The World Bank Small Towns Infrastructure Project (P133069)

REPORT NO.: RES30075 Public Disclosure Authorized

RESTRUCTURING PAPER

ON A

PROPOSED PROJECT RESTRUCTURING

OF SHAANXI SMALL TOWNS INFRASTRUCTURE PROJECT APPROVED ON SEPTEMBER 25, 2014 TO THE Public Disclosure Authorized PEOPLE'S REPUBLIC OF

May 1, 2018

SOCIAL, URBAN, RURAL AND RESILIENCE GLOBAL PRACTICE

EAST ASIA AND PACIFIC Public Disclosure Authorized

Regional Vice President: Victoria Kwakwa Country Director: Bert Hofman Senior Global Practice Director: Ede Jorge Ijjasz-Vasquez Practice Manager/Manager: Abhas Kumar Jha Task Team Leader: Guangming Yan Public Disclosure Authorized The World Bank Shaanxi Small Towns Infrastructure Project (P133069)

ABBREVIATIONS AND ACRONYMS

EA Environmental Assessment

EMP Environmental Management Plan

ERR Economic Rate of Return

FSR Feasibility Study Report

FM Financial Management

ISR Implementation Status Report

MTR Mid-Term Review

O&M Operation and Maintenance

PDO Project Development Objective

PIU Project Implementation Unit

PMC Project Management Consultant

PPMO Provincial Project Management Office

RAP Resettlement Action Plan The World Bank Shaanxi Small Towns Infrastructure Project (P133069)

BASIC DATA

Product Information

Project ID Financing Instrument P133069 Investment Project Financing

Original EA Category Current EA Category Partial Assessment (B) Partial Assessment (B)

Approval Date Current Closing Date 25-Sep-2014 31-Dec-2020

Organizations

Borrower Responsible Agency Foreign Debt Management Office, Shaanxi Provincial PEOPLE'S REPUBLIC OF CHINA Development and Reform Commission

Project Development Objective (PDO) Original PDO To improve the infrastructure and service delivery in selected small and medium towns in Shaanxi Province OPS_TABLE_PDO_CURRENTPDO Summary Status of Financing Net Ln/Cr/Tf Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed

IBRD-84250 25-Sep-2014 04-Nov-2014 26-Jan-2015 31-Dec-2020 150.00 51.66 98.34

Policy Waiver(s)

Does this restructuring trigger the need for any policy waiver(s)? No

The World Bank Shaanxi Small Towns Infrastructure Project (P133069)

I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING

Project Status

1. Overall project progress. Project implementation has been progressing steadily and implementation progress was rated satisfactory in the last ISR dated January 26, 2018. The project is on track to achieve its project development objective (PDO) of improving infrastructure and service delivery in selected small and medium towns in Shaanxi Province. The PDO remains highly relevant to current conditions and priorities reflected in government strategies outlined in the National Plan on New Urbanization (2014-2020) and in the Country Partnership Strategy for 2013-2016 (Report No. 67566-CN) dated October 11, 2012, specifically focuses on two strategic themes: supporting green growth, and promoting more inclusive development. After three-and-one- half years, disbursements have reached US$52 million, or 34 percent of the total Loan amount of US$150 million; and signed commitments are US$105 million. Some of the project’s key achievements include: (i) People provided with access to improved water sources reached 26,855 (18% of final target of 151,000); (ii) People provided with access to improved sanitation facilities reached 52,500 (27% of final target of 194,500); (iii) Area provided with new and improved drainage services reached 12.31 km2 (41.5% of final target of 29.53 km2); (iv) 18km of roads constructed and rehabilitated; and (v) 65 km wastewater sewers and storm drains constructed or rehabilitated.

2. Environmental and Social Safeguards. Compliance with safeguard policies has been satisfactory. The environmental action plan (EMP) and resettlement action plan (RAP) are being implemented well in general. Both the EMP and RAP activities are being monitored by external environmental and external resettlement monitoring agencies, respectively.

3. Fiduciary performance. The project’s financial management system has been maintained in a manner acceptable to the Bank. The required financial reports, audit reports have been submitted on time and the auditors have consistently provided an unqualified (clean) opinion on the project financial statements. Project procurement has been satisfactorily complied with the Bank Procurement Guidelines and Consultant Guidelines. There have been no significant procurement issues.

4. Compliance with covenants. Compliance with project legal covenants has been satisfactory. Rationale for Restructuring

5. Reasons for restructuring. During the Mid-Term Review (MTR) conducted in November 2017, it was determined that the project has US$45 million savings mainly due to (i) dropping of the Hongyao road investment under the Yanliang sub-component due to uncertainty to complete land acquisition; (ii) lower bid prices than originally estimated (average 20% lower than cost estimates); and (iii) the appreciation of US$ against Renminbi Yuan.

1 One of the project counties (Xunyi) calculated the area as the wrong unit of measurement in PAD and previous reports. The target value of has been corrected from 137km to 1.37 km2. Correspondingly, end of project value for this indicator was corrected to 29.53 VS 165.15. The World Bank Shaanxi Small Towns Infrastructure Project (P133069)

During the MTR, the Shaanxi Provincial Project Management Office (PPMO) submitted a draft proposal to reallocate loan savings to additional new activities. The proposed activities are fully aligned with the PDO and would enhance achievements. It is expected that all activities can be completed on time and that the PDO can be achieved by the original Closing Date of December 31, 2020.

6. Risk Assessment. The overall implementation risk was rated "Moderate". The risks identified at appraisal have been mitigated successfully (i.e. risks related to the large number of counties/districts with weak capacity and unfamiliar with Bank loan implementation, fiduciary risks and risk related to the lack of operations and maintenance (O&M) arrangements impacting sustainability). Two additional risks that were not identified at appraisal have materialized and included delays related to prolonged land acquisition and resettlement, and poor design quality. Going forward, these risks will be mitigated through (i) no or limited land acquisition and resettlement requirements for newly added activities; and (ii) selection of experienced design institutes. II. DESCRIPTION OF PROPOSED CHANGES

7. The PDO remains unchanged and all new project activities will continue to improve infrastructure and service delivery in selected small and medium towns in Shaanxi Province. Project Components

8. The project components will not be changed. Following their appraisal during the MTR, the proposed new project activities in , Xunyi county, and , a newly added project county are added under Component 1: Infrastructure and Services Upgrading. Project activities in Component 2: Town Management Improvement and Implementation Support are remained unchanged.

9. These new activities include: (1) Installation of storm drainage pipelines totaled 7.8 km under Luorun road with associated road pavement rehabilitation in Chengcheng County; (2) Installation of storm drainage pipelines totaled 5.2 km in the areas of Mingzhen and Dongerlu with associated road pavement rehabilitation in Xunyi County; (3) Construction of 3.0 km of roads (1.3 km Jiqing road and 1.7 km Huayue road) with associated drainage and water supply pipelines in Hanyin County; and (4) Installation of secondary storm drainage pipelines totaled 6.06 km in the areas of Dongguan,Nanguan, Xiguan and Qiaobei with associated road pavement improvement; and rehabilitation of 10.2 km storm drainage pipelines ( 3.3 km Yucai road, and 6.9 km Jianshe road) i road in Liquan County. 10. Except the water supply, other activities under including construction of Hongyao road and infrastructure improvement in Wutun town were dropped per the client’s request of shifting implementation them to non-Bank financing.

Financial and Procurement Management.

11. As Liquan County is being added as a new participating county, its financial and procurement management capacity was assessed by the Bank. Experienced procurement and financial management staff have been appointed and the relevant training on Bank procurement policies and financial management have been The World Bank Shaanxi Small Towns Infrastructure Project (P133069)

provided by the PPMO and project management consultant (PMC). Adequate counterpart funds in the amount of US$ 4.1 million will be committed by Liquan county government. The existing project FM arrangements will remain unchanged and the FM risk for this project remains modest. All the necessary changes have been reflected in the project Financial Management Manual and Procurement Management Manual.

12. Project Costs and Financing Plan. Table 1 shows the original project costs as presented in the Project Appraisal Document (PAD), as compared with the revised project costs after restructuring. Table 2 shows the project financing plan. Table 1: Project Costs

Project Component Appraisal Restructuring Total Cost IBRD Loan % Financing Total Cost IBRD Loan % Financing (US$ million) (US$ million) (US$ million) (US$ million) Component 1: Infrastructure 206.3 53% 216.8 117 54% 110.0 and Services Upgrading Component 2: Town Management Improvement & 3.0 3.0 100% 3.0 3.0 100% Implementation Support 209.3 113.0 54% 219.8 120.0 55% Baseline Cost Physical and Price 35.7 25.1 70% 35.7 25.1 70% Contingencies Total Project Cost 245.0 138.1 56% 255.5 145.1 57% Front end Fees 0.4 0.4 100% 0.4 0.4 100% Interest During Construction 11.5 11.5 100% 4.5 4.5 100% Total Financing Required 256.9 150.00 58% 260.4 150.00 58%

Table 2: Financing Plan

Financing Source Appraisal Restructuring Amount (US$ million Amount (US$ million Borrow 106.9 110.4 International Bank for Reconstruction and 150.0 150.0 Development Total 256.9 260.4

Disbursements: 13. To utilize part of the loan savings, it is proposed to increase the Loan disbursement ratio for civil works from 80 to 100 percent retroactive to effectiveness on January 26, 2015. The funds will also be reallocated among the disbursement categories, with US$ 7 million being moved from Category Interest to Category Works Disbursement estimates are modified to reflect the slightly revised project implementation schedule. Environmental and Social Safeguards

14. The Project originally triggered OP4.12 on Involuntary Resettlement and OP 4.01 on Environmental Assessment. Implementation of RAP and EMP has been satisfactory. The new activities (e.g. construction and rehabilitation of roads, water and storm water pipelines, sewers) are similar to the original project activities; only the road improvement subprojects in Hanyin County involve land acquisition and resettlement. The new activities will not The World Bank Shaanxi Small Towns Infrastructure Project (P133069)

substantially change the overall project risks or require any modification of the original environmental categorization (Category B), just a scaling-up of activities to enhance the project’s impact and development effectiveness. No new safeguards policies are being triggered. A due diligence review based on surveys of the affected households was conducted which indicated the performance of resettlement complies with the RPF and the national legal framework. A supplementary EMP has been prepared for the newly added activities in compliance with applicable Chinese regulations and standards, as well as the safeguard policies of the World Bank. It was disclosed locally on February 28, 2018 and on the Bank’s internal website on March 8, 2018.

Project Monitoring

15. Based on the changes, the project monitoring targets have been revised as shown in the Results section below. The targets are revised to consider the changes proposed above, including: (i) correcting an error in the unit of measurement for project beneficiary areas in Xunyi county; and (ii) adjusting the annual and end targets of the results indicators to reflect actual implementation progress and the revisions in scope of Hanying, Chengcheng, Yanliang and Xunyi, and the addition of Liquan county.

Technical

16. The feasibility studies and subsequent detailed designs for the proposed new sub-projects were reviewed and found to be technically sound. The design of the new subprojects drew from the experience of the existing project designs. Alternatives on road alignments and pipe materials were considered and rejected on the basis of being not least cost. The feasibility study reports were approved by the respective county Development and Reform Commissions following the internal procedures. The PMC provided technical feedback during the design stage, and will continue to provide technical support throughout project implementation.

Project implementation

17. One of the key interim lessons gained at the time of MTR is that implementation delay caused by slow land acquisition and resettlement in some project counites. Thus, the added project activities require no or minimum land acquisition and resettlement. As Liquan is a newly added project county, intensive trainings to the PMO staff on Bank procurement, FM, safeguards were provided by PPMO and PMC. The FSR was reviewed by the Bank and best engineering practices were incorporated. Extra support will be provided to Liquan PMO to ensure smooth project implementation.

Economic and Financial Analysis

18. Cost-benefit analysis was used to evaluate the economic viability of the added new subjects in Hanying, Chenchen, Xunyi and Liquan. The economic internal rate of returns (EIRR) of all these subprojects varies from 8.34%-11.8%. The results of the cost-benefit analyses show that the proposed investments are economically viable. The fiscal revenues of these counties over the past years were reviewed and those for the future years were projected. The project counties have the capacity to provide counterpart funds to the project and debt service requirement will not have any negative impact to the project counties.

The World Bank Shaanxi Small Towns Infrastructure Project (P133069)

III. SUMMARY OF CHANGES

Changed Not Changed Change in Results Framework ✔ Change in Components and Cost ✔ Reallocation between Disbursement Categories ✔ Change in Disbursements Arrangements ✔ Change in Disbursement Estimates ✔ Change in Institutional Arrangements ✔ Change in Procurement ✔ Change in Implementation Schedule ✔ Change in Social Analysis ✔ Change in Environmental Analysis ✔ Change in Implementing Agency ✔ Change in DDO Status ✔ Change in Project's Development Objectives ✔ Change in Loan Closing Date(s) ✔ Cancellations Proposed ✔ Change in Overall Risk Rating ✔ Change in Safeguard Policies Triggered ✔ Change of EA category ✔ Change in Legal Covenants ✔ Change in Financial Management ✔ Other Change(s) ✔ Change in Economic and Financial Analysis ✔ Change in Technical Analysis ✔

IV. DETAILED CHANGE(S)

OPS_DETAILEDCHANGES_RESULTS_TABLE RESULTS FRAMEWORK

Project Development Objective Indicators PDO_IND_TABLE The World Bank Shaanxi Small Towns Infrastructure Project (P133069)

Number of people in urban areas provided with access to Improved Water Sources under the project Unit of Measure: Number Indicator Type: Custom

Baseline Actual (Current) End Target Action Value 0.00 26855.00 151000.00 No Change

Date 01-Jan-2014 01-Jan-2018 31-Dec-2020

Number of women in urban areas provided with access to Improved Water Sources under the project Unit of Measure: Number Indicator Type: Custom Breakdown

Baseline Actual (Current) End Target Action Value 0.00 12891.00 72200.00 No Change

Date 01-Jan-2014 01-Jan-2018 31-Dec-2020 People provided with access to improved sanitation services Unit of Measure: Number Indicator Type: Corporate

Baseline Actual (Current) End Target Action Value 0.00 63000.00 238200.00 Revised

Date 01-Jan-2014 01-Jan-2018 31-Dec-2020

People provided with access to “improved sanitation facilities” - urban Unit of Measure: Number Indicator Type: Custom Breakdown

Baseline Actual (Current) End Target Action Value 0.00 63000.00 238200.00 Revised

Date 01-Jan-2014 01-Jan-2018 31-Dec-2020

Number of women provided with access to ‘improved sanitation facilities” under the project Unit of Measure: Number Indicator Type: Custom Breakdown

Baseline Actual (Current) End Target Action Value 0.00 30100.00 114800.00 Revised The World Bank Shaanxi Small Towns Infrastructure Project (P133069)

Date 01-Jan-2014 01-Jan-2018 31-Dec-2020 Increase in area with access to newly built or rehabilitated roads Unit of Measure: Square kilometer(km2) Indicator Type: Custom

Baseline Actual (Current) End Target Action Value 0.00 7.5 22.40 Revised

Date 01-Jan-2014 01-Jan-2018 31-Dec-2020 Area provided with new and improved drainage services Unit of Measure: Square kilometer(km2) Indicator Type: Custom

Baseline Actual (Current) End Target Action Value 0.00 12.30 29.60 Revised

Date 01-Jan-2014 01-Jan-2018 31-Dec-2020

Intermediate Indicators

IO_IND_TABLE Roads constructed, non-rural Unit of Measure: Kilometers Indicator Type: Custom

Baseline Actual (Current) End Target Action Value 0.00 9.30 29.00 Revised

Date 01-Jan-2014 01-Jan-2018 31-Dec-2020 Roads rehabilitated, Non-rural Unit of Measure: Kilometers Indicator Type: Custom

Baseline Actual (Current) End Target Action Value 0.00 13.10 45.00 Revised

Date 01-Jan-2014 01-Jan-2018 31-Dec-2020 Wastewater sewers and storm drains constructed / rehabilitated Unit of Measure: Kilometers Indicator Type: Custom The World Bank Shaanxi Small Towns Infrastructure Project (P133069)

Baseline Actual (Current) End Target Action Value 0.00 72.20 169.00 Revised

Date 01-Jan-2014 01-Jan-2018 31-Dec-2020 Length of water supply pipes laid Unit of Measure: Kilometers Indicator Type: Custom

Baseline Actual (Current) End Target Action Value 0.00 22.90 45.50 No Change

Date 01-Jan-2014 01-Jan-2018 31-Dec-2020 Counties/Districts implementing improved O&M plans with recommended budget allocations Unit of Measure: Number Indicator Type: Custom

Baseline Actual (Current) End Target Action Value 0.00 0.00 6.00 Revised

Date 01-Jan-2014 01-Jan-2018 31-Dec-2020 Counties/Districts completed infrastructure mapping Unit of Measure: Number Indicator Type: Custom

Baseline Actual (Current) End Target Action Value 0.00 0.00 6.00 Revised

Date 01-Jan-2014 01-Jan-2018 31-Dec-2020 Counties/Districts prepared asset registers Unit of Measure: Number Indicator Type: Custom

Baseline Actual (Current) End Target Action Value 0.00 2.00 6.00 Revised

Date 01-Jan-2014 01-Jan-2018 31-Dec-2020 The World Bank Shaanxi Small Towns Infrastructure Project (P133069)

OPS_DETAILEDCHANGES_COMPONENTS_TABLE COMPONENTS Current Current Proposed Proposed Cost Action Component Name Component Name Cost (US$M) (US$M) Infrastructure and Service Infrastructure and Service 253.90 No Change 257.40 Upgrading Upgrading Town Management Town Management Improvement and Project 3.00 No Change Improvement and Project 3.00 Implementation Support Implementation Support TOTAL 256.90 260.402

OPS_DETAILEDCHANGES_REALLOCATION _TABLE REALLOCATION BETWEEN DISBURSEMENT CATEGORIES

Current Category of Expenditure Allocation (USD) % of Financing

Current Revised Current Revised

Works 132,836,305.00 139,836,305.00 80 1003

Goods, Consultants’ services and Training 4,876,539.00 4,876,539.00 100 100

Interest on the Loan accrued on

or before the last Payment Date immediately 11,912,156.00 4,912,156.00 100 100

preceding the Closing Date

FRONT END FEE 375,000 375,000 100 100

Total: 150,000,000.00 150,000,000.00

OPS_DETAILEDCHANGES_DISBURSEMENT_TABLE DISBURSEMENT ESTIMATES

Change in Disbursement Estimates Yes

Year Current Proposed 2015 5,000,000.00 15,000,000.00

2 The currency exchange rate was RMB 6.13= US $1.00 in PAD, the currency exchange rate is RMB 6.6= US $1.00 in this restructuring paper. 3 retroactive financing since Loan effectiveness date of January 26, 2015 The World Bank Shaanxi Small Towns Infrastructure Project (P133069)

2016 10,000,000.00 14,193,408.86

2017 25,000,000.00 6,794,924.83

2018 40,000,000.00 24,011,666.31

2019 40,000,000.00 40,000,000.00

2020 20,000,000.00 35,000,000.00

2021 10,000,000.00 15,000,000.00

The World Bank Shaanxi Small Towns Infrastructure Project (P133069)

Annex 1: Results Framework and Monitoring CHINA: SHAANXI SMALL TOWNS INFRASTRUCTURE PROJECT

Cumulative Target Values Responsibility Description Unit of Baseline Data Source/ Results Indicators Frequency for Data (indicator

Core Measure 2014 Methodology 2015 2016 2017 2018 2019 2020 Collection definition etc.)

PDO Level Results Indicators

PO-1. People provided with For project access to improved Data PPMO,Yanliang, 0 0 20,000 26,855 90,000 141,000 Counties/Districts water sources under X Number 151,000 Annually collected and Wugong, 0 0 9,900 12,891 43,200 67,400 72,200 with water supply the project. monitored Chengcang, and investments Of which Hanying PMOs ---Women

PO-2. People provided with For all project access to improved Annually Data Counties/Districts 0 0 31,900 63,000 110,000 160,000 sanitation facilities X Number 238,200 collected and PPMO/CPMOs 0 0 15,100 30,100 52,800 76,000 114,800 under the project monitored Of which ---Women

For all project PO-3 Area provided Annually Data Counties/Districts with new and Square collected and X 0 0 0 12.3 16.3 23.4 29.6 PPMO/CPMOs improved drainage Kilometers monitored services

PO-4. Increase in For all project area with access to Data Counties/Districts Square newly built or 0 0 3.8 7.5 11 17.2 Annually collected and PPMO/CPMOs Kilometers 22.4 rehabilitated roads Monitored

Intermediate Outcome Indicators (IO) The World Bank Shaanxi Small Towns Infrastructure Project (P133069)

Cumulative Target Values Responsibility Description Unit of Baseline Data Source/ Results Indicators Frequency for Data (indicator

Core Measure 2014 Methodology 2015 2016 2017 2018 2019 2020 Collection definition etc.)

Component 1: Infrastructure and Services Upgrading

Data 1.Roads constructed X Km 0 0 6.8 9.3 18 25 29 Annually collected and PPMO/CPMOs monitored

Data 2. Roads X Km 0 0 4.9 13.1 20 32 45 Annually collected and PPMO/CPMO rehabilitated monitored

3. Wastewater Data sewers and storm Km 0 0 34.4 72.2 98 140 169 Annually collected and drains constructed / PPMO/CPMOs monitored rehabilitated Data 4.Length of water Km 0 0 11.5 22.9 38 42 45.5 Annually collected and PPMO/CPMOs supply pipes laid monitored Component 2: Town Management Improvement and Project Implementation Support

1.Counties/Districts Data PPMO/CPMOs Annual budget implementing Annually collected and allocations for improved O&M monitored Number 0 0 0 0 2 4 6 O&M will be plans with included in recommended O&M plan budget allocations 2.Counties/Districts Annually Data PPMO/CPMOs completed collected and Number 0 0 0 0 2 4 6 infrastructure monitored mapping 3.Counties/Districts Annually Data PPMO/CPMOs 6 prepared asset Number 0 0 0 2 2 4 collected and registers monitored