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Document of The World Bank FOR OFFICIAL USE ONLY Public Disclosure Authorized Report No: 33668-CN PROJECT APPRAISAL DOCUMENT ON A Public Disclosure Authorized PROPOSED LOAN IN THE AMOUNT OF US$150 MILLION TO THE PEOPLE'S REPUBLIC OF CHINA FOR A HENAN TOWNS WATER SUPPLY AND SANITATIONPROJECT Public Disclosure Authorized May 30,2006 Urban Development Sector Unit East Asia Pacific Region This document has a restricted distribution and may be used by recipients only in the perforinnance of their official duties. Its contents may not otherwise be disclosed without World Public Disclosure Authorized Bank authorization. CURRENCY EQUIVALENTS (Exchange Rate Effective May 1,2006) Currency Unit = Renminbi (RMB) or Yuan cy) Yl.00 = US$0.125 US$l.OO = Y8.008 FISCAL YEAR January 1 - December31 ABBREVIATIONS AND ACRONYMS ADB Asian Development Bank PPMO Provincial Project Management Office CAS Country Assistance Strategy PSP Private Sector Participation CQS Consultant Quality Selection QC3S Quality and Cost based Selection CY Calendar Year RAP Resettlement Action Plan DBO Design Build Operate RMB Renminbi, Chinese currency EA Environmental Assessment SA Special Account EMP Environmental Management Plan SOE Statement ofExpenditures EPB Environmental Protection Bureau TA Technical Assistance ERR Economic Rate ofReturn TOR Terms ofReference FB Finance Bureau WACC Weighted Average Cost ofCapital FM Financial Management ws Water Supply FMS Financial Management Specialist wsc Water Supply Company FRR Financial Rate ofReturn WTP Willingness to pay FY Financial Year WUC Water Utility Company GDP Gross Domestic Product wwc Wastewater Company HPEPD Henan Provincial Environmental WWT Wastewater Treatment Protection Department HPFD Henan Provincial Financial Department IC3 International Competitive Bidding IBRD International Bank for Reconstruction and Development IDA International Development Association MLA Minimum Living Allowance MOF Ministry ofFinance MWR Ministry ofWater Resources NCB National Competitive Bidding PMO Project Management Office Acting Vice President: Jeffkey S. Gutman, EAPVP Country Managermirector: DavidR. Dollar, EACCF Sector Director: Keshav Varma, EASUR Task Team Leader: Takuya Kamata, EASUR I Songsu Choi, SASE1 CHINA HENAN TOWNS WATER SUPPLY AND SANITATION PROJECT CONTENTS Page A . STRATEGIC CONTEXT AND RATIONALE ................................................................. 1 1. Country and sector issues.................................................................................................... 1 2 . Rationale for Bank involvement ......................................................................................... 1 3 . Higher level objectives to which the project contributes .................................................... 2 B. PROJECT DESCRIPTION................................................................................................. 2 1. Lending instrument ............................................................................................................. 2 2 . Program objective and Phases : Not Applicable ................................................................. 2 3 . Project development objective and key indicators .............................................................. 2 4 . Project components ............................................................................................................. 3 5 . Lessons learned and reflected in the project design............................................................ 3 6 . Alternatives considered and reasons for rejection .............................................................. 4 C . IMPLEMENTATION .......................................................................................................... 5 1. Partnership arrangements (if applicable) ............................................................................ 5 2 . Institutional and implementation arrangements.. ................................................................ 5 3 . Monitoring and evaluation ofoutcomeslresults .................................................................. 5 ... 4 . Sustainability ....................................................................................................................... 6 5 . Critical risks and possible controversial aspects. ................................................................ 6 .. 6 . Loadcredit conditions and covenants................................................................................. 7 D. APPRAISAL SUMMARY ................................................................................................... 7 1. Economic and financial analyses ........................................................................................ 7 2 . Technical ............................................................................................................................. 9 3 . Fiduciary ........................................................................................................................... 10 4 . Social................................................................................................................................. 10 5 . Environment ...................................................................................................................... 11 6 . Safeguard policies ............................................................................................................. 12 7 . Policy Exceptions and Readiness...................................................................................... 12 Annex 1: Country and Sector or Program Background ......................................................... 13 Annex 2: Major Related Projects Financed by the Bank andlor other Agencies ................. 19 Annex 3: Results Framework and Monitoring........................................................................ 20 Annex 4: Detailed Project Description...................................................................................... 22 Annex 5: Project Costs ............................................................................................................... 26 Annex 6: Implementation Arrangements ................................................................................. 29 Annex 7: Financial Management and Disbursement Arrangements ..................................... 36 Annex 8: Procurement................................................................................................................ 41 Annex 9: Economic and Financial Analysis ............................................................................. 54 Annex 10: Safeguard Policy Issues............................................................................................ 66 Annex 11: Project Preparation and Supervision ..................................................................... 76 Annex 12: Documents in the Project File ................................................................................. 77 Annex 13: Statement of Loans and Credits .............................................................................. 79 Annex 14: Country at a Glance ................................................................................................. 83 Map: IBRD34329 CHINA HENAN TOWNS WATER SUPPLY AND SANITATION PROJECT PROJECT APPRAISAL DOCUMENT EAST ASIA AND PACIFIC EASUR Date: November 12,2005 Team Leader: Takuya Kamata I Songsu Choi Country Director: David R. Dollar Sectors: Water supply (50%); Sub-national Sector Director: Keshav Varma government administration (30%); Sanitation (20%) Themes: Access to urban services and housing (P); Municipal governance and institution building (P); Environmental policies and institutions (P) Project ID: PO81348 Environmental screening category: B 3 ", " .Project Financing Data [XILoan [ ]Credit [ ]Grant [ ]Guarantee [ ]Other: For LoanslCreditdOthers: Total Bank financing (US$m.): 150.00 Proposed terms: A single currency, variable spread loan, with a maturity of 20 years, including a 5-year grace period, front-end fee of 1% subject to 75 basis point waiver, and commitment fee of 0.25% Borrower: People's Republic ofChina Responsible Agency: The Henan Provincial Finance Department's Foreign Loan Financed Project Management Office Address: 25 Jingsan Road, Zhengzhou, Henan Contact Person: Mr. Ma Xinguang, Director Tel: 0086-371-65808018, Fax: 0086-371-6571 0590, E-mail: yangl901@,sohu.com; cv37 1a, 126.com Estimated disbursements (Bank FY/US$m) ’Y 2007 2008 2009 2010 2011 2012 2013 hual 7.5 30.0 30.0 30.0 30.0 15.0 7.5 hmulative 7.5 37.5 67.5 97.5 127.5 142.5 150.0 Re$ PAD D. 7 Have these been approved by Bank management? Is approval for any policy exception sought fkom the Board? [ ]Yes [XINO Does the project include any critical risks rated “substantial” or “high”? [x]Yes [ ]No Re$ PAD CS Does the project meet the Regional criteria for readiness for implementation? [x]Yes [ ]No Re$ PAD D. 7 Project development objective Re$ PAD B.2, Technical Annex 3 The project objective is to help create or expand water supply and wastewater management services and improve the planning, regulatory, and operational capacity ofsector institutions, thereby helping improve living conditions and the economic growth ofparticipating county towns with relatively low incomes. Project description Re$ PAD B.3.a, Technical Annex 4 Component I: Water Supply (US$203.95 million, ofwhich the IBRD loan is US$114.99 million): (a) water production facilities, ofabout 790,000 m3lday capacity,