Report Number ::: ICRRICRR1384113841 ICR Review IEG Independent Evaluation Group Public Disclosure Authorized
1. Project Data: Date Posted ::: 05/01/2014
Country ::: China Project ID ::: P066955 Appraisal Actual Project Name ::: Zhejiang Urban Project Costs (((US$M(US$MUS$M):):):): 334.3 529.6 Environment Project LLL/L///CC Number::: L4724 LoanLoan////CreditCredit (((US$M(US$MUS$M):):):): 133.0 132.6 Sector Board ::: Urban Development Cofinancing (((US$M(US$MUS$M):):):):
Cofinanciers ::: Board Approval Date ::: 01/29/2004 Closing Date ::: 06/30/2010 06/30/2011
Public Disclosure Authorized SectorSector( (((ssss):):):): Sewerage (35%); Other social services (25%); Roads and highways (25%); Solid waste management (10%); Water supply (5%) ThemeTheme( (((ssss):):):): Pollution management and environmental health (25% - P); Municipal governance and institution building (25% - P); Urban services and housing for the poor (24% - P); Other urban development (13% - S); Infrastructure services for private sector development (13% - S)
Prepared by ::: Reviewed by ::: ICR Review GroupGroup:::: Coordinator ::: Ramachandra Jammi Midori Makino Christopher David IEGPS1 Nelson
2. Project Objectives and Components:
a. Objectives: Public Disclosure Authorized The Project Development Objective is stated in the Loan Agreement as "to assist Zhejiang to improve waste management and the urban environment in Ningbo and Hangzhou; and revitalize the historic inner cities in Cicheng and Shaoxing to facilitate sustainable development and establish a model for conservation of cultural heritage ."
In the project appraisal document, the phrase "to enhance the efficiency and equity of waste management " is used.
b.Were the project objectives/key associated outcome targets revised during implementation?
No
c. Components: 1. Sewerage and Sewage Treatment in South Jiangdong District of Ningbo Municipality (Cost at Appraisal: US$44.2 million; At completion: US$59.2 million). This component financed construction of sewerage trunk infrastructure in South Jiangdong District (43 km pipes and four lift pumping stations) of Ningbo municipality, including a wastewater treatment plant or WWTP (secondary treatment) with a capacity of 160,000 m3/d (cubic meters per day) and discharging into the nearby Yongjiang River . The wastewater flows from Cicheng town and Dongqian Lake area sewerage systems would be connected to the treatment plant in South Jiangdong through Public Disclosure Authorized pumping stations and pressure mains with a length of 12.7 km and 12.5 km, respectively.
2. Sewerage and Sewage Treatment in Zhenhai District of Ningbo Municipality (Cost at Appraisal: US$25.1 million, At completion: US$26.6 million). This component financed construction of sewerage trunk infrastructure in Zhenhai District (44km of pipes and six lift pumping stations) of Ningbo municipality, including a WWTP (Wastewater Treatment Plant ) for secondary treatment with an initial capacity of 30,000 m3/d, discharging to the sea.
3. Infrastructure Upgrading in Cicheng Town in Jiangbei District of Ningbo Municipality (Cost at Appraisal:: US$31.6 million, At completion: US$10.6 million). This component financed rehabilitation and expansion of the traditional road infrastructure (total 12.5 km) with associated underground infrastructure, sewage collection, pumping main and treatment facilities (10,000 m3/d), a modest ring road (5km) and bridges along the historic moat around the town, dredging of the moat (110,000 m3), embankment repairs and flood control structures .
4. Road and Sewerage Infrastructure in Dongqian Lake in Ningbo Municipality (Cost at Appraisal: US$40.5 million, At completion: US$54.1 million). The component financed clean-up of the lake through interception of wastewater and conveyance to the Jiangdongnan WWTP (about 50 km of pipes, eight pumping stations, including 12.5 km of pumping main), and improvement of access to the lake through expansion and rehabilitation of 33 km of the shoreline road system.
5. Housing Renovation, Heritage Conservation & Infrastructure Upgrading in Shaoxing Historic City Center (Cost at Appraisal: US$121.9 million, At completion: US$59.3 million). The component financed housing renovation and heritage conservation in five historic precincts of the Old Town; underground infrastructure; canal rehabilitation and flood control; and repairs and widening of roads, bridges and parks .
6. Expansion of Tianziling Landfill in Hangzhou City (Cost at Appraisal: US$33.3 million; At completion US$113.3 million). The component financed a new landfill and associated facilities, adjacent to (and partially overlying) the existing Tianziling landfill site. The existing landfill was to be expanded by 22 million m3 to enable the city to dispose of its garbage safely during the next 25 years, including a leachate treatment plant (1,500 m3/d), and provision of additional equipment and vehicles to operate the landfill . Facilities for landfill gas recovery and electricity production were to be provided under a public -private partnership that was engaged for the existing landfill .
7. Institutional Development (Cost at Appraisal: US$36.4 million, At completion: US$31.2 million). The component financed five technical assistance packages as follows : (a) institutional strengthening, financial reform and management and geographical information systems; (b) design review advisory and construction management; (c) development of an industrial pollution control action plan; (d) tourism development and community participation; and (e) heritage conservation and urban upgrading .
Two new components were added in 2008 and 2009 to utilize loan savings of about US$56 million, accrued mainly due to: (a) advance contracting done to accelerate completion of improvements in Shaoxing in time for the Seventh National Arts Festival in 2004; (b) bid prices being lower than appraisal estimates; and (c) reduced scope of contracts and unused contingency provisions . The two new components were:
(a) Rehabilitation of the Yue Kingdom Area in Shaoxing ; added in 2008 (Cost at appraisal: n.a.; at completion: total cost US$ 70.39 million; IBRD US$ 26.30 million). The component financed cultural heritage sites in the Yue Kingdom area including: (i) Fushan Hill landscaping and improvement of public spaces; (ii) the Yue Kingdom Museum, an underground parking garage, and basic underground infrastructure; and (iii) leisure space, and the restoration of historic housing and a temple.
(b) Improvement of Wastewater Services in Jiangnan District of Ningbo ; added in 2009 (Cost at appraisal: n.a; at completion: total cost US$ 40.2 million; IBRD US$ 31 million). The component financed construction of sewerage trunk infrastructure in Sanjiang and Beilun areas (45 km pipes and ten lift pumping stations), and a WWTP (secondary treatment) with a capacity of 160,000 m3/d, with treated effluent discharging to the Yongjiang River .
d. Comments on Project Cost, Financing, Borrower Contribution, and Dates: The final project cost at US$529 million was almost 60 percent higher than the appraised cost of US$ 334 million. The increase was due to the two components added during 2008 and 2009; and because the costs of the old landfill's closure and auxiliary facilities for Hangzhou city were subsequently added to the project cost .
The Bank's contribution of US$133 million was almost unchanged between appraisal and completion .
Borrower contribution at appraisal was US$201.32 million, and it was increased to $396.97 million at project closure.
The closing date was extended by 12 months to June 30, 2011, to allow completion of the Jiangnan wastewater component which was added in 2009.
3. Relevance of Objectives & Design: a. Relevance of Objectives: At the time of appraisal, Chinese cities had been undergoing high growth and transformation, both economically and physically, for two decades. In the face of industrialization and urban growth, the country began to place greater importance on the broader and more qualitative issues of environmental sustainability, efficiency, and equity .
The State Council’s “Circular on Strengthening Urban Water Supply, Water Saving and Water Pollution Prevention and Control (2000)” set the policy agenda for 2000–2010, for: (a) improving water supply planning and promoting water conservation; (b) enforcing the “Law on Water Pollution Prevention and Control ” by aiming for at least a 60% urban wastewater treatment rate by 2010; (c) promoting market oriented tariff reforms to help attract private capital; and (d) improving sector governance and regulation . The provincial government promoted corporatization, full -cost recovery, and limited private participation in infrastructure . Following from the above, the project development objective was highly relevant at appraisal, and remained relevant through to completion .
The objectives of reducing the degradation of water resources and improving the quality of the urban environment are covered by the Bank's Country Partnership Strategies for 2006-2010 and 2013-2016, including the specific themes of (a) strengthening environmental protection and natural resource management; and (b) improving urban management and public service provision . Another stated priority in the Country Partnership strategies is to demonstrate ways to integrate cultural heritage conservation and sustainable local economic development, emphasizing that "conserving the past is a foundation for the future ."
Relevance of objectives is rated High
b. Relevance of Design: The project design was logical and straightforward in terms of its two objectives of improving the urban environment and presenting a model for conservation of cultural heritage . For improvement of the urban environment and services, physical works would be undertaken : sewerage and sewage treatment, road and sewerage infrastructure, wastewater services, and expansion of a landfill . For revitalizing historic inner cities, housing renovation, heritage conservation, and rehabilitation of the Yue Kingdom would be carried out . But the link to facilitating sustainable development is not brought out clearly in the results framework .
Relevance of design is rated Substantial.
4. Achievement of Objectives (Efficacy): To assist Zhejiang to improve waste management and the urban environment in Ningbo and Hangzhou . Rated Substantial.
Outputs Secondary sewers in Jaingdongnan, Zhenhai, and Jiangnan were built to the extent of 55.3 km, 23.2 km and 45 km as per the target. Wastewater Tariff in Ningbo City rose to Yuan 1.2/m3 exceeding the target of Yuan0.79/m3.
The Ningbo Municipal Government implemented the recommendations of the industrial wastewater pollution control action plan developed under the project . Under the plan, the government required that : (i) key industries should meet national integrated wastewater discharge standards prior to entry to sewers, and 80% of sources monitored by flight inspection should meet the discharge standard; (ii) enterprises that account for more than 90% of total pollution load should install online monitoring equipment connected to the Environmental Protection Bureau; (iii) a pollutant discharge permit system should be established, and enterprises should not discharge without permits or exceed the allowed emission amount; (iv) polluting industries located upstream of drinking water sources should relocate or close down; and (v) enterprises should implement water conservation measures .
Two key reforms were introduced through the project, considered pioneering at the time : (i) the separation of government functions (policy, regulation, oversight) from municipal utility and service delivery functions; and (ii) the establishment of financial and managerial autonomy for Ningbo Sewage Company Limited and Hangzhou Solid Waste Company Limited. The project also helped Ningbo Municipal Government to adopt the total pollution control concept to pollution management through integrating industrial pollution control with municipal wastewater management, and implementing the recommendations of the industrial pollution control action plan through the Environmental Protection Bureau.
Outcomes All the targets under the industrial wastewater pollution control action plan were enforced and achieved . By the end of 2010, a 50% reduction in water consumption per unit of industrial value -added was achieved; water consumption was 18.6m3/RMB 10,000 in 2010, which is half the consumption of the 2005 baseline.
Municipal wastewater treatment capacity in Ningbo increased from 290,000 cubic meters/day in 2003 to 540,000 cubic meters/day in 2010, and the coverage of urban wastewater collection increased from 27% in 2003 to 83% in 2010, against a target of 80%. Wastewater collection in the Dongqian Lake catchment met the target of 70%. Also, improvement in water quality in Dongqian Lake exceeded expectations by improving from Class V to Class III against a target of achieving the Class IV category, following interception and conveyance of wastewater to existing treatment plants.
Implementation of the Cicheng Infrastructure Upgrading component was delayed due to difficulties encountered in land acquisition and high resettlement cost . The difficulties were resolved by changing the original sewage collection routes to minimize land acquisition and resettlement, and about 50% of the wastewater collected from the Cicheng old town was transported and treated at the Beiqu WWTP . The small cultural heritage component in Cicheng was somewhat downscaled relative to the original plan due to the above -mentioned resettlement difficulties.
Urban solid waste collection and disposal in Hangzhou core urban area improved with expansion of the sanitary landfill from to 1.02 million tons/day against the targeted 0.8 million tons/day, and construction of a leachate treatment system of 1,500 cubic meters/day. These works allowed the coverage of solid waste collection and disposal to increase from 77% in 2003 to the targeted 100% in 2005 in Hangzhou’s core urban area. A further benefit was the introduction of power generation (7,200 MWh) from recovered landfill gas. A notable innovation was the “Tianziling method of landfill operations” to reduce odor and leachate production . This method was adopted in the National Standards of Municipal Solid Waste Sanitary Landfill Operation and Maintenance . The Hangzhou Tianziling Landfill expansion benefited 3.2 million people, which was 12% more than the appraisal target of 2.6 million people, and about 8,000 households now receive electricity produced from gas recovered from the old landfill .
Shaoxing wastewater collection and treatment increased from 50% to 85% as targeted, while in the case of Wastewater Collection and Treatment in Cicheng Old Town the revised target of 50% was achieved. Shaoxing Wastewater Treatment Capacity rosed from 300,000 m3/d to 600,000 m3/day as targeted. About 2,290 households (about 20,000 people) benefited directly from the residential upgrading (102 hectares in Shaoxing and 2.9 hectares in Cicheng were covered as targeted) and about 80% have made additional investments to upgrade their houses . The final number of beneficiaries is estimated at 4.39 million (including 0.55 million from the additional components) covering Hangzhou, Ningbo (including Cicheng and Dongqian Lake), and Shaoxing. However, Shaoxing water quality in canals improved from Class V to Class IV in only three out of nine monitoring stations .
To revitalize the historic inner cities in Cicheng and Shaoxing to facilitate sustainable development and establish a model for conservation of cultural heritage . Rated Substantial
Outputs The renovation of the historic neighborhood in the Yue Kingdom area included development of a major museum for artifacts, pathways improvements and landscaping around the Fushan Hill . The historic city revitalization provided local officials and planners with exposure and access to international experts and extensive research, analysis, strategies, guidelines and action plans for heritage conservation, cultural tourism development and revitalization of historic urban areas.
Outcomes The results framework does not define what is meant by 'facilitate sustainable development' . This is inferred in terms of the outcomes relating to revitalizing the inner cities and establishing a model for conservation of cultural heritage are discussed below.
Renovation carried out under the project preserved the vibrant community, their water -based lifestyle and the unique character of the historic inner city, which has become a tourist attraction with resulting economic benefits to the communities who are now able to provide a range of tourism -related services. Renovation of the traditional Ming and Qing Dynasty housing using designs, specifications and materials sensitive to the historic environment, urban infrastructure, traditional roads, and landscaping, improved the environment and living conditions of the residents, and created an environment attractive to tourists . Visitor satisfaction with the accessibility and environmental cleanliness of the Yue Kingdom area increased from 40% and 44% (respectively) in 2008 to 65% for both in 2010.
The number of beneficiaries of the Shaoxing inner city regeneration rose from 20,000 people at appraisal, to 170,000 by project completion. As a result of the overall improvements in the neighborhoods in Shaoxing, property values also went up from Renminbi 4,000/m2 to about Renminbi 6,000/m2 in 2010 on average. Fushan Hill attracts about 10,000 people per day on average.
The analysis and planning for tourism development helped city leaders to recognize the linkage between sound urban development (access and mobility, telecommunications, green space, etc .), developing specific tourist sites and returns from tourism development and potential poverty reduction . As a result, planners restructured their approach to tourism and broadened their attention to development of the city as a whole, rather than focusing on individual tourism sites.
5. Efficiency: There was no cost benefit analysis or economic rate of return (ERR) carried out at appraisal for the project components. The ICR states that choice of priority interventions for the project was guided by cost effectiveness analysis and use of the least cost methodology in the following manner : Alternative project designs were identified and evaluated to select the least cost solution for inclusion in the project . The analysis of alternatives in project design included consideration of alternatives for sites for the landfill; wastewater treatment processes; dimensioning of pipe diameters; and centralized versus decentralized treatment . Additionally, average incremental costs, in both economic and financial terms, were calculated and compared to average tariffs, in constant terms, to evaluate the subsidy element of the project components . Incremental costs and outputs were calculated for the “with project” and “without project” scenarios. The economic costs for the components were determined by making adjustments to the components’ financial costs. It is noted that the project seems to have reached more beneficiaries than originally expected, and that cost savings led to additional components . However, there is no specific or even indicative information on benchmarks or comparators on which to make an informed assessment of efficiency .
Efficiency is rated modest.
aaa.a... If available, enter the Economic Rate of Return (((ERR(ERRERR))))////FinancialFinancial Rate of Return (((FRR (FRRFRR)))) at appraisal and the rerere-re---estimatedestimated value at evaluation :::
Rate Available? Point Value Coverage/Scope*
Appraisal No ICR estimate No * Refers to percent of total project cost for which ERR/FRR was calculated.
6. Outcome: Relevance of objectives is high, being in line with country priorities and the Bank's strategy for China . Project design is straightforward and intuitive , but not clear about the causal chain leading to facilitating sustainable development of the inner cities. Relevance of design is rated substantial. Both the objectives of the project - to improve waste management and the urban environment in Ningbo and Hangzhou; and revitalize the historic inner cities in Cicheng and Shaoxing, are rated substantial having significant achievement in terms of their planned outcomes. Efficiency is rated modest, in the absence of sufficient evidence or benchmarks to underpin claims of cost-effectiveness of the project's activities . Overall, the project is rated moderately satisfactory. aaa.a... Outcome Rating ::: Moderately Satisfactory
7. Rationale for Risk to Development Outcome Rating: Financial viability: The ICR reports that the full transfer of assets of the old solid waste company, including non-operating assets (the old landfill site), to Hangzhou Solid Waste Company Limited was not achieved, even though it was covenanted in the Project Agreement . However, partly to improve Hangzhou Solid Waste Company Limited’s financial performance and for taxation reasons, an agreement between Hangzhou Municipal Government and Hangzhou Solid Waste Company Limited was executed in 2009 to swap assets leaving only operating assets on Hangzhou Solid Waste Company Limited’s balance sheet, and Hangzhou Solid Waste Company Limited will continue as the solid waste company in Hangzhou after the closure of the landfill in the next ten to 15 years. The possibility of listing the company is also being considered . Hangzhou Municipal Government continues to explore solid waste reduction strategies and has supported the financial viability of solid waste management through an increase in the tipping fee in 2009. However, Hangzhou Municipal Government needs to inject more capital into Hangzhou Solid Waste Company Limited’s investment program.
In 2009, Hangzhou Municipal Government decided not to pursue a new investment for solid waste incineration, but rather to increase the solid waste disposed at the landfill to improve its financial performance and enable it to meet the covenants for both Cost Recovery Ratio (CRR) and Debt Service Coverage Ratio (DSCR) that year. According to 2009 data, Hangzhou generated an average of 5,500 tons/day of solid waste, of which half was disposed at the landfill. Based on this increased rate of landfilling, the estimated lifespan of the landfill will be reduced from 25 years to about ten years unless other actions are taken to reduce waste generation, and optimize landfill operations . Early closure of the landfill will have an impact on Hangzhou Solid Waste Company Limited ’s financial planning, as the maturity of the Bank’s loan and the last payment may lie beyond the date of closure for the landfill . The municipal governments will implement tariff increases, according to established procedures, to ensure that tariff increments are adequate to meet, at least, operation and maintenance costs of the assets of Ningbo Sewage Company Limited and Hangzhou Solid Waste Company Limited. The next tariff increase is expected in 2013. In 2009, the Bank suggested that Hangzhou Solid Waste Company Limited start a pilot “3-Rs” (Recycle, Reuse and Reduction) campaign to reduce the amount of solid waste to be disposed off . This suggestion was implemented by Hangzhou Solid Waste Company Limited, but its impact is not yet clear .
Institutional improvements: The institutional arrangements introduced during the project relating to NSCL and HSWC can be considered sustainable. These related to provision for managerial autonomy through separating government functions (policy, regulation, oversight) from municipal utility and service delivery functions, and to establish financial autonomy for the companies. Through the provision of technical assistance on institutional, managerial, financial and operational arrangement and development of business plans, both companies have displayed financial sustainability, assisted by tariff revisions implemented during the project .
Environmental risks: The ICR states that the risk of illegal wastewater discharges from industries in the catchment area of the project is moderate because of Ningbo Municipal Government ’s commitment to control water pollution as demonstrated by the implementation of the industrial pollution control action plan recommendations which include the creation of a pollution source database and a catchment management plan; and the recognition of the linkage between surface water quality, economic development and potential returns from tourism development .
Risk to development outcome is rated moderate.
aaa.a... Risk to Development Outcome Rating ::: Moderate
8. Assessment of Bank Performance:
a. Quality at entry: The Bank spent nearly two years on project design, Pollution control was addressed in a comprehensive manner, through inclusion of an industrial pollution control action plan (IPCAP) that was to be implemented by Ningbo Municipal Government, in parallel with the Bank -financed project. However, the design of the industrial pollution control action plan lacked firm milestones and targets . The project’s reform agenda aimed to improve financial management and institutional autonomy, and demonstrate the imperatives of market pricing and cost recovery for environmental services . At the same time, the project’s affordability analysis ensured that lower income groups could afford the new wastewater and solid waste tariffs . The Bank also ensured that fiduciary arrangements were adequate and safeguards issues were fully addressed . Technical design was supported by international consultants, and incorporated best practices to produce a project design that was technically, financially and economically sound. The Bank engaged a "world- class" cultural heritage expert to guide the team to design of the cultural heritage conservation component .
The background analysis conducted for the project built upon the Zhejiang Multi -cities Development Project (ZMCDP) (which was completed in 2001) and was the first phase of a comprehensive, two -stage investment program to: (a) improve water supply, wastewater collection and treatment, and solid waste management in the four cities of Hangzhou, Ningbo, Shaoxing and Wenzhou; and (b) set up a coherent urban planning and programming framework.
Key lessons learned from ZMCDP and other other Bank operations in China and the region, considered during project formulation, included: (a) economies of scale in wastewater investments; (b) avoidance of excess capacity creation in wastewater facilities; (c) institutional reforms, improved utility management, and sustainability; (d) historic city regeneration, tourism development, and income generation; (e) training for tourism service industry; and (f) participatory planning in historical city redevelopment .
The project’s risks were appropriately assessed as “modest” at appraisal with five risks were considered “modest” and three “substantial”. The first substantial risk was that pollution sources outside the scope of the project could jeopardize the water quality improvement expected from the project . This risk was sought to be mitigated by implementing plans for control of agri-business in the Dongqian Lake area, control of industrial pollution upstream of Ningbo city, and complementary sewerage in Ningbo and Shaoxing cities . The second substantial risk was that delays in land acquisition and resettlement could affect project implementation . This risk was addressed by carrying out community consultations and ensuring timely compensation, early planning and effective implementation of resettlement. The third substantial risk was that annual or bi -annual tariff increases for Hangzhou solid waste and Ningbo wastewater companies would not be approved . The mitigation measure was to carry out annual financial projections for the companies and introduce financial performance covenants in the legal agreements.
Particularly with the addition of the two new components, the complexity of the project increased - though the ICR says this was manageable given the track record of the ZMCDP and other Bank projects, and the technical and administrative experience and capacity of the government and implementing agencies .
The original M&E design contained several monitoring indicators with unclear definitions, and in general, the M&E framework could have included more indicators to do justice to the results framework, as discussed in section 10 below.
Quality---at -atatat----EntryEntry Rating ::: Moderately Satisfactory
b. Quality of supervision: Despite having three Bank task team leaders in seven years of project implementation, excellent working relationships were maintained with all parties concerned (Provincial PMO, local PMOs and PIUs, design institutes, tendering agents). The Bank took timely action to restructure the project to utilize loan savings to enhance project development objectives . The Bank was prompt and firm in decision-making to maintain the projects’ focus, and address the difficult issues of land acquisition and resettlement, process change orders, and project restructuring. Design weaknesses in the M&E framework were recognized early, and action was taken to correct them. When it became apparent that the projected landfill life would be curtailed to about ten years and alternative landfill sites were difficult to find, the Bank advised Hangzhou Municipal Government to explore other measuresto reduce the volume of waste that would need to be disposed . This led to Hangzhou Municipal Government launching the “3-Rs” (Recycle, Reuse and Reduction) program.
Quality of Supervision Rating ::: Satisfactory
Overall Bank Performance Rating ::: Moderately Satisfactory
9. Assessment of Borrower Performance:
a. Government Performance: Project preparation and implementation benefited from the commitment of the central and local governments at all levels, which not only provided both loan and counterpart funding in a timely manner, but actively coordinated project preparation and implementation . There was notable involvement of the Ministry of Finance and National Development Reform Commission as full project partners at the central level . Provincial and local governments ensured that the Provincial PMO and the local level PMOs were adequately financed, fully staffed and effective. The Ministry of Finance, National Development Reform Commission, and the provincial and municipal governments coordinated well with the Bank during the two project restructurings, and utilized the entire loan savings. The province displayed commitment and vision by agreeing to include a large and comprehensive technical assistance package including the industrial pollution control action plan that was implemented by the Ningbo Environmental Protection Bureau . In turn, local governments embraced the project ’s institutional reforms, and provided the necessary funding to sustain operations, including non -Bank financed activities, e.g., the Dongqian Lake Catchment Management Plan, Industrial Pollution Control Action Plan, and complementary secondary sewerage in Ningbo City, Dongqian Lake and Shaoxing City . Hangzhou Municipal Government approved an adequate tipping fee late in the project in 2009, to enable Hangzhou Solid Waste Company Limited to meet the financial performance covenant . Local governments made available the significant additional counterpart funding to meet the increased costs and complete the original components on time .
Government Performance Rating Satisfactory
b. Implementing Agency Performance: The ICR reports that performance of implementing agencies in completing detailed designs, design reviews, procurement administration, construction quality control, and implementation of safeguards measures was satisfactory. Most of the original components were completed before the original loan closing date . M&E was carried out adequately. Ningbo Sewage Company Limited, a newly established autonomous company, completed the original wastewater component in 2008, and the third Jiangnan WWTP (160,000 m3/d) and collection network, added in 2009, with a one year extension of the loan closing date . Ningbo Sewage Company Limited complied with the project financial performance covenants . The newly established Hangzhou Solid Waste Company Limited completed construction of the new landfill which started operation in 2006. Hangzhou Solid Waste Company Limited complied with the financial performance covenant starting in 2009, when Hangzhou Municipal Government approved the tipping fee of Y 60/ton. Hangzhou Solid Waste Company Limited started a pilot waste recycling program as part of its strategy to reduce waste requiring disposal in landfills or incinerators . The Shaoxing Historical Precinct Conservation Management Office (HPCMO) delivered the Shaoxing conservation component in time for the 2004 Arts Festival.
Implementing Agency Performance Rating ::: Satisfactory
Overall Borrower Performance Rating ::: Satisfactory
10. M&E Design, Implementation, & Utilization:
a. M&E Design: Key performance indicators included quantitative targets for reduced water pollution from the urban areas into rivers, reduced water pollution from the industrial sector, expanded safe solid waste disposal, improved living conditions in inner cities, reduced level of subsidies for investments in urban environmental infrastructure, enhanced cultural heritage conservation, enhanced tourism development; and improved awareness, management and control in urban planning and environmental protection . Four new key indicators were introduced with the addition of two new components in August 2008 and in December 2009: (a) Percentage of visitors satisfied with the accessibility of Shaoxing Yue Kingdom area; (b) Percentage of visitors satisfied with environmental cleanliness of Shaoxing Yue Kingdom area; (c) Ningbo: Jiangnan district wastewater treatment capacity (cubic meters/day); and (d) Ningbo: Jiangnan district additional sewers (km).
The original M&E design contained several monitoring indicators with unclear definitions, for example, enhanced cultural heritage conservation and improved awareness, management and control in urban planning and environmental protection. New monitoring indicators, with clearer definitions, focused more on outcomes, and were formally integrated into M&E design during the two restructurings . For the 7 new investment components, additional monitoring indicators were developed. However, an indicator to monitor progress in implementing the industrial pollution control was not included, even though Ningbo Municipal Government implemented most of the recommendations of the industrial pollution control action plan . The respective implementing agencies were responsible for M&E.
b. M&E Implementation: Agreed outcomes and output performance indicators were monitored, keeping track of progress of physical, financial, and EMP aspects, which were reported in the semi -annual progress reports. External resettlement monitoring reports were prepared and submitted by independent consultants annually . A reliable flow of M&E information during implementation enabled the Bank team to assess the performance of project components and their potential sustainability. Monitoring data was assembled by the respective agencies, namely, Ningbo Sewage Company Limited, Hangzhou Solid Waste Company, DLIDC, and the Environmental Protection Bureaus . Visitor satisfaction with environmental cleanliness and accessibility of the Yue Kingdom area was monitored by Shaoxing Historical Precinct Conservation Management Office through ticket sales and sample surveys .
c. M&E Utilization: The ICR states that the data and information generated were utilized by the local governments for planning future environmental infrastructure investments; enhancing the sustainability of Hangzhou Solid Waste Company Limited and Ningbo Sewage Company Limited; planning urban development and industry location policy; planning interventions to improve water quality in the rivers flowing to Hangzhou Bay; developing strategies for increasing tourism and income enhancements for local communities; and formulating policies and regulations .
M&E Quality Rating ::: Substantial
11. Other Issues
a. Safeguards: Environmental Safeguards. This project was designated as a Category A project . The ICR (page 7) reports that an Environmental Assessment (EA) and an Environmental Management Plan (EMP) were prepared, and disclosed in accordance with Bank and China’s national policies and regulations. According to the ICR (page 7), “the project was managed well in terms of observing OP4.01, as supported by the findings of Bank supervision missions and the regular progress reports on EMP implementation.” The project management offices (PMO) had dedicated staff for environmental management, and all proposed mitigation measures were appropriately incorporated into the contracts for implementation. Environmental monitoring was carried out by environmental monitoring station of Ningbo, Shaoxing and Hangzhou periodically in accordance with the EMP . The project made regular progress reports on EMP implementation. The PMOs responded promptly to all suggestions and comments from the Bank regarding EMP implementation. Additional EAs were prepared for the components added during the restructurings, and they, as well as the original components, were complied with satisfactorily (ICR, page 7).
Social Safeguards. All resettlement activities are reported by the ICR (page 7) to have been carried out in a satisfactory manner, despite initial difficulties in land acquisition and high resettlement costs which affected the scope of the cultural heritage component . External resettlement monitoring was carried out by Hohai University /Eastern China Hydro power Design Institute regularly . Implementation progress reports prepared by provincial and local PMOs were submitted annually. External Resettlement assessment reports showed that implementation was completed successfully and that the standards of living of the project -affected persons had improved. The total population affected by the project was 7,025 people (including 2,397 people affected by the land use and 4,628 people affected by house demolition). 141.92 hectares of land were permanently acquired and 161,064 square meters of buildings were demolished. The final Resettlement Action Plan (RAP) cost was RMB1.12 billion (US$180 million), about 23% higher than the original RAP cost estimate of RMB910.34 million (US$148.4 million), mainly due to: (a) additional land acquisition under the Jiangnan wastewater component; (b) additional residential houses demolished under the Tianziling Landfill; and (c) increased compensation rates.
Cultural Property Safeguards. The ICR (page 8) reports that “the project design met the requirements of OPN 11.03 and the spirit of what became the Cultural Property Safeguard, OP 4.11. The project had positive impacts on cultural heritage conservation through provision of investments, technical assistance and careful preparation by qualified institutes to ensure that the project would meet safeguard requirements and Chinese laws and regulations .”
b. Fiduciary Compliance: The ICR (page 8) states that procurement was carried out in accordance with the Bank ’s Procurement Guidelines in a generally satisfactory manner.
According to the ICR (page 8), “financial management was carried out satisfactorily throughout project implementation.” Appropriate financial management arrangements were put in place to ensure proper use and accounting of project funds. Project audit reports were provided for the entire implementation period . It is not specifically stated that there were no qualified audits .
Financial covenants: The covenant on Dongqian Lake Investment and Development Company (DLIDC) was deleted as DLIDC changed its business scope and became a project management company with no independent revenue base. Dongqian District Government assumed responsibility for loan repayment . Hangzhou Solid Waste Company Limited was not able to meet its financial covenants during the first few years of implementation due to the very low tipping fee of RMB15.00/ton (US$2.45/ton), which did not cover operation and maintenance costs . The tipping fee was first increased to RMB45.10/ton (US$7.35/ton) in 2007, and then to RMB60/ton(US$9.78/ton) effective in January 2009, enabling it to substantially meet the covenant . In 2010, financial performance of Hangzhou Solid Waste Company Limited was meeting the projected financial performance at appraisal, including levels of Earnings Before Interest, Taxes, Depreciation, and Amortization or EBITDA (actual RMB13 million against projected RMB18 million), Earnings Before Interest, Taxes or EBIT (actual RMB9 million against projected RMB5 million) and Earnings Before Taxes or EBT (actual RMB8 million against projected RMB3 million). In 2010, the financial performance of the company further complied with the covenanted ratios of Cost Recovery (actual 1.1 against covenanted value of 1.0) and Debt Service Ratio (actual 2.5 against covenanted value of 1.3).
The ICR states that Ningbo Sewage Company Limited complied with the cost recovery ratio and debt service coverage ratio covenants, as required in the legal agreements . Ningbo Sewage Company Limited’s income is dependent on Ningbo Municipal Government’s strategy for collecting wastewater tariffs . To implement an optimized taxation strategy, part of the tariffs collected was allocated to the company as loan capital, which at a later stage, will be converted to equity. The main part, corresponding to the amount of treated wastewater, is allocated to the company as revenue. The allocation strategy has resulted in a weaker income statement than projected and the Company has, in its own financial projections, adjusted its income statement for the allocation strategy . While the official income statement for 2010 shows losses and a weaker performance against the financial projections at appraisal, the adjusted income statement shows that the Company met the projected financial performance, including levels of EBITDA (actual RMB149 million against projected RMB85 million), EBIT (actual RMB86 million against projected RMB12million) and EBT (actual RMB91 million against projected RMB3 million). The level of wastewater tariffs for 2010 reached the projected level (actual RMB1.2/m3 against projected RMB0.8/m3). The adjusted income overall was in full compliance with the covenanted ratios of Cost Recovery (2010 actual 1.6 against covenanted value of 1.0) and Debt Service Ratio (2010 actual 8.7 against covenanted value of 1.3).
c. Unintended Impacts (positive or negative): Two positive unintended outcomes mentioned by the ICR were : (i) Hangzhou's experiment with solid waste reduction, recycling and reuse, to explore alternatives to landfilling; and (ii) at least 80% of households in the historic inner cities made additional investments to upgrade their housing, further improving the appearance of their neighborhoods.
Hangzhou Tianziling Landfill Expansion: During December 2008 to July 2009, Hangzhou Solid Waste Company Limited developed the “Tianziling method of landfill operations” which used a high density polyethylene (HDPE) membrane cover instead of soil cover, introduced a portable steel working platform, and segregated clean and polluted run-off, which enabled better control of polluted runoff . The Tianziling method has been incorporated in the National Standards for Municipal Solid Waste Sanitary Landfill Operation and Maintenance, as an example of best practice.
d. Other: None
121212.12... RatingsRatings:::: ICRICRICR IEG Review Reason for Disagreement ///Comments /Comments Outcome::: Satisfactory Moderately Efficiency is rated modest, in the Satisfactory absence of sufficient evidence or benchmarks to underpin claims of cost-effectiveness of the project's activities. Risk to Development Moderate Moderate Outcome:::
Bank Performance ::: Satisfactory Moderately Long period - two years - for project Satisfactory design; increased complexity of project from restructuring. Borrower Performance ::: Satisfactory Satisfactory
Quality of ICR ::: Satisfactory
NOTESNOTES: - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006. - The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate.
13. Lessons: Two important lessons adapted from the ICR are :
Heritage conservation should take an integrated approach that links conservation to the local economy and to poverty reduction. This project took an integrated approach to heritage conservation, infrastructure and housing improvements and urban planning. A multi-disciplinary team was assembled under the project to help build capacity for planning and design to generate sustainable economic opportunities based on cultural heritage conservation and tourism.
Heritage conservation efforts are more likely to be successful if the community is pro -actively engaged in the potential cultural and economic benefits of such conservation . From this project experience, specific areas for attention are: participatory planning that involves and seeks out citizen participation; adaptive reuse of historic buildings to create venues for serving community needs and /or creating economic activity; and improving the appreciation and understanding of local residents of cultural heritage sites . 14. Assessment Recommended? Yes No
15. Comments on Quality of ICR:
The ICR is written in an informative and analytical manner . It includes appropriate information and evidence for its arguments and conclusions. The ICR discussion devotes adequate attention to the project outcomes, alongside the discussion of outputs and intermediate outcomes . Some ratings were optimistic, but the lessons drawn are balanced and objective. The length of the ICR is reasonable. However, the ICR should have attempted an economic analysis at least for the physical investment portions of the project, and also indicated whether the audits were qualified or not. Overall, the ICR quality is rated satisfactory . aaa.a...QualityQuality of ICR Rating ::: Satisfactory