World Bank Document

Document of

The World Bank

Public Disclosure Authorized

Report No: ICR00003488

IMPLEMENTATION COMPLETION AND RESULTS REPORT

(IBRD-75170)

Public Disclosure Authorized ON A

LOAN

IN THE AMOUNT OF US$84 MILLION

TO THE

PEOPLE’S REPUBLIC OF CHINA

FOR THE Public Disclosure Authorized HAN RIVER URBAN ENVIRONMENT IMPROVEMENT PROJECT

December 15, 2015

Water Global Practice China and Mongolia Country Management Unit Public Disclosure Authorized East Asia and Pacific Region

CURRENCY EQUIVALENTS

(Exchange Rate Effective November 30, 2015)

Currency Unit = RMB 1.00 = US$ 0.156 US$ 1.00 = 6.40

FISCAL YEAR January 1 – December 31

ABBREVIATIONS AND ACRONYMS

ADB Asian Development Bank BOD Biochemical Oxygen Demand BOT Build-Operate-Transfer CC Construction Commission CEA Comprehensive Summary of Environmental Assessment CNAO China National Audit Office COD Chemical Oxygen Demand CQS Selection Based on Consultant's Qualifications DA Designated Account DHI Delft Hydraulics Institute DP Displaced Persons DRC Development and Reform Commission DSWM Dawu Solid Waste Management Co. DWSWM Danjiangkou Wanjie Solid Waste Management Co. EA Environmental Assessment EIA Environmental Impact Assessment EIRR Economic Internal Rate of Return EMP Environmental Management Plan EPB Environmental Protection Bureau ESD Environmental Sanitation Department FIRR Financial Rate of Return FM Financial Management FMS Financial Management Specialist GDP Gross Domestic Product HCSWM Hanchuan Chuanjie Solid Waste Management Co. HEPB Hubei Environmental Protection Bureau HHSWM Honghu Hongjie Solid Waste Management Co. HHWT Honghu Huqing Wastewater Treatment Co. HPFB Hubei Provincial Finance Bureau HRUEIP Han River Urban Environment Improvement Project HUEP Hubei Urban Environment Project

HWWT Hanchuan Hanjiang Wastewater Treatment Co. IA Implementing Agency IBRD International Bank for Reconstruction and Development IC Individual Consultant Selection ICB International Competitive Bidding ICR Implementation Completion Report ID Institutional Development IPC Industrial Pollution Control IPCAP Industrial Pollution Control Action Plan LFB Local Finance Bureau MPMO Municipal Project Management Office NCB National Competitive Bidding NPS Non-point Source NRDC National Development and Reform Committee O&M Operation and Maintenance OLM On-line Monitoring PAD Project Appraisal Document PDO Project Development Objective PMO Project Management Office PPMO Provincial Project Management Office PPP Private-Public-Partnership PRC People's Republic of China QBS Quality-Based Selection QCBS Quality- and Cost-Based Selection RAP Resettlement Action Plan SA Social Assessment SBD Standard Bidding Document SEPA State Environment Protection Administration SJSWM Shayang Jieyang Solid Waste Management Co. SKDM Shayang Kanglu Drainage Management Co. SWM Solid Waste Management TA Technical Assistance TOT Transfer, Operate and Transfer TWWT Tianmen Wastewater Co. UDIC Urban Development Investment Corporation WACC Weighted Average Costs of Capital WWTP Wastewater Treatment Plant

Vice President: Axel van Trotsenburg, EAPVP Country Director: Bert Hofman, EACCF Practice Manager: Ousmane Dione, GWADR Project Team Leader: Shunong Hu, GWADR

ICR Team Leader: Shunong Hu, GWADR

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PEOPLE’S REPUBLIC OF CHINA Han River Urban Environment Improvement Project

CONTENTS

A. Basic Information ...... v B. Key Dates ...... v C. Ratings Summary ...... v D. Sector and Theme Codes ...... vi E. Bank Staff ...... vi F. Results Framework Analysis ...... vi G. Ratings of Project Performance in ISRs ...... x H. Restructuring (if any) ...... x I. Disbursement Profile ...... xi 1. Project Context, Development Objectives and Design ...... 1 2. Key Factors Affecting Implementation and Outcomes ...... 4 3. Assessment of Outcomes ...... 13 4. Assessment of Risk to Development Outcome ...... 19 5. Assessment of Bank and Borrower Performance ...... 20 6. Lessons Learned ...... 22 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners ...... 24 Annex 1. Project Costs and Financing ...... 25 Annex 2. Outputs by Component ...... 26 Annex 3. Economic and Financial Analysis ...... 29 Annex 4. Bank Lending and Implementation Support/Supervision Processes ...... 31 Annex 5. Beneficiary Survey Results ...... 33 Annex 6. Stakeholder Workshop Report and Results ...... 34 Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR ...... 35 Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders ...... 45 Annex 9. List of Supporting Documents ...... 46 Annex 10. Project pictures ...... 47 MAP No. 35070

D A T A S H E E T A. Basic Information Han River Urban Country: China Project Name: Environment Improvement Project Project ID: P087224 L/C/TF Number(s): IBRD-75170 ICR Date: 12/15/2015 ICR Type: Core ICR PEOPLE'S REPUBLIC Lending Instrument: SIL Borrower: OF CHINA Original Total USD 84.00M Disbursed Amount: USD 69.95M Commitment: Revised Amount: USD 69.95M Environmental Category: A Implementing Agencies: Hubei Environmental Protection Bureau Cofinanciers and Other External Partners:

B. Key Dates Revised / Actual Process Date Process Original Date Date(s) Concept Review: 09/06/2006 Effectiveness: 09/16/2008 09/16/2008 Appraisal: 07/16/2007 Restructuring(s): 04/25/2014 Approval: 04/29/2008 Mid-term Review: 04/14/2012 04/15/2012 Closing: 06/30/2014 06/30/2015

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

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

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

Closing/Inactive status: Unsatisfactory

D. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) Solid waste management 37 45 Sub-national government administration 4 5 Wastewater Collection and Transportation 30 35 Wastewater Treatment and Disposal 29 15

Theme Code (as % of total Bank financing) City-wide Infrastructure and Service Delivery 25 55 Municipal governance and institution building 25 10 Pollution management and environmental health 50 35

E. Bank Staff Positions At ICR At Approval Vice President: Axel van Trotsenburg James W. Adams Country Director: Bert Hofman David R. Dollar Practice Ousmane Dione Keshav Varma Manager/Manager: Project Team Leader: Shunong Hu Hiroaki Suzuki ICR Team Leader: Shunong Hu ICR Primary Author: Heinrich K. Unger

F. Results Framework Analysis

Project Development Objectives (from Project Appraisal Document) The Project Development Objective (PDO) was to reduce urban pollution generated from wastewater and solid waste through proper collection, treatment and disposal in selected

vi second-tier cities, mainly located in the Han River area of Hubei. This would be achieved by undertaking high priority investments in selected project cities in wastewater collection and treatment systems and in solid waste management systems, as well as institutional reforms and capacity development in the areas of municipal utilities reforms and water pollution control. As its secondary objective, the project was intended to develop well- managed sustainable municipal utilities which could be referred to as models/best practices for other similar projects or programs to be implemented under the Provincial 11th Five- year Plan.

Revised Project Development Objectives (as approved by original approving authority)

(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 Indicator 1 : Proportion of municipal wastewater (WW) treated (percentage) Hanchuan 0 Hanchuan 70 Hanchuan 72 Hanchuan 72 Value Honghu25 Honghu 70 Xiangyang 80 Xiangyang 95 quantitative or Shayang 0 Shayang 70 Yunmeng 60 Honghu 80 Qualitative) Xiangyang 20 Xiangyang 70 other cities Shayang 82 Yunmeng 0 Yunmeng 70 not revised Yunmeng 80 Date achieved 04/29/2008 06/30/2014 04/25/2014 06/30/2015 Targets achieved, and 2 exceeded. Indicator is defined as "level of municipal Comments WW treated in each project city, calculated as amount of WW collected & (incl. % treated by project-financed WWT systems divided by the estimated amount of achievement) WW generated in project city" Proportion of domestic solid waste (SW) collected & transferred to sanitary Indicator 2 : landfills (percentage) Dawu 0 Dawu 95 Dawu 90 Dawu 75 Value Hanchuan 0 Hanchuan 95 Hanchuan 90 Hanchuan 98 quantitative or Honghu 0 Honghu 95 Honghu 90 Honghu 98 Qualitative) Shayang 0 Shayang 95 Shayang 95 Shayang 95 Xiaochang 0 Xiaochang 95 Xiaochang 90 Xiaochang 90 Date achieved 04/29/2008 06/30/2014 04/25/2014 06/30/2015 Targets achieved except for Dawu. Defined as "level of domestic SW collected Comments & transferred to sanitary landfills in each project city, calculated as amount of (incl. % SW collected & transferred to landfills divided by estimated amount of SW achievement) generated."

vii

(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 Indicator 1 : Number of new household sewer connections constructed under the project Hanchuan 200 Hanchuan 600 Xiangyang Hanchuan 600 Value Honghu 200 Honghu 600 800 Honghu 600 (quantitative Shayang 200 Shayang 700 Yunmeng 600 Shayang 700 or Qualitative) Xiangyang 300 Xiangyang 1000 other cities Xiangyang 1000 Yunmeng 200 Yunmeng 700 not revised Yunmeng 700 Date achieved 04/29/2008 06/30/2014 04/25/2015 06/30/2015 Targets achieved. Definition was slightly revised by dropping the reference to Comments "seven project cities". IO Indicator "Proportion of municipal wastewater (incl. % collected in sewer network annually" is not shown here since the achievements achievement) are identical to PDOI 1. Indicator 2 : Sewers constructed under the project (cumulative, in km) Hanchuan Hanchuan 0 Hanchuan 25 Hanchuan 23 35.6 Value Honghu 0 Honghu 33 Honghu 22 Honghu 22 (quantitative Shayang 0 Shayang 45 Shayang 10 Shayang 10 or Qualitative) Xiangyang 0 Xiangyang 12 Xiangyang 6.3 Xiangyang 11 Yunmeng 0 Yunmeng 50 Yunmeng 24.3 Yunmeng 23 Date achieved 04/29/2008 06/30/2014 04/25/2014 06/30/2015 Comments Targets substantially achieved except for Hanchuan and Xiangyan due to (incl. % technical difficulties with constructing some sections of sewers. achievement) Indicator 3 : Closure of the old dump sites (cumulative, ha) Dawu 0 Dawu 0.4 Dawu 4.7 Dawu 3.1 Value Hanchuan 0 Hanchuan 6.7 Hanchuan 3.3 Hanchuan 6.3 (quantitative Honghu 0 Honghu 4.4 Honghu 4.7 Honghu 5.3 or Qualitative) Shayang 0 Shayang 2.7 other cities Shayang 3.6 Xiaochang 0 Xiaochang 0.7 not revised Xiaochang 2.1 Date achieved 04/29/2008 06/30/2014 04/25/2014 06/30/2015 Comments All old dumpsites were closed; Dawu and Hanchuan closed in August 2015 after (incl. % the project closed. The original unit of measurement was "mu". achievement) Number of identified major industrial polluters with WW treatment facilities Indicator 4 : installed that are adequate to treat all WW to applicable discharge standards Value (quantitative 0 36 28 28 or Qualitative) Date achieved 04/29/2008 06/30/2014 04/25/2014 06/30/2015 Comments Target achieved. Also, in an effort to clarify it, the definition of this indicator (incl. % was changed as part of the restructuring. Tianman & Danjiangkou dropped out, 5 achievement) cities reached the targets Number of Identified Major Industrial Polluters that have installed effective on- Indicator 5 : line monitoring (OLM) viii

Value (quantitative 0 62 50 50 or Qualitative) Date achieved 04/29/2008 06/30/2014 04/25/2014 06/30/2015 Comments Target achieved. Also, in an effort to clarify it, the definition of this indicator (incl. % was changed as part of the restructuring. Tianman & Danjiangkou dropped out, 5 achievement) cities reached the targets Municipal EPBs within the project area to install OLM data capture & Indicator 6 : processing facilities, and train staff (number) Value (quantitative 0 6 N/A 6 or Qualitative) Date achieved 04/29/2008 06/30/2014 04/25/2014 06/30/2014 Comments (incl. % Target fully achieved. achievement) Indicator 7 : O&M cost recovery ratio of SW management entities (percentage) Dawu 60 Dawu 100 Dawu 85 Dawu 100 Value Hanchuan 60 Hanchuan 100 Hanchuan 70 Hanchuan 100 (quantitative Honghu 60 Honghu 100 Honghu 80 Honghu 100 or Qualitative) Shayang 60 Shayang 100 Shayang 80 Shayang 100 Xiaochang 60 Xiaochang 100 Xiaochang 80 Xiaochang 100 Date achieved 04/29/2008 06/30/2014 04/25/2014 06/30/2015 Comments Targets exceeded. Dawu and Hanchuan SWM reached 100% after local (incl. % government budget support was received by November 2015. achievement) Fee collection rate for residential customers of SW management entities Indicator 8 : (percentage) wu 40 Dawu 60 Dawu 60 Value Hanchuan 30 Hanchuan 80 Dawu 85 Hanchuan 80 (quantitative Honghu 50 Honghu 80 other cities Honghu 80 or Qualitative) Shayang 30 Shayang 80 not revised Shayang 80 Xiaochang 70 Xiaochang 85 Xiaochang 75 Date achieved 04/29/2008 06/30/2014 04/25/2014 06/30/2015 Comments Targets in 3 cities achieved but not achieved but not in Dawu & Xiaochang; (incl. % however, local government providing support. achievement) Fee collection rate of WW treatment entities (percentage), based on water Indicator 9 : supplied from Water Supply Co. (WSC) Hanchuan 40 Hanchuan 95 Hanchuan 92 Value Honghu 95 Honghu 95 Honghu 96 (quantitative Shayang 80 Shayang 95 N/A Shayang 95 or Qualitative) Xiangyang 70 Xiangyang 95 Xiangyang 90 Yunmeng 70 Yunmeng 95 Yunmeng 95 Date achieved 04/29/2004 06/30/2014 04/25/2014 06/30/2015 Comments Targets achieved in 3 cities. Hanchuan and Xiangyang reached 92% and 90%, (incl. % respectively, by June 30, 2015. achievement)

G. Ratings of Project Performance in ISRs

Actual Date ISR No. DO IP Disbursements Archived (USD millions) 1 06/30/2009 Satisfactory Satisfactory 0.24 2 06/29/2010 Moderately Satisfactory Moderately Satisfactory 7.47 3 06/28/2011 Moderately Satisfactory Moderately Satisfactory 22.73 4 04/08/2012 Moderately Satisfactory Moderately Satisfactory 41.98 5 03/31/2013 Moderately Satisfactory Moderately Satisfactory 46.31 Moderately Moderately 6 12/13/2013 52.89 Unsatisfactory Unsatisfactory Moderately Moderately 7 06/25/2014 52.89 Unsatisfactory Unsatisfactory Moderately Moderately 8 12/11/2014 55.10 Unsatisfactory Unsatisfactory Moderately Moderately 9 06/17/2015 64.46 Unsatisfactory Unsatisfactory

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 Due to lack of progress with some subprojects and requirement for leachate treatment at landfill, Loan was reallocated, 4 sub-projects were 04/25/2014 N MU MU 52.89 dropped, the Borrower’s contribution was reduced by USD12.8m, and project costs were reduced to $159.6m. Closing date was extended to June 30, 2015.

I. Disbursement Profile

1. Project Context, Development Objectives and Design

1.1 Context at Appraisal

Country and sector context

1. At the time of appraisal in 2007, China’s cities were generating more than 60 percent of GDP and had been the engine of economic growth and a driving force for poverty reduction for two to three decades. Urbanization had accelerated rapidly from 1987 to 2007 at an annual rate of about 3.3 percent. By 2007, China’s urbanization level was at 40.4 percent —up from 26.2 percent in 1990—corresponding to a total urban population of 531 million. Urbanization was projected to reach more than 55 percent by 2027. The rapid development of the second-tier provincial cities as a consequence of sizable rural- urban migration was considered an important factor behind this accelerated urban growth. While this rapid urbanization significantly increased cities’ GDP and expanded their economic bases, environmental conditions (water, air and soil) and living standards had deteriorated considerably, particularly in the second-tier cities, because of the lack of environmental infrastructure such as wastewater treatment and solid waste management facilities.

Hubei province and project context

2. In 2007, Hubei Province, located in central China, had a population of 60.5 million of which 26.5 million (about 44 percent) were living in urban areas. Two major river systems extend across Hubei Province: the Yangtze River and the Han River. The middle and lower reaches of the Han River are characterized by a fertile and broad landmass, a large population, and rich natural resources. In 2007, the economy of the Han River area produced just over half of the Province’s GDP (US$82 billion) and supported 30 percent of its population.

3. In 2003, only 2.5 million people (4 percent) had access to wastewater treatment facilities in Hubei. The total capacity of wastewater treatment plants (WWTPs) in Hubei was 880,000 tons/day, while the estimated amount of municipal wastewater generated in 2005 was about 4 million tons/day. Most of the existing WWTPs, including some funded by the Bank, were located in larger cities (Wuhan, Yichang, Huangshi, and Xiangfan) mainly in the Yangtze River area. The rate of wastewater treatment in the urban areas of the Province was at most 23.5 percent, and the rate for cities was 47.6 percent. This rate was much lower in the Han River area where there were WWTPs in only a few larger cities. Untreated wastewater contaminated groundwater and river systems, and was a major threat to citizen’s health and the surrounding ecological environment. In addition, it was expected that the water quality of the Han River would deteriorate further after the start of the South-North Water Diversion scheme in the upper reach of the Han River that was to start operations in 2014.

4. In 2007, the domestic solid waste generation in Hubei Province was about 13

million tons/year, and the 62 existing landfills handled and disposed of about 6 million tons of domestic solid waste annually, or 46.3 percent of the total solid waste generated. There was no sanitary landfill in the Han River area, therefore most municipal solid waste went to open dumps without protection from leachate contamination of underlying aquifers or local surface waters; also there was no collection or flaring of landfill gas. The migration of polluted surface waters was a major factor causing high levels of urban aquifer contamination. Malodorous dumpsites and collection points were a major source of citizens’ environmental complaints, and also potential sources of disease.

1.2 Original Project Development Objectives (PDO) and Key Indicators

5. The PDO of the Project was to assist Hubei Province in reducing wastewater and solid waste pollution in urban areas of selected counties and cities, located primarily in the Han River area, through high priority investments in wastewater collection and treatment systems and in solid waste management systems, institutional reforms in, and capacity development of, municipal utilities and water pollution control.1.

6. The proportion of municipal wastewater treated, and the proportion of domestic solid waste collected and transferred to sanitary landfills were used as key indicators to measure the achievement of the PDO.

1.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification

7. The PDO itself was not revised but two key indicators were revised slightly to provide more clarity and better reflect the achievements of the project. The indicator “proportion of municipal wastewater treated annually” was revised to “proportion of municipal wastewater treated” and redefined as “the level of municipal wastewater treated in each of the project cities, calculated as the amount of wastewater collected and treated by project financed wastewater management systems divided by the estimated amount of wastewater generated in the project city”. The indicator “proportion of municipal solid waste collected and transferred to sanitary landfills annually” was revised as “proportion of domestic solid waste collected and transferred to sanitary landfills” and redefined as “the level of domestic solid waste collected and transferred to the sanitary landfills in each of the project cities, calculated as the amount of waste collected and transferred to the project landfills divided by the estimated amount of waste generated in the project city.”

1.4 Main Beneficiaries,

1 The PDO cited is from the Loan Agreement. The PDO in the PAD differed slightly in wording but with the same intent: “The Project Development Objective (PDO) is to reduce urban pollution generated from wastewater and solid waste through proper collection, treatment and disposal in selected second-tier cities, mainly located in the Han River area of Hubei.” The PDO in the Loan Agreement will be used as the basis for the assessment of results in this ICR.

8. It was estimated that the project would benefit some 1.84 million people in the short-term (2010) and an estimated 2.58 million people in the medium term (by 2020) in the nine project cities – by providing wastewater services in seven cities to about 1.37 million people by 2010 and to about 1.97 million people by 2020 – and solid waste management services in seven cities to about 1.19 million people by 2010 and to about 1.72 million people by 2020.

9. Additionally, the project was expected to benefit the target municipal utilities and their staff through the implementation of the Institutional Development and Capacity Building Component of the Project, mainly by strengthening project management, monitoring of safeguards implementation, and technical assistance (TA) for financial, technical, operational and human resources management.

1.5 Original Components

10. The project consisted of four components as summarized below:

Wastewater Treatment Investment Component (US$94.45 million). This component covered seven cities/counties (Hanchuan, Honghu, Shayang, Tianmen, Xiangfan, Xiaochang and Yunmeng) and included the construction of seven new wastewater collection systems in all seven cities/counties, and the construction of five new wastewater treatment plants (WWTPs) in the above cities except Honghu and Xiangfan.

Solid Waste Management (US$59.09 million). The solid waste management (SWM) component covered seven cities/counties (Danjiangkou, Dawu, Hanchuan, Honghu, Shayang, Xiaochang and Yunmeng) and included the construction of new sanitary landfills and solid waste collection stations, collection equipment and closures of existing dumps.

Industrial Pollution Control (US$2.46 million). Under this component, Hubei Province and the project cities implemented the industrial wastewater pollution control programs with their own funds. The activities were carried out at both provincial and city levels, including (a) provincial level program for installation of on-line monitoring (OLM) data receiving platforms at municipal Environmental Protection Bureaus (EPBs), and the installation of OLM facilities under local EPB supervision at major pollution sources; and (b) the implementation of specific industrial wastewater pollution control action plans for major polluting enterprises. This component included the development of the Han River Water Modeling System, including a study on non-point source (NPS) pollution.

Institutional Development and Capacity Building Component (US$4.25 million). This component included the following activities: (a) project management and implementation assistance (US$2.5 million): technical assistance (TA) for design review advisory services and construction supervision, including provision of an individual procurement consultant; (b) monitoring of safeguards implementation (US$0.45 million): TA for external monitoring of the environmental management

plans (US$0.26 million) and resettlement action plans (US$0.19 million); and (c) ID and capacity building of wastewater and solid waste management utilities and project cities (US$ 1.31million): TA for ID in financial, technical, operational and human resources management.

1.6 Revised Components

11. In April 2014, as part of the formal project restructuring, the following changes were made: (i) “construction of leachate treatment facilities” was added to the description of the SWM component, and five leachate treatment facilities were added to the project scope in the four municipalities that constructed sanitary landfills; (ii) Tianmen County and Xiaochang County were dropped from the wastewater component2; and (iii) Danjiangkou City and Yunmeng County were dropped from the SWM component3. As a result, only seven municipalities were eventually included in the project: Hanchuan, Honghu, Shayang, Xiangfan, Dawu, Xiaochang and Yunmeng.

1.7 Other significant changes

12. As part of the April 2014 restructuring and in line with the revised project components as described above, the following significant changes were made: (i) reduction of the Borrower’s contribution by US$12.8 million (about 15 percent) reducing total project costs to US$159.6 million; (ii) the specific allocations for the four dropped municipalities were cancelled; (iii) loan proceeds were reallocated resulting in 40 percent more funding for the solid waste management component (mainly for leachate treatment plants required by new central government regulations), 27 percent less for the wastewater treatment component and about 25 percent less for consulting services; and (iv) the disbursement percentage for Dawu was increased from 78 to 98 percent. Also, the project closing date was extended by one year to June 30, 2015 to allow the completion of all agreed subprojects.

2. Key Factors Affecting Implementation and Outcomes

2.1 Project Preparation, Design and Quality at Entry

Rationale for Bank involvement

2 Tianmen County and Xiaochang County built WWTPs with their own funds to meet the Hubei Provincial government 2010 deadline for the construction of municipal WWTPs.

3 Danjiangkou City used compensation funds received from the South-North Water Transfer Scheme to build a sanitary landfill site. Yunmeng County opted to implement a Private-Public-Partnership (PPP) waste-to-energy facility but ran into problems with the site; they are now planning the development of a sanitary landfill site with their own funds.

13. The main reason for Bank involvement was the expectation that this project would allow provincial and municipal governments to finance their urban environmental investment needs and gain access to the Bank’s wide range of sector knowledge, as well as the institutional and technical expertise in China and other countries. The previous Hubei Urban Environment Project (HUEP) had supported mainly large cities in Hubei Province and provided valuable lessons in project preparation and implementation. Furthermore, the Water Sector Strategy Study (completed in 2007) allowed the Bank to provide advice on institutional and technical issues based on a full analysis of China’s water and wastewater sector.

Incorporation of lessons learned

14. The project team benefited from the experience of the HUEP, whose ICR report was completed in May 2006, and also from the sector study “Stepping Up – Improving the Performance of China’s Urban Water Supply Utilities” which was published in 2007. The main lessons extracted and applied from these two timely and highly relevant reports are described below:

a. Realistic reform targets and timelines were adopted, taking into account the readiness of governmental decision-making bodies to meet these targets. Also the ID and financial reforms mainly focused on the enhancement of basic operational efficiency and the implementation of a gradual financial improvement program.

b. Technical assistance (TA) for ID was timed such that the benefiting utility companies would be in the best position to make effective use of the TA, i.e. during the later stages of implementation when utility management and operational activities actually took place, after the assets under their management had been built.

c. Related to the lesson above, project agencies and implementation units included some staff who had utility and environmental management skills (in addition to construction management expertise) bearing in mind that the operational management of utilities needs longer-term involvement. Therefore, the ID capacity building TA component included the recruitment and training of professional and operational staff.

d. The design of the TA for ID for public utilities reflected some important lessons from the China water sector study, i.e. to (i) manage wastewater as a network utility business, (ii) pursue opportunities for aggregating urban water services of smaller cities and counties; and (iii) engage the private sector as part of the reform process.

e. Performance indicators included sewer connections and solid waste collection facilities to make sure that a comprehensive approach was taken

in the development of well-integrated municipal utilities, i.e. collection, transfer and treatment / disposal, and overinvestments in only wastewater treatment and construction of sanitary landfills – as happened in past projects – would be avoided.

f. In an effort to engage policy makers, the provincial Environmental Protection Bureau (EPB), the project cities and the polluters themselves, specific measures and performance indicators to achieve the targets of the industrial pollution control action plans (IPCAP) were agreed upon. Engagement with these key stakeholders was then used to build their ownership and commitment to the IPCAPs.

15. Many of these lessons were considered during implementation and led to positive outcomes, such as the realistic targets that were mostly achieved, the timing of operational TA for technical staff worked well, a large number of household-level facilities for wastewater (sewer house connections) and SWM (collection points) were built, and lastly, the IPCAP component achieved substantive progress of industrial pollution control with no Bank and little government investment. However, institutional development did not work well with PPMO and PMO staff, wastewater utilities are still not being run as businesses, i.e. tariffs, collection rates and debt service coverage are still lagging. Also, the proposed aggregation of urban infrastructure services did not happen under the project.

Risks and mitigation measures

16. The high risk that utility tariff increases would lag behind the agreed schedules (and fail to comply with financial covenants) was to be mitigated by the following measures: (i) realistic tariff increase targets were set in full consultation with policy makers; (ii) the TA for ID included advisory services on how to collect wastewater tariffs from enterprises using self-supplied water; (iii) the Bank convinced project cities to adopt the highest possible tariff level as recommended by the Ministry of Construction (Ministry of Housing and Urban – Rural Development, as of 2008); and (iv) the Bank was to regularly monitor the utilities’ financial and operational performance using relevant indicators.

17. Another high risk, i.e. top polluters would fail to adequately reduce discharges to meet their obligations under the IPCAPs, was mitigated by the cities preparing these plans jointly with the polluting enterprises concerned. Actual compliance with the agreed IPCAPs was to be publicly disclosed, and municipal governments were to be given increased powers to enforce compliance by enterprises.

18. The substantial risk of the Provincial PMO and the Municipal PMOs lacking adequate technical and managerial capacities was mitigated by the recruitment of a project management consultant to (i) assist the PPMO/MPMOs during project implementation, and (ii) build up their institutional capacities. In addition, the Bank conducted more intensive supervision during the first two years of implementation.

19. The risks of tariff increases lagging and also the risk of PPMO and PMOs lacking sufficient capacities did materialize while the proposed mitigation measures were not adequate: for tariff increases, governments’ reluctance to raise any fees due to the social and political concerns had not been fully taken into consideration; and the project management agencies were still only on adequate financial management capacities until later during implementation. On the positive side, the IPCAPs were implemented as the polluting industries installed effluent treatment facilities and also on-line monitoring (OLM).

Design of project for sustainability

20. At the Project Concept stage, the possibility of designing this project as an integrated river basin management project of the Han River was considered. While such an approach may have been able to achieve a higher development impact, it was not adopted because Hubei Province was not thought to be ready to undertake highly complex cross-sectoral activities (environment, agriculture, land administration) and also because cross-regional activities would have involved neighboring provinces. Instead, a more limited, but well-focused urban environmental project approach was adopted for this operation as the first step toward a possible integrated river basin approach.

21. In order to ensure political commitment to sustainable environmental protection, during project preparation, the Bank team actively engaged in policy dialogue at various levels, including with the Provincial Vice-Governor in charge of environmental affairs, with the mayors of the project cities, and with key provincial and municipal government staff. A large ID and capacity building component was included in the project to help the project cities develop (i) technically efficient and financially sustainable wastewater companies, and (ii) technically efficient and cost effective SWM organizations, both in a phased manner. As part of the SWM component, the Bank loan financed the closure of the existing open dumpsites in accordance with provincial Environmental Protection Bureau (EPB) regulations to ensure a safe environment.

Implementation arrangements

22. The Hubei Provincial Leading Group led by the Vice Governor and the key provincial bureaus, including the Provincial Finance Bureau, Development and Reform Commission (PDRC), and Construction Bureau was responsible for giving policy guidance and overseeing project implementation, as they did for all Bank-funded projects in the province. The Provincial Project Management Office (PPMO) provided management leadership to all aspects of project implementation. It consisted of the Deputy General Director of the Provincial EPB, Deputy Directors of Provincial Financial Bureau, Development and Reform Commission (DRC), Construction Bureau and Land Resource Administration Bureau, a full-time PPMO Manager and technical staff (finance

expert, engineer, procurement expert, environmental expert and resettlement expert).4

23. At the municipal level, each city/county established its own Leading Group and MPMO in charge of its own subcomponent(s). The subcomponents were implemented by the project implementing agencies, i.e. the municipal departments and utility companies, designated by the cities. TA, studies and training activities at the municipal level were implemented by the provincial EPB and/or the project cities with assistance from the PPMO. The MPMOs/project implementing agencies (IAs) were also responsible for carrying out the procurement of contracts under their sub-components with the assistance of procurement agents and design institutes, and under the guidance of the PPMO.

24. Overall, the project preparation was considered Modest.

2.2 Implementation

Early implementation problems and delays

25. The project got off to a slow start, and by 2010 – two years into implementation – only 11 percent of the loan had been disbursed. Some legal covenants, such as completion of action plans for wastewater and for SWM and transfer of wastewater fees to the companies, had not been fulfilled and would be complied with much later. Due to the extended period of project preparation and government deadline requirements, some of the proposed subprojects were withdrawn from the HUEIP, either because they were completed with non-Bank financing (NBF) or through other financial and concession arrangements, including private sector (PS) and public-private partnership (PPP) arrangements. It was estimated that some US$24 million of loan savings would thus become available and that the project should be restructured.

26. Almost a year later, in April 2011 during the 5th Bank supervision mission, the project still faced “a worrisome lack of momentum”, and loan disbursements were still less than 16 percent. Furthermore, there were serious staffing issues in the PPMO affecting disbursements, procurement and overall project management and coordination of the PMOs. In November 2011 disbursements still lagged considerably; the PPMO still lacked financial specialists; a number of important legal covenants (WW and SWM strategic sector plans, financial projections by utility companies) were still not complied with; and the crucial financial and institutional support consultant’s procurement had been further delayed. The Bank provided constructive advice and support while applying pressure, mainly on the PPMO and the Hubei Provincial Government, to address these impediments to smooth implementation.

4 The role of the PPMO included: (a) overall project implementation coordination, management, supervision and monitoring; (b) annual budget preparation; (c) quality assurance; (d) submitting progress reports to the Hubei Provincial Government and the Bank; (e) interagency coordination and procurement support; and (f) coordination of implementation of TA, studies and training activities for the project cities. Lastly, the PPMO was also responsible for oversight and overall coordination of procurement activities by the Municipal Project Management Offices (MPMOs).

Mid-term review

27. The mid-term review (MTR) took place in April 2012; more than 18 months behind the original schedule. The problems and delays listed above had persisted, and the MTR addressed the various issues in a comprehensive manner, resulting in a time-based action plan. There also was a conversation about the need for project restructuring, and details of the required changes were discussed. It was expected that the PPMO would submit a request therefor through Government in May 2011. Another matter of concern was the ongoing non-compliance with some legal covenants, namely the overdue WW and SWM strategic sector plans, and the financial statements and projections by the participating utility companies. With the external environmental and resettlement consultants now in place, detailed reviews of the status and quality of safeguards implementation were discussed, and improvements and associated actions were agreed upon (see details under paragraph 2.4 below). There were also problems with gathering the necessary data for the PDO and outcome indicators.

Further progress

28. In November 2012 – when disbursements still lagged about 18 months – Bank staff continued discussions of the details of the proposed project restructuring and stressed the urgency of this action. The PPMO had submitted a draft proposal in June 2012, and this initiated a detailed review of the necessary procedures. The implementation of Component 3 – Industrial Pollution Control had proceeded well with Hubei Provincial Government funding. OLM systems had been set up at provincial and municipal levels and all major polluters – about 60 percent of total pollution loads – were being monitored. Some technical issues had arisen and were addressed with advice and support from the Bank, such as poor asset management and some under-loading of completed WWTPs. The results indicators were reviewed for their continued relevance and it was agreed that some additional definitions were needed.

Project restructuring

29. By July 2013, the Bank had finally received the restructuring request from the Borrower (MOF) with the following proposal: (i) the project development objective would be kept the same; (ii) the project restructuring would be limited to changes of the project scope, i.e. deletion of three subcomponents, addition of works (four leachate treatment facilities to be installed for landfill sites far from the sewer collection networks); (iii) re-allocation of the Bank loan within the project counties/cities; and (iv) modification to the indicators due to the change of project scope. In addition, updated EMPs for installation of leachate treatment facilities were to be completed for the project restructuring. Once these conditions were agreed upon and after the restructuring paper was approved, amendments to the loan and project agreements were issued on April 25, 2014. A one-year extension of the project closing date was part of the project restructuring. Although it had taken a long time to formalize the project modifications, implementation progressed more smoothly and efficiently after the restructuring was

completed although disbursements continued to lag because some IAs preferred to wait for the annual audits of their project expenditures before submitting disbursement requests.

2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization

30. M&E design (Substantial). The intervention logic was sound with appropriate links between project activities and the objectives established. The results framework included a comprehensive set of indicators to measure all aspects of the project. Baselines and targets were established for all indicators from the outset. In addition to the key PDO indicators, there were ten intermediate outcome indicator, many of which had to be reported on for several cities. Some indicators, including the two PDO indicators, used ratios; this required estimating one of the values, such as the “total volume of wastewater”, and “total amount of solid waste”, generated in a particular city – a difficult task with potentially varying assumptions. In view of these difficulties, some indicators were clarified, i.e. slightly redefined, as part of the restructuring.

31. M&E implementation (Modest). Monitoring at least five cities for each indicator generated a large amount of data was that was not easy to gather and keep track of. Several years into project implementation, it was still difficult to obtain adequate information on progress towards achieving the project indicators. Starting in mid-2012, the outcome and results indicators were reported twice a year in the semi-annual progress reports. They were also used as part of the M&E system, especially in terms of measuring progress – or lack thereof – towards the set targets of key outputs, such as rate of wastewater treated, rate of solid waste collected and disposed of (in a sanitary landfill), km of sewers built, etc.

32. M&E utilization (Modest). The most active M&E work was actually done by the external environmental monitoring consultants. They had devised a comprehensive system of environmental monitoring indicators for ambient air and water pollution, as well as important pollutants for construction, and more importantly, for operational activities. The quarterly monitoring results were used to improve the contractors’ performance and adjust the operations of WWTPs, respectively; as a result, citizens’ complaints were minimized.

2.4 Safeguard and Fiduciary Compliance (Modest)

Environment

33. Since the Operational Policy (OP) on Environmental Assessment had been triggered, external environmental monitoring consultants were engaged. However, they only started work in November 2011, due to procurement delays. Once mobilized, the consultants commenced the monitoring of the environmental management plans (EMPs), including relevant environmental standards and indicators during the construction of the new landfill sites. Due to procurement delays, the consultants were mobilized too late to monitor the construction of the WWTPs. Later, the external consultants regularly monitored and reported on the environmental operating parameters, such as effluent

quality from the WWTPs, and leachate, dust, flying debris and odors from the new sanitary landfills. Where standards were not being met, corrective actions were recommended and their implementation was checked.

34. During the April 2012 mid-term review, the environmental consultants focused on improving EMP implementation and the mitigation of any ambient air and water quality parameters in excess of the standards. They also dealt with problems arising from improper dumpsite closures and drew up a set of guidelines with special attention given to groundwater monitoring. Sludge tests for WWTPs were introduced to make sure sewage sludge disposal was done without any environmental hazard. The MTR mission also assured that EA/EMPs for modified and / or new subcomponents were done and submitted for review. For the completed facilities, the consultant provided detailed environmental advice for the continuing operation and maintenance of the built facilities. They also proposed procedures for the future monitoring of landfill operations and of the closed dumpsites. Overall, there was good compliance with the Bank’s policy on EA and no serious implementation issues arose during the project.

Land acquisition and resettlement

35. The project also triggered OP 4.12 on Involuntary Resettlement, and an external resettlement monitoring consultants’ group was contracted to supervise the implementation of the resettlement action plans (RAPs). They carried out a thorough review of the status, progress and compliance of the various land acquisitions required for implementing the project, including temporary land occupation (and compensation) for the purposes of construction. They checked on the use of information booklets for all potentially affected households, and the adequacy of public consultations. In Xiaochang, for example, the households to be resettled were specifically consulted regarding the acceptability of the various options. The importance of the participation of, and information sharing with, affected households was stressed throughout the process. Displaced families were invited to participate in the monitoring of the civil works on the resettlement sites, and most complaints were dealt with and resolved satisfactorily.

36. The PPMO organized a resettlement workshop in Honghu to allow the various PIUs to share their experiences. An important lesson was learned in Hanchuan where a site originally identified by a consulting team as “waste land” turned out to be occupied by fishing ponds; this error had raised compensation costs considerably. A best practice, successful resettlement program was implemented in Shayang where only six households took the cash compensation option. 72 families opted for resettling in newly constructed, very attractive apartments with many amenities, including vegetable plots and animal pens, a health clinic, a small supermarket and sports facilities. Overall, the resettlement safeguard policy was adequately complied with and there were no serious issues that arose.

Financial management

37. The Hubei Provincial Government auditors carried out the audits of all project

and subproject accounts annually, and audit reports were generally submitted in a timely manner. Poor subproject accounting practices were disclosed in the 2011 audit report, and deficiencies of subproject accounting and financial management were also identified in the 2012 and 2013 audit reports, such as informal and wrong accounting registries, accounting inconsistencies, and inadequate cash management. The problems – due to the lack of full-time qualified and trained accounts at the PPMO and PMOs – were subsequently addressed and rectified. These deficiencies were not significant and did not affect the auditors’ opinions; therefore, the auditors’ opinions were unqualified (=clean) throughout implementation.

38. During the life of the project, the financial management performance was mostly rated as moderately satisfactory. This was due to some deficiencies in financial management control and frequently delayed interim financial reports. Appropriate remedial actions were proposed by the Bank to address these deficiencies, such as complete recording of project costs, reconciling Bank loan balances by PFB, meeting commitments to provide counterpart funds, timely follow-up by the PPMO and PIUs of audit report issues, and separation of project accounts from non-project activities. It is expected that the final project audit report will be submitted to the Bank on time, with a clean opinion and without any significant issues.

Procurement

39. No major procurement issues arose during implementation but some of the project entities observed that Bank procurement reviews and decisions took too long because of the lengthy turnaround time within the Bank team. This problem – partly due to the low quality of bidding documents and / or bid evaluation reports – delayed some contract awards to the point of negatively affecting implementation progress. However, some IAs observed that the Bank’s procurement rules and procedures – though rigid, strict and slow at times – led to fair contract awards and helped to avoid complaints and controversy.

2.5 Post-completion Operation/Next Phase

40. By project closing, each project city was planning to start the process of increasing the tariffs during the period of the 13th Five-Year Plan (2016 – 2020) based on their implementation action plan for institutional reform. In fact, by June 2015, the Jianghan Wastewater Treatment Company in Hanchuan, had already submitted a report to increase the industrial wastewater treatment charge from RMB 0.8 to 1.2 per ton – a 50 percent increase. With regard to private sector (PS) participation, Hanchuan, Honghu and Xiangfan have involved private enterprises in the operation and management of their wastewater treatment companies. Also, the special sludge treatment and disposal facility in Xiangfan is now operated and managed by a private company. For solid waste management, Dawu, Honghu and Hanchuan have brought in the PS for managing “street sweeping, domestic refuse collection and recycling” and Shayang and Xiaochang are in the process of considering introducing PS participation, also for “street sweeping, domestic refuse collection and recycling”. In 2006 the assets relating to Honghu’s existing waste water treatment plant (70,000 m3 per day) were transferred under a TOT (transfer, operate and transfer) scheme to Honghu Chuangye Water Affairs Co., owned

by Tianjin Chuangye Environmental Co. (90 percent privately owned) and Construction Commission (10 percent).

41. The project consultants held intensive training sessions for the preparation and operation of each new landfill site and provided detailed operations manuals. Also, as mentioned further above, the external environmental consultants provided detailed and specific advice for the efficient and environmentally sound operation of all newly built facilities.

3. Assessment of Outcomes

3.1 Relevance of Objectives, Design and Implementation

Relevance of Objectives

Rating: Substantial

42. The PDO were fully consistent with the 2006 – 2010 Country Partnership Strategy (CPS) with its focus on managing resource scarcity and environmental challenges. That CPS sought, among other objectives, to: (i) improve the competitiveness of the various regions of China and the overall investment climate, and (ii) address the needs of disadvantaged groups and underdeveloped areas through financing infrastructure. Specifically, the project supported the objectives of: (a) reducing poverty, inequality, and social exclusion; (b) financing sustained and efficient growth; and (c) improving public and market institutions. The project also supported the objectives of China’s 11th Five-year Plan (2006-10) that aimed to create a “harmonious society” that balances economic growth with distributional and environmental concerns.

43. And the PDO continue to be relevant to the current CPS for the period of 2013- 2016 which highlights the high level of pollution in China’s water bodies that necessitate better management of environmental pollutants from wastewater and solid waste. The current CPS also recognizes the need for high-quality public services; need for better water resources management; integration of rural-urban growth; promoting an integrated approach to water and environmental management; expanding safe water supplies to smaller cities; supporting private sector investment in water and sanitation; improving sanitation, solid waste and other basic urban services in selected second-tier cities; addressing environmental management; enhancing opportunities in rural areas and small towns through high quality water and sanitation services; enhancing urban environmental services through improved water supply, wastewater collection treatment and disposal, and solid waste collection and disposal; and enhancing opportunities in rural areas and towns through improved services.

44. Lastly, the project is also relevant to China's current 12th Five Year Plan (2011-

2015)5 which aims to forcefully address environmental and social imbalances through the development of services and measures to set targets for reduction of pollution and increased energy efficiency.

Relevance of Design and Implementation Rating: Modest

45. Right from the start of preparation, the Bank planned to use this project as a means to support progress on the institutional and sustainability side through the physical investments, whereas the Borrower was only focused on the infrastructure improvements. These differing expectations were never discussed or resolved through high-level dialogue. The implementation arrangements were also not appropriately designed as the EPB took the lead role in the PPMO rather than the Construction Department which would have been a better solution given the lack of experience of the EPB in infrastructure investments. These implementation arrangements caused a number of difficulties during implementation because most of the IAs are not under the jurisdiction of the EPB but report to the Construction Department.

46. Moreover, the design did not take into account the rapidly changing infrastructure development environment in China at the time; this problem was exacerbated by the rather long preparation period. By the time implementation was to start, the situation in Hubei Province had changed and some cities proceeded to construct their WWTPs using their own funds to meet the provincial deadlines. When some subprojects were dropped, the project lacked flexibility as there were no pre-screened subprojects available to use the loan savings; eventually, the project had to be restructured.

47. Initially, poor construction management and supervision caused slow progress of construction contracts, and altogether only a few contracts were completed on time. PPMO and PMOs lacked adequate experience in implementing physical infrastructure investments but implementation improved somewhat once a new PPMO was appointed. Also, Bank supervision paid too much attention to physical progress, technical design and the quality of the bidding documents but much less attention to the institutional aspects of the project.

3.2 Achievement of Project Development Objectives

PDO: reducing wastewater and solid waste pollution in urban areas of selected counties and cities, located primarily in the Han River area, through high priority investments in wastewater collection and treatment systems and in solid waste management systems, institutional reforms in, and capacity development of, municipal utilities and water pollution control.

5 The current CPS and the 12th Five Year Plan were informed by the joint study, China 2030, prepared by the Bank and the Development Research Center of the State Council.

48. The project was largely successful, after some initial delays, in improving wastewater and solid waste services in the project cities, thereby substantially achieving the PDO. This is best demonstrated by the key outcome and the intermediate results indicators: almost all project cities fully achieved their targets by June 2015.

(i) Reducing wastewater pollution in selected counties and cities in the Han River Area: Substantial

Service improvements achieved. The share of wastewater treated ranges from 72 to 95 percent in the project cities after completion. This is a significant improvement over the baseline when the proportion of wastewater treatment ranged from 0 to 25 percent only. The performance of the new and expanded WWTPs is very good and their operation is highly efficient. Feedback from citizens indicates that there are no more objectionable odors emanating from the treatment facilities. 3,600 new sewer house connections were constructed benefitting some 25,000 people in five different cities.

49. Infrastructure investments completed. More than 85 km of sewer pipelines were constructed and three WWTPs were installed adding 130,000 m3/day additional wastewater treatment capacity. The quality of construction was very good and plant operation is satisfactory with effluent quality meeting and mostly exceeding the applicable national standards.

50. Institutional reforms and capacity building. The project set out to support municipal utility reforms and capacity increases; the specific intent was to develop well- managed, and institutionally as well as financially sustainable municipal utilities. As a result, fee collection rates for wastewater now range from 90 to 96 percent compared to around 40 percent at baseline. Although a major challenge was the poor performance of the initial project lead agency, staff performance and training activities improved after management changes. In terms of capacity building, the project significantly increased staff experience and skills at the provincial and local levels through classroom training for 50 participants, and a study tour for 15 senior key staff members, as well as various on-the-job training in project and financial management for 83 staff. Project staff also acquired important new skills in national and international procurement procedures.

51. Industrial water pollution control. The objective of this area of intervention was the control, treatment and independent monitoring of industrial effluents in the Han River area. As a result, 28 industrial polluters installed adequate treatment facilities (against the original target of 28), and 50 industrial polluters installed online monitoring (OLM) equipment for effluent (against the original target of 60)6. As a result, industrial pollution in the project cities has been improved very significantly; receiving watercourses are much less polluted now. Additionally, six Municipal EPBs within the project area installed OLM data capture and processing facilities and trained their staff in their use, thereby greatly increasing the capacity for the monitoring and enforcement of

6 The revised targets of 28 and 50, respectively, were fully met.

industrial effluent discharge standards.

(ii) Reducing solid waste pollution in selected counties and cities in the Han River Area: Substantial

52. Service improvements achieved. The share of solid waste collected, disposed of and treated ranges from 75 to 98 percent in the project cities after completion. This is a highly significant improvement over the baseline when zero percent, i.e. no solid waste, was collected. Feedback from citizens include the reduction / elimination of odors, dust and flying debris from WWTPs and the open dump sites, respectively; the positive impacts of household-level collection of refuse were also mentioned.

53. Infrastructure investments completed. Some major solid waste facilities were constructed as follows: - five new sanitary landfill sites with a total capacity of 8.29 million m3 - five leachate treatment facilities with a combined capacity of 660 m3/day - equipment for landfill operations in five cities - four old polluting dump sites properly cleaned up and closed.

The completed facilities are generally well operated, as technical training has been provided by the project consultants, and some improvements in operator skills are still needed to reach the expected levels of performance.

54. Institutional reforms and capacity building. Similar to the wastewater component, the project set out to support municipal utility reforms and capacity increases; the specific intent was to develop well-managed, and institutionally as well as financially sustainable municipal utilities. As a result, fee collection rates for wastewater now range from 60 to 80 percent compared to the 30 percent range at baseline, and cost recovery for O&M has improved from 60 percent at baseline to 100 percent in three project cities. Some challenges are still being faced by the other two cities where tariffs are not adequate yet since local governments are slow and reluctant to increase fees.

55. The individual project completion reports prepared by the ten IAs describe in some detail the positive outcomes of the project investments, not just the greatly improved cleanliness and environmental conditions in the project cities, but also the much better local investment climate. The latter is positive proof that the infrastructure improvements have achieved the objectives. Also, effective city-wide wastewater collection treatment and fully engineered sanitary landfill sites were developed that minimize the surface and groundwater pollution which would eventually reach the Han River and its tributaries.

3.3 Efficiency

Rating: Modest 56. No economic analysis was conducted at appraisal or after completion of the project. All subprojects used a standard least-cost approach that incorporated technical,

environmental, financial and social criteria into the design and decision-making process. An open, competitive bidding process was used throughout to achieve efficiency. When comparing unit7 costs of construction for comparable size WWTPs (30,000m3/day) implemented by this project and the Liuzhou Environment Project – Phase 2 (LEP-2), Han River costs were RMB915.02/unit and LEP-2 came in at RMB 921.72. When comparing costs for WWTPs with a smaller capacity (20,000m3/day) LEP-2 plants cost RMB1,562.17/unit and Yunnan Urban Environment Project (YUEP) facilities cost RMB2.976/unit, ie. 1.5 and 3.2 times more than WWTP unit costs of the Han River project. These three projects were implemented largely during the same time period. They clearly demonstrate that this project was very efficient in terms of the construction costs of the WWTPs, the main facilities financed by the project. Subproject level economic cost-benefit analysis was not considered to be meaningful because (i) wastewater and solid waste treatment investments were driven by Chinese national standards and (ii) a significant portion of the wastewater investments consisted of renovation of existing pipeline assets.

57. Although not readily quantifiable, the project generated substantial economic benefits through improved wastewater and solid waste management service delivery and better sanitation. The latter improvements contributed important health, environmental and aesthetic benefits; the project also generated large increases in service areas. The newly built environmental infrastructure also significantly improved the local investment climate, thus contributing further non-quantifiable economic benefits. Lastly, the project investments – by reducing Han River pollution – also contributed to the preservation of economic activities associated with the river.

58. No FIRR calculations for the completed subcomponents are available from the ten utility companies at this stage (see Annex 6 for a more detailed explanation).

3.4 Justification of Overall Outcome Rating Rating: Moderately Unsatisfactory

59. The project was clearly relevant, both to the Bank’s past and current CPS and China’s 11th and 12th Five Year Plan objectives as detailed in Section 3.1 above. Also as described further above, the PDO was close to fully achieved in the project cities and most indicator targets were met or exceeded. Although some cities dropped out of the project they used non-Bank funds and / or private sector (PS) participation to finance the planned facilities.

60. The positive and beneficial outcomes – associated with the above outputs – are listed in detail in Annex 2; they demonstrate the significant impacts of the project investments in the wastewater and solid SWM sectors in a total of seven cities. However, EIRR and FIRR analysis are not available, and although the efficiency of the investments was assured through proven least-cost approaches and competitive bidding, the benefits

7 A unit of capacity for WWTPs is 1.0 m3/day treated

of the project have not been quantified. Project design was flawed, implementation was slow and at times difficult, the Borrower’s contributions were US$8 million less than agreed when restructuring the project, US$14 million of loan funds were cancelled after project closing, and actual project costs came in US$22 million, i.e. about 15 percent, below the revised costs. Based on the above assessment the overall outcome is rated as Moderately Unsatisfactory.

3.5 Overarching Themes, Other Outcomes and Impacts

(a) Poverty Impacts, Gender Aspects, and Social Development

61. Lower income households which are more likely found in underserviced areas of cities would have benefited proportionally more from the significant improvements of sewage and solid waste services; however, the poverty impacts of the project were neither monitored nor measured. There were no specific gender themes or impacts of this project but the environmental and resettlement monitoring likely had considerable positive social impacts in the affected communities. The local populations were encouraged to participate in the public consultations, and they had opportunities to contribute and also to address environmental or social problems through the well-designed grievance process thus developing community awareness, support and participation.

(b) Institutional Change/Strengthening

62. The capacity of provincial, local government and utilities staff was strengthened significantly, not only through well-targeted capacity building TA, and by acquiring practical on-the-job experience in project and financial management, applying strict and fair national and international procurement procedures, and employing innovative technical solutions. Staff capacity was increased through training and study tours for the operation and management of the newly built facilities. The project also pushed local governments towards increasing commercialization and private sector participation, especially the wastewater and solid waste departments.

63. By financing wastewater collection system expansions including sewage pump stations, the project contributed significantly to full capacity utilization of the Honghu and Xiangfan (Yuliangzhou) WWTPs funded by the earlier Hubei Urban Environment Project that was completed in 2006.

3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops

64. During the May 2015 ICR mission by the Bank, a brief stakeholder workshop was held with local government and IA staff in Wuhan. The participants were divided into wastewater and solid waste working groups and were asked to elaborate the key findings of their implementation experience. On the positive side, the following points were made:

- the subprojects were well selected and designed;

- most of the municipal agencies succeeded in completing their subprojects and gained useful experience with internationally financed activities, including some training; - highly significant economic, environmental and social benefits accrued from the completed subprojects as evidenced by a number of good examples listed by the participants; - additional sewage flows, collected by the new interceptor sewers, improved the quality of treatment of existing WWTPs; - the new “complete management systems”, implemented by the project, allowed accurate and detailed monitoring of the quality of wastewater treatment; - Bank procurement rules and procedures, though rigid and strict, led to fair contract awards and avoided complaints and controversy; and - EMPs and Bank resettlement procedures minimized negative environmental impacts and citizens’ complaints.

65. The municipal agencies also listed some problems that they had encountered:

- project preparation, appraisal and start-up took too much time (2004 to 2008) and in a dynamic period of rapidly changing needs, requirements and costs it was sometimes difficult to adjust the subprojects to a changed situation, such as new policies or development of more advanced technologies; - Bank procurement reviews and decisions took too long, delaying contract awards and negatively affecting the implementation schedule; - PDRC reviews (delegated from NDRC) also took too long and hindered progress; - conflicts between domestic and Bank rules and procedures caused some confusion and delays; - the monitoring and reporting of eleven indicators (some of questionable value) proved to be burdensome and difficult at times for PMOs and the PPMO

66. Lastly, the local utility agencies made suggestions and observations for the future:

- the Bank should fund land acquisition and resettlement costs at 100 percent; - the Bank’s procurement procedures are too strict and should have some flexibility; - Chinese and Bank rules and requirements should be better aligned to avoid conflicts; - competent and strong local governments are needed for the operational phase to provide budget support and to ensure tariffs will be increased.

67. In May 2015, the IAs prepared individual project completion reports for each of the ten subprojects, listing achievements, issues and recommendations. Their main findings generally reflect the points made during the working group sessions described above.

4. Assessment of Risk to Development Outcome Rating: Moderate

68. On the basis of the brief analysis below, the risk to development outcome has been assessed as Moderate because despite several significant risk factors, there are a number of positive mitigation factors that reduce the overall risk to a moderate level.

Risk factors Mitigation Operation and maintenance of facilities is O&M Staff were well trained, and seem poorly executed to be competent and highly motivated Equipment fails to perform as expected Superior equipment and construction and designed quality were employed to prevent failure Tariff collection rate is too low and Improved municipal service delivery will utilities lack revenues motivate customer to pay increasing tariffs Tariffs are not increased sufficiently to Local governments are committed to it, cover operations and debt service and national policies are likely to change Local governments fail to provide enough Local governments showed great subsidy to make up revenue shortfalls commitment to continue budget support Drive for institutional reform and Hubei Provincial Leading Group led by commercialization loses momentum the Vice Governor & key provincial bureaus continues to provide guidance and support

5. Assessment of Bank and Borrower Performance

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

69. The choice of the provincial project management lead agency was inappropriate. Although project design was adequate, it failed to take into account the local government autonomy in a rapidly changing policy environment, which led to four subprojects dropping out. The long project preparation period may have contributed to this problem. Moreover, the project design lacked flexibility and did not include a number of pre- screened subprojects that could have readily replaced the dropouts. There were more than ten indicators to be monitored, in some cases for five project cities each. Some indicators used ratios based on values that were difficult to estimate, making these indicators considerably less useful. Despite their late engagement, the involvement of external safeguard monitoring consultants for environmental and social aspects – an essential part of project design – was an important and positive factor in satisfactory safeguard implementation that proceeded without serious complaints or issues.

(b) Quality of Supervision Rating: Moderately Unsatisfactory

70. Bank supervision showed persistence and initiative in its attempts to get the delayed and slow-disbursing project back on track and eventually managed to pull off a

much delayed restructuring. Earlier, when the project was facing “a worrisome lack of momentum” in early 2011, Bank management committed staff to provide close support to the Borrower agencies at all times. Due to serious concerns over deficient contract management and construction supervision, the Bank supervision advised the PPMO to involve the international project management consultant in construction supervision. Safeguard supervision was diligent and close, facilitated by the external monitoring consultants, resulting in compliant implementation of Bank safeguard policies. Although it became clear by June 2012 that the project would need to be restructured, the Bank was unable to get a formal request from the Borrower until June 2013, and then still took until April 2014 to finalize the restructuring by amending the loan agreement. Moreover, Bank supervision did not consider cancellation of excess loan funds, and was not successful in dislodging about US$14 million in undisbursed loan funds. Overall, though, the project outcomes were mostly positive, as documented convincingly in the ten subproject completion reports.

71. Project design clearly was flawed and caused some of the implementation problems and delays. There was a lack of ownership, differing expectations and not enough flexibility to changed conditions caused by a slow preparation and start-up. Although Bank supervision was instrumental in bringing the project to a successful conclusion and achievement of the PDO and most outcome targets, about 16 percent of the loan (US$14 million) remained undisbursed despite a late reallocation of loan proceeds. Overall Bank performance is therefore rated as Moderately Unsatisfactory.

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

72. From the outset the Borrower had different expectations and saw the project mainly as a vehicle to develop urban infrastructure rather than support institutional development and sustainable utilities. National policy delaying increases utility tariff affected the project negatively. The Borrower had little involvement in the actual implementation of the project but does not appear to have been helpful in accelerating the official request for restructuring which was issued very late. The Borrower also was not able to resolve the slow disbursements near the closing of the project.

(b) Implementing Agency or Agencies Performance Rating: Moderately Unsatisfactory

73. Due to the serious start-up delays some subprojects were dropped, causing large disbursement lags in the early years of implementation. During the initial years the PPMO experienced serious staffing issues that were eventually resolved through the appointments of new key staff. There was still a lack competent financial specialists and construction supervision engineers but, at the Bank’s urging, the PPMO eventually used some of the TA consultants’ staff for supervision. Also, neither FIRR analysis nor

financial projections were available from the utility companies at the time of project closing. The PPMO had considerable difficulties procuring and mobilizing the institutional and financial consultants (Package B); this caused a number of implementation problems. The PPMO submitted the restructuring proposal late although the need for changes had been identified and agreed much earlier. Some of the legal covenants were very late in being complied with8, and a large amount (USD 14 million, i.e. more than 16% of the loan) remained undisbursed because the IAs waited for the internal annual audits before submitting their disbursement requests. On the positive side, most of the PDO and outcome indicators targets were achieved. Also, some of the dropped subprojects were completed nonetheless, using non-Bank funds and PS participation, and still providing the expected environmental benefits.

74. The rating for Overall Borrower Performance is also Moderately Unsatisfactory. This rating is due the poor choice of the project lead agency at the provincial level, the slow start of the project with many problems and delays, especially the restructuring request and the continuing slow disbursements leaving 16% of the loan funds undisbursed.

6. Lessons Learned

(a) Ownership and readiness

75. Make sure that the Borrower’s expectations match the Bank’s goals for achieving the PDO. The Borrower considered the infrastructure investments the main focus of the project, while the Bank saw these physical works as a way to achieve the capacity building and institutional development objectives of the project.

76. Insist that the most appropriate Borrower agency take on leadership for project management and implementation. The project implementation was hampered by PPMO leadership which lacked experience in infrastructure investments and was not the most appropriate agency to manage implementation of a multi-sector project.

(b) Design and project scope

77. Build flexibility into project design, such as additional “back-up subprojects”, to replace any subprojects dropped at the request of the Borrower / participating local governments. Some local governments withdrew subprojects due to changed

8 Financial projections for wastewater and SWM companies were completed only in mid-2013 and mid- 2015, respectively

circumstances and the project scope had to be modified and reduced because there were no ready back-up subprojects.

78. Keep indicators simple, preferably use fewer, absolute and easily measured values, and avoid indicators that involve difficult to define and estimate values. Local agencies had difficulties with some indicators that used ratios and values derived from estimates, such as total volume of wastewater, or solid waste, generated; moreover, their accuracy and credibility were doubtful.

79. Plan early for a mid-term review and project restructuring to adjust project objectives and scope to changing needs and requirements. Project preparation, appraisal and start-up took several years, and local governments had to respond to, and meet, rapidly changing provincial and national regulations, respectively, for the completion of WWTPs and adding leachate treatment facilities to new sanitary landfill sites. As a result some subprojects were dropped from the loan and completed with NBF.

80. Once the need for project restructuring has been identified, insist and make sure that the restructuring is completed without delay. Although restructuring had been agreed reasonably early on, it took about 18 months before the Borrower’s request initiated the actual restructuring process; this caused uncertainty, disbursement lags and poor ratings.

81. Monitor slow disbursements very closely and, if capacity for full use of loan is assessed to be low, initiate partial loan cancellation early on. Disbursements lagged considerably throughout implementation, and by project closing about USD14 million, i.e. some 16% of the loan, had to be cancelled.

82. Select design, procurement and supervision consultants with international experience in Bank-financed projects. Some consultants who lacked familiarity with Bank requirements and procedures caused problems that delayed project implementation.

83. Ensure good coordination within the Bank team between the procurement compliance and the technical review. Lengthy turnaround times within the Bank team caused late procurement decisions and delayed some contract awards.

(d) Institutional and capacity building

84. Minimize organizational changes in the project management agencies during project implementation. Frequent staff changes and transfers caused management and reporting difficulties due to inadequate hand-over arrangements following frequent staff changes.

85. Employ qualified full-time accounts at PPMO and PMOs offices and train them well. The interim financial reports (IRF) were often submitted late, and the situation improved only after extensive training had been provided to the FM staff.

7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/implementing agencies

86. In their project completion report (PCR) summarized in Annex 7, Hubei Province stated that they were very satisfied with the project’s outcomes. The completion reports prepared by the IAs for water supply, wastewater and solid waste utilities in the seven project cities reflect satisfaction and pride with the project’s achievements. The project provided critical financial support to local governments to increase wastewater treatment capacity and raise the volume and quality of proper solid waste management. According to the Borrower’s PCR, the project also introduced international project and financial management, World Bank procurement procedures, and good contract and construction management practices to the PPMO, LPMOs and IAs involved.

87. The IAs were very satisfied with the level of support they received from the Bank during project identification, preparation and implementation; facilitation of procurement and timely reviews and approval for contract re-packaging; and the project restructuring following the MTR discussions. The Bank shares the IAs’ concern that the extended project preparation period may have caused some of the identified subprojects to be withdrawn from the HUEIP due to their urgency. Thanks to the IAs’ determination, non- Bank Financing (NBF) and other financial and PPP concession arrangements were made to implement those sub-projects, including Tianmen Wastewater Collection and Treatment, Xiaochang and Hanchuan WWTP. However, Shayang and Yunmeng WWTP civil works, Danjiangkou and Yunmeng Solid Waste Management were cancelled.

88. The Bank concurs with the IAs views regarding: (i) the application of technical knowledge and management practices gained through the use of solid Bank procurement procedures, and advanced international practices of technical and financial management for future program development and implementation; (ii) the local governments’ commitment to implement the comprehensive plans for proper management of their wastewater and solid waste sectors; (iii) the continued efforts by the project companies to do financial planning for wastewater management and to implement the needed tariff revisions to achieve cost recovery and thus sustainability of services; (iv) the importance of comprehensive designs that take into account (a) site conditions, (b) local land use plans, and (c) the implementation RAPs and EMPs to avoid contract variations, high costs and delays; (v) the need for proper asset management, sustainability of the project outcomes and the scaling up of project activities to further improve the management of wastewater and solid waste services in Hubei province. Sustainability can be ensured through: (i) maintaining and strengthening the appropriate institutional structure to provide managerial autonomy and capacity for operation and facility maintenance; (ii) improving financial viability of the project companies; and, (iii) the bundling of wastewater collection and treatment functions under one service provider.

(b) Cofinanciers N/A

Annex 1. Project Costs and Financing

(a) Project Cost by Component (in US$ Million equivalent) Actual/Latest Appraisal Estimate Percentage of Components Estimate (US$ millions) Appraisal (US$ millions)

A. Wastewater collection & 94.45 73.44 77.65 treatment facilities B. Solid waste management 55.09 57.89 105.08 facilities C. Industrial pollution control 2.46 2.00 81.30 D. Technical assistance 4.25 4.00 94.12 Total Baseline Cost 160.26 137.33 85.69

Physical Contingencies 0.00 0.00 0.00

Price Contingencies 0.00 0.00 0.00 Total Project Costs 160.26 137.33 85.69 Interest during construction (IDC) 12.10 0.00 0.00 Front-end fee IBRD 0.21 0.21 0.00 Total Financing Required 172.57 137.54 79.70

(b) Financing Appraisal Actual/Latest Type of Percentage of Source of Funds Estimate Estimate Cofinancing Appraisal (US$ million) (US$ million) Borrower 88.43 67.33 76.14 International Bank for Reconstruction 84.00 69.95 83.27 and Development Totals 172.43 137.28 79.61

Note: Totals may not add up due to rounding and exchange rate fluctuations.

Annex 2. Outputs by Component The project generated a large number and range of physical and TA outputs with many general, some city-wide and some site-specific outcomes. The main outputs and their clear linkages to a wide variety of outcomes are shown in matrix format below. It is not possible to ascribe specific outcomes to specific outputs; the matrix shows the range of outcomes by project component.

CITY OUTPUTS OUTCOMES Component 1 – Wastewater

Hanchuan - significant expansion of - WWTP with capacity of 50,000 /d sewerage network (population using modified oxidation ditch served grew 32% in Hanchuan) - 2 sewage lift stations - greater wastewater service area - 23 km of sewage pipelines - increased revenue for WW - companies, i.e. significantly Honghu - 21.9 km of sewage pipelines higher sewage treatment fees as a result of better service Shayang - WWTP with capacity of 30,000 t/d - cleaner storm drains and more using modified oxidation ditch attractive neighborhoods - 9.9 km sewage pipelines - reduced groundwater contamination Xiangfan - 6.25 km of sewage pipelines - more capacity for wastewater - vacuum sewer truck treatment - high quality effluent & sludge Yunmeng - WWTP with capacity of 50,000 /d - less polluted receiving surface using modified oxidation ditch water in rivers & lakes - 23.6 km of sewage pipelines - positive health impacts - better investment climate & potential local economic benefits Component 2 – Solid waste management

Dawu - landfill w/capacity of 1.09 million m3 - cleaner streets, lanes and & service life of 13 years neighborhoods due to regular - 140t/d cap. leachate treatment facility refuse collection using new - 4 solid waste transfer stations compactor trucks - equipment for operation of landfill - increased fee collection - refuse collection vehicles - more revenue stream for SWM - old dump site closure companies Hanchuan - landfill w/capacity of 2.21 million m3 - more efficient operation of & service life of 23 years collection system through the - 150t/d cap. leachate treatment facility use of transfer stations - 3 new SW transfer stations - minimized odor, dust and - 5 improved SW transfer stations flying debris problem from - refuse collection vehicles operation of sanitary landfills Honghu - landfill w/capacity 1.24 million m3 & - greatly reduced risk of any service life of 13 years contamination of surface or GW - 100t/d cap. leachate treatment facility by solid waste leachate

- old dump site closure - eliminated potential surface - refuse collection vehicles and GW contamination Shayang - landfill w/capacity 2.19 million m3 & problems by closure of old dump service life of 27 years sites - 130t/d cap. leachate treatment facility - in Hanchuan coverage is 98% - old dump site closure with 300,000 people benefiting - refuse collection vehicles - in Shayang total SW service Xiaochang - landfill w/capacity of 1.56 million m3 area is 15km2 which benefits & service life of 13 years 150,000 people - 140t/d cap. leachate treatment facility - in Xiaochang total SW service - old dump site closure area is 12km2, serving 130,000 - refuse collection vehicles

Component 3 – Industrial Pollution Control

Province-wide - Prepared special action plan to control water pollution of the key polluting - reduced environmental industries. This also involved water pollution of cities in province system modeling system to study and - reduced surface and ground- deal with non-point pollution water pollution due to industrial effluent, especially in the Han Province-wide River and tributaries - 28 industrial polluters installed - likely health benefits for industrial effluent treatment with sealed general population online monitoring stations - greatly reduced pollution loads going to municipal WWTPs Province-wide - resultant reduced operating - 50 online monitoring stations were costs for WWTPs installed by industrial polluters

Component 4 – Institutional development and capacity building

Package A - adequate designs ready on time for calling for bids Project management and - few contract cost increases and implementation assistance: variations - design review advisory services - minimal procurement delays - procurement specialist services and issues - construction supervision assistance - good quality construction - semi-annual progress reports - smooth overall project - collect information for project implementation indicators from project entities - after initial problems, project indicators available for monitoring by PPMO & Bank Package B Institutional development and capacity - improved financial building of WW and SWM utilities and management project cities: - timely audits - clean audit reports

- assistance with financial management - competent technical and & technical, operations & human managerial staff resources aspects of institution building - utility companies better - financial progress supervision report equipped to plan for the future - comprehensive financial action and - increased knowledge & skills business development plans for project of operations staff utility companies - 15 key staff went on study tour - training events & technical study for technical aspects tours - 83 staff had on-the-job training in financial &assets management - 50 staff got one-week training in FM and technical O&M Package C External monitoring of safeguards implementation – Environmental - safe ambient environmental Action Plans (EMPs) conditions being maintained - regular monitoring of ambient during landfill site construction environmental conditions during - safe ambient conditions during construction of landfill sites operation of WWTPs and - continued environmental monitoring landfill sites during operations of WWTPs & - no complaints from citizens sanitary landfill sites with regard to poor - advice for action to rectify operational environmental conditions in problems that cause environmental proximity to project investments exceedances Package D External monitoring of safeguards - better resettlement program implementation – Resettlement Action due to PAPs’ inputs Plans (RAPs) - greater ownership by PAPs due - collect inputs & suggestions from their participation PAPs with regard to their expectations - project entities address most of - gathering complaints from project- the PAPs’ complaints by taking affected population (PAP) mitigation measures - produce 15 resettlement monitoring & - fewer complaints from PAPs investigative reports - PAPs mostly recover their pre- project conditions & situation

Annex 3. Economic and Financial Analysis

1. No detailed economic analysis was conducted at appraisal and therefore there was none after completion of the project. All project components were evaluated based on a least-cost methodology and were awarded by competitive bidding. The overall, non- quantifiable benefits of the project include the reduction of urban pollution loads and associated improvements in the urban environment, public health and the local economy, all as listed in detail in the “Outcomes” column in Annex 2.

2. Project level financial rates of return (FIRRs) had been projected at appraisal for the five wastewater subcomponents. They ranged from 8 to 22%, and averaged about 10%. No FIRR calculations for the completed subcomponents are available from the Borrower’s PCR for the following reasons:

“Five solid waste companies of the ten companies in the project are not suitable for implementing financial performance evaluation work because they are still not put into normal operation. In the five wastewater projects, the World Bank financed loan for Xiangfan, Hanchuan and Honghu only relates to pipe network, [therefore we] cannot carry out relative financial performance evaluation work. [Also]…. average energy consumption cost for waste water treatment has been reduced by 26% from 0.19 Yuan per cubic meter to 0.14 Yuan per cubic meter, and unit cost for waste water treatment has reduced by 12.3% from 1.63 Yuan per cubic meter to 1.43 Yuan per cubic meter. ….[And further we] cannot provide relative economic benefits evaluation for Yunmeng waste water treatment plant since it was unable to offer comparative data of technological operation, energy consumption cost etc.”

3. All ten utility companies had improved their wastewater billing and collection rates to a varying extent between 2011 and 2014. Apart from two poorly performing companies, the increases ranged from 5 to 60%. See Table 3.1 below.

Table 3.1: Rate of fee collection in project cities

Wastewater component Solid waste component

City

Year Hanchuan Hanchuan Xiangfan Honghu Shayang Yunmeng Hanchuan Honghu Dawu Xiaochang Shayang 2011 76% 82% 96% 85% 90% 63% 68% 65% 72% 50%

June 2015 92% 90% 96% 95% 95% 80% 80% 60% 75% 80%

4. As far as specific tariffs are concerned, each project city plans to start the process of increasing the tariffs during the period of the 13th Five-Year Plan (2016 – 2020) based on their implementation action plan for institutional reform. In fact, by June 2015, the Jianghan Wastewater Treatment Company in Hanchuan, had already submitted a report to increase the industrial wastewater treatment charge from RMB 0.8 to 1.2 per ton – a 50% increase. Domestic sewage treatment fees in Hanchuan were increased from RMB 0.2 to 0.8 / ton, and in Shayang the increase was from RMB 0.4 to 0.8 / ton. Also in Shayang, the SWM fees were increased to RMB 5.0 per household per month.

Annex 4. Bank Lending and Implementation Support/Supervision Processes

(a) Task Team members Responsibility/ Names Title Unit Specialty Lending Axel E. N. Baeumler Senior Infrastructure Economist GSURR Economic aspects Alexander E. Bakalian Practice Manager GWADR Technical quality Genevieve Connors Sr. Water Resources Spec. SACIN Water resources Mingyuan Fan Sr. Sanitary Engineer GWADR WW treatment Yi Geng Sr. Financial Management Specialist GGODR Financial mgt. Motoki Hayakawa Governance Specialist EACPF Institutional aspects Shunong Hu Senior Water Engineer GWADR Technical aspects Eddie Ke-Siong Hum Consultant GSURR Mun. engineering Jonathan S. Kamkwalala Practice Manager GWADR Technical quality William D. Kingdom Lead Water and Sanitation Specialist GWADR former TTL Xiaoping Li Senior Procurement Specialist GGODR Procurement Land acquisition & Zhefu Liu Senior Social Development Specialist GSURR social impacts EASCS - Municipal Edouard Henri Motte Consultant HIS engineering Chongwu Sun Senior Environmental Specialist GENDR Environment Hiroaki Suzuki Lead Operations Officer EAPDL TTL Shenhua Wang Sr. Urban Specialist GSURR Urban planning

Supervision/ICR Axel E. N. Baeumler Senior Infrastructure Economist GSURR Economic aspects Vellet E. Fernandes Temporary GWADR Team support Yi Geng Sr Financial Management Specialist GGODR Fin. Mgt. system Xiaowei Guo Senior Procurement Specialist GGODR Procurement review Jingrong He Procurement Specialist GGODR Procurement review Shunong Hu Senior Water Engineer GWADR TTL Zongcheng Lin Consultant GSURR Social Safeguards Zheng Liu Procurement Specialist GGODR Procurement review Margaret Png Lead Counsel LEGLE Legal aspects Xin Ren Environmental Specialist GENDR Environment Chongwu Sun Senior Environmental Specialist GENDR Environment Nanae Yabuki E T Consultant GCCKN Environment Khairy Al-Jamal Sr. Infrastructure Specialist GWADR Co-TTL Heinz Unger Consultant – Municipal Engineer GWADR ICR Primary Author

(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 FY04 2.45 17.15 FY05 17.05 83.29 FY06 14.07 53.52 FY07 26.36 183.49 FY08 20.57 226.23

Total: 80.50 563.68 Supervision/ICR FY09 8.07 17.76 FY10 10.50 42.70 FY11 8.80 40.64 FY12 15.61 91.82 FY13 10.29 4.52 FY14 7.84 34.39 FY15 10.23 71.16

Total: 71.34 302.99

Annex 5. Beneficiary Survey Results

No beneficiary survey was done.

Annex 6. Stakeholder Workshop Report and Results

A brief stakeholder workshop was held in Wuhan in May 2015 and the general feedback from the ten participating local government agencies was recorded in Section 3.6 of the main report.

Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR9

Borrower's Draft Project Completion Report (PCR), June 30 2015

(i) Assessment of the operation’s objective, design, implementation, and operational experience;

Project Objective

1. The Han River Urban Environment Improvement Project (HUEIP) has achieved its goal to support critical local government financial needs to increase wastewater treatment and solid waste proper management rates, and to bring in international project and financial management, World Bank (WB) procurement procedures, and good contract and construction management practices to the Provincial PMO (PPMO) and implementation Agencies (IAs).

2. Although there have been changes in project content and in detailed design of some components during the implementation, there has been no change in the project objectives, which have remained the same as stated in the Project Appraisal Document (PAD).

Project Design

3. Based on PAD, the HUEIP consists of four components including: (a) wastewater treatment and sewage collection component covers seven counties/cities (Hanchuan, Honghu, Shayang, Tianmen, Xiangfan, Xiaochang and Yunmeng); (b) solid waste management system component covers seven counties/cities (Danjiangkou, Dawu, Hanchuan, Honghu, Shayang, Xiaochang and Yunmeng); (c) industrial wastewater pollution control component; and (d) institutional development and capacity building component.

4. Unfortunately, due to extended period of project preparation and government dateline requirements, some of the proposed subprojects have requested to withdraw from the HUEIP, either has already completed the construction by Non Bank Financing (NBF), or thru other financial and concession arrangements. These subprojects include Tianmen Wastewater Collection and Treatment, Xiaochang and Hanchuan WWTP, Shayang and Yunmeng WWTP and Yunmeng Solid Waste Management were cancelled.

5. The restructured HUEIP has the same four components but involving seven cities/counties including Dawu, Hanchuan, Honghu, Shayang, Xiangfan (aka Xiangfan as of December 2010), Xiaochang, Yunmeng and eleven subprojects, including three subprojects of wastewater collection in Hanchuan, Honghu, and Xiangfan, two subprojects of wastewater treatment plants and sewage collection system in Shayang and Yunmeng, five subprojects of refuse collection, transfer and landfill disposal in Dawu, Hanchuan,

9 This is the June 30, 2015 draft version of the executive summary of the Borrower’s PCR, reproduced as is except some minor formatting edits.

Honghu, Shayang, and Xiaochang. In addition Dawu Solid Waste Management subproject disbursement ratio increases from 78% to 98% with county’s recent economic development improvements.

6. Agreeable locally funded industrial wastewater pollution control programs are been carried out at both provincial and county/city levels, including (a) provincial level program for installation of 1,095 on-line monitoring data receiving platforms at 863 major pollution sources; and (b) the improvement on industrial wastewater pollution control facilities of major polluting enterprises and industries. Further The Han River Water Modeling System, including a study on point and non-point source pollution, was developed in 2014 to establish comprehensive wastewater discharge limits, to protect source water quality for more than 9 million people as of 2013.

7. Institutional Development Component is to provide technical assistance on project management and monitoring for (a) project management and implementation assistant, (b) external monitoring of safeguards implementation on EMP and RAP, and (c) institutional development and capacity building of wastewater and solid waste management utilities and project cities/counties. All four consulting service contracts are been awarded and under implementation, and the consultants will be demobilized at the end of the Project.

Project Delays

8. The original closing date of the loan was June 30, 2014. However, procurement and implementation of five landfill leachate treatment systems, and Dawu solid waste transfer stations and existing dump site closure were slower than expected, and the Xiangfan Sewer subproject requested to reallocated savings from one of the sewer systems withdraw for sewer cleaning vacuum truck, resulting additional time to complete the procurement process and subproject implementation.

9. PPMO therefore, in January 2013, requested a one year extension of loan closing date, and in May 2014 the Ministry of Finance and the Bank endorsed PPMO’s proposed extension, and extended the loan closing date to June 30, 2015.

Implementation and operational experience

10. The PPMO provided strong project management by ensuring timely resolution of resettlement, financial and technical issues. Governments also provided great support to the Project and constructed some physical works in support of subproject components including, civil work of wastewater treatment plants (Hanchuan WWTP)，and extension of sewer collection pipe (Shayang, Xiangfan and Yunmeng WWM).

11. The PPMO and local PMOs (LPMOs) have gained a wealth of experience on project management involving aspects on planning, budgeting, execution of project activities, resolving of problems and issues, and project reporting. Likewise, proactive coordination on frequent meetings and site visiting with the PPMO at the provincial level and with the LPMO at the local level was enhanced.

12. On the experience gained in the compliance with stringent procurement,

environmental management and resettlement action plan requirements, and contract management are beneficial to the PMOs and IAs on its future project implementation.

13. Close coordination among government agencies on land and permit approval, and tendering agency is critical to expedite the implementation of the subprojects.

14. The implementation of updated Environmental Management Plan (EMP) was monitored during the project construction and the trial/commercial operations. Environmental protection measures were mostly taken to alleviate the impact on the environment, dusting and particular emissions from construction activities per contractual and EMP requirements, the least impact alternatives were suggested and closed environmental monitoring and supervision were performed.

15. The implementation of the Resettlement Action Plan (RAP) was monitored during the project implementation. Necessary lands were acquired, demolishing and resettlements were completed in accordance with the RAPs, and all affected households were relocated.

16. The training programs with more than 300 person-event participated on twelve domestic and one international study tours and seminars/workshops, have strengthened capacity of PMOs and IAs on the project implementation, sustainable development and planning on future urban infrastructures and environment programs.

17. The exchange rate of US$ with RMB has declined by almost 13% from 1:7.1 to less than 1:6.2 over period of project appraisal in 2007 and project completion in 2015. This significantly reduced the real value of WB loan and increased the level of local funding required as most contracts were denominated in RMB, causing difficulties for the IAs in terms of securing additional local funds to cover exchange shortfalls. However, the depreciation of US$ against RMB also reduced the amount of US$ loan payment.

18. Further price increase for major construction materials, fuel (1.2-4.5% in 2009 and 2010) and labor (14.7% from 2007 to 2011) caused problems for construction progress on most of the subproject contracts.

19. Lacking of least-cost option comparisons on some subproject makes the project planning deficiency and less justifiable on Shayang refuse transfer stations and Hanchuan sewer extension.

20. Often some engineering design work was undertaken with insufficient field data and site verification, especially relating to geotechnical information, e.g. Yunmeng sewers and Hanchuan landfill. This situation caused certain difficulties in conducting some civil works, resulting in changes to construction methods/field work and delays that can otherwise be avoided.

21. Construction supervisors’ lack of the experience on WB project and contract management procedures also negatively affected project costs and work schedule

22. The complicated and lengthy procedures on midterm adjustments caused the delays on withdraw disbursement and project schedule, and the Project has been extended for one

more year, from June 2014 to June 2015.

23. Slow tipping fee increase and low collection rate resulted in solid waste management agencies continue to rely on financial subsidies/fund transfer from the government.

24. As of October 31, 2015, the cumulative disbursements from the Loan account totaled to USD 71.32 million or 84.9% of the USD 84 million loan.

25. The participating IAs intend to apply the technical knowledge and management practices they obtained on good WB procurement procedures and advanced international practices on technical and financial management which will be applied to the future program development and implementation, particularly on cost control and debt service, and fee collection on cost recovery.

26. Local governments are committed with action plan to implement the comprehensive plan for the management on the wastewater and solid waste sectors.

27. Fulfillment of wastewater subproject financial planning and projections, and needed tariff revisions on meeting cost recovery requirements will be continued by the project companies (PCs) in coming years during the Loan period.

28. Government support on necessary tariff and tipping fee adjustments are required to support PCs’ sustainable operations its wastewater treatment plant (WWTP) and in certain extend on infrastructure improvements of the sewers and pumping stations, and the landfill.

(ii) Assessment of the outcome of the operation against the agreed objectives;

Achievement of Objective/Outcome

29. The Project brought significant positive impacts and benefits to the environment and cities/counties involved in the HUEIP, including: reduced direct wastewater discharges and improved river water quality on Han River tributaries ; reduced improper solid waste dumping; improved environmental aesthetics; appreciation of local economic developments; and enhanced standard of living for residents.

30. The wastewater collection and treatment system has constructed all infrastructures to ensure that percentage of wastewater treatment from 0% - 25% to 72% - 95%. Target values of the result indicators on sewer collection rate and treatment rate, are fully achieved and most of the interim monitoring indicators, including benefit population are achieved under this wastewater component. The wastewater charge collection rate are ranging from 81% to 96% The percentage of solid waste collection and proper management increases from 0% to 98%, target values of the result indicators on solid waste collected and transferred to sanitary landfills are fully achieved. The tipping fee collection rate varies from 60% to 100%. Industrial pollution control component has been implemented by the Hubei Provincial Government with its own funds and the target values under this component have been fully achieved.

31. The Project makes significant contributions in WWTPs capacity utilization on previous Honghu TOT arrangements and Xiangfan Yuliangzhou WWTP funded on the Hubei Urban Environment Project appraised in 1995.and completed in 2006.

32. Access roads to the Hanchuan, Honghu, Shayang and Xiaochang landfill also benefit their neighboring residents on daily farming activities and gaining access to the main roads. Further locally funded high-voltage tower been rebuilt near the Hanchuan landfill, provides daily power needs to 12 households of nearly 50 people.

Project Output

33. Wastewater Management Component is restructured to construct three wastewater treatment plants, two pump stations, and 92.63 km of sewerage collection pipelines systems in five project cities/counties. To date, all three wastewater treatment plants, two pump stations in Hanchuan, and 84.51 km of sewer pipelines have been completed and put into operation.

34. Solid Waste Management Component is restructured to build five landfills, and including closure of exiting dumping sites in five project cities/counties and construction of 4 transfer stations in Dawu. To date, all five landfills have been substantially completed and in operation, and Hanchuan, Shayang and Xiaochang completed their old dump sites basic closure. The five leachate treatment facilities and the upgraded closure of the remaining two old landfills are now under construction and to be completed by the end of June 2015 the latest. In addition, the landfill operation and maintenance equipment and refuse collection vehicles (except Hanchuan and Shayang) for five solid waste landfills, sewer vacuum truck for Xiangfan and four transfer stations in Dawu have been delivered.

Economic Benefits

35. The WWTP services have promoted local economic development, particularly in the Yunmeng Chengnan Economic Development Zone where the WWTP is located attracting several industries establishment around the facility. Further Shayang WWTP operational efficiencies were improved with the reduction of energy consumption of 26% and decrease the treatment cost of 12%.

36. Financial Performance

37. Poor subproject accounting practices criticized in the 2011 government auditing report has been improved, and deficiencies on subproject accounting and financial management subsequently identified in the 2012 and 2013 auditing reports were corrected on (a) informal and wrong accounting registries, (b) accounting inconsistencies, and (c) inadequate cash management.

Sector Management Plan

38. The time bound comprehensive sector management plans were prepared and endorsed, and the implementation of the plans has made good progress on (a) request for services fee increase during the 13th Five-Year Plan from 2016 to 2020, (b) increase of

subproject service fee collection in 2014 varies from 81% to 96%, and 60% to 80% on wastewater charge and solid waste tipping fee, respectively, and (c) private sector participation on WWTP operation and maintenance, and sludge management, and street cleansing and sweeping on solid waste management

39. Environmental

40. The air quality, ground water quality and acoustic environment quality of most of the subprojects been implemented are in compliance with the relevant updated standards. However surrounding environment quality on odor and groundwater for certain subprojects’ old dump sites are exceeding the limits. The regulatory agencies are to demand the IAs to make further improvements to minimize impacts on the surrounding environment and to install required monitoring wells.

41. Resettlement

42. On the resettlement, the Project lands acquired are 1432.53 mu (95.5 hectare), and 671 households are affected, mostly from the Hanchuan landfill subproject. The total areas of 14,446.09 m2 are demolished on 83 affected households, mostly from the Shayang landfill subproject. Overall, more than 70% and 80% of 88 surveyed households been affected, are supportive on the HUEIP and are satisfied with the resettlement policies on land acquisition and housing demolishing compensations.

(iii) Evaluation of the Borrower’s own performance during the preparation and implementation of the operation, with special emphasis on lessons learned that may be helpful in the future;

43. During the project implementation phase, the PPMO had worked closely with the WB which provided very valuable support, and play a pivotal role in project management and coordination, and the IAs effectively discharged their respective duties and responsibilities and had provided the necessary resources to ensure the project’s successful implementation.

44. The Hubei Provincial Finance Bureau provided strong support and worked in close cooperation with IA’s during project implementation with efficient financial management and allocation of funds.

45. The local governments provided great project implementation assistance in terms of land acquisition, execution of the resettlement program, as well as played an important coordinating role for securing land spaces for construction activities.

46. The local governments also upgrade certain sewage collection network in Shayang and Yunmeng as well as installing new sewage collection pipelines along newly built roads. These extension and sewer network subprojects also made significant contributions in optimizing sewage infrastructure capacity in the longer term on Shayang and Yunmeng WWTPs, and previously established Honghu and Xiangfan WWTPs.

47. It is fully recognized by all IAs that the policy guidance and support provided by

the National Development and Reform Committee (NDRC) and the Ministry of Finance (MOF) were invaluable in securing project success, not only in terms of effective project implementation and restructure, but more importantly, in achieving the underlying objectives and expected outcomes of the project in terms of enhancing the protection of public health, environment and natural resources for sustainable economic growth of the cities and counties involved.

48. With the completion of this project, it has been fully recognized that the Bank’s detailed procurement process and the fair and just approaches in contract management and construction supervision are essential factors in ensuring the successful project implementation.

49. The most valuable aspect is the experience gained by relevant IAs and various government departments and agencies. This will certainly benefit infrastructure development projects, such as future sewer expansion and waterway clean-up in Honghu, industrial WWTPs in Shayang and the on-going locally funded sludge management facilities. PMOs has gained a team of professionals with experience and skills in a number of areas, including project management, engineering design, safe guards monitoring and site supervision, project reporting and evaluation.

50. Support from local government is essential for oversight and coordination of major issues. Closer supervision by IAs in resolving on-site construction issues and quality of output is critical. Consulting services had provided essential assistance in resolving technical and management, and safeguards issues, and extensive training in strengthening project and contract management and safeguards compliance.

51. WWTP operation and plant maintenance work, and refuse collection and landfill disposal can be strategic outsourcing, similar to operation and maintenance arrangements of Yunmeng WWTP in 2013, and private-public-participation (PPP) been considered on Honghu solid waste management in reducing costs and gain specialized services

52. It took almost four to five years to prepare for and to get the Project to start (prepared in 2004, appraised in 2007 and effective in 2008), but this long span is not able to catch up with the Provincial deadline on the completion of wastewater treatment facility by the end of 2010 and regulation changes on leachate treatment requirements of 2008 (GB 16889-2008), and cause landfill operation delays.

(iv) Lessons Learned

53. Lesson Learned. Midterm adjustments on Project Restructure are necessary and critical to assure project sustainability and Development Objectives are met.

54. The PPMO has been very cost-effective in managing the Project with limited staff and tight budget, and maintained key persons throughout the project implementation duration.

Lesson Learned. The management capacity of PPMO could be strengthened with additional full-time engineering and financial staff either addition of retired Executive

Agency (EA) officials and/or temporarily LPMO/IA staff transfer to assure closer and timely project management, and to maintain project sustainability.

55. Some of the LPMOs were been transferred to different departments, but subprojects documents were not appropriately hand-over causing management and reporting difficulties.

Lesson Learned. Minimum organizational changes are critical to assure project continuity and maintain project priorities, and well-maintained documentation is important for management and staff changes.

56. Some of the subprojects been selected and included in the Project were withdrawal from the Project and additional subprojects were requested to be included during the Project restructuring but were not able to be included due to time constraints on subproject preparation.

Lesson Learned. Project and Loan agreements shall be fully committed and in compliance with by PMOs and IAs. For future projects, back-up subprojects are suggested to be included during the Project appraisal stage and be updated with government priority projects during the Project implementation, to have timely Project inclusion of alternatives in meeting Project continuity and Development Objectives.

57. Some of the Design Institutes, bid review panelists, and Construction Supervisors were not familiar with Bank’s project requirements and procedures causing delays on design, tender document preparation and bid evaluation, and subsequent project implementation.

Lesson Learned. Selection criteria for the Design Institutes, bid review panelists, and Construction Supervisors required relevant technical qualifications and experience in the engineering and construction management fields, with preference being given for those experienced in Bank financing projects provided they have the related educational background/experience and proper training is provided for them.

58. The PPMO worked closely with the WB which provided very useful and timely advices in resolving Project issues and implementation problems,

Lesson Learned. Close coordination between the PPMO stakeholders and WB is very effective in resolving problems or issues requiring immediate action by either party.

59. The PPMO spent great efforts on meeting complicated domestic and WB procedures on project restructure and completed it in May 2014.

Lesson Learned. Close coordination between the PPMO, NDRC, MOF and WB is critical in the project restructure process to assure timely adjustments, available standard operation procedures and guidelines are needed and proper procedure streamling to increase the percentage of expenditures to be financed by the Bank loan would be highly appreciated.

(v) Evaluation of the performance of the Bank, any co-financiers, or of other partners during the preparation and implementation of the operation, including the effectiveness of their relationships, with special emphasis on lessons learned; and

60. The WB has provided very valuable support to the Project and to Project stakeholders, the WB financing did more than providing the necessary funds. The Project also introduced best practices and experience for project and financial management, project design and preparation, bidding document preparation and tendering, contracting, construction supervision, environmental and resettlement plan implementation and safeguards monitoring, and performance evaluation.

61. It will be also desirable the WB to finance with attractive terms and conditions, i.e. interest free, and/or support with grants on partial environmental improvement and resettlement costs which are for public health protection and social benefits.

62. The WB provides valuable and timely advices in resolving Project issues and problems, particularly those involving in subproject site relocation, subproject cancellation and addition, procurement arrangements and financing, Wastewater PCs’ financial covenants and financial forecasts, results monitoring and evaluation (M&E) indicators, and in the issuance of required no-objection letters in a timely manner.

63. The WB also assisted the Project and the IAs in providing on-the-spot recommendations during the past twelve field implementation supervision missions.

(vi) Description of the proposed arrangements for future operation of the project.

64. The sustainability of the Project needs including three key aspects to be continued by the IAs on: (a) availability of an appropriate institutional structure to provide managerial autonomy; (b) capacity for operation and facility maintenance; and (c) financial viability.

65. As committed, Honghu plans to merge its PC on sewer and sludge management with the WWTP under an earlier TOT concession, and form a consolidated company on future wastewater collection and treatment operations in phases. Similar arrangements on wastewater and solid waste management are been considered by other PCs.

(vi) Information on the economic, financial, social, institutional, and environmental conditions in which the operation was implemented, and on implementation and operation results (according to the timing specified in the legal documents).

Project Restructuring

66. The adjusted wastewater component covers five (5) counties/cities, Hanchuan, Honghu, Shayang, Xiangfang (Xiangfan as of December 9, 2010) and Yunmeng, and includes the construction of wastewater collection systems and the construction of wastewater treatment plants (WWTPs) in all of the above cities except for Honghu and Xiangfan. Likewise the adjusted solid waste component covers five (5) counties/cities

(Danjiangkou withdrew in May 2012), Dawu, Hanchuan, Honghu, Shayang, Xiaochang and includes the construction of sanitary landfills, leachate treatment system, procurement of solid waste collection stations, refuse collection fleets and the closures of existing refuse dumps, and the procurement of landfill and sewer operation and maintenance equipment. The other two components are industrial wastewater pollution control component, and institutional development and capacity building component.

67. RMB 1,142,115,100 to RMB 937,230,900 but The WB loan amount remains the same amount of USD 84 million. The loan Category Part A (Wastewater Collection and Treatment) is reduced from the original amount of US$ 49,667,700 to USD 36,185,500. The loan Category Part B (Solid Waste Management) is increased from the original mount of USD 29,972,300 to USD 42,517,900. The percentage of expenditure in Dawu has been raised from 78% to 98% from the beginning of 2012. The loan Category Part D (Consulting Services and Training) increases from USD 4.15 million to USD 5.09 million.

Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders

N/A

Annex 9. List of Supporting Documents

The World Bank. Project Appraisal Document, Report No. 40423-CN. March 24, 2008.

Loan Agreement and Project Agreement (and Amendments). July 3, 2008.

The World Bank. Aide Memoires, ISR Reports and Management Letters. June 2009 to June 2015.

The World Bank. Project Restructuring Paper, Report No. RES13429. April 25, 2015.

Han River Urban Environment Project – Hubei Province PPMO. Borrower’s Draft Project Completion Report (including Annexes A to G). June 30, 2015.

Beijing Kyoto Global Consulting Co., Ltd. Institutional Development and Financial Management Capacity Building – Completion Report (plus undated “Supplement” and “Summary of Work in Extended 14 months” issued around mid-2015). April 2014.

Hubei Provincial Project Management Office. Han River Urban Environment Improvement Project – Semi-Annual Progress Report No. 13. December 2014.

Project Completion Report of Hanchuan Wastewater Project. April 2015.

Project Completion Report of Honghu Wastewater Treatment Project. April 2015.

Project Completion Report of Shayang Wastewater. April 2015.

Project Completion Report of Xiangfan Wastewater Project. April 2015.

Project Completion Report of Yunmeng Wastewater Treatment Project. April 2015.

Project Completion Report of Dawu Solid Waste Landfill Project. April 2015.

Project Completion Report of Hanchuan Solid Waste Landfill Project. April 2015.

Project Completion Report of Honghu Solid Waste Disposal Project. April 2015.

Project Completion Report of Shayang Solid Waste Landfill Project. April 2015.

Project Completion Report of Xiaochang Solid Waste Landfill. April 2015.

Annex 10. Project pictures

Yunmeng WWTP — Sedimentation tanks

Honghu wastewater network expansion – Excavation for pipe installation in Deyan Shuichan Road – Prior construction (left) and after construction (right)

Shayang wastewater network - Installation of 1350 mm diam. pipe by jacking under Hanyi Road

Shayang WWTP – Sedimentation tanks

Xiangfan wastewater network – Installation of 1800 mm diam. pipe by jacking under Hangkong Rd. After construction & restoration (left) & during construction (right)

Hanchuan – New Sanitary landfill with liner

Dawu – New sanitary landfill with liner

Xiaochang – New sanitary landfill (under construction)

51 IBRD 35070R2 JILIN MONGOLIA 115° LIAONING L O DEM. PEOPLE’S G REP. OF KOREA N BEIJING O Beijing Yun Xian M E I N TIANJIN HEBEI REP. OF KOREA HENAN SHANXI SHANDONG Yellow

Shiyan NINGXIA CHINA QINGHAI Sea GANSU HENAN SHAANXI Area of map JIANGSU Danjiangkou HAN RIVER URBAN ENVIRONMENT IMPROVEMENT PROJECT ANHUI SHANGHAI PROJECT CITIES SICHUAN HUBEI East COUNTY CAPITALS COUNTY BOUNDARIES ZHEJIANG Guanghua CHONGQING WASTE WATER TREATMENT PLANT XIZANG China Gucheng DISTRICT CAPITALS DISTRICT BOUNDARIES Sea HUNAN SOLID WASTE MANAGEMENT FACILITY JIANGXI PROVINCE CAPITAL PROVINCE BOUNDARIES GUIZHOU FUJIAN

NETWORK TAIWAN YUNNAN GUANGXI GUANGDONG HONG KONG MACAO Zaoyang VIETNAM

MYANMAR LAO Fang Xian Zhangwan PEOPLE’S DEM. HAINAN Xiangfan THAILAND Yujiahu REP. PHILIPPINES

HENAN This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information Huang-pao-ping shown on this map do not imply, on the part of The World Bank GSDPM Group, any judgment on the legal status of any territory, or any Shennongjia Nanzhany Map Design Unit endorsement or acceptance of such boundaries. Yicheng Suizhou

SHENNONGJIA Yingshan 0 25 50 75 100 FOREST ZONE Dawu KILOMETERS

Hong'an Anlu Xingshan Macheng Zhongxiang

Yuan'an Han Yunmeng Jingmen Xinshi Zigui Yincheng Shui Xiaochang Huangpi Xinzhou Dangyang Fengshan Yichang Wenquan Tianmen Yichang Shayang Jingling Hanchuan WUHAN Tuanfeng ANHUI

Hanyang Huangzhou Qingquan Changyang Jiangkou Qianjiang Xiantao Wuchang Yidu Jinkou Jingsha Qichun Wufeng Songzi Huangshi Yang-chia-chang Huangmei Yujiabu Gongan Hong 30° Hu 30° Yuyue Wuxue Xianning Jiang Jianli Honghu Yangxin Chang

HUNAN Tiao-hsien-kou Jiang Tongyang 115° Chang Tiancheng JUNE 2015