Final Report - Asian Development Bank

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6 TA 4721-PRC: Preparing the Shaanxi-Qinling Mountains Integrated Ecosystem Management Project Final Report Appendix 7 1. Investment Issues a. Cable car Proposal. 24. The PPTA is concerned about the current costing for the cable car. Cable car systems in China have cost between CNY40-100 million per system 5 for existing often quite old cableway systems. The current budgeted base cost is CNY15.4 million. While costs can be reduced through the use of local materials and technology and the supporting infrastructure such as roads and other services are included in the cost of the wider botanic garden, and the shorter length of cableway could reduce capital costs the PPTA is concerned that the current cost is significantly cheaper than other systems. Further to this based on the survey capital and operating cost of existing systems financial viability requires 400,000 customers per year. The FS forecasts that 30% of visitors to the botanic garden will use the cable car suggesting that 1.2 million visitors to the botanic garden are necessary to achieve viability. While the reduced capital cost will reduce the 400,000 passenger requirement even if the requirement is 50% of this level it will be well beyond the end of the Project before sufficient demand to break even. A more astute approach may be to wait until there is a significant visitor base that enables financial viability to be achieved early in the life of the cable car. 25. ADB should insist that (i) the QBG’s low capital cost estimate should be validated within the detailed design process conducted by a design and engineering institute experienced in cableway construction, (ii) based on that new capital cost estimate, separate financial analysis linked to forecast visitation to the botanic garden should be completed to ensure that the cableway contributes in a positive manner to the QBG’s financial bottom line, and (iii) it si also recommended that the cableway be operated under a management contract agreement by an experienced cableway company in the PRC. If the QBG fails to meet any of these conditions or if the independent capital cost estimate and/or financial analysis indicates that the cableway investment involves considerable financial risk and poor returns in phase one, the QBG and PDRC should agree to move the cableway investment to phase two when the QBG attendance needed to support this investment is more likely to be available. The implications for financial performance from removing the cableway from the capital costs, revenues and operating costs are described in the financial analysis section. b. Revenue Projections 26. A major determinant of viability is the forecasts of realistic visitation and pricing on which QBG revenue forecasts can be built. Botanic gardens in PRC, typically have high attendance built on low entry fees and total revenues per visitor. Many existing PRC botanic gardens are older facilities not operated on a commercial basis and having recovered the capital investment only require low entry fees and revenues to cover only operating costs. The current PRC botanic gardens surveyed by the PPTA have entry fees of CNY30 or less per visitor. For example, the small Xi’an Botanic Garden near the center of the city has an entry fee of CNY10, as does the Beijing Botanical Garden. 27. The sites of the horticultural exhibitions first at Kunming in 1999 and then in Shenyang in 2006 were established and fully paid for as one-year world-expo events and currently charge small entry fees that cover operating costs. The Shenyang (Liaoning Province) International Horticultural Exposition of 2006, which operated for 184 days from 1 May-31 October 2006, had an entry fee of CNY50. One year after the Expo, the garden operates by charging an entry fee of CNY20. The Kunming Horticultural Landscape Botanical Garden in Yunnan also charges CNY20. 28. The extent that domestic and international tourists visiting Xi’an – and local residents in southern Shaanxi reflect the visitors to other Botanic garden would suggest they are willing to pay less than CNY50. A small willingness-to-pay survey for Xian residents and visitors supports a price of less than CNY 50 with additional revenues from add-on services in food and beverage, and exhibitions. 29. Very strong pre-opening marketing – conducted cooperatively with other ex-situ facilities -- is required by the Botanic Garden is needed to differentiate its tourism product from other PRC botanic gardens. Through promotion it is possible that potential visitors from its local resident, domestic market, and international market segments will know that the Qinling Botanic Garden offers a wider range of tourism experiences, which includes biodiversity education, natural scenery and Daoist culture and religion. This pre-operation marketing campaign should involve joint marketing with the SARC and the Louguantai Forest Park in order to encourage many international and domestic tourists. 5 See Supplementary Appendix 1 for a detailed analysis of existing cable car systems in China.
TA 4721-PRC: Preparing the Shaanxi-Qinling Mountains Integrated Ecosystem Management Project Final Report Appendix 7 30. Another challenge is that Xi’an and Shaanxi offer a wide range of competing and very attractive tourism facilities. The local competition for tourists will be significant in the early years of the Project until awareness is developed. With the exception of the Terra Cotta Warriors, the Xi’an Wildlife Park and the Xi’an Aquarium, these competing facilities typically charge an entry fee of CNY40-50 and the revenues per visitor appear to be in the range of CNY100-120. A “willingness to pay” survey conducted by the PPTA Team confirmed that an entry fee of CNY50 and revenues per visitor of about CNY100 is appropriate for budgeting purposes. 31. A high entry fee forecast in the early years along with the add-revenues that result in total revenues per visitor being not competitive with alternative tourism facilities could result in very low attendance. This situation would place early financial performance and ADB loan repayment at risk. 32. Initially the QBG FS preferred an attendance/pricing scenario which involved lower attendance in the early years – recognizing the immaturity of the botanic garden and the need to build market interest and image over time – while charging high entry fees and other prices to enter the Park’s attractions. While the low early attendance was justifiable, the PPTA argued that the high entry fees and other charges were not competitive with alternative tourism facilities in Xi’an and would not be affordable for many potential visitors from domestic markets especially in the first critical years of QBG operation. 6 33. The QBG Design revision adopts a new visitation and pricing strategy based on high early attendance, high entry fees and revenues per visitor from 2011– with relatively little growth in these parameters throughout the period of the cashflow 7 . The Design Team used the “analogy” method by assessing attendance and pricing at other tourism facilities, such as the Xishuangbanna Topical Botanical Garden which is 527 km from Kunming, the Shenyang Botanic Garden noted earlier which is 40 km away from the Shenyang City Center, and the Xi’an Qinling Wildlife Park which is also on the North Slope of the Qinling and is 40 km away from the city center. The attendance and pricing figures from these tourism facilities were used to justify a first year attendance of 600,000 and an entry fee of CNY70 for the Botanic Garden. 34. The PPTA critically analyzed this high attendance/pricing scenario and strategy and concluded that these attendance and pricing figures are based on facilities that are different from the QBG and appear to be overly optimistic. Achieving these attendance, entry fee, and revenue per visitor targets would depend significantly on a highly successful pre-opening marketing campaign that would build tourist and local resident interest and successfully differentiate the Qinling Botanic Garden from competing facilities in Xi’an and other botanic gardens in China. Placing this much faith in marketing to ensure a financially viable facility is questionable especially when it was not included in the proposal. 35. The visitor and revenue projections used in the PPTA are presented in Table 2. 6 The Proposal has not marketing expenditure included at any stage. 7 In fairness to the QBG Design Team, it should be stated that the financial analysis guidelines of both the PRC and ADB require that the financial analysis be conducted in terms of real monetary values (where the effects of price inflation are removed) and encourage analysts to use attendance, price and cost parameters that are fixed or at the very least change very little through the projection period. This static approach generally works well for traditional, slow-growth sectors such as agriculture/food processing, forestry and infrastructure. However, this static approach works less well in high-growth economies like China, and in dynamic sectors such as tourism, where the income elasticity of demand is high (meaning that tourism demand and revenues expand much faster than real per capita incomes) and where effective marketing campaigns and word-ofmouth advertising can move demand curves outward – allowing tourism facilities that are well run and differentiated from competing attractions to raise their prices through time without hurting attendance and revenues. The static approach applied by the QBG Design team leads to situations where attendance and prices appear much too high in the early years but are quite acceptable and even on the conservative side in the later years of the projection period when per capita incomes and tourism demand and revenues in China are higher and the tourism facility is well established within a region’s tourism network for guided and individual tourism. 7
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Technical Assistance Consultant’s
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CURRENCY EQUIVALENTS (as at 1 June
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WEIGHTS AND MEASURES 15 mu = 1 hect
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APPENDIXES (PRESENTED IN SEPARATE V
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LOAN AND PROJECT SUMMARY Borrower P
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Implementation Arrangements The Sha
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Figure 1: Map 1 - The Project Area
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ix Figure 3: Map 3 - Google Image o
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Figure 5: Map 5 - Natural Plant Hab
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Figure 7: Map 7: Shaanxi Louguantai
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II. RATIONALE: SECTOR PERFORMANCE,
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maintain ever-increasing staff leve
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(xiii) lack of national, regional,
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low salaries, poor benefits and ina
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and mature product compared to othe
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into the Province’s tourism indus
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on Land Degradation in Dryland Ecos
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CNY 37million to CNY 64million in 2
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91. Revenue will be generated throu
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100. Improved Village and Forest-ba
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plan budget. Provision for this arr
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Component Sub-component Table 4: Pr
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Table 5: Project Investment Plan ($
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Qinling National Botanical Garden (
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Position Package A: Package A -SARC
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covered in these reports. Within 6
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water supplies, (v) a program to im
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160. Other risks relate to (i) the
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was between CNY 900 and CNY 1156 pe
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183. A major lesson from tourism re
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2 Design Summary Outputs Component
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4 Design Summary Component III: Ins
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6 TA 4721-PRC: Preparing the Shaanx
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TA 4721-PRC: Preparing the Shaanxi-
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4 Indigenous People 2 TA 4721-PRC:
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2 B. Supervision TA 4721-PRC: Prepa
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GEFSEC PROJECT ID: EA PROJECT ID: C
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i) Tourism 5. One of the strongest
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14. Poor rural households had few o
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and fauna due in large part to the
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31. The Qinling Mountain ecosystem
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continuing communication among stak
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development under construction, (v)
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) Objective 50. The impact of the p
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60. The current animal rescue and e
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Source (PPTA Estimates) 69. The rev
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77. Institutional Strengthening The
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awareness and understanding of mark
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92. The main risk to the Project’
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modify the drivers of biodiversity
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Expected Project National Biodivers
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Strategic Objectives and Indicative
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after 5 years. It is suggested that
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the lessons from the Project. All m
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119. The SPG commitment is demonstr
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130. In output 1, GEF financing of
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Tracking Tool for GEF Biodiversity
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the current tourism portfolio. This
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Please answer YES or NO to each sta
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Ecological Function Conservation Ar
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ADB TA 4271 Shaanxi Qinling Biodive
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