How can China improve value for money in its railway projects?

China has experienced substantial economic growth over three decades, with sustained annual GDP growth rates of 8%-10%. In order to maintain the growth, the government seeks to accelerate the process of industrialization and urbanization started in the 12^th Five Year Plan (2011-2015).

China has made investment in transport infrastructure a centerpiece of its strategy, with investment in the rail sector specifically increasing, in recognition of lower cost, higher energy efficiency, and lower carbon emission of rail transport compared with road and air transport.

China has built the world’s largest high-speed rail network, which includes 16,000 kilometers of rail connecting 160 cities on the mainland. China’s Mid- and Long-term Railway Network Plan (2004-2020), adopted in 2004 and updated in 2008, contains an ambitious program of railway network development, with an aim of increasing the public railway network from 75,000 km to 120,000 km, among which 25,000 route-km will be fast passenger railway routes.

Procurement of high-speed railway projects in China is complex and transaction heavy. The technology is constantly changing due to innovation by designers and manufacturers, and the inclusion of multiple agencies and officials can increase the complexity.

Furthermore, procurement packages comprise multiple contracts and large value contracts, there is a high level of interest from new entrants to the market who may not have the requisite track record. The differences between domestic procedures and the World Bank’s Procurement Framework also add to the complexity.

Given the large value of procurement packages, nearly all the transactions are subject to clearance by the World Bank’s Operational Procurement Review Committee (OPRC). Benefiting from the increase of the OPRC review thresholds and having the Accredited Practice Manager based in East Asia in the same time zone with the Client and Procurement Hub Leader based in Beijing, the efficiency of procurement review and clearance has improved significantly.

In 2014, the World Bank’s China railway team worked with the China Railway Corporation (CRC) and the project Railway Companies to procure contracts under Guiguang Railway and Jituhun Railway Projects with a total contract amount of over USD 450 million.

Procurement under the railway projects also derives cost savings from international competitive bidding. For example, under the Shizheng Railway Project, there was a saving of nearly USD 100 million after completion of all procurement within the initial procurement plan. Using this savings, 28 fast travelling catenary maintenance vehicles (CMV) were procured, distributed to 10 railway administration bureaus nationwide.

This was the first time such fast travelling CMVs were purchased for use in the railway sector. This makes a great contribution to the efficient maintenance and safe operation of the high speed rail network in China.

Since 1984, the World Bank has been involved in financing the railway development in China, throughout 18 projects, with total World Bank financing of USD 4.55 billion. CRC (formerly Ministry of Railways) is the largest sub-borrower of both the World Bank and the Asian Development Bank in China.

In order to share knowledge, experience and lessons learned from different railway projects among project agencies and other stakeholders, the Public Integrity and Openness team of the Governance Global Practice (PIO-GGP) in the World Bank Beijing Office worked together with the Asian Development Bank (ADB), Ministry of Commerce (MOFCOM) and CRC and, on April 22, 2015, co-sponsored a workshop for all railway projects financed by the World Bank and by ADB.

The Stakeholder Engagement Workshop convened representatives from 9 railway companies, 3 design institutes, and 6 procurement agent companies.

The goal of the workshop was to expand the dialogue with key stakeholders and hear their ideas for fit-for-purpose procurement, enhancing value for money and performance improvement in procurement, and contract management in ADB and World Bank financed procurement for the railway sector in China. All the participating parties shared issues and challenges from their respective perspectives.

Suggested actions for the World Bank and ADB included to continue to provide procurement training to railway companies during project preparation and project implementation and to conduct joint supervision missions with MOFCOM.

The workshop concluded successfully with agreement on the need for trust, shared vision and ongoing communication among stakeholders.

This article was first published by The World Bank’s Governance for Development blog. Publication does not imply endorsement of views by the World Economic Forum.

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Author: Jianjun Guo is a Senior Procurement Specialist based in World Bank’s Beijing Office.

Image: A worker stands among CRH (China Railway High-speed) Harmony bullet trains at a high-speed train maintenance base in Wuhan, Hubei province March 9, 2015. REUTERS/Stringer.