The World Bank Public Disclosure Authorized Report No: ICR0000377

Document of The World Bank Public Disclosure Authorized Report No: ICR0000377

IMPLEMENTATION COMPLETION AND RESULTS REPORT (IBRD-44960 IDA-32510)

ON A Public Disclosure Authorized LOAN AND CREDIT

IN THE AMOUNT OF US$ 100 MILLION AND SDR1.5 MILLION (US$ 102 MILLION EQUIVALENT)

TO THE

PEOPLE'S REPUBLIC OF CHINA

FOR A

Public Disclosure Authorized SICHUAN URBAN ENVIRONMENT PROJECT

November 28, 2007

Urban Development Sector Unit Sustainable Development Department East Asia and Pacific Region Public Disclosure Authorized CURRENCY EQUIVALENTS

(Exchange Rate Effective January 2007)

Currency Unit = Yuan 1.00 = US$ 0.13 US$ 1.00 = Yuan 7.8

FISCAL YEAR January 1 to December 31

ABBREVIATIONS AND ACRONYMS

ABBREVIATIONS AND ACRONYMS BOD Biological Oxygen Demand CDC Chengdu Drainage Company COD Chemical Oxygen Demand DWTC Deyang Wastewater Treatment Company EA Environmental Assessment EPB Environmental Protection Bureau GDP Gross Domestic Product GIS Geographic Information System ICR Implementation Completion & Results (Report) IDA International Development Association IPCAP Industrial Pollution Control Action Plan FIDIC Federation Internationale des Ingenieurs Conseils LESMB Leshan Solid Waste Management Board LEWTC Leshan Wastewater Treatment Company LGBSA Leshan Grand Buddha Site Administration LUWSC Luzhou Water Supply Company MIS Management Information System MOF Ministry of Finance NDRC National Reform & Development Commission O&M Operation and Maintenance PAD Project Appraisal Document PDO Project Development Objective PPMO Sichuan Provincial Project Management Office PHRD Policy and Human Resources Development (Japan) PIA Project Implementing Agencies PSP Private Sector Participation QEA Quality at Entry QSA Quality of Supervision Assessment RAP Resettlement Action Plan SEPA State Environmental Protection Agency SP Sichuan Province SPG Sichuan Provincial Government SUEP Sichuan Urban Environment Project UMIS Urban Management Information System UNESCO United Nations Educational Scientific & Cultural Organization Vice President: James W. Adams Country Director: David R. Dollar Sector Manager: Keshav Varma Project Team Leader: Hiroaki Suzuki ICR Team Leader: Hiroaki Suzuki CHINA Sichuan Urban Environment Project

CONTENTS

Data Sheet A. Basic Information B. Key Dates C. Ratings Summary D. Sector and Theme Codes E. Bank Staff F. Results Framework Analysis G. Ratings of Project Performance in ISRs H. Restructuring I. Disbursement Graph

1. Project Context, Development Objectives and Design...... 1 2. Key Factors Affecting Implementation and Outcomes ...... 5 3. Assessment of Outcomes...... 10 4. Assessment of Risk to Development Outcome...... 14 5. Assessment of Bank and Borrower Performance ...... 15 6. Lessons Learned ...... 21 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners ...... 22 Annex 1. Key Performance Indicators...... 24 Annex 2. Project Costs and Financing...... 27 Annex 3. Outputs by Component ...... 30 Annex 4. Industrial Pollution Control Action Plan...... 32 Annex 5. Economic and Financial Analysis...... 34 Annex 6. Bank Lending and Implementation Support/Supervision Processes ...... 41 Annex 7. Detailed Ratings of Bank and Borrower Performance...... 43 Annex 8. Summary of Borrower's ICR and/or Comments on Draft ICR...... 44 Annex 9. List of Supporting Documents ...... 59 MAP A. Basic Information SICHUAN URBAN Country: China Project Name: ENVIRONMENT PROJECT IBRD-44960,IDA- Project ID: P043933 L/C/TF Number(s): 32510,JPN-26426 ICR Date: 11/28/2007 ICR Type: Core ICR Lending Instrument: SIL Borrower: PRC Original Total USD 102.0M Disbursed Amount: USD 44.8M Commitment: Environmental Category: A Implementing Agencies: Sichuan Provincial Construction Commission Cofinanciers and Other External Partners:

B. Key Dates Revised / Actual Process Date Process Original Date Date(s) Concept Review: 09/11/1997 Effectiveness: 06/08/2001 06/08/2001 Appraisal: 03/13/1999 Restructuring(s): 06/12/2004 Approval: 06/17/1999 Mid-term Review: 11/17/2003 Closing: 06/30/2006 01/31/2007

C. Ratings Summary C.1 Performance Rating by ICR Outcomes: Moderately Satisfactory Risk to Development Outcome: Moderate Bank Performance: Satisfactory Borrower Performance: Moderately Satisfactory

C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry: Satisfactory Government: Moderately Satisfactory Implementing Quality of Supervision: Satisfactory Satisfactory Agency/Agencies: Overall Bank Overall Borrower Satisfactory Moderately Satisfactory Performance: Performance:

i C.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments Indicators Rating Performance (if any) Potential Problem Project Quality at Entry No Satisfactory at any time (Yes/No): (QEA): Problem Project at any Quality of No None time (Yes/No): Supervision (QSA): DO rating before Satisfactory Closing/Inactive status:

D. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) Other social services 1 Sewerage 51 84 Solid waste management 2 5 Sub-national government administration 8 5 Water supply 38 6

Theme Code (Primary/Secondary) Municipal finance Secondary Secondary Municipal governance and institution building Primary Primary Other urban development Primary Primary Pollution management and environmental health Primary Primary Water resource management Primary Primary

E. Bank Staff Positions At ICR At Approval Vice President: James W. Adams Jean-Michel Severino Country Director: David R. Dollar Yukon Huang Sector Manager: Keshav Varma Keshav Varma Project Team Leader: Hiroaki Suzuki Geoffrey Read ICR Team Leader: Hiroaki Suzuki ICR Primary Author: A. D. C. Godavitarne

ii F. Results Framework Analysis

Project Development Objectives (from Project Appraisal Document) To provide a safe environmental setting for the sustainable long-term economic growth of urban areas in Sichuan Province.

Revised Project Development Objectives (as approved by original approving authority) Not applicable.

(a) PDO Indicator(s)

Original Target Formally Actual Value Values (from Revised Achieved at Indicator Baseline Value approval Target Completion or documents) Values Target Years Reduction of pollution load from Urban Sector Measured by water quality of the Indicator 1 : Min River downstream of Chengdu Value quantitative or Class IV Class II Class IV Qualitative) Date achieved 06/30/1999 01/31/2007 12/31/2006 Comments Clearly defined indicators/targets were not defined at project appraisal. (incl. % Supervision team has set up the indicator/target value at a later stage. achievement) Reduction of pollution load from Urban Sector Measured by water quality of the Indicator 2 : Min River at Leshan Value quantitative or Class III Class III Class III Qualitative) Date achieved 06/30/1999 01/31/2007 12/31/2006 Comments Clear and measurable indicators/targets were not defined at project appraisal. (incl. % Supervision team has set up the indicator/target value at a later stage. achievement) Reduction of pollution load from Urban Sector Measured by water quality of the Indicator 3 : Tuo River at Deyang Value quantitative or Class IV Class III Class IV Qualitative) Date achieved 06/30/1999 01/31/2007 12/31/2006 Comments Clear and measurable indicators/targets were not defined at project appraisal. (incl. % Supervision team has set up the indicator/target value at a later stage. achievement)

iii (b) Intermediate Outcome Indicator(s)

Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised approval Completion or Target Values documents) Target Years Expansion of supply of safe water to meet urban demand: Water Service Indicator 1 : Coverage in Luzhou Value (quantitative 24 km2 (45%) 32 km2 (65%) 32 km2 (65%) or Qualitative) Date achieved 06/30/1999 01/31/2007 06/15/2006 Comments 100% achievement. Clear and measurable indicators/targets were not defined at (incl. % project appraisal. Supervision team has set up the indicator/target value at a achievement) later stage Reduction of pollution load measured by the weight of solid waste disposed of in Indicator 2 : sanitary landfill 0 ton/day (180 tons of Value solid waste were collected (quantitative in city area p/day and 200 tons/day 220 tons/day or Qualitative) disposed of in non- sanitary landfill) Date achieved 06/30/1999 01/31/2007 06/15/2006 Comments 100% achievement. Clear and measurable indicators/targets were not defined at (incl. % project appraisal. Supervision team has set up the indicator/target value at a achievement) later stage Reduction of pollution load measured by the quantity of wastewater collected Indicator 3 : and treated in Chengdu, Deyang and Leshan. (m3/day) No target was set Value (Plan was (quantitative 400,000 Additional 500,000 additional or Qualitative) 500,000) Date achieved 06/30/1999 06/30/1999 12/31/2006 Comments (incl. % Clear and measurable indicators/targets were not defined at project appraisal. achievement)

G. Ratings of Project Performance in ISRs

Actual Date ISR No. DO IP Disbursements Archived (USD millions) 1 06/30/1999 Satisfactory Satisfactory 0.00 2 12/28/1999 Satisfactory Satisfactory 0.00 3 06/08/2000 Satisfactory Satisfactory 0.00 4 12/15/2000 Satisfactory Satisfactory 0.00 5 06/12/2001 Satisfactory Satisfactory 1.00 6 11/27/2001 Satisfactory Satisfactory 1.00

iv 7 05/01/2002 Satisfactory Satisfactory 1.43 8 08/12/2002 Satisfactory Satisfactory 3.84 9 12/19/2002 Satisfactory Satisfactory 4.43 10 04/28/2003 Satisfactory Satisfactory 4.43 11 10/23/2003 Satisfactory Satisfactory 7.34 12 12/12/2003 Satisfactory Satisfactory 7.34 13 06/29/2004 Satisfactory Satisfactory 14.08 14 07/27/2004 Satisfactory Satisfactory 17.04 15 11/10/2004 Satisfactory Satisfactory 21.03 16 06/23/2005 Moderately Satisfactory Satisfactory 36.78 17 12/07/2005 Satisfactory Satisfactory 36.78 18 12/13/2006 Satisfactory Satisfactory 45.69

H. Restructuring (if any)

ISR Ratings at Amount Board Restructuring Disbursed at Restructuring Reason for Restructuring & Approved Restructuring Date(s) Key Changes Made PDO Change DO IP in USD millions Not a restructuring (entered and 06/12/2004 N S S 13.08 recorded in system by mistake)

I. Disbursement Profile

v 1. Project Context, Development Objectives and Design

1.1 Context at Appraisal In 1996, the population of Sichuan Province (SP) was 100 million. It was predominantly rural (84%), and had an urban population growing at 3.2 % per year. Chengdu, the largest city, had a population of about 10 million. Sichuan was one of the poorest provinces in Western China, with an average GDP per capita between 1990 and 1995 of about RMB 3,000 (US$ 360), representing a growth rate of about 12.2 % per annum in real terms.

The principal environmental problems faced by SP were: untreated domestic and industrial wastewater discharged into many of the rivers in the Province; the deteriorating water quality of the Min and Tuo Rivers which eventually flow into the Yangtze River; the lack of adequate environmental infrastructure; and the security of drinking water sources. More than half of the pollution discharges entering the two rivers were from fertilizer, pulp paper and mining industries. These rivers were also extensively exploited for irrigation, and had insufficient flows to maintain their assimilative capacity. The deteriorating water quality threatened the growth of Sichuan’s larger cities, and was likely to pose a threat to the water quality in the Three Gorges Reservoir.

In an effort to curb pollution from urban and industrial sources, SP set the following ambitious pollution control targets to be achieved by 2010: a cap on the total amount of heavy metals in industrial wastewater at 1995 levels, improvement of surface water quality to meet national standards, and wastewater treatment targets of 25 % for domestic wastewater and 65 % of industrial wastewater.

SP endorsed and adopted the strategy and framework for improving urban environmental services, which was developed during project preparation following a comprehensive water sector study.

The rationales for Bank involvement were: (a) to engage with emerging cities in Western China for the first time; (b) to help SP institute region-wide water resource management and policy reforms; (c) to improve environmental conditions to maintain water quality levels of the Min and Tuo River basins compatible with needs; and (d) to reduce pollution loads entering the Yangtze River.

1.2 Original Project Development Objectives (PDO) and Key Indicators (as approved) The project development objective was ‘to provide a safe environmental setting for the sustainable long-term economic growth of urban areas in Sichuan Province.’

Key performance indicators were presented in the Project Appraisal Document (PAD). The outcome indicators were: (a) reduction of total pollution loads from the urban sector to the Min and Tuo Rivers through selective high-impact wastewater and solid waste management improvements; (b) expansion of capacity for supplying safe water in urban areas; and (c) strengthened financial viability and institutional autonomy of municipal services.

1 1.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification Project development objectives and indicators remained unchanged during the project period.

1.4 Main Beneficiaries, Original Beneficiaries. The principal project beneficiaries were: (a) the cities of Chengdu, Deyang, Luzhou, and Leshan, which were to benefit from improved environmental conditions and services and improved management systems; and (b) residents of project cities and downstream users who would benefit from improved water quality in the Min and Tuo Rivers. The improvements at the Leshan Grand Buddha site were intended to preserve a unique cultural heritage for future generations. The Sichuan Construction Commission (SCC), the Provincial Environmental Protection Bureau (EPB), and the cities of Deyang, Leshan and Luzhou were to benefit from urban management information and decision support systems. The strategic framework developed for improving urban environmental services was to benefit all major cities in both Sichuan Province and the newly-created Chongqing Municipality.

Revised Beneficiaries. All beneficiaries remained as planned, except for those who would have benefited from water supply (WS) improvements in Leshan and Luzhou. The Leshan water supply component was deleted. (See Section 1.6 for further details.)

1.5 Original Components (as approved) The Board-approved project was formally amended before loan signature, to delete the two Zigong components, as Zigong decided not to participate in the project. The amended project cost, after withdrawal of Zigong, was US$ 218.9 million (down from US$ 310 million), with a loan of US$ 100.0 million (down from US$ 150 million), and the IDA credit of US$ 2 million earmarked for the Environmental Protection and Rehabilitation at the World Heritage Site of the Leshan Grand Buddha. The Loan became effective two years after the original Board approval. The project components as described in the legal documents are summarized below.

Min River Basin  Chengdu Wastewater (US$ 90.9 million). Construction of a 300,000 m3/d wastewater treatment plant (WWTP), interceptors and secondary sewers, and ancillary facilities.  Leshan Water Supply (US$ 22.2 million). Augmentation of a new water supply source of 100,000 m3/d capacity including treatment, networks, and ancillary facilities.  Leshan Wastewater (US$ 18.5 million). Construction of interceptors, secondary sewers and a WWTP of 100,000 m3/d capacity with preliminary treatment.  Leshan Municipal Solid Waste (US$ 9.1 million). Construction of a 328 tons/d sanitary landfill, collection and transfer facilities, and vehicles and equipment including landfill equipment.

Tuo River Basin

2  Deyang Wastewater (US$ 32.1 million). Construction of sewer networks, interceptors and a WWTP of 100,000 m3/day capacity.  Luzhou Water Supply (US$ 27.4 million). (a) Luzhou-Beijao: Construction of a 50,000 m3/d treatment plant, transmission mains and distribution networks; (b) Luzhou-Daxikou: Construction of a 50,000 m3/d treatment plant from a new intake, transmission mains, storage reservoir, and distribution networks. Others  Urban Management Information System (US$ 4.6 million). Development of an Urban Management Information System (UMIS) including decision support systems for the SCC, Deyang, Leshan and Luzhou, and an Environmental Management Information System (EMIS) for the Environmental Protection Bureau (EPB).  Environmental Protection and Rehabilitation (US$ 7.6 million). Improvement of infrastructure and facilities at the World Heritage Site of the Leshan Grand Buddha, including presentation and management of cultural heritage assets.  Institutional Development, Strengthening and Training (US$ 6.5 million). Technical assistance (TA) comprising institutional and financial management systems for the utility agencies, design review, construction supervision services and training.

A detailed project description is available in the PAD.

1.6 Revised Components The Leshan water supply component and the Daxikou part of the Luzhou water supply component were deleted early in the project implementation period. All other components remained unchanged. However, a formal amendment was not made to the legal agreements, and the relevant loan portion was not canceled until the very end of the project.

1.7 Other significant changes (a) The most significant change was that about US$ 42.0 million of the US$ 100 million of the loan was unutilized mainly due to the deletion of appraised components. In addition to using own funds, project agencies decided to use more attractive financing that became available around 1999/2000 when the National Development and Reform Commission (NDRC) made unexpectedly available large amounts of less onerous concessionary state bonds funding to accelerate development of urban infrastructure in Western China. SP and the project implementing agencies (PIA) chose to use these funds, even though the investment plans had been endorsed earlier. The Chengdu Drainage Company (CDC) also used large amounts of own funds to finance some works under its component. The Bank accepted the client’s prerogative and opportunities to use the least cost resources available. However, in each case, SP advised the Bank of the changes only after final decisions had been made.

(b) The availability of state bonds and other funding led to significant changes in project scope and financing. Some works originally included for financing with loan proceeds

3 were changed to non-Bank financing (NBF). The chronology of changes is provided below, together with a graphic illustration and table of loan utilization:

(i) 2000: Zigong city decided to implement its water and wastewater treatment project with national bond and its own fund before signing of the Bank loan; (ii) 2001: the Leshan water supply component was deleted; the Bank was advised that the water supply company was sold to a private company, and the company had no immediate plans to expand water supply in Leshan; (iii) 2001: the Luzhou-Daxikou water supply component was deleted, as the company was able to purchase less expensive treated water from an enterprise which had excess capacity after restructuring; (iv) 2002: since the allocated state bonds funding had to be used within the same fiscal year, SP converted the contract for construction of the Deyang wastewater interceptors was converted to non-Bank financing (NBF); and (v) The CDC used own funding to construct secondary sewers, while using loan funds for the construction of the large diameter interceptors and treatment plant.

Loan Unutilized (Deletion) Leshan WS (US$ 11.4 M) (Company incorporated into the Leshan Power Company) Luzhou-Daxikou WS (US$ 7.0 M) (due to purchase of water from private sector)

Loan Reduced [Zigong WS, WW of Loan Unutilized (Alternative Funding) US$ 50 M Deleted] Deyang WW interceptors(US$ 2.2 M) (State Bond Funding) Fuji WS transmission in Luzhou (US$ 3.1 M) (State Bond Funding) CDC sewers (US$ 18.5 M) (Own Financing) 50

18.4

Loan Canceled (US$ 54 M) 23.8 Loan (Nov 2006, Jan 2007) savings

Formally 11.8 20% Amended Loan Canceled Loan (US$ 1.8 M) Amount (at closure)

150 100 81.6 57.8 46.0 44.2

Board Approved Amended Actual Loan (Jun 1999) (Jan 2001) During SPN Used at Closure

4 Implemented Amount Component (regardless of Remarks (Source) (US$ M) funding source) Leshan WS 11.4 Yes Changed circumstances: The water supply company was incorporated into the Leshan Power Company [Bank was informed in November 2001] Luzhou-Daxikou WS 7.0 No No longer needed: The Luzhou WS company decided to purchase treated water in bulk from a local industrial enterprise [Bank was informed in November 2001] Deyang wastewater 2.2 Yes Alternative funding: State Bonds interceptors [Bank was informed in August 2002] Fuji WS transmission 3.1 Yes Alternative funding: State Bonds main in Luzhou-Beijao [Luzhou implemented WS in 1999-2000 to meet urgent demand] Chengdu Drainage 18.5 Yes Alternative funding: Own-Financing Company (CDC) [Chengdu did not submit disbursement sewers applications]

(c) The total loan ‘surplus’ due to deletions and contracts converted to own financing was US$ 42.2 million, leaving US$ 57.8 million to finance eligible expenditures of about US$ 84.6 million. However, only US$ 44.2 million of the loan was used by loan closure. The loan and credit ‘savings’ that can be attributed to high cost estimates is about US$ 11.6 million (representing about 20% of costs). The primary reason for the loan ‘savings’ was the use of ‘norm’ rates specified in the government’s standardized unit price schedules, which are generally higher than market prices.

(d) Under new leadership, the Leshan Grand Buddha Site Administration (LGBSA) developed a new plan in January 2004, expanding the control area from the original 4 km2 to about17 km2, and deferred some works included in the project. The new access walkway to the viewing platform was deferred because there was no consensus among the interested parties on an acceptable technical solution. The deferments resulted in a Credit surplus of about US$ 1.3 million out of the US$ 2 million provided.

(e) SP continued to pay commitment fees on the unutilized loan/credit almost to the end of the project, as it was never restructured. SP was not able to get a timely request to the NDRC to utilize loan savings. In November 2006 and February 2007, US$ 54 million of the Loan was canceled. At loan closure, only US$ 44.2 million of the Loan, and US$ 0.7 million of the IDA Credit were used, and US$ 1.8 million of the Loan and US$ 1.3 million of the Credit were canceled.

2. Key Factors Affecting Implementation and Outcomes

2.1 Project Preparation, Design and Quality at Entry (a) Project Design. The Bank, along with leading global specialists, devoted considerable time and resources to formulate a long term development strategy and a framework for improvement of urban environmental services in SP - the first such

5 strategy in less developed Western China. The framework included two prioritized investment plans: one for SP concentrating on the Min and the Tuo Rivers, and the other for Chongqing Municipality (created in 1997, during project preparation) focusing on measures to reduce pollution entering the Yangtze River. The investment plans and policies set out were endorsed by SP, and became the basis for sector and project investments. An important part of the strategy was the incorporation of an innovative Industrial Pollution Control Action Plan (IPCAP) as a practical means of implementing the ‘polluter pays’ principle. The IPCAP was essential to reduce the large industrial pollution discharges into the rivers.

The task team, with active support from the country management, recognized the importance of heritage in the development paradigm, and with SP agreement, allocated China’s last available IDA funds (US$ 2 million) to support this innovative intervention. The project included support for rehabilitation of cultural heritage assets, specifically the site of the Leshan Grand Buddha. Because of its world heritage status, a process for wide consultation with national and international experts was included.

The PDO did not include specific quantitative targets or baseline conditions as often seen in projects prepared in the 1990s. The supervision team added some quantitative performance indicators at a later stage.

(b) Institutional Development. A specific project goal was to strengthen and develop sector institutions, through the formation of autonomous wastewater companies, and incorporation of cost recovery principles. The cost recovery strategy adopted was consistent with Bank policy, findings of the urban services sector report (completed about that time), and practice elsewhere, which subsequently became Chinese national policy. In line with sector policy at the time, on-lending terms to utilities were set at a 15-year repayment, even though the Bank loan was for 20 years with a 5-year grace period. Standard financial performance covenants on cost recovery and debt service coverage ratio were also included. The Bank required the creation of autonomous utility companies prior to project appraisal.

(c) Capacity Building. The project included the following capacity building technical assistance packages: (i) improved construction supervision and contract management, on terms similar to FIDIC (Federation Internationale des Ingenieurs Conseils), as part of the project; (ii) financial strengthening for utility companies; (iii) urban management information systems; and (iv) a free-standing Japan Policy and Human Resources Development (PHRD) Implementation Grant of US$ 400,000 to support monitoring implementation of environmental and social safeguards.

(d) Risks and Mitigation Identified at Appraisal. The risks identified included: (i) complementary pollution reduction in industry and agriculture delayed. This risk was addressed through the formulation of the IPCAP, which was to be implemented in parallel with the project. The project did not address agricultural non-point source pollution. (ii) Autonomy of wastewater companies and financial sustainability. By project appraisal, autonomous companies were created for wastewater and water supply

6 operations in project cities. The companies were required to produce annual financial statements and tariff recommendations necessary to meet the specified financial performance criteria. These risks were rated as “modest” at appraisal.

(e) Adequacy of Participatory Processes. Appropriate improvements to be implemented at the World Heritage Site of the Leshan Grand Buddha were decided upon through a participatory process by conducting wide consultations. A participatory process involving affected people and other stakeholders were also used to prepare Resettlement Action Plans (RAP) in conformity with the requirements of the World Bank and Government policies, and procedures for involuntary resettlement.

(f) Quality at Entry. A Quality at Entry Review (QER) carried out in March 2000 gave the project a ‘Satisfactory’ rating. Details are provided in Section 5.

2.2 Implementation (a) Project Implementation. Utility companies implemented the project using World Bank procurement procedures. The project implementation period was 5 years; however, the loan closing date was extended once by 7 months to enable completion of outstanding works.

(b) Project Management. The Sichuan Provincial Project Management Office (PPMO) provided effective coordination during preparation and implementation, and was also the main point of contact with the Bank. As project cities had no experience with previous Bank-financed projects, the PPMO played a key role in guiding the project and ensuring that implementing agencies understood and complied with the provisions of the legal agreements.

(c) Detailed Design Preparation. Detailed design preparation did not commence for about one year after project start until all internal approvals were completed. Responding to a request from SP to assist in accelerating detailed design preparation, the Bank offered ‘no objection’ to awarding sole source contracts totaling US$ 874,000 to one design institute (DI) for detailed design preparation for all components. The quality of this work was not entirely satisfactory (also highlighted in the Borrower’s ICR).

(d) Compliance with Financial Covenants. The water supply company in Luzhou has been, and will be able to comply with the financial covenants. The wastewater companies in Chengdu, Deyang and Leshan only partially complied with the financial covenants. They were unable to meet the financial covenants with their own revenues. Their local governments provided subsidies to fully cover the costs and debt service. However, not all subsidies provided have gone through each company’s accounts. The debt service payments have been made directly by the respective Finance Bureaus without involving the wastewater companies.

Tariff increases were implemented twice, in 2005 and 2006 by CDC to comply with a central government directive to impose a minimum wastewater tariff of RMB 0.80/m3; but tariffs were not revised in Leshan or Deyang. Financial statements indicate a trend of

7 reducing government subsidies in all the wastewater companies. Luzhou Water Supply Company (LUWSC) increased water supply tariffs in 2003 and 2006, and is in a sound financial position requiring no subsidies from government. Although not required under project financial covenants, Leshan introduced a solid waste fee averaging RMB 5 per household per month.

(e) Autonomy of Utility Companies. The ICR review found that: (i) though the companies were formally created to meet a condition for appraisal, they were really not operational until the asset construction was nearing completion; (ii) ‘tariff” is legally defined as an administration fee which must accrue to the government - wastewater tariff revenues collected by the water supply companies continue to be remitted to the Finance Bureaus, which provide wastewater companies adequate budgets to meet operation and maintenance (O&M) expenditures with the exception of Leshan Wastewater Treatment Company (LEWTC) which receives all revenues directly; and (iii) with respect to the secondary sewer systems, CDC owns the sewer networks, but O&M is carried out by the district sanitation units; Deyang Wastewater Treatment Company (DWTC) neither owns nor operates the sewer system; and LEWTC owns and operates the entire sewer network.

(f) Mid-term Review and Project Restructuring. It became evident at the mid-term review in 2003 that a substantial portion of the loan would not be utilized. The Bank agreed to consider SP’s request to identify a list of new subprojects for financing, increase the disbursement percentage for civil works, and cancel unutilized loan savings, subject to the Ministry of Finance (MOF) making a formal request to the Bank. Pending this request and amendment of the legal agreements, the Bank appraised additional subprojects for Leshan and Luzhou in about 2004. However, the additional works to use loan savings for the Chengdu wastewater component was not finalized until late 2006 because CDC changed its proposal more than once. Following the appraisal of the additional works for Chengdu, the PPMO submitted the consolidated application to NDRC in late 2006, which was rejected. The lengthy delay in finalizing the loan savings package caused project owners to change their minds, or cancel the appraised subprojects as in the case of Leshan and Luzhou.

(g) Industrial Pollution Reduction. The Provincial EPB report on provincial industrial pollution reduction provides province-wide data and city data on pollution reduction and water quality improvements in the Min and Tuo Rivers, including actions taken in regard to implementation of the IPCAP. The report indicates that SP has pursued industrial pollution reduction on a broad front, including the four worst polluting industries identified at project appraisal. Improvements in three industries achieved the 2010 IPCAP targets for COD and NH3-N load reductions of 28% and 39% respectively. The fourth industry was closed down. Details are provided in Annex 4.

(h) Implementation of Technical Assistance (TA). The organization of institutional and financial strengthening technical assistance was not very effective initially, as the companies, though created, were not operational and had little or no staff in the initial years of project implementation; they therefore could not fully take advantage of the TA. Later in the project period, financial systems and procedures were introduced in the

8 companies. Construction supervision under the improved procedures, similar to FIDIC, was partially successful because the project owners needed more time to adjust to the new role of the Engineer under FIDIC terms. GIS-based urban management information systems for the SCC and other cities, and the environment management information system for the EPB were completed despite some delays. Wastewater and water supply companies now routinely use the financial projections for costing and tariff projections. Project agencies have developed databases using management information systems (MIS) for planning, decision-making and development purposes.

2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization Monitoring and evaluation of the project was done primarily through progress reports from the PPMO, and supervision missions that were conducted semi-annually by joint headquarters and resident mission teams. The design of the original M&E system left much room for improvement. As seen in the other projects approved around the same period, lack of quantifiable and measurable monitoring indicators at output and outcome levels made it difficult to track project progress towards PDO and to document the project outcomes. However, the task team introduced a set of monitoring indictors at a later stage. The EPB regularly monitored industries and river water quality. Monitoring of safeguard implementation and procurement administration was carried out by external monitors and China Country Office specialists. A PHRD implementation grant was provided for independent monitoring of safeguard implementation. Only US$ 221,765 of the US$ 400,000 PHRD grant was used prior to closure. The formation of an Advisory Committee, along with consultants to support the work of the Committee was not implemented; funds were used only to finance the external monitoring of safeguard compliance.

2.4 Safeguard and Fiduciary Compliance

Social Safeguard Issues. No specific issues arose during implementation. SP and project agencies were in full compliance with the Bank’s safeguard policies.

Environmental Issues. Sichuan Provincial Government and implementing agencies complied with the Bank’s safeguard policies.

Financial Management. Apart from initial minor delays, no specific issues arose during implementation. Audit requirements were also fully complied with.

Procurement. Fully complied; procurement activities were conducted without any problems.

2.5 Post-completion Operation/Next Phase Wastewater companies have started operations, and tariff revenues are generally adequate to meet O&M costs, but not for debt repayment and tariff increases are necessary to increase the level of cost recovery from tariffs. Being government-owned enterprises, institutional reform would depend largely on the reform agenda pursued by the central government. At present, the utility companies see their role largely as service providers

9 supporting rapid urban development. Future investment plans of project entities are described below.

(a) CDC plans to: prepare a sludge management plan to dispose of over 400 t/day of sludge from its four treatment plants; expand the capacity of its network, as some older sewers are now surcharged; and explore options and opportunities for private sector participation in wastewater activities. (b) Deyang Wastewater Treatment Company (DWTC) plans to: expand its treatment capacity by another 100,000 m3/d, and construct a 50,000 m3/d plant to collect and treat wastewater generated from the western drainage zone west of the rail line, currently discharged to the river. (c) LEWTC plans to increase its secondary treatment capacity by another 50,000 m3/d, and expand its sewer network to increase wastewater collection. (d) Leshan Solid Waste Management Board (LESMB) plans to improve waste collection, and introduce waste separation. (e) Luzhou Water Supply Company (LUWSC) has adequate capacity and revenues for the near term, and has no specific expansion plans. (f) LGBSA is still exploring technical options to construct a second access walkway to the viewing platform, and plans to continue removal of non-conforming uses from the protected area. Its current revenues are about US$ 13 million annually, and growing.

3. Assessment of Outcomes

3.1 Relevance of Objectives, Design and Implementation Rating: Satisfactory

The development objective was consistent with the provincial and central government’s policies on improving water quality in major rivers and lakes, and developing Western China. In addition to providing access through major highways to connect these cities, the safe and sustainable environmental conditions were high priorities for developing the western region. Maintaining satisfactory water quality in the Yangtze River is also a high priority for the central government in order to protect the water quality in the Three Gorges Reservoir. The PDO was consistent with China’s 10th Five-Year Plan and the strategic pillars of the Bank’s Country Partnership Strategy for China that aims to manage resource scarcity and environmental challenges by expanding urban wastewater collection and treatment facilities and controlling industrial pollution.

The Bank recognized early the importance of urban infrastructure development in SP, and moved to support the development of a strategy and framework starting from ground zero. NDRC support followed with large amounts of funds to the western region for the expansion of urban infrastructure services. The framework also included the IPCAP and the innovative cultural heritage rehabilitation. Chongqing’s prioritized investment program was also implemented, supported by a separate Bank project (Chongqing Urban Environment Project, Ln. 4561-CN), and has also led to significant development of urban services in that Municipality.

3.2 Achievement of Project Development Objectives

10 Rating: Moderately Satisfactory

Achievement of the PDO, measured against the key performance indicators, is described below: Indicator. Reduction of total pollution loads from the urban sector to the Min and Tuo Rivers through selective high-impact wastewater and solid waste management improvements. Outcomes over the period of 2000 to 2006 from project investments, combined with IPCAP include: (a) BOD removal from municipal wastewater increased approximately threefold (27,700 t/y to 68,800 t/y) through increasing treatment capacity from 400,000 m3/d to 1,200,000 m3/d; (b) industry COD load reduction by about half (from 562,000 t/y to 298,000 t/y); (c) industry ammonia load reduction from about 26,000 t/y to 20,000 t/y; (d) pollution load reduction in the four worst polluting industries identified at appraisal: (i) ammonia loads in one fertilizer plant reduced by 32%; (ii) COD loads reduced by 35% in the second fertilizer plant; (iii) COD load reduced by 100% in the distillery (due to its closure); and (iv) SS load from the mining plant reduced by 60%, meeting targets specified in the IPCAP; (e) Province-wide pollution reduction achievement under the IPCAP: industry COD reduction by 38% and NH3-N by 30%; and (f) Min River water quality at Chengdu and Leshan remained stable at Class III; and Tuo River water quality at Deyang worsened from Class III to Class IV. See Annex 1 and Annex 4.

Wastewater improvements were carried out in Zigong, outside the project, but in accordance with the strategic framework developed at project start, which contributed to improved water quality in the Tuo River.

Collection and disposal of over 200 tons/day of solid waste at a sanitary landfill in Leshan contributed to the reduction of pollution entering the river systems.

Indicator. Expansion of capacity for supplying safe water in urban areas. Safe water supply coverage was expanded in Luzhou, from 45% to 65%, attributed to the project1, but not in Leshan as the component was deleted.

Indicator. Strengthened financial viability of utility companies. As wastewater charges were introduced under the project, it can be said that financial viability improved from the zero base. As revenues from tariff charges were generally adequate to meet O&M costs only, financial viability was only achieved partially. However, the wastewater companies were able to cover all costs and debt service because city governments subsidized them. On a positive note, subsidies are expected to be

1 The lower-than-planned achievement represents the deletion of Luzhou-Daxikou part of the component. However, this shortfall was made up by the purchase of treated water from a local enterprise.

11 eliminated by about 2009/2010 based on current trends. LUWSC has consistently been financially viable throughout, and was able to meet the financial covenants without government subsidies. While the institutional development objective are based on sound utility practice and development, the Provincial Government’s objective was to expand service coverage in its fast growing cities, improve levels of service, and improve water quality in river systems. Following a study of solid waste services, Leshan introduced a fee of RMB 5 per month per household, even though it was not a requirement under the project.

Indicator. Strengthened institutional autonomy of municipal services. Institutional autonomy was only partially achieved. Government water supply and drainage departments were converted to autonomous companies with business licenses at project appraisal except Luzhou, where a water supply company had been in existence for about four decades. The degree of autonomy enjoyed in management and financial decisions was limited, however. In this phase of transition, utility companies see themselves as service providers to meet rapid urban growth in the project cities. The current trend of sector reforms, spearheaded by the central government, is expected to continue, and the development of autonomous utility companies is likely to be achieved in the longer-term.

Indicator. Poverty reduction and public health improvements. The PAD makes reference to the role of the project in poverty reduction and improvement of public health. No specific measurable interventions were designed in the project, and supervision missions did not follow this aspect. In the absence of clearly defined indicators, assessment of the relevant outcomes would be difficult, as these benefits accrue to the larger city population. However, the project may have had some impact on the poor with regard to increased employment opportunities and access to basic services.

The PDO was ambitious considering that it was the first sector operation in the province. Overall, project outputs have contributed substantially to creating a safe environmental setting for economic growth in SP. However, financial viability and institutional autonomy of utility companies were only achieved partially.

3.3 Efficiency Rating: Satisfactory

All the wastewater components (CDC, DWTC and LEWTC) are estimated to generate financial rates of return (FIRRs) of more than 10%, which are above the costs of capital for each component. These rates of return result from the fact that the project costs for all the components have been effectively controlled. In order to realize these rates of return, however, all wastewater companies will need to increase the wastewater tariffs in the next five years, as planned. The implementation of tariff increases depend largely on the central government’s continuing policy guidelines promoting full cost recovery in wastewater services, and local government compliance with the guidelines. ICR assessment is that (i) CDC and DWTC are likely to achieve this goal, and (ii) LEWTC would require strong political support to achieve this goal, given its current low

12 wastewater tariff. The water supply component in Luzhou (LUWSC) is estimated to generate a financial rate of return of 19.2%, even with the assumption of no tariff increase from the current level. The economic rate of return (EIRR) was revaluated only for the water supply component. The EIRR for LUWSC is estimated at 20.5%, which ensures the economic viability of the project.

FIRR EIRR ICR PAD/1 ICR PAD

CDC 10.6% 9.9% - -

DWTC 11.6% 10.7% - -

LEWTC 11.2% 10.0% - -

LUWSC 19.7% 11.5% 20.5% 10-12% /2

/1: Figures from Table 3 of Annex 4 /2: The rate for LUWSC is not specified in PAD.

3.4 Justification of Overall Outcome Rating Rating: Moderately Satisfactory

The overall outcome is rated as ‘moderately satisfactory’ based on the following:

(a) Total pollution load discharges from the urban sector to the Min and Tuo Rivers were reduced through increased municipal wastewater treatment in Chengdu, Leshan and Deyang; safe disposal of solid wastes in Leshan; and the successful implementation of the IPCAP.

(b) Deterioration of water quality in the Min River was arrested, while the water quality in the Tuo River deteriorated marginally for reasons beyond the project’s scope.

(c) The project cannot take credit for pollution reduction in Zigong, even though the project made an intellectual contribution through the strategic plan developed under the project.

(d) Provision of safe water supply was achieved partially. Water supply coverage was expanded partially in Luzhou; the component in Leshan was deleted.

(e) Financial viability in utility companies was partially achieved. LUWSC was financially viable. Current wastewater tariff revenues are generally adequate to meet O&M costs. Wastewater companies could cover all the necessary costs with subsidy support from city governments, mainly for debt repayment. However, subsidies show a declining trend, and it is possible that they will be eliminated by about 2010.

13 (f) Autonomy of utility companies was partially achieved. Municipal drainage departments were converted to autonomous companies at project appraisal, but their autonomy remains limited. The transition to fully autonomous companies is likely to be achieved in the longer-term with support from the central government’s reform agenda.

(g) Project outcomes may have made a significant contribution to providing a safe environment for the rapid development of project cities, but no clearly defined indicator was available.

3.5 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development The Quality at Entry Review (QER) questioned the poverty targeting classification of the project. The ICR review finding is that the project was not a poverty targeted project; there is only one reference to poverty under project risks in the PAD. Project design did not include specific interventions for poverty reduction nor were there any baseline indicators.

(b) Institutional Change/Strengthening The project introduced four important interventions with regard to institutional changes/strengthening: (a) creation of autonomous wastewater companies in project cities; (b) introduction of construction supervision and contract management, on terms similar to FIDIC with an independent engineer performing services as the representative of the employer; continuation of this arrangement in the follow-on project – Sichuan Urban Development Project (Ln. 4838-CN), bodes well for improvement in contract administration; (c) introduction of independent design checks by international consultants intended to reduce design faults, contractor claims, and contract variations; and (d) introduction of financial systems and procedures in the utility companies, including enterprise accounting and financial projections.

3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops Not applicable.

4. Assessment of Risk to Development Outcome Rating: Moderate

The risks to development outcome are assessed as ‘moderate’ due to the following factors:

Risk: Sichuan Province relaxes controls on industries compliance with environmental regulations. The Provincial Government is expected to proceed with caution using a measured approach while maintaining its commitment to reducing industrial pollution. This is because most industries are state-owned, and they are not financially strong enough to adopt clean technology improvements, and the social and political implications make labor layoffs unlikely. The successful implementation of the IPCAP demonstrates

14 this commitment. In view of its obligations to the central government, it is unlikely that Sichuan will relax industrial pollution control.

The increasing focus and interventions by the central government in pollution reduction, river water quality improvements, and cost recovery have been, and are likely to be, powerful catalysts towards continued progress in the improvement of environmental conditions throughout the country. Under these conditions, it is highly likely that enforcement of environmental regulations will continue to improve.

Risk: Project cities may not continue to invest in wastewater collection and treatment. The installed treatment capacity of 900,000 m3/d in the capital city (Chengdu) is adequate provided sewer networks are expanded to collect all wastewater, currently conveying about 760,000 m3/d. Deyang has plans to expand its treatment capacity to service the western zone, and Leshan plans to expand its secondary treatment capacity to match increasing wastewater flows. The risk is low under the prevailing emphasis for environmental improvements.

Risk: Project cities may not operate all treatment facilities because tariff revenue is inadequate to meet costs of providing services. Even though tariff revenues are inadequate to meet full costs, city governments have continued to provide necessary funds to meet O&M costs and debt service. Current indications are that this practice will continue. Increased cost recovery from users of the services is essential to reduce this risk and improve sustainability. Tariff revenue is now adequate to meet O&M expenditures.

Risk: Sustainability of wastewater services may not be achieved. The city governments provided subsidies mainly to cover debt service. Costs recovered through tariffs are adequate for O&M only. However, with wastewater companies showing a reducing trend of subsidies from respective governments, sustainability is likely over the longer term.

5. Assessment of Bank and Borrower Performance

5.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry Rating: Satisfactory

Bank performance is assessed on the following: (a) project formulation based on a comprehensive water sector study, which developed a strategy and strategic framework for environmental improvements in SP including an industrial pollution control action plan without which improvement of river water quality would have not been possible; (b) prioritization of investments in key cities located on two key tributaries of the Yangtze River; (c) a river basin approach to address environmental problems; (d) institutional development of water supply and wastewater services, including formation of autonomous utility companies with financial performance targets; (e) a new line of business for the Bank in cultural heritage preservation, including an earmarked IDA Credit allocation; (f) a new model for improved construction supervision and contract

15 management similar to FIDIC; and (g) mobilization of a Japan PHRD implementation grant for project preparation, and to monitor implementation of social safeguards.

A QER in March 2000 gave a ‘satisfactory’ rating for the project. The review took place before the surge of state national bonds to the western region, and was based on the conditions prevailing at the time. The main observations of the Panel were: (a) the extensive sector work; (b) support for the government’s strategy of shifting development focus away from the prosperous coastal areas towards the less developed western region; (c) the effective partnership with other donor agencies in the preparation stage; (d) the innovative approaches of the project focusing on one of the poorest and most populated provinces, focus on the key cities along two heavily polluted rivers which are principal tributaries of the Yangtze River; and combining large scale river basin management concepts with urban environment services priorities; and (e) the Bank’s decision to provide IDA funds to support the cultural heritage development plan, and to ensure the proper handling of a major cultural heritage site, the Leshan Grand Buddha.

The ICR evaluation concludes that although the partnership with the provincial counterparts was strong in the project design and preparation, better communication with the project implementing agencies at municipal level would have facilitated greater client engagement during project implementation. In addition, a more meaningful assessment of project outcomes and supervision with a focus on results would have been possible had the project design included key performance indicators with quantitative targets and baseline conditions.

(b) Quality of Supervision Rating: Satisfactory

The Project was supervised thoroughly at least twice a year, and comprehensive back-to- office reports detailing project implementation progress and project issues were prepared. Supervision of procurement, safeguard issues and financial management were delegated to specialists in the Beijing office, which contributed to improved efficiency in these fields. Bank assistance was provided to clarify contractual issues between the PPMO and international consultants engaged in financial and institutional strengthening. Project documents indicate that supervision missions regularly highlighted compliance with financial covenants, and the need to increase wastewater tariffs.

The Bank made a significant contribution in guiding the preparation of the cultural heritage development plan, and for solutions in developing the access walkway to the Leshan Grand Buddha site, with inputs from cultural heritage specialists. As early as 2002, the Bank alerted CDC and LEWTC about non-compliance with the debt coverage ratio covenant, which was major reason for the large debt-financing for non-Bank funded investments. The Bank appraised additional components in Leshan and Luzhou to utilize loan savings in 2004, pending a final decision by CDC and amendment of the legal agreements. However, SP did not submit its request to NDRC in time (in 2006), and thus it was not approved.

16 The ICR evaluation assessed whether the Bank could have foreseen or prevented the deletions and changes in the project scope that occurred. The first deletion (of the Zigong components) soon after Board approval was completely unexpected, as the choice to use more attractive funding became available subsequent to project appraisal. Had the Bank been advised in time, the embarrassment could have been avoided. The unexpected availability of state bonds funding led to the subsequent deletions in Deyang and Leshan. The Bank was flexible, and accepted the prerogative of the borrower agencies to use the best resources available. The purchase of water by Luzhou (Daxikou) which occurred during implementation was done in consultation with the Bank. The Bank concurred with this least cost alternative that emerged subsequent to project appraisal.

Bank supervision ensured that project agencies followed the agreed resettlement action plans (RAP) and environmental management plan (EMP). The Bank also obtained a PHRD Implementation Grant to improve its monitoring of social safeguards. In addition to the formal missions, the Bank’s country office staff monitored and supervised safeguards implementation.

The Bank supervised fiduciary aspects of the project through the review of the documents submitted by SP, and the inclusion of procurement and financial management specialists in the missions as and when required.

Overall Bank performance is rated ‘satisfactory’ for the following reasons: (a) early recognition of the importance of urban services improvement to accelerate development of China’s western region; (b) project formulation based on extensive sector work and design based on a river-basin approach; (c) mobilization of international resources to draft a long-term strategy for urban environmental service improvements in the Province for this first time borrower from a relatively poor province; (d) development of a strategic framework for urban environmental infrastructure that was adopted by SP enabling them to invest in key environmental infrastructure in an orderly manner irrespective of the source of funding; (e) development of a prioritized investment plan as the basis for the project investments; (f) incorporation of an industrial pollution control action plan in the strategic framework, without which benefits from treatment of municipal wastewater alone would have been limited; (g) introduction of a cost recovery strategy that was consistent with Bank policy, and which subsequently became national policy; (h) introduction of competitive bidding in procurement, which was done for the first time in the sector; (i) mobilization of PHRD grants for the sector study, design review advisory services, and project implementation; (j) effective supervision that identified implementation problems and recommended solutions; and (k) efficient supervision of implementation of social and environmental safeguards, procurement and financial management using country office specialists.

5.2 Borrower Performance (a) Government Performance Rating: Moderately Satisfactory

17 The Government of China passed on Loan and Credit proceeds to SP on the same terms. Through the PPMO, the Provincial Government coordinated project implementation providing guidance and support on Bank procedures to the smaller project cities. The PPMO maintained an open working relationship with the Bank, and provided timely progress reports. SP ensured that adequate funding and other support were available to complete the investment program satisfactorily. The complementary IPCAP was also implemented satisfactorily.

The performance of the Provincial Government and city governments to provide adequate funds to enable effective operation and debt repayment, and ensuring improved wastewater services deserves commendation. Government subsidies to wastewater companies show a declining trend, and are likely to end by about 2009/2010. However, the above actions reflect the Provincial Government’s priority of improving environmental conditions and services before achieving financial viability through cost recovery, which does not coincide with the project goals as envisaged in the PAD and legal agreements. The project’s institutional development goal was to convert government sanitation departments into financially and managerially autonomous utility companies conforming to international utility practice in the relatively short period since their formation. Under the project, wastewater companies were formed, but actual operations started towards the completion of construction, which is a relatively short period to make significant progress. They enjoyed limited autonomy. Achieving financial viability in the sector is the long-term goal of the Central and Provincial Governments.

Due to the surge of state bonds allocations to the western region, SP revised the project scope and financing plans to make use of the least cost resources available. However, in the case of each change, SP advised the Bank only after final decisions had been made. Following the withdrawal of Zigong soon after Board approval, it took more than 18 months for SP to reach an agreement on amending the project scope. Due to frequent changes in CDC proposals, SP was not able to secure approval of the NDRC to utilize loan savings despite Bank appraisal of additional subprojects for Luzhou and Leshan, pending amendment of the legal agreements. Only about US$ 44 million (of the US$ 100 million) loan was used, while SP continued to pay commitment fees on the unused balance until the end of 2006 totaling about US$ 1.22 million. SP also used only one- third of the US$ 2 million IDA Credit that was made available for the rehabilitation of cultural heritage assets, and about half the PHRD implementation grant.

(b) Implementing Agency or Agencies Performance Rating: Satisfactory

Overall, the planning and implementation of components by respective project agencies were satisfactory. Utility companies could cover the operation and maintenance costs, while the municipal governments provided the subsidies mainly to cover debt service. It is expected that the subsidies will be phased out gradually. More progress could have been made, however, to improve their autonomy and financial viability.

18 Implementing Performance Agency Design, construction and operation of facilities were highly satisfactory. Tariffs were increased to the minimum level CDC mandated by the central government. The size of subsidies to CDC for debt repayment has had a declining trend. CDC could not use the loan savings due to frequent changes of its proposals. Design, construction and operation of facilities were satisfactory. DWTC No tariff increase was implemented. Received reducing subsidies for debt repayment. LEWTC collects tariff revenues directly from the water supply LEWTC company. It received reducing subsidies for debt repayment. Collection, transfer and disposal of solid wastes operated satisfactorily. Introduced a tariff for solid waste service. Landfill LESMB capacity is larger than demand, hence it will have longer life than the planned 15 years. Part of investment deleted because treated water became available LUWSC from an enterprise. Tariff increased twice, and the company is in a sound financial position. No subsidies were required. Viewing platform completed; but the key access walkway was not constructed due to lack of consensus on an acceptable design. It LGBSA is a popular attraction, receiving over US$ 13 million revenue annually.

Safeguards. Project agencies planned and implemented resettlement satisfactorily in compliance with the RAP. According to the monitoring surveys and reports, all the resettled and affected households’ living standards were improved, and their economic incomes enhanced. All affected persons received (a) compensation for replacement housing as applicable, (b) assistance during their relocation and livelihood rehabilitation, and (c) assistance to readjust in productive activities and adapt to changed economic situations. The external monitoring report concluded that the project’s resettlement program achieved the targets as planned in the RAP, and most resettled households were satisfied with their new lives after resettlement.

The EMP prepared during project preparation was fully implemented. A consulting firm was hired by the PMO to supervise and monitor the EMP implementation. There were no instances of any adverse environmental impacts or complaints during project implementation.

Overall, the project met its safeguard objectives satisfactorily. Sichuan Government and implementing agencies complied with the Bank's safeguard policies.

Fiduciary. Procurement and financial management was appropriately implemented. Project documents indicate no issues relating to procurement performance throughout project implementation. There were no significant changes to the project financial

19 management system agreed at project appraisal. Project financial statements were generated in the format agreed with the Bank. Audited project financial statements, as required by the legal agreements, were submitted to the Bank slightly late in the first year, but improved in the following years. All the audit reports, including those for trust funds, were issued with unqualified (clean) opinions, and no significant internal control weaknesses or non-compliances were identified by the auditors. The auditors did highlight slow disbursement and shortage of counterpart funds in several reports. Overall, financial management in the project was satisfactory.

Positive aspects of the Borrower performance are: (i) the Provincial Government’s effective coordination role of the project, in guiding and assisting smaller project agencies in implementation issues; (ii) completion of all planned investments; (iii) contribution of project outputs to achievement of project development objectives; (iv) satisfactory implementation of the IPCAP; (v) the adoption of an improved construction supervision and contract management system, which is continued in the follow-on project (Sichuan Urban Development Project, Ln. 4838-CN); (vi) completion of the works to a good quality of construction, and satisfactory operation with support from respective city governments; (vii) formation of utility companies for wastewater operations, the adoption of improved financial procedures and systems, and production of financial projections regularly; (viii) the priority given by SP to improve environmental conditions through expanding wastewater collection and treatment, and providing improved services; (ix) city government’s support to cover the cost of the wastewater companies, by providing subsidies which show a decreasing trend, and are projected to end by about 2009/2010; (x) maintaining tariffs at a level adequate to meet O&M costs, with respective city governments providing reducing subsidies to wastewater companies to meet debt service payments; (xi) increase of the wastewater tariffs by CDC; (xii) full compliance of financial covenants by LUWSC, through the increase of tariffs in 2003 and 2006; (xiii) full implementation of the RAP and EMP; and (xiv) development of urban management and environmental management information systems for use by Construction Bureaus and the EPB.

The less positive aspects of the Borrower’s performance are (i) slow and incomplete implementation of financial and sectoral reform program for the utilities as observed in the following: (a) the relatively slow progress to achieve financial viability through tariffs, (b) the payment of debt service payments on behalf of the utility companies, without reflecting them in the accounts of the companies, (c) the non-compliance by CDC and LEWTC of the debt service coverage ratio covenant, because of large borrowing of funds for non-Bank financed investments, (d) the continued ownership and maintenance of secondary sewers by district sanitation bureaus in some cities, with budgets from city governments for O&M which are not reflected in the accounts of the utility companies; and (ii) failure to give the Bank prior notice of project changes which had significant impacts (e.g., Zigong, Leshan and Luzhou-Daxikou); (iii) failure to formulate in a timely manner, a proposal to utilize the substantial loan ‘surplus’ and

20 ‘savings’; and (iv) the utilization of only about a sixth of the IDA credit and about half the PHRD implementation grant provided.

6. Lessons Learned (i) Under the decentralized administrative structure, project cities, as the major stakeholders, exercise their right to seek various financial sources to support their investment programs. As a result, the Provincial Government had no leverage to stop Zigong from withdrawing from the project soon after Board approval. Intensive coordination and agreement between the Province (Development Reform Commission, Finance Bureau, Construction Bureau, PPMO), the project cities, and the Bank are required with regard to project scope and the allocation of the Bank loan, to ensure that defections do not take place. In the fast changing investment climate and financial markets in China, the central government and the Bank need to adopt more innovative and flexible lending instruments such as a Sector Wide Approach Program (SWAP), which could quickly respond to changing needs and priorities of the Borrower.

(ii) A practical approach to balance the Bank’s priority for institutional development with the Government’s priority for expanding wastewater coverage and service levels is necessary. The objectives and priorities of SP were different from those of the Bank. SP gave priority to honoring the agreements made with the central government to expand municipal wastewater treatment to reduce pollution discharges to the river system. A more lenient financing plan where the city governments provided a part of the Bank- funded portion (37% to 46% of project cost) as equity might have helped the wastewater companies during the period when they were in the process of consolidating their position. It is recommended that the provincial governments, the project municipal governments, and the Bank agree on a debt equity structure and/or declining subsidy program taking into account realistic tariff increase plans during the project appraisal.

(iii) In order to assist the development of new utility companies, it would be appropriate to consider on-lending to utilities on the same terms as the Bank loan to China, rather than the 15 years adopted in the project. A longer repayment term of 20 years would have helped these utility companies which were embarking on large investment programs. In addition, a debt service coverage covenant would have been very difficult to comply with without government subsidies. A tariff of about RMB 1.5 per m3 would be required if the wastewater companies were to comply with the debt service coverage ratio covenant without government subsidies, while the central government directed a minimum tariff of RMB 0.8 per m3 for wastewater operations nationwide.

(iv) As investment financing becomes less important to China, the Bank’s future focus should shift to value addition, through programs to transfer knowledge of management systems and procedures. Many cities are completing large wastewater treatment plants, and are venturing into Private Sector Participation (PSP) operations such as build, operate and transfer (BOT) and management contracts in the water supply and wastewater sectors. Some areas where the Bank could add value are in: (a) O&M of WWTPs and solid waste landfills; (b) options for sludge treatment and disposal; (c) infrastructure mapping; (d)

21 reduction of non-revenue water; (e) sewer network optimization modeling; and (f) improving the efficiency of contracting and managing PSP operations.

(vi) An experienced Project Management Office staffed with a full-time Director and qualified technical staff, and supported by an experienced project management consultants are important ingredients for smooth project implementation.

7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/implementing agencies Bank comments on some statements in the Borrower’s ICR (in italics) are provided below:

(i) Cost estimates in PAD too high. The practice/requirement at the time of project preparation was to use the standard ‘norm’ unit rates; this was the reason for the high cost estimates.

(ii) Loan savings could not be used because it took too long to finalize. The Bank appraised additional subprojects for Leshan and Luzhou in 2004, but SP did not submit the application to NDRC until late 2006 due to indecision by CDC on its proposals.

The PPMO has indicated that it does not agree entirely with the reasons stated in the Bank’s ICR. It states that one of the reasons for the delay in appraising the loan savings package was because the World Bank sent a mission to appraise the additional works very late, causing the clients to change their minds or cancel the proposed subprojects.

(iii) Frequent changes of task team leaders and delay in finalizing proposal for utilization of loan savings. There were three changes in Bank Task Team Leaders (TTLs) over the course of project preparation and implementation of about ten years, two of which were due to mandatory staff retirement. The Bank recognizes that these changes could temporarily cause inconveniences and disruptions, and this should be taken as a lessons learned – the changes of TTLs should be minimized to extent possible. However, with respect to the utilization of loan savings, the Bank team has taken the following actions: (a) the wastewater subprojects for Luzhou and Leshan were appraised in 2004; (b) the Bank appraised proposals from CDC twice. However, the Provincial Government could not submit the loan saving utilization request to the Bank through the central government as the Province could not secure the NDRC’s approval as CDC was not able to come to a final decision on which subprojects to include for the use of loan savings, until at a very late stage of the project implementation.

(iv) Quality of detailed designs not good. SP needs to hold design institutes accountable for the quality of designs. Design institutes should be assigned the responsibility for topographic, geotechnical and other field investigations in order to ensure fewer design mistakes. The independent design review process introduced under the project was an attempt to reduce errors and improve designs.

22 (v) Procurement packages too small. The project agencies resisted larger contract packages because of their apprehensions regarding prior review requirements and international competitive bidding.

(vi) Problem of self-supply water users do not pay for wastewater services. SP needs to give serious and urgent consideration to plug this loophole, through banning self-supply of water, and requiring all water consumers to connect to the sewer system. This measure would significantly improve the finances of wastewater companies.

(b) Cofinanciers Not applicable

23 Annex 1. Key Performance Indicators

Outcome Indicator: Water Quality in Sichuan Rivers River River Section Water Quality Water Quality Remarks 2000 2005 Yangtze Luzhou Class II Class II Better Min Chengdu Class IV Class IV Slightly Polluted Leshan Class III Class III Good Tuo Deyang Class III Class IV Slightly Polluted Source: Sichuan EPB (2007).

Outcome Indicators by Component Project Outcome/Output Indicators At Appraisal End-2006 Components Chengdu (i) Quantity of Wastewater Collected and Wastewater Treated (m3/day) 400,000 900,000 Collection (ii) Reduction in BOD Loading (tons/year) 27,740 62,415 and (iii) Percentage of Industries Treating Their Treatment Effluents to Meet Discharge Standards and Having On-Line COD Monitoring 0% 80% (iv) River Water Quality of Min River downstream of Chengdu Class IV Class IV Deyang (i) Quantity of Wastewater Collected and Wastewater Treated (m3/day) 0 100,000 Collection (ii) Reduction of BOD Loading (tons/year) 0 4,015 and (iii) Percentage of Industries Treating Their Treatment Effluents to Meet Discharge Standards and Having On-Line COD Monitoring 0% 80% (iv) River Water Quality of Min River downstream of Deyang Class III Class IV Leshan (i) Quantity of Wastewater Collected and Wastewater Treated 0 50,000 Collection (ii) Reduction of BOD Loading (tons/year) 0 2,373 and (iii) Percentage of Industries Treating Their Treatment Effluents to Meet Discharge Standards and Having On-Line COD Monitoring 0% 80% (iv) River Water Quality of Min River downstream of Leshan Class III Class III Leshan (i) Solid Waste Collected and Disposed at a Municipal Sanitary Landfill (tons/day) 0 220 Solid Waste Management Luzhou (i) Water supply Coverage (%) 45% 65%* Water Supply *The lower achievement represents the deletion of Luzhou-Daxikou part of the water supply component. However, this shortfall was made up through the purchase of treated water from a local enterprise Source: Sichuan PMO, CDC, LEWTC, DWTC, LUWSC, and LWSMB. (2007)

24 Outcome Indicator: Total Municipal and Industrial Wastewater Discharges to Regional Rivers (Tons/year) Description 2000 2001 2002 2003 2004 2005 Wastewater discharge (m3/RMB 169.3 127.3 127.3 111.8 88.5 79.3 10,000 unit) Industrial wastewater (%) 49.0 52.5 51.8 52.6 49.3 46.8 Industrial wastewater (m3/RMB 200.0 66.8 66.0 58.8 43.6 37.1 10,000 unit) Percentage meeting discharge 59.5 72.4 79.1 81.8 86.4 88.3 standards Total COD (10,000 tons) 97.6 99.2 70.1 93.6 88.2 78.3 COD from industry (%) 58.0 53.3 30.8 49.3 44.2 38.0 Industry COD (10,000 tons) 56.2 46.3 48.5 47.5 49.2 29.8 Industry NH3-N (10,000 tons) - 2.6 2.6 2.9 2.5 2.0

Output Indicator: Water Supply Treatment Capacity (m3/day) City Capacity 2010 Project Project Cumulative % in 2000 Target Target Output Capacity Achieved Luzhou 100,000 144,200 50,000 50,000 150,000 100 (Beijiao) Luzhou [1] 3,000 72,800 50,000 Deleted 33,000 * 45 (Daxikou) Leshan[2] 85,000 360,000 100,000 Deleted 100,000 ** 28 Zigong[3] 230,000 527,800 80,000 Deleted 270,000*** 51 Total 418,000 1,104,800 280,000 50,000 663,000 60 * Alternative supply of 50,000 m3/d secured from a state-owned enterprise; only 33,000 m3/d required now. ** Leshan has an installed water treatment capacity of 210,000m3/d, but the full capacity can be used when river flows are high. Current water demand is less than 100, 000m3/d. The 2010 target may be over-estimated. *** Zigong augmented 40,000 m3/d water supply using own funds. Source: Sichuan PMO (2007).

Output Indicator: Wastewater Treatment Capacity (m3/day) City Capacity 2010 Project Project Cumulative % in 2000 Target Target Output Capacity Achieved Chengdu 400,000 1,100,000 300,000 300,000 900,000* 82 Deyang 0 266,000 100,000 100,000 100,000 38 Leshan 0 152,300 100,000 100,000 100,000** 66 Zigong 0 80,000 80,000 N/A 50,000*** 63 Total 400,000 1,598,300 580,000 600,000 1,150,000 72 * Chengdu built other two treatment plants with the capacity of 200,000 m3/day using own funds. ** Leshan added a 50,000 m3/d secondary treatment plant to the 100,000 m3/d preliminary treatment plant constructed under the project. Currently the influent flow is about 50,000 m3/day. The 2010 target may be over- estimated. *** Zigong constructed a 50,000 m3/d treatment plant using own funds. Source: Sichuan PMO (2007).

Output Indicator of the Industrial Pollution Control Action Plan. The IPCAP targeted environmental improvements at the four worst polluting industries (listed in the table below). According to the IPCAP, the COD and NH3-N load reduction targets were to reduce loads by 28% and 39%, respectively, by 2010. The results indicate that the

25 targets were almost achieved by the three industries by 2006. The fourth industry was closed down.

At Appraisal End 2006 % Location/ Industry Pollutant Quantity Pollutant ** Reduced River Quantity Discharged Chuan Hua Ammonia 5,500 t/yr Ammonia 1,800 t/yr 67% Chengdu/ Fertilizer Factory Tuo Zigong Honghe COD 2,100 t/yr COD 740 t/yr 65% Zigong/ Chemical Fertilizer Tuo Factory *Weiyuan Distillery COD 6,000 t/yr COD 0 100% Zigong/ Factory Tuo Xinjin Jinhua SS 55,000 SS 22,000 60% Chengdu/ Mirabilite Mine t/yr t/yr Min Note: *The factory was closed down. **The data is collected from Sichuan EPB.

Output Indicator: Solid Waste Disposal (tons/day) City Capacity 2010 Project Project Cumulative % in 2000 Target Target Output Capacity Achieved Leshan[1] 0 328 328 328 328* 100 * Only 220 t/d solid waste is currently available for disposal at the landfill. Source PPMO (2007)

26 Annex 2. Project Costs and Financing

(a) Project Cost by Component (in USD Million equivalent) Appraisal Actual/Latest Percentage of Components Estimate Estimate Appraisal** (US$ millions)* (US$ millions) MIN RIVER BASIN (1) CHENGDU WASTEWATER 78.0 112.2 144% (2) LESHAN WASTEWATER 15.7 17.0 108% (3) LESHAN WATER SUPPLY 19.0 -- -- (4) LESHAN SOLID WASTE 7.9 8.5 107% TUO RIVER BASIN (5) DEYANG WASTEWATER 27.2 22.0 80% (6) LUZHOU WATER SUPPLY 23.1 11.5 50% OTHER (7) URBAN MANAGEMENT 3.9 3.5 90% INFORMATION SYSTEM (8) ENVIRONMENTAL PROTECTION AND 6.4 3.5 55% REHABILITATION (9) INSTITUTIONAL DEVELOPMENT, 5.5 0.9 16% STRENGTHENING AND TRAINING

Total Baseline Cost 186.7 Physical Contingencies 17.6 Price Contingencies 14.5 Total Project Costs 218.8 179.1 Project Preparation Facility Front-end fee IBRD Total Financing Required *Appraisal here refers to amended project, after deletion of Zigong components ** Percentage of total costs

27 (b) Project Cost (Actual) by Agency CDC Leshan Leshan Deyang Luzhou LGBSA UMIS Total WTC SMB WTC WSC Civil works 20.2 10.1 3.9 5.9 2.7 1.8 - 44.6 Equipment 9.5 2.3 1.3 4.5 1.5 - 19.1 NBF Works 51.1 0.7 0.5 7.3 6.2 1.1 - 66.9 Land & 21.8 0.8 1.8 1.5 - - - 25.9 Resettlement Inst & Fin 0.3 0.1 0.1 0.2 0.2 - - 0.9 Support Package A Construction 1.0 0.3 0.2 0.3 0.2 0.1 - 2.1 Supervision Package B GIS - 0.2 - - 0.2 - 0.8 1.2 Package C Engineering 8.6 2.6 0.8 2.5 0.7 0.5 - 15.7 & Mgmnt UMIS ------2.7 2.7 Actual 112.5 17.1 8.6 22.2 11.7 3.5 3.5 179.1 Completion Cost PAD Cost 101.23 20.09 9.82 34.60 29.81 7.74 4.76 208.06 Estimate

(c) Financing Appraisal Actual/Latest Type of Estimate Estimate Percentage Source of Funds Cofinancing (USD (USD of Appraisal millions) millions) Borrower 77.10 132.43 172% International Bank for 100.00 44.23 44% Reconstruction and Development International Development 2.00 0.70 35% Association (IDA)

(d) Disbursement Profile

28 29 Annex 3. Outputs by Component

Component 1: Min Basin River Basin

Chengdu Wastewater. Outputs include: 4.6 km of interceptors (trunk sewer of DN2400 mm), and a wastewater treatment plant (WWTP) of 300,000 m3/day capacity able to fully meet the discharge standard. Chengdu used its own funds to construct secondary and link sewers (with pipes ranging from DN 300 mm to DN 1,800 mm) at a cost of about US$ 37 million. Chengdu now has a collection and treatment capacity of 900,000 m3/d, able to treat all wastewater generated in Chengdu.

Leshan Wastewater. Outputs include: interceptors and link sewers with sizes varying from DN 500 mm to DN 1500 mm of a total length of 12.5 km; main trunk sewer pipeline (2 x DN1000 mm, 1.5 km long) river crossing, and outfall; a 4.96 km precast concrete conveying pipeline (DN 1000 mm); a pumping station of 100,000 m3/day capacity; 100,000 m3/d wastewater pre-treatment plant. (Using own funds, a 50,000 m3/d secondary treatment plant was constructed to comply with the central government requirements.)

Leshan Municipal Solid Waste Management. Outputs include: four transfer stations; a vehicle storage and repair facility; a sanitary landfill with the capacity of 328 tons per day and leachate treatment facilities; and collection and transportation vehicles, containers and landfill operation equipment.

Component 2. Tuo River Basin

Deyang Wastewater. Outputs include: a WWTP of 100,000 m3/day capacity and 4.7 km of interceptors in the city. Deyang used its own funds (about US$ 4.3 million) to build the interceptor and the connection of an existing interceptor along the eastern river bank.

Luzhou-Beijiao Water Supply. Outputs include: the construction and equipping of additional pumps at the existing intake, a 50,000 m3/day capacity treatment plant, construction of distribution mains, and strengthening of existing distribution network. The implementation of the component has enabled the Luzhou-Beijiao Area to supply potable water to 100% of the residents in the city’s established districts.

Component 3. Urban Management Information Systems.

GIS-based urban management information systems including decision support systems have been developed for Construction Commissions of the Province, Leshan, and Luzhou, and an environmental management information system for the Provincial Environmental Protection Bureau (EPB) has been installed.

Component 4. Environmental Protection and Rehabilitation.

30 The major elements implemented at the Leshan Grand Buddha Site were the viewing platform, the north gate river embankment and foundation improvement for Linbo Pagoda, and rock anchors to protect the foundation of the Zaiiu Pavilion. A design for a new access way was developed, but was not implemented because there was no consensus among members of the consultative committee on design of the new access walkway.

31 Annex 4. Industrial Pollution Control Action Plan (IPCAP)

The objectives for the year 2010 were that the drinking water sources meet the government standards, and sewage treatment coverage in urban areas would reach 35% and 75% of industrial water discharges. By the year 2010, water quality in all rivers, lakes and reservoirs would meet the standards and 75% of all wastewater in urban areas, both municipal and industrial, would be properly treated and discharged.

The following key industries have been identified as being responsible for a majority of the pollution loads along the Min and Tuo rivers and cities in Sichuan Province (SP): (a) chemical/pharmaceutical, (b) fertilizer, (c) pulp and paper, (d) food processing, and (e) mining.

Key industrial polluters, their pollution loads as indicated from their production database, and flows of receiving water were used to identify 564 of the worst polluters in 2004, 237 in 2005, and 139 in 2006. Every year, the five worst polluters in each city/sector are required to produce action plans and implement them, and incentives and sanctions are applied. By October 2006, industries discharging more than 100 m3/d were required to install on-line COD monitoring equipment which were to be connected to the provincial, city and county networks.

Quantitative reductions in pollution made by the 4 worst polluting industries named in the IPCAP are given in Annex 1, and are repeated below.

Table 1. Pollution Reduction at Four Industries Addressed under the IPCAP At Appraisal End 2006 % Reduction Industry Pollutant Quantity Quantity Chuan Hua Fertilizer Ammonia 5,500 t/yr 1,800 t/yr 67% Factory Zigong Honghe COD 2,100 t/yr 740 t/yr 65% Chemical Fertilizer Factory Weiyuan Distillery COD 6,000 t/yr 0 [Factory 100% Factory closed] Xinjin Jinhua SS 55,000 t/yr 22,000 t/yr 60% Mirabilite Mine

Table 2. Total Municipal and Industrial Wastewater Discharges to Regional Rivers (Tons/year) Description 2000 2001 2002 2003 2004 2005 Wastewater discharge (m3/RMB 169.3 127.3 127.3 111.8 88.5 79.3 10,000 unit) Industrial wastewater % 49.0 52.5 51.8 52.6 49.3 46.8 Industrial wastewater m3/RMB 200.0 66.8 66.0 58.8 43.6 37.1 10,000 Percentage meeting discharge 59.5 72.4 79.1 81.8 86.4 88.3 standards

32 Total COD (10,000 tons) 97.6 99.2 70.1 93.6 88.2 78.3 COD from industry (%) 58.0 53.3 30.8 49.3 44.2 38.0 Industry COD (10,000 tons) 56.2 46.3 48.5 47.5 49.2 29.8 Industry NH3-N (10,000 tons) - 2.6 2.6 2.9 2.5 2.0

In 2003, the State Environmental Protection Agency (SEPA) issued a Water Environment Capacity (WEC) requirement for China’s rivers. Water Environmental Capacity is represented in three ways: (i) Desired WEC is calculated using a model; (ii) WEC is calculated without considering flows from non-point sources; and (ii) Maximum Allowed Discharge Capacity is calculated by converting WEC to pollutant discharged from in land sources. Negative numbers represent over-pollution; i.e., no capacity to accept pollution. In December 2004, SP formulated WEC, which were approved by SEPA below:

Table 3. Sichuan Plan for Water Environmental Capacity: Rivers (Tons/year) Desired WEC WEC Maximum Allowed Cities Discharge COD NH3-N COD NH3-N COD NH3-N Yangtze and Jinsha 655,088 26,073 583,265 14.016 622,288 15,699 Rivers Min River 711,038 24,654 588,839 5,203 588.070 5,468 Tuo River 151,224 4,806 80,182 -8,479 80.182 8,490

Table 4. Sichuan Plan for Water Environmental Capacity: Cities (Tons/year) Desired WEC WEC Maximum Allowed Cities Discharge COD NH3-N COD NH3-N COD NH3-N Chengdu 67,740 2,217 38,859 -2,529 38,436 -2,556 Deyang 20,535 840 9,115 -1,759 9,120 -1,752 Leshan 151,208 4,592 131,606 1,041 131,670 1,042 Luzhou 139,274 4,582 117,661 878 117,664 878

Table 5. Available Capacity Allowable for Discharge of Pollutants (Tons /year) Desired WEC WEC Maximum Allowed Cities Discharge COD NH3-N COD NH3-N COD NH3-N Chengdu 38,436 -2,556 194,605 17,294 -153,795 -19,452 Deyang 9,120 -1,752 20,986 3,778 -12,651 -5,661 Leshan 131,670 1,042 84,129 3,086 49,545 -1,633 Luzhou 117,664 878 37,858 3,816 79,803 -2,937

Table 6. Water Quality in Sichuan Rivers River River Section Water Quality Water Quality Rating 2000 2005 Yangtze Luzhou Class II Class II Better Min Chengdu Class IV Class IV Slightly Polluted Leshan Class III Class III Good Tuo Deyang Class III Class IV Slightly Polluted Luzhou Class IV Class IV Slightly Polluted

33 Annex 5. Economic and Financial Analysis

A. Project Level Analysis

Financial Rates of Return Project level financial rates of return (FIRRs) were reevaluated for the wastewater components of Chengdu Drainage Company (CDC), Deyang Wastewater Treatment Company (DWTC) and Leshan Wastewater Treatment Company (LEWTC) and the water supply component of Luzhou Water Supply Company (LUWSC) under the following major assumptions:

(1) The project life of the wastewater and water supply components is 20 years; (2) Total project costs for this evaluation are summarized as follows;

Table 1: Summary of Project Costs (Y million) CDC DWTC LEWTC LUWSC Total Project Cost 912 171 141 94 Bank Funded Component 498 112 135 44 Other Components 414 59 6 50

(3) Incremental operating revenues and operating costs are prorated based upon the ratio of the capacity of each plant related to the project to the overall capacity of each entity (please see the entity level analysis below for the entity-specific assumptions of water supply volume, average tariff, wastewater volume treated, etc.); (4) Wastewater tariffs for residential customers will be increased as shown in Table 2 below. There will be no further wastewater tariff increase after 2011, but water tariffs will remain at the 2006 level; and

Table 2: Tariff for Residential Customers/1 (Y/m3) 2006 2007 2008 2009 2010 2011

CDC 0.80 0.80 1.04 1.04 1.04 1.35

DWTC 0.40 0.60 0.60 0.72 0.72 0.79

LEWTC 0.12 0.35 0.65 0.65 0.97 0.97

LUWSC 1.68 1.68 1.68 1.68 1.68 1.68

/1 tariff at the end of year

(5) Government subsidies are not included in this calculation.

34 The results are summarized in Table 3, showing that the FIRRs for all the components are above each project’s cost of capital which is in the range of 8.5%. Key to these calculations is that the wastewater tariffs will be increased as planned by the wastewater companies as shown in Table 2. The FIRRs evaluated at appraisal are also shown in Table 3. However, they should not be directly compared with those in the ICR since the assumptions were not clear in the PAD and the financial models have not been found in the Project Files.

Table3: Financial and Economic Rate of Returns (FIRRs and EIRR) FIRR EIRR ICR PAD/1 ICR PAD

CDC 10.6% 9.9% - -

DWTC 11.6% 10.7% - -

LEWTC 11.2% 10.0% - -

LUWSC 19.7% 11.5% 20.5% 10-12% /2

/1: Figures from Table 3 of Annex 4 /2: The rate for LUWSC is not specified in PAD.

Given the delays in wastewater tariff revision during project implementation, the sensitivity analysis was conducted for wastewater companies in cases of delay in implementation of tariff increases. The results are summarized in Table 3b, showing that the FIRRs are still above the cost of capital even in case of 3-year delay in implementation, as far as the proposed tariff increases are achieved.

Table 3b. Financial Rate of Returns in Case of Delays in Tariff Increase FIRR 2 year delay 3 year delay CDC 9.7% 9.3% DWTC 11.1% 10.9% LEWTC 9.5% 8.7%

Economic Rate of Return The economic rate of return (EIRR) was reevaluated for the water supply component of LUWSC under the following assumptions: (1) The project life is 20 years; (2) The actual and projected tariff levels are economic prices of water supplied by LUWSC; (3) The financial operating costs are economic costs; and (4) Taxes included in the project are 5.8% of the total project cost. The EIRR is calculated at 20.5%, which ensures the economic viability of this project component. A direct comparison of the EIRR from the PAD is not appropriate for the same reasons described in the FIRR section.

35 B. Entity Level Analysis The financial performance of the four entities was reviewed and the financial projections were conducted to find whether or not each entity has complied and will be able to comply with the two financial covenants; the cost recovery ratio of at least 1.0, and the debt service coverage ratio of at least 1.3. Financial projections were made under the following assumptions for all four entities: (1) Government subsidies are counted as revenue in the financial ratios calculation; and (2) The terms of the Bank loans for the wastewater companies are extended from 15 years to 20 years, including a grace period of five years. The other major assumptions unique for each company such as population served, water supply volume, tariff, wastewater volume treated, etc. are shown in the summary table of each entity below.

Chengdu Drainage Company (CDC) The major fixed assets of the wastewater operation for the area served by CDC consist of four treatment plants with a capacity of 900,000 m3 per day and a sewer network with a book value of RMB 4.4 billion. CDC currently owns No. 1 and No. 2 treatment plants with a capacity of 700,000 m3 and a sewer network constructed before 2003 with a book value of RMB 2.4 billion. The remaining assets are still owned by the Xing Rong Investment Company, the holding company of CDC. The entire sewer network is operated by the drainage section under the Water Resources Bureau, which bears its operation cost. The CDC’s audited financial statements reflect the financial results only for the assets owned and the operations carried out by CDC. In this situation, CDC compiled the data from the relevant entities and constructed the financial projections for the wastewater operation as a whole for the area CDC serves. This consolidated financial projection was used when it applied to the municipal government for its tariff increase in 2006. The financial performance summarized in Table 4 is based upon the estimates made by CDC.

Table 4 shows that CDC complied with the cost recovery ratio covenant, but not with the debt service coverage ratio covenant in 2006, and will be able to comply with all the financial covenants except the debt service coverage ratio covenant in 2007. In order to comply with the financial covenants, CDC will continue to require substantial subsidies from the Chengdu municipal government. The level of required subsidy would be reduced from 74% of total revenue in 2004 to 17% in 2011. The reliance on substantial government subsidies is due mainly to investments outside the Bank-funded project which were financed substantially by debt. It is estimated that CDC had incurred long- term debt of RMB 2.1 billion outside the Bank debt at the end of 2006. Additional capital expenditures are not assumed in this financial projection.

36 Table 4: Summary of CDC'c Financial Performance and Projections 2004 2005 2006 2007 2008 2009 2010 2011 Key Operating Indicators Population Served (,000) 3,614 3,622 3,629 3,636 3,643 3,651 3,658 3,665 Water Supplied from WSC (million m3) 374 390 397 401 405 409 413 417 Wastewater Volume Treated to Generated 65% 83% 83% 83% 88% 88% 88% 88% Wastewater Volume Treated (million m3) 146 274 285 293 310 310 310 310 Capacity Utilization Rate 100% 83% 87% 89% 95% 95% 95% 95% Collection Efficiency Rate 82% 79% 80% 81% 83% 83% 83% 83%

Key Financial Indicators Average Wastewater Tariff (Y/m3) 0.40 0.62 0.87 0.94 1.13 1.22 1.22 1.46

Total Operating Revenue (Y million) 119 189 273 304 376 411 415 503 Operating Income (24) 18 38 (10) 52 83 84 165 Subsidy 340 240 140 130 120 110 100 100 Net Income 316 258 43 (8) 35 54 53 112

Internal Cash Generation 414 356 328 321 356 367 359 411 Debt Service Payment - 136 271 264 256 249 241 234

Total Assets 6,089 6,737 6,644 6,500 6,398 6,316 6,232 6,208 Long-Term Debt 2,214 2,573 2,437 2,301 2,164 2,028 1,892 1,756 Equity 3,867 4,164 4,207 4,199 4,234 4,287 4,340 4,453

Cost Recovery Ratio 3.22 1.28 1.16 1.16 1.33 1.41 1.41 1.68 Debt Servcie Coverage Ratio 4.76 1.36 1.21 1.22 1.39 1.48 1.49 1.76 Subsidy/Total Revenue 74% 56% 34% 30% 24% 21% 19% 17%

Deyang Sewage Treatment Company (DWTC) DWTC was established in 2000 to implement the wastewater treatment plant (WWTP) with a capacity of 100,000 m3 per day financed by the Bank. The Bank funded assets are still owned by the investment company of the municipal government, and will be transferred to DWTC in 2007 once the audit is completed by the municipal government. The sewer network in the urban area is owned and operated by the public utility section under the Construction Commission. Operation and maintenance (O&M) costs for the sewer network are borne by the public utility section. The transfer of the sewer network assets is not planned at this stage, so DWTC will continue to be an operator of the treatment plant.

Wastewater tariff collection started in 2005. Tariffs collected by the water supply company are not directly transferred to DWTC, but remain at the municipal finance bureau. For fiscal years 2005 and 2006, only the amount required for operating the plant was transferred to DWTC. The direct transfer of the wastewater tariff from the waste supply company is not expected to take place in the immediate future.

Table 5 is constructed based upon the assumption that the Bank-funded assets are the entire assets of DWTC, and revenues and costs are recognized in connection with such assets. This framework was used for review of the wastewater tariff when DWTC applied for its tariff increase in 2007. As shown in Table 5, DWTC did not comply with the financial covenant on debt service coverage ratio in 2006 and will not be able to comply with the covenants on both cost recovery and debt service coverage ratios in 2007. However, it would be able to comply with the covenants without government subsidies in 2009 and onwards. This is only possible with a substantial increase in the population served in 2008 and with the tariff increases as planned in 2007 and 2009.

37 Table 5: Summary of DWTC'c Financial Performance and Projections 2004 2005 2006 2007 2008 2009 2010 2011 Key Operating Indicators Population Served (,000) 120 126 132 139 164 172 181 190 Water Supplied from WSC (million m3) 6 10 17 21 30 32 35 38 Ratio of Wastewater Volume Treated to Generated 0% 81% 81% 81% 81% 81% 81% 81% Wastewater Volume Treated (million m3) 16 17 21 23 25 27 37 37 Capacity Utilization Rate N/A 51% 44% 48% 58% 63% 68% 73% Collection Efficiency Rate NA 77% 90% 93% 95% 95% 95% 95%

Key Financial Indicators Average Wastewater Tariff (Y/m3) 0.00 0.49 0.49 0.54 0.69 0.73 0.83 0.85

Total Operating Revenue (Y million) - 8 10 12 20 22 28 31 Operating Income (0) 4 2 1 7 9 14 14 Subsidy 1 2 6 2 1 - - - Net Income (0) 4 3 (0) 4 5 8 8

Internal Cash Generation 0 6 9 8 12 13 15 16 Debt Service Payment - 4 9 9 8 8 8 7

Total Assets 86 135 133 127 125 124 127 130 Long-Term Debt 27 63 58 53 47 42 36 31 Equity 40 66 69 69 72 77 85 93

Cost Recovery Ratio 0.38 1.12 1.14 0.96 1.36 1.43 1.73 1.75 Debt Servcie Coverage Ratio NA 1.61 1.05 0.95 1.44 1.57 2.01 2.12 Subsidy/Total Revenue 100% 20% 37% 11% 5% 0% 0% 0%

Leshan Wastewater Treatment Company (LEWTC) LEWTC owns and operates the sewer network and the treatment plant with a capacity of 50,000 m3 per day, all recorded in its financial statements. The sewer network and pumping stations were funded by the Bank project while the treatment plant was financed by local commercial banks. The long-term debt of RMB 49 million from the commercial banks was identified in the financial statements but was not considered as debt by LEWTC. All the debt service payments were made by the municipal finance bureau. Since the introduction of a wastewater tariff in 2001, tariff revenues have been directly transferred to LEWTC from the water supply company and total operating revenues calculated from its customer base were recorded in its financial statements. However, debt service payments and government subsidy have not gone through LEWTC and thus are not recorded in the income statements and the cash flow statements.

Table 6 incorporates the estimates of debt service payments and government subsidy into the financial statements. As shown in Table 6, LEWTC did not comply with the financial covenants in 2006 and will not be able to comply in 2007. However, the financial situation will improve over time. It is estimated that LEWTC will be able to operate without government subsidy in 2011. Key for this result in the projection is that LEWTC will increase wastewater tariffs in 2008 and 2010 as planned. LEWTC plans to expand the treatment capacity to 100,000 m3 per day in 2010. It is assumed in the financial projection that LEWTC will finance its entire investment by equity.

38 Table 6: Summary of LEWTC'c Financial Performance and Projections 2004 2005 2006 2007 2008 2009 2010 2011 Key Operating Indicators Population Served (,000) 242 246 253 260 268 276 284 291 Water Supplied from WSC (million m3) 18 18 19 20 20 22 23 24 Wastewater Volume Treated to Generated 0% 0% 81% 83% 85% 88% 90% 92% Wastewater Volume Treated (million m3) 15 15 16 17 17 18 20 21 Capacity Utilization Rate N/A N/A 73% 78% 83% 92% 51% 55% Collection Efficiency Rate 94% 90% 81% 95% 95% 95% 95% 95%

Key Financial Indicators Average Wastewater Tariff (Y/m3) 0.14 0.14 0.28 0.62 0.81 1.01 1.21 1.40

Total Operating Revenue (Y million) 2 2 4 11 16 21 26 32 Operating Income (2) (2) (7) (3) 0 5 9 13 Subsidy 2 7 16 11 11 6 6 - Net Income 0 5 3 2 6 6 10 7

Internal Cash Generation 3 8 13 14 17 17 21 18 Debt Service Payment - 4 15 15 14 13 13 14

Total Assets 162 199 224 216 213 211 240 263 Long-Term Debt 64 85 90 78 69 59 59 48 Equity 57 78 84 87 94 101 129 163

Cost Recovery Ratio 1.03 1.37 0.94 0.98 1.19 1.22 1.41 1.27 Debt Servcie Coverage Ratio 2.17 1.37 0.88 0.95 1.23 1.28 1.58 1.26 Subsidy/Total Revenue 45% 78% 79% 48% 41% 23% 19% 0%

Luzhou Water Supply Company (LUWSC) LUWSC was consolidated with other water supply companies in 2002 to form Luzhou Water Affairs Group Company (LWAGC), which currently owns four treatment plants with a capacity of 150,000 m3 per day (including the Bank funded Beijiao plant expansion of 50,000 m3 per day) and a sewer network. LWAGC purchases water supplied by Nanjiao Water Supply Company, which was part of LUWSC and divested at the time of consolidation. LWAGC will be the successor to LUWSC under the subsidiary loan agreement. Tariff revenue has been collected directly from customers since implementation of the project. It was reported that all operating revenues and costs, as well as assets and liabilities, are recorded in its financial statements. LWAGC does not receive government subsidies in connection with its water supply operation.

Table 7 summarizes LWAGC’s financial performance and projection. It complied with the financial covenants and will continue to do so in the future. LWAGC’s cash balance was RMB 31 million at the end of 2006. It will be in a position to repay the entire debt in 2007 by its accumulated cash.

39 Table 7: Summary of LWAGC's Financial Performance and Projections 2004 2005 2006 2007 2008 2009 2010 2011 Key Operating Indicators Population Served (,000) 201 215 238 245 324 333 343 353 Water Supplied from WSC (million m3) 69 78 93 96 118 121 122 122 Service Area Coverage 61% 65% 70% 70% 90% 90% 90% 90% Capacity Utilization Rate 86% 100% 100% 100% 97% 100% 100% 100% Collection Efficiency Rate 93% 93% 93% 93% 93% 93% 93% 93%

Key Financial Indicators Average Wastewater Tariff (Y/m3) 1.41 1.41 1.87 1.85 1.85 1.85 1.85 1.84

Total Operating Revenue (Y million) 52 55 58 60 74 76 76 76 Operating Income 10 5 6 3 11 9 6 2 Net Income 1 0 1 3 9 8 5 1

Internal Cash Generation 12 12 14 13 20 20 18 15 Debt Service Payment 4 5 10 6 6 5 5 4

Total Assets 220 247 262 248 267 290 310 327 Long-Term Debt 66 41 39 36 33 31 29 28 Equity 101 108 119 108 116 124 129 130

Cost Recovery Ratio 1.69 1.41 1.41 1.11 1.27 1.26 1.23 1.17 Debt Servcie Coverage Ratio 2.78 2.27 1.34 2.14 3.54 3.72 3.68 3.37

40 Annex 6. Bank Lending and Implementation Support/Supervision Processes

(a) Task Team members Responsibility/ Names Title Unit Specialty Lending Geoffrey Read Task Team Leader EASUR Municipal Engineering Chandra Godavitarne Consultant EASUR Municipal Engineering Patrick McCarthy Consultant EASUR Financial Analysis Chongwu Sun Environmental Spec. EASUR Environmental Assessment David Hanrahan Economist Economic Analysis Donald Hankey Environmental Protection Consultant Cultural Heritage East Asia Jack Fritz Environmental Assessment Environmental Assessment Environment Maninder Gill Resettlement Social Development Margaret Png Legal Specialist LEGEA Legal Matters Trust Funds Keiko Sato Institutional Specialist Institutional Analysis Unit Tore Semb Solid Waste Management Consultant Solid Waste Management George Taylor Water Quality/Treatment Consultant Wastewater Treatment You Ji Env. Engineer/Interpreter Consultant Interpreter Sandra Durham Financial Management Financial Management Zhang Zhun Water Supply/Inst Strthng EASUR Water Engineering Vellet Fernandes Program Assistant EASUR Project Processing Ming Zhang Urb Planning/Land Mgmt EASUR Urban Planning Supervision/ICR Project Management/ Matts Anderson Task Team Leader EASUR Financial Analysis Project Management/ Stuart Whitehead Task Team Leader EASUR Financial Analysis Project Management/ Hiroaki Suzuki Task Team Leader EASUR Financial Analysis Yi Geng Financial Management Spec. EAPCO Financial Management Chandra Godavitarne Consultant EASUR Municipal Engineering Engineering/ Cultural Donald Hankey Consultant EASUR Heritage Anne K. Harrison Program Assistant EASUR Program Assistant Shunong Hu Water Engineer EASUR Water Engineer Eddie Ke-Siong Hum Consultant EASUR Environmental Engineer Naoko Kataoka ET Consultant EASUR Operation support/M&E Zong-Cheng Lin Sr. Social Development Spec.EASES Resettlement Zhefu Liu Social Development Spec EASSO Resettlement Zhentu Liu Sr. Procurement Specialist EAPCO Procurement Edouard Henri Motte Consultant EASUR Municipal Engineer Masato Sawaki Consultant EASUR Economic/Fin. Analysis

41 Chongwu Sun Sr. Environmental Specialist EASUR Environmental Assessment Yukiko Uchiyama Consultant EASUR Operation support Masatake Yamamichi Consultant EASUR ICR Documentation Dawei Yang Procurement Specialist EAPCO Procurement Caroline Wu Consultant EASUR Economic/Fin. Analysis Fang Zhang Finance Analyst LOADM Disbursement Hao Zhang Municipal Engineer EASUR Municipal Engineering Youlan Zou Social Dev. Specialist EASSO Resettlement Engineering Zhang Zhun Consultant EASUR /Inst.Strengthening

(b) Staff Time and Cost Staff Time and Cost (Bank Budget Only) Stage of Project Cycle USD Thousands (including No. of staff weeks travel and consultant costs) Lending FY96 25.59 FY97 85.01 FY98 169.34 FY99 259.97 FY00 0.00 FY01 0.00 FY02 0.00 FY03 0.00 FY04 0.00 FY05 0.00 FY06 0.00 FY07 0.00 Total: 539.91 Supervision/ICR FY96 0.00 FY97 0.00 FY98 0.00 FY99 0.32 FY00 10 75.44 FY01 9 71.84 FY02 14 92.39 FY03 12 68.46 FY04 7 58.21 FY05 8 69.38 FY06 10 85.74 FY07 3 18.30 Total: 73 540.08

42 Annex 7. Detailed Ratings of Bank and Borrower Performance

Bank Ratings Borrower Ratings Ensuring Quality at Satisfactory Government: Moderately Satisfactory Entry: Implementing Quality of Supervision: Satisfactory Satisfactory Agency/Agencies: Overall Bank Overall Borrower Satisfactory Moderately Satisfactory Performance: Performance:

43 Annex 8. Summary of Borrower's ICR and/or Comments on Draft ICR

Borrower’s Implementation Completion and Results Report

1. ASSESSMENT OF DEVELOPMENT OBJECTIVES, DESIGN AND QUALITY AT ENTRY

Original Objective

1.1 Full details of project objectives are provided in the Project Appraisal Document (PAD) (Report No 18960 CHA dated May 14, 1999). Specific objectives of the project are: (a) reduction of total pollution loads from urban areas to the Min and Tuo Rivers through selective high-impact wastewater and solid waste management improvements; (b) expansion of capacity for supplying safe water in urban areas; and (c) strengthened financial viability and institutional autonomy of municipal services.

Revised Objective

1.2 There has been no material change in the main project development objectives (PDO) during implementation.

Original Components

1.3 The project investment program comprised the following components:

Component 1 - Min Basin River Water Quality Recovery The investments included: (i) Chengdu Wastewater; (ii) Leshan Water Supply; (iii) Leshan Wastewater; and (iv) Leshan Municipal Solid Waste Management.

Component 2 - Tuo Basin River Water Quality Recovery The investments included: (i) Deyang Wastewater (ii) Luzhou Water Supply; (iii) Zigong Wastewater; and (iv) Zigong Water Supply.

Component 3 - Urban Management Information System The investments included: (i) Development of a Provincial Decision Support System (PDSS) and Office Automation System (OAS); (ii) Development of an Environmental Management Information System (EMIS) and a related OAS at the provincial level; and (iii) Establishment by Deyang, Leshan and Luzhou of Urban Management Information System (UMIS) centers.

Component 4 - Environmental Protection and Rehabilitation The project component was to support improvements and environmental rehabilitation of infrastructure and buildings at the World Heritage Site of the Leshan Grand Buddha.

44 Component 5 - Institutional Development, Training and Construction Supervision This project component was to strengthen provincial, municipal, project, and financial management; construction supervision services; training in utility operations; updating of city environmental action plans and feasibility studies; and future project preparation.

Non-Bank Financed (NBF) Component - Industrial Pollution Control

1.4 Since there was substantial pollution from industry particularly in Min and Tuo river basins, the Sichuan Provincial Government (SPG) agreed to address this issue through the implementation of policy focused Industrial Pollution Control Action Plan (IPCAP). The initial phase of the IPC would involve local investments at four large polluting enterprises in the fertilizer, food and mining sectors.

PHRD Grant – Monitoring of Safeguard Implementation

1.5 A PHRD Grant (JPN-26426) was set up to monitor the Resettlement Action Plan (RAP) and Environmental Impact Assessment (EIA) implementation in Sichuan Urban Environment Project (SUEP).

Changes in SUEP

1.6 There was no change in the project components. However, there were several changes in the components made after the approval of the Bank Loan in 1999, and after the signature of the legal documents in 2001. There were also some changes in the design of some of the project components in order to optimize the project outputs, without changes in the Project Development Objectives (PDO). The major changes are described at below.

Changes as Made after Approval by World Bank

1.7 In June of 1999, the World Bank approved the SUEP. The Project Appraisal Document (PAD Number 18960 CHA) was completed on May 14, 1999.

In late 1999 and early 2000, Zigong municipality received national bonds and other local funds to address the issues of shortage of water supply and wastewater treatment in Zigong. To utilize national and local funding, Zigong municipality cancelled the Bank loan for its water supply and wastewater components. Therefore, by the end of 2006, Zigong completed the construction of the water transmission main, distribution networks and pump stations, and upgraded the existing water reservoirs to increase the capacity of its water resources. The transmission main and network were increased from 223 km to approximately 500 km. For the wastewater component, Zigong built a 50,000 m3/day wastewater treatment plant (WWTP) and a sewer system in 2004.

Changes as Made after the Legal Document Signature

45 1.8 After the Zigong components were cancelled from the SUEP as financed by the World Bank, the amended Loan Agreements relating to SUEP were signed on January 9, 2001, and the effective date of SUEP was June 8, 2001. The cancellation and changes in the sub-components are summarized below.

Deleted sub-components

1.9 The following deletions and changes were made during implementation:

 Under Project Component 1, Leshan cancelled the water supply component because the Leshan Water Supply Company was no longer publicly owned since 2001. The issue was recorded in the Aide-Memoire of the World Bank Supervision Mission in November 2001. Leshan used its own funds to upgrade the existing water treatment plants for increasing the capacity of water supply as well as distribution networks. The implementation of the intake is planned for 2010, and the works for the raw water transmission will follow.  Under Project Component 1, the contract for procurement of the landfill compactor had been cancelled in 2004. Since the Letter of Credit could not be issued by the client in time, the supplier requested a contract price adjustment, and the supplier did not provide performance security. The operation of the landfill was done using a bulldozer instead of the compactor.  Under Project Component 2, the Luzhou-Daxikou Water Supply Component was cancelled because Luzhou Chemical Company supplies water to the Daxikou area. This has been recorded in the Aide-Memoire of the World Bank Supervision Mission in November 2001. Indeed about 33,000 m3 per day were purchased in 2006 by Luzhou Water Supply Company during peak summer demand periods for RMB0.67 per m3, which was a better deal compared to the water tariff collected.  Under Project Component 2, the Fuji Transmission main in the Luzhou-Beijao Water Supply Component was already under the construction in 2001, and the World Bank’s November 2001 Mission was, therefore, requested to consider reallocating over US$1 million in Loan funds to upgrade and expand the distribution network in the Beijao area.  Under Project Component 2, the civil works of the main interceptor and link sewer for Deyang Wastewater Component were financed in 2004 by national bonds, as completion was requested by the municipal government in time for the city’s anniversary.  Under Project Component 4, the original protection area of the Leshan Grand Buddha Site Administration (LGBSA) was expanded in January 2004, from the 4 km2 core area to 17 km2. The new LGBSA Administration, therefore, decided to defer all remaining components including the walkway to improve access to the Grand Buddha viewing platform, the Management Information System (MIS), etc. The walkway was deferred because of the concern that the

46 proposed design may not comply with the requirements of national and local heritage experts.

Changes in Project Design Scope

1.10 The original design of Leshan wastewater included three pump stations for lifting sewage in the interceptor sewer. During the detailed design stage, the designer optimized the design in accordance with the comments of local experts and the Consultant. Only the #3 pump station was constructed, cutting the cost of construction and operation.

All of the above changes were discussed with the World Bank (WB) during the supervision missions. The agreed revisions were recorded in relevant mission Aide Memories.

Changes in the Method of Implementation

1.11 In addition to the changes in the sub-components design, there were changes in the engineering method of implementation for some project components. These changes are summarized below.

(i) Leshan Municipal Solid Waste Management To enhance the long term safety of the landfill, Leshan Solid Waste Management Board (LESMB) changed the grade of the material for the leakage protection lining during the implementation stage. A higher quality of high density polypropelene and geotextile cloth lining materials were selected for landfill lining, and it was procured for the entire area of the landfill instead of the original clay lining system. This change significantly increased the cost of the lining, but it also increased the quality and safety of the landfill. In addition, due to the poor geological conditions of the landfill area, a collection system for ground water was added.

(ii) Leshan Wastewater The facilities of Instrumentation and Automation in the Project preparation document were only applied to the Leshan Wastewater Pre-treatment Plant. During implementation, the facilities were included for both the pre-treatment plant and secondary treatment plant to ensure system compliance.

(iii) Institutional Development, Training and Construction Supervision No change was made in the implementation of Construction Supervision. Due to the lack of readiness of a number of subproject entities to make the necessary changes during the project implementation, and inefficient inputs by the international consultant, the Project Implementing Agencies (PIAs) did not receive the expected level of service from the international consultant. Therefore, an agreement was reached between the PIAs and the consultant, with concurrence of the World Bank mission, to re-arrange the program for institutional development and strengthening which would simplify the international consultants’ involvement in the development process. Instead of using extensive inputs from the international consultant, local consultants together with the PIAs were used to

47 complete the assignment of Institutional Development as cited in the terms of reference (TOR). This action reduced the cost of consultant services significantly.

Quality at Entry

1.12 Project preparation at appraisal can be evaluated as satisfactory, although the PAD cost estimates proved excessive and the water demand and wastewater quantities target for 2010 were over-estimated in Leshan. None of the revisions to components described above amounted to a restructuring of the project. No changes were necessary to achieve WB policies or strategies, although as stated earlier, the municipal governments made changes or cancelled parts of the Bank loan, which took a significant amount of time to become effective, and resulted in large loan savings.

2. ACHIEVEMENT OF OBJECTIVE AND OUTPUTS

Outcome / Achievement of Objective

2.1 Due to rapid urban development in Chengdu City, as well as in other regions of the province, pollution had become serious since the early 1990s. In order to mitigate pollution, SPG formulated a comprehensive environmental protection plan to curb the pollution. This plan was consistent with the Provincial Environmental Protection Plan (updated once in every five years).

This project contributed significantly to the mitigation of water pollution in the Min and Tuo basin rivers, and contributed significantly to the priority subprojects in water supply, wastewater treatment, and solid waste management in other regions of the province. In turn, the project will positively impact the long-term economic and social development of Sichuan Province.

The solid waste, water supply and wastewater components in Chengdu, Deyang, Leshan and Luzhou Cities are being well utilized and their positive impacts on the local environment are already being achieved. Other water supply, wastewater and solid waste management facilities provided by the project in the province are also similarly well utilized. In summary, the project has achieved greater pollution load reduction objectives than originally envisaged. The overall project can be evaluated as satisfactory.

In addition, the industrial pollution control program as specified in Industrial Pollution Control Action Plan (IPCAP) has been implemented by the project cities of Chengdu, Deyang, Leshan and Luzhou under the guidance and supervision of Provincial Environmental Protection Bureau (EPB) and Municipal Environment Bureaus. The environmental and water quality monitoring component, and institutional development component have comprehensively enhanced overall pollutant monitoring and mitigation, environmental management, and capacity building in the project region along the Min and Tuo Rivers.

48 Output by Components

2.2 The following components were completed:

Chengdu Wastewater (US$ 101.23 million PAD; US$ 112.5 million; December 2005) Successfully implemented between 2002 and 2005. The implementation of the component has enabled Chengdu City to have a wastewater collection and treatment capacity of 900,000 m3/day, which is 85 % of total municipal sewage in Chengdu, and 100 % of the effluent discharge standard after treatment. It has a positive impact on the reduction of the water pollutant load to the Min River.

Leshan Wastewater (US$ 20.09million PAD; US$ 17.10 million; July 2006) Successfully implemented between 2003 and 2006. The implementation of the component has enabled Leshan City to have a wastewater collection and treatment capacity of 50,000 m3/day, and the ability to fully meet the effluent discharge standard after treatment. It has a positive impact to the reduction of the water pollutant load discharged to the Min River as well.

Leshan Municipal Solid Waste Management (US$ 9.82 PAD; US$ 8.6 million; July 2006) The component has been satisfactorily implemented between 2003 and 2006. The implementation of the component has enabled Leshan City to manage the collection, transfer, and disposal of 220 tons/day of solid waste in the landfill within the city in an environmentally friendly manner. It has prevented pollution to the Min River from illegal dumping of solid waste, and from the leakage of leachate.

Deyang Wastewater (US$ 34.6 million PAD; US$ 22.2 million; June 2005) The component has been satisfactorily implemented between 2003 and 2005. The implementation of the component has enabled the city of Deyang to have a total wastewater collection and treatment capacity of 100,000 m3/day. Currently, the WWTP has fully met the effluent discharge standards of China. It has begun to substantially reduce the discharge of water pollutants from the city to the Mianyuan River, which flows to the Tuo River.

Luzhou Water Supply (US$ 29.81 million PAD; US$ 11.7 million; December 2006) Satisfactorily implemented between 2003 and 2006. The implementation of the component with the increase of 50,000m3/day water supply and distribution networks has enabled Luzhou-Beijiao Area to supply potable water to 100% of the residents in the city’s established districts. It also optimized the utilization of water resources from the Tuo River and Yangtze River.

Urban Management Information System (UMIS) (US$ 4.76 million PAD; US$ 3.5 million; May 2006) Satisfactorily implemented between 2002 and 2006. The digital mapping systems have been established in Leshan and Luzhou, which have been managed by a division under the municipal construction bureaus, and already used in urban development and planning.

49 The UMIS system also was developed, installed, and used for management and decision making in the Provincial EPB, Provincial Construction Bureau, as well as municipal construction bureaus for Leshan, Luzhou and Deyang.

Environmental Protection and Rehabilitation (US$ 7.74 million PAD; US$ 3.5 million; March 2006) Because the original protection area of the LGBSA was expanded in January 2004 from the 4 km2 core area to 17 km2, the new LGBSA decided to defer the implementation of all remaining components including the walkway to improve access to the Grand Buddha viewing platform, the visitor centre, and the UMIS. The walkway was deferred because of concern that the proposed design may not comply with the requirements of national and local heritage experts. The component as implemented between 2002 and 2006 included the extension of Buddha’s Platform, embankment extension at the North Gate, and foundation improvement for Linbo Pagoda, securing a loose rock section, and Zaijiu Pavilion, which partially achieved the objective of improvements and environmental rehabilitation of infrastructure and buildings at the World Heritage Site of the Grand Buddha.

Institutional Development, Training and Construction Supervision Component (US$ 7.87million PAD; US$ 5.15million; November 2006) Satisfactorily implemented in three packages as well as four sole source contracts between 2002 and 2006. This component is further discussed below.

Non-Bank Financed (NBF) Component - Industrial Pollution Control 2.3 Key industrial polluters and their pollution loads indicated from their production database, and flows of receiving water have been used to identify 564 of the worst polluters in 2004, 237 in 2005, and 139 in 2006. Every year, the 5 worst polluters in each city/sector were required to produce action plans and implement them, and incentives and sanctions were applied. For instance, Chuan Hua Fertilizer Factory, Zigong Honghe Chemical Fertilizer Factory and Xinjin Jinhua Mirabilite Mine had reduced their key pollutants by 32%, 35% and 40% respectively, compared to the pollutant levels at appraisal. By October 2006, industries discharging more than 100 m3/d were required to install on-line COD monitoring equipment which were to be connected to the provincial, city and county networks. It is certain that the water quality in the regional rivers will improve in the near future, although at the present, the river quality shows no significant positive changes.

2.4 PHRD Grant – Monitoring of Safeguard Implementation (US$ 0.4million Grand; US$ 0.22million; June 2004) Satisfactorily implemented between 2002 and 2004. The monitoring and assessment of the RAP and EIA during SUEP implementation had been done by an external monitor - the report states that the SUEP was implemented safely and successfully. The manual for implementation of environmental and social mitigation measures had been prepared, and has also been used in the preparation of the Sichuan Urban Development Project (SUDP).

Net Present Value / Economic Rate of Return

50 2.5 The economic rate of return (EIRR) and Net Present Value for each subproject as well as for the overall project was not calculated at appraisal.

Financial Rate of Return

2.6 The financial rate of returns (FIRRs) projected in the PAD have generally not been achieved. The notable exception to this is the Luzhou water supply, which has met or exceeded most financial indicators, and is considered fully sustainable from a financial perspective.

SPG is continuing to press for higher tariffs to be implemented, and revised guidelines with increased tariff levels are expected to be issued shortly. Hopefully the expected FIRR will be achieved within two or three years in the project cities.

Institutional Development Impact

2.7 There are six subproject entities within the overall project. Among the six entities, the LESMB and LGBSA are the state institutions under Leshan municipality, and all companies have been established as state-owned companies - CDC is under Chengdu Xingrong Investment Co., Ltd. These institutional developments are expected to improve the prospects of sustainability for the components concerned. The subprojects included institutional capacity building and training provided in three TA packages:

 Institutional Strengthening and Training (“Package A”)  Construction Supervision (“Package B”)  Geographic Information Systems (GIS) and Equipment (“Package C”)

Services for Package C were related to the UMIS component, which were achieved as intended in development of a provincial and municipal decision support system and office automation system, as well as development of a management information system in Deyang, Leshan and Luzhou.

The construction supervision tasks under Package B were substantially enhanced by the deeper involvement of international consultants in engineering design review, bidding document preparation, construction supervision, progress monitoring, and reporting. The enhanced involvement proved highly effective in speeding up project implementation and in safeguarding project quality. The consultant performed the role of engineer in the physical contracts, which was a new and good practice in the WB project in China. The Federation Internationale des Ingenieurs Conseils (FIDIC) conditions and international good management practices were applied to project management and construction management, which not only ensured the sound quality of works and facilities, but also trained the local engineers from the Provincial Project Management Office (PPMO) and PIAs through presentations and on-the-job training. This beneficial management method will be applied to their own projects.

51 The institutional development tasks under Package A kept pace with the Government plan and the provincial/city economic reforming process. At the project completion stage, notable progress had been made in this area. Package A made computerized financial management systems available to the implementing agencies on financial projection and management, and partial training on institutional strengthening. However, the effectiveness of this package was limited due to the Consultants being mobilized immediately upon loan effectiveness and before the new utilities became fully operational as enterprise companies.

There were also four sole source contracts awarded for SUEP engineering design and geological survey, in order to improve engineering quality in SUEP. Though the design and survey institutes provided the good technology in their design, the quality of design and service were not as good as expected. There were still many contract variations caused by poor design quality and inaccurate geological information, i.e. foundation of structures, sewer installation, etc., which caused cost over-runs in the contract price of some contracts.

Poverty Alleviation and Social Improvements

2.8 Whilst the objectives of the project were essentially environmental in nature, there have been important social benefits. In project areas, several hundred permanent jobs have been created in the public utility companies and many temporary jobs were created during the construction of the facilities. Millions of people are now benefiting from the environmental improvements resulting from increased water supply coverage and reliability in Luzhou, and from the establishment/improvement of the sewerage system and solid waste management in Chengdu, Deyang and Leshan. These improvements have been especially beneficial for the poorer people in the local communities.

The mitigation of water pollution in Min and Tuo rivers will also benefit residents in both cities and rural areas downstream of the project area, in terms of their health, hygiene and agriculture production, even though the water quality of rivers has not changed significantly.

3. MAJOR FACTORS AFFECTING IMPLEMENTATION AND OUTCOME

3.1 Factors Outside the Control of Government or Implementing Agency

 Procurement contract packaging in the PAD were divided into too small segments, which had resulted in major changes in bid packages and delays in subproject executions at the beginning of project implementation.  Due to lack of the experience in WB project procedures and competitive bidding processes, the project design institutes spent considerable time and effort preparing technical specifications and related technical documents.

52  Market price escalation on major construction materials (steel) during 2003 and 2004 caused problems for construction progress on some civil works contracts, which had been bid on a fixed price basis.

3.2 Factors Generally Subject to Government Control  Large national bonds had been introduced to Sichuan for projects of water supply and wastewater since 1999, and the reform of enterprises was under implementation during that time. Therefore, several sub-components were cancelled from the World Bank loan before the implementation of SUEP, such as the Zigong Water Supply and Wastewater components, Leshan Water Supply component and Luzhou Daxikou Water Supply component, which caused delays in SUEP implementation, waste of preparation inputs, and resulted in large loan savings.  In the Loan agreement, the Sichuan Provincial Government had agreed to timely adjustment of utility tariffs to recover the costs of the subproject utility entities. During project implementation, the utility tariffs have been initiated and adjusted step by step to the levels approaching break-even point. However, the utility entities will still need government financial support to maintain operations, except Luzhou Water Supply Company.  Due to the changes of the Leshan city master plan, the original locations of transfer stations and the garage yard of Leshan Solid Waste component had to be changed during implementation. The land possessions for the transfer stations and garage yard had been deferred, resulting in significant design and construction delays.

Factors Generally Subject to Implementing Agency Control

3.3 At appraisal, the project costs estimated using government rates were too high compared to the real cost of the project, which also caused loan savings. The capacity and efficiency of PIAs in managing the subprojects have been varied, which had caused difficulties for the PPMO and PIAs to coordinate and communicate with the relevant agencies for such a large-scale and comprehensive project. In addition, due to the longer time period of implementation, project management teams and key personnel changed frequently. All these factors caused difficulties in implementation.

Costs and Financing

Costs

3.4 Total project cost, including interest during construction, is currently estimated at US$ 179.1 million, which is about 86% of the estimated project cost at appraisal (US$ 208.06 million). The project cost is below the appraisal estimate for two main reasons: (i) it is considered that the appraisal estimate was over-stated, particularly in regard to contingencies; and (ii) the physical project as implemented incorporated a number of reductions in project scope, as described above. This makes direct comparisons of actual and estimated costs less straight-forward.

53 Financing

3.5 The necessary counterpart funds were provided through a mixture of additional local borrowing, government grants, and own resources of the implementing agencies. The final financing split is expected to be Bank Loan 25%: Government 75%, compared to the appraisal split of Loan 40%: Government 60%. See Attachment: SUEP Project Cost Summary.

4. SUSTAINABILITY

Rationale for Sustainability Rating

4.1 In overall terms the project can be considered sustainable, although there are, and will continue to be, some transitional issues and problems particularly in respect to local tariffs and in the collection of these user fees. Sustainability needs to be viewed in terms of (i) the ability of staff to operate and maintain the facilities, (ii) the institutional arrangements put in place, and (iii) adequate financing arrangements for financial sustainability.

The Luzhou Water Supply Company (LUWSC) can be considered fully sustainable in the institutional, operational and financial context. It has matched its full production capacity in the Luzhou-Beijiao area due to the shutting down of self supply users in the area and in purchasing water from a chemical enterprise, which is an economic and sustainable way to supply water to the Luzhou-Daxikou area. The Chengdu, Deyang and Leshan wastewater components are sustainable in the institutional and operational context, but are not currently financially sustainable, if they rely solely on users fees for their financing. The issues in these cases are both the level of tariffs and the effectiveness of income collection arrangements. Chengdu Drainage Company (CDC) is owned by Chengdu Xingrong Investment Co., and the sewer assets in Chengdu were transferred to CDC but the sewers are still operated and managed by the district governments. Deyang Wastewater Treatment Co. (DWTC) is combined with Deyang Water Supply Co., the tariff collected could only cover the operation of the WWTP, and some of the existing sewers are still owned and operated by the district governments. Leshan Wastewater Treatment Co. (LWTC), which is the only company where the tariff collected is directly transferred to the company without passing through the municipal Finance Bureau, has owned the assets of the sewers, but are operated and maintained by the district government. The wastewater tariff collected can only support the operation of the WWTP. The scaled down investment and restricted scope of the Leshan solid waste component suggests this had no impact on overall project sustainability.

In order to promote and ultimately achieve financial sustainability in wastewater companies, the SPG as well as the central government have pressed local municipal governments to introduce residential wastewater tariffs, and for these and other tariff categories to be progressively increased. All the project cities have introduced residential tariffs and there have been several increases during project implementation. SPG is

54 continuing to press for higher tariffs to be implemented and revised guidelines with increased tariff levels are expected to be issued shortly. However, the municipal governments, upon which responsibility for tariff setting rests, have been reluctant to implement the SPG guidelines in full on grounds of perceived affordability and unpopularity of such increases. Public awareness of wastewater services and the cost of these services is also a factor, as these charges are new in China and will take time to be accepted by local politicians and the public alike. At the time of writing this report, further tariff increases were under active consideration in all of the SUEP project cities.

Customer acceptance and the enforceability of wastewater charges are the main factors influencing income collection levels. Particular problems exist in relation to collection from industries using their own supplies of groundwater. Regulations and penalties are generally inadequate to enforce the charges. This is a national problem, not just a provincial or project problem, and is recognized as such by the national Government. The problem is being actively worked on at a national level, and national-level guidance and model regulations can be anticipated in the near future. It is not sensible or feasible for local governments to act in advance of this national guidance. However, recognition of the problem, and the fact that it is being attended to at the national level, suggests that the problem is a transitional one. Thus, sustainability in the medium to longer term is reasonably well assured.

Transition Arrangements to Regular Operation

4.2 All the main components have been successfully commissioned and are operating effectively. Bank-funded technical assistance and training support has proved valuable in making the successful transition to regular operations.

5. BANK AND BORROWER PERFORMANCE

Bank

5.1 The WB’s performance during the phases of identification, preparation, appraisal and implementation for the project is considered to be satisfactory. The diligence of WB managers and staff was appreciated by all the implementing agencies. The work of the WB Beijing Office was highly appreciated in terms of timely instructions to SUEP on WB procedures, review, comments, and approval of bid documents.

Quite a number of Task Managers from the WB had worked on this project, and all of them had made valuable contributions to the successful implementation of the project. However, the changes of the Task Managers were a little too frequent than expected, resulting in delayed actions from the Bank side during implementation, especially in evaluating the loan savings projects.

Borrower

55 5.2 The national and provincial governments’ commitment to the project remained strong and supportive during all phases of the project. The PPMO, City PMOs and PIAs resumed active management functions throughout the project. Each subproject entity designated necessary resources to execute the subproject.

The Government has assisted all the subproject entities to gather sufficient counterpart funding. Leshan wastewater and solid waste components experienced counterpart funding difficulties, which they worked hard to resolve and, in the end, did so successfully.

Municipal governments in the project region have given the utmost support for construction at all the subproject sites. Most of the construction sites have required strong coordination for the layout of pipelines in the busy city streets. Government support is also related to the successful implementation of the project-related land acquisition and resettlement.

Provincial and municipal governments have made great efforts towards initiating and adjusting the wastewater tariff. Rapid tariff increases have notable impacts on social and economic situations; hence the government has formed action plans for tariff adjustments.

6. LESSONS LEARNED

6.1 The SUEP is an important project for the Sichuan Province to significantly curb its pollution and to create a sustained environment for its economic and social development. The implementation process has been a successful and valuable experience for all the agencies involved. Lessons have been learned in many aspects of project execution. A brief summary of experience and lessons learned is presented below:

 Experience was gained in the development of a large scale environmental project, which comprehensively considered feasibility, alternatives, least-cost approach, institutional development, policy support, and the impacts to the environment, society, economy, poverty reduction and long-term sustainability. Good experience has been adopted in preparation of the second WB project in Sichuan.  Good construction supervision and contract management systems similar to the FIDIC, as well as good international practices have been adopted, with improvements being made in contact management, cost control, quality control, etc. More and more staff also benefited from training on project management and construction management provided by the international consultants. This good experience will influence future project management in China, and a similar system will be adopted in Sichuan’s second WB project, SUDP.  In the project preparation stage, feasibility studies must be conducted with enough detail and understanding. Cost estimates and physical and financial contingencies at appraisal using government rates proved excessive. The project target setting should be realistic, i.e. water and wastewater quantities in 2010 in Leshan were over-estimated. Setting realistic goals and using a phased with a workable action plan may be more practical.

56  Careful study, detailed discussion, and more transparency should be fostered among the PIAs, PPMO, consultants, as well as the WB during the preparation of the project to avoid changes and cancellations during implementation. The major changes and cancellations in SUEP caused the delay of the implementation schedule and the waste of preparation inputs, which will also affect the achievement of the PDO and large loan savings.  Assessment of the loan savings project in SUEP took a long time, which is one of the reasons why the loan savings project were totally cancelled in SUEP. A simplified procedure for the use of loan savings is suggested to enable full use of the WB loan.

Attachment - SUEP Project Cost Summary At ICR At December Appraisal 2006 Estimated Costs US$ million US$ million

Project Component 1- Min River Water Quality Recovery Chengdu Wastewater 101.2 111.2 Leshan Wastewater 20.1 16.5 Leshan Solid Waste 9.8 8.3

Project Component 2- Tuo River Water Quality Recovery Deyang Wastewater 34.6 21.7 Luzhou Water Supply 29.8 11.1

Project Component 3 - Urban Management Information System Operation Management Support System (OMSS) 4.8 2.7

Project Component 4-Environmental Protection and Rehabilitation Leshan Grand Buddha 7.7 3.5

Project Component 5-Institutional Strengthening, Training and Construction Supervision Package A 0.9 Package B 2.1 Package C 1.2

Total of Project Cost 208.1 179.2

WB Finance IBRD 100.0 44.2 IDA 2.0 0.7

Total of WB Finance 102.0 44.9

IBRD deducted Leshan Water and Luzhou Daxikou Water components 80.4

57 Project Cost Split at Appraisal Loan 40%: Government 60% Project Cost Split at Completion Loan 25%: Government 75%

58 Annex 9. List of Supporting Documents

1. Water sector study for Sichuan Province (COWI Consultants) 2. Project feasibility studies and project proposal 3. Project Appraisal Document 4. Loan Agreement 5. Project Agreement 6. Mission Aide Memoires and Back-to- Office reports 7. Implementation Status Reports 8. Project Progress Reports 9. Solid waste pricing study for Leshan 10. Development Plan for the Leshan Grand Buddha site