existing alignment so as not to incur possible environmental damage associated with a new alignment, particularly in the section from Ban Nam Nguen to Houei Sai.
13. The Meeting agreed to narrow down the alternative alignments, with due regard to the social and environmental dimensions of the R3 Project. Possible small realignments could be considered along the existing alignment. The Meeting further agreed to continue discussion on the alignments after the consultants on the feasibility study update submit the Inception Report.
14. The Meeting agreed to adopt the ASEAN Highway Standard for the R3 Project. The most likely design standard to be adopted would be a mix of Classes II and III. It was agreed that detailed discussions on the standard could only be made after the Inception Report of the feasibility study update is completed.
15. Mr. Nielsen requested the Meeting to provide their comments on the draft TA paper for the feasibility study update, and environmental and social impact assessment no later than one week after the Meeting.
V. Financing Arrangements
16. The Meeting considered two options for financing of the R3 Project as follows: (i) financing by the various parties based on the length of the project road; and (ii) financing based on sharing of total cost of the Project to determine the road length by respective parties.
17. Lao PDR indicated that implementation and financing arrangements should be decided upon when the TA update feasibility study is completed. Lao PDR requested ADB to finance the portion that will not be financed by PRC and Thailand. Lao PDR expressed appreciation to PRC for conducting the two-week technical survey of the road. Lao PDR expressed the need for a mechanism to coordinate the implementation of the three sections to be taken up by the three parties.
18. Mr. Nielsen underscored the need for coordination, particularly if more than one design/construct team is involved. He indicated that ADB would be happy to play this coordinating role. He emphasized that the TA feasibility study update needs to be implemented soon so that the ADB loan to Lao PDR for the R3 Project could be approved by December 2002. Being a lender of last resort, ADB could, within the country lending limit to Lao PDR, adjust the loan amount accordingly based on the financing commitments of the other parties. The terms of the ADB loan are concessional, i.e., 32-years term, 8-year grace period, 1 percent interest rate during the grace period, and 1.5 percent thereafter.
19. Thailand confirmed that it has received a letter from the Lao Ministry of Finance requesting assistance for the development of the project road under favorable terms. Thailand committed to respond to this request soon. Thailand expressed preference to financing based on sharing the total cost of the Project in line with the benefits expected to accrue to the parties concerned. Thailand supported the idea of a coordination mechanism for design and construction. Thailand indicated that the grant element of their planned assistance will be similar to those of the other financiers.
20. Mr. Nielsen indicated that financing should be linked to revenues anticipated from the Project. The amortization period should be long since the expected revenues are likely to take time to be realized. In this regard, he expressed the need for the consultants of the feasibility study update to consider issues related to financing options and transit fee alternatives. Mr Nielsen encouraged the holding of bilateral discussions between the parties concerned.
21. PRC agreed that bilateral discussions are important, especially in determining costs, standards, and future next steps. PRC agreed that ADB should play a coordinating role in these discussions. PRC expressed preference for financing on the basis of the length of the road. PRC assured Lao PDR that it would provide concessional financing.
22. Mr. Nielsen noted that the cost of the R3 project could be roughly estimated to be between $60-90 million (road portion), excluding the cost of the international bridge estimated at $45 million.
23. Mr. Nielsen explained that in terms of design/construct arrangements, ADB would follow its procurement guidelines for its section of the road, while other parties could follow their own guidelines for their respective sections of the road. Mr. Nielsen explained that in the case of design arrangements, one possibility is for ADB to coordinate the design teams from the other parties. This modality has been done in other ADB-assisted projects.
24. Lao PDR stated that if the assistance to be provided would be a loan, then the terms of implementation should conform with the guidelines of the borrower, which is the Lao PDR Government. Lao PDR would like to participate in the process of recruiting consultants and procuring civil works. PRC and Thailand responded that, according to the PRC Government assistance program and the similar program for Thailand, construction projects financed by the two parties should follow the respective Governments' procedures on contracting and procurements. PRC and Thailand assured that they would comply with standards to be set by ADB and all concerned parties. Companies to be involved in the civil works for the sections to be financed by PRC and Thailand, will be selected based on domestic competitive bidding in the respective two countries.
25. Lao PDR and Thailand expressed the possibility for ADB to provide grant financing for the design of the project in order to ensure unified design that would set the standards/rule for the contractors. In response, Mr. Nielsen said that this might be difficult given that ADB has never provided grant financing for detailed design, although preliminary design could be financed as on a TA grant basis from the ADB-administered Japan Special Fund. Mr. Nielsen agreed to convey the request of Lao PDR and Thailand to the ADB Management for providing grant financing for detailed design.
26. The Meeting agreed that further discussion on the design/construct issues is needed at bilateral levels. It is envisaged that a more unified position could be reached by the parties concerned following the submission of the Inception Report by the consultants for the feasibility study update.
27. The Meeting agreed that ADB should explore other means of financing, preferably on a grant basis, from other donors, possibly Japan, for construction of an international bridge across the Mekong River between Chiang Khong and Houisai. Mr. Nielsen indicated that this approach could include JICA for grant financing (like the Pakse Bridge across Mekong) or JBIC for loan financing. Mr. Nielsen suggested to look closely at the financial analysis of the R3 project to assess if bridge toll revenues could be sufficient to finance the bridge construction. In this regard, Mr. Nielsen proposed to postpone discussions on financing for the bridge construction until such analysis is conducted. The bridge construction will be included in the feasibility study update.
VI. Social, Environmental, and Resettlement Matters
28. Ms Rita Ravi Nangia, Senior Economist, Transport and Communications Division (West), ADB presented the outline of the component of the planned ADB TA on social, environmental, and resettlement matters related to the R3 Project. Ms. Nangia explained that the 1998 feasibility study of the R3 Project recommended a full environmental impact assessment of the Project. The TA would also include a full social assessment, poverty analysis, and socioeconomic profile of the project influence area. An Indigenous Peoples' plan will also be prepared as part of the TA. In addition, economic corridor aspects will be covered in the TA to ensure integrated development in the project influence area.
29. Thailand supported the inclusion of economic corridor aspects in the TA, and expressed willingness to be involved in the discussion of these issues during the TA implementation.
30. The participants in the Meeting agreed to provide their comments to ADB on the TA paper on or before 23 November 2001.
VII. Private Sector Involvement in Operations, Maintenance, and Debt Service
31. Mr. Nielsen cited some examples of private sector involvement in the operations and maintenance of infrastructure projects in developing countries and payback of debt service.
32. Lao PDR will be exploring ways on mechanisms for operation and maintenance involving the private sector for subregional transport corridors that are being developed in the country.
33. Mr. Nielsen indicated the use of an approved ADB TA grant for the purpose of determining toll rate levels related to infrastructure costs for assessing the possibility of recovering all costs, including debt service. Mr. Nielsen clarified that the idea is for the Lao Government to recruit a private sector entity under a management contract in order to carry out the service of toll collection on behalf of the Lao Government. The Lao Government will set the tariff such that the revenues collected eventually could be sufficient to amortize the loan.
34. PRC expressed the view that it is desirable that all parties concerned consult each other in order to determine appropriate tariffs for the R 3 Project. This could be done by establishing a consultative mechanism, under the coordination of ADB, to discuss issues related to tariffs, and operations and maintenance of the road. PRC mentioned that revenue generated from toll collection should be utilized for operations and maintenance and debt service.
35. Mr. Nielsen clarified that some ADB loan agreements contain provisions for toll operations. Tolls are set in such a way that they would not distort the traffic pattern, but at the same time, should be sufficient to meet expenses for operations, maintenance, and part or full debt service. Mr. Nielsen informed the Meeting that the consultants that will work on toll operations for the East-West Corridor, will be asked to include the North-South Corridor in the scope of their study. The Meeting agreed to continue discussions on the issues in paras. 33-35.
VIII. Timetable for Next Steps
36. Ms. Nangia explained that the approval process for the TA for feasibility study update would be completed by December 2001. ADB will explore the possibility of engaging the services of the same consultants that satisfactorily conducted the 1998 feasibility study. Assuming this is successful, the consultants could be fielded by January 2002. The draft TA report is expected to be ready by April/May 2002. A fact-finding mission for the ADB loan could be mounted in May 2002. It is envisaged that loan approval by ADB could take place by the latter part of the fourth quarter in 2002.
37. The Meeting agreed to rotate the venue of future meetings among the three countries concerned. The next meeting in early February 2002 would be held in Vientiane and the following meeting would be held in PRC.
IX. Acknowledgements
38. The participating countries and the ADB expressed their sincere thanks and appreciation to the Royal Thai Government.
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