Integrated Ecosystem and Water Resources Management in the Baiyangdian Basin Project

Home , Gaobeidian, Laishui County, Laiyuan County, Rongcheng County, Tang County, Wangdu County

Report and Recommendation of the President to the Board of Directors

Sri Lanka Project Number: 36437 June 2008

Proposed Loan People’s Republic of China: Integrated Ecosystem and Water Resources Management in the Baiyangdian Basin Project

CURRENCY EQUIVALENTS (as of 15 May 2008)

Currency Unit – yuan (CNY) CNY1.00 = $0.14285 $1.00 = CNY7.00

ABBREVIATIONS

ADB – Asian Development Bank AP – affected person APCF – Asia Pacific Carbon Fund BDRC – Baoding Development and Reform Commission BMG – Baoding municipal government CED – clean energy development CO2 – carbon dioxide COD – chemical oxygen demand EIA – environmental impact assessment EIRR – economic internal rate of return EMP – environmental management plan FIRR – financial internal rate of return FYP – five-year plan FYEPP – Five-Year Environmental Protection Plan GEF – Global Environment Facility GIS – geographic information system IA – implementing agency ICB – international competitive bidding IWM – integrated water management LIBOR – London interbank offered rate m3 – cubic meter MDG – Millennium Development Goal PIU – project implementation unit PMO – project management office PNR – Provincial Nature Reserve PPMS – project performance management system PPTA – project preparatory technical assistance PRC – People’s Republic of China RP – resettlement plan SEIA – summary environmental impact assessment SO2 – sulphur dioxide SWM – solid waste management TSP – total suspended particles UFM – urban flood management UNDP – United Nations Development Programme WACC – weighted average cost of capital WSS – water supply system WTP – wastewater treatment plant

NOTES

(i) The fiscal year (FY) of the Government and its agencies ends on 31 December. (ii) In this report, "$" refers to US dollars.

Vice President C. Lawrence Greenwood, Jr., Operations 2 Director General K. Gerhaeusser, Officer-in-Charge, East Asia Department (EARD) Director K. Kannan, Agriculture, Environment, and Natural Resources Division, EARD

Team leader A. Siddiq, Principal Natural Resources Economist, EARD Team members A. Djusupbekova, Senior Counsel, Office of the General Counsel S. Ferguson, Senior Social Development Specialist (Resettlement), EARD T. Kadono, Young Professional, Central and West Asia Department T. Kubo, Clean Energy and Climate Change Specialist, Regional and Sustainable Development Department (RSDD) F. Tornieri, Social Development Specialist, RSDD Q. Zhang, Senior Water Resources Engineer, EARD Y. Zhou, Water Resources Management Specialist, EARD

CONTENTS Page

LOAN AND PROJECT SUMMARY i

MAPS I. THE PROPOSAL 1 II. RATIONALE: SECTOR PERFORMANCE, PROBLEMS, AND OPPORTUNITIES 1 A. Performance Indicators and Analysis 1 B. Analysis of Key Problems and Opportunities 2 III. THE PROPOSED PROJECT 6 A. Impact and Outcome 6 B. Outputs 6 C. Special Features 10 D. Project Investment Plan 11 E. Financing Plan 12 F. Implementation Arrangements 13 IV. PROJECT BENEFITS, IMPACTS, ASSUMPTIONS, AND RISKS 17 A. Benefits and Impacts 17 B. Social Dimensions 20 V. ASSURANCES AND CONDITION 21 A. Funding from Global Environment Facility 22 B. Land Acquisition and Involuntary Resettlement 22 C. Environment 22 D. Capacity Building 23 E. Condition for Loan Disbursement 23 VI. RECOMMENDATION 23

APPENDIXES 1. Design and Monitoring Framework 24 2. Problem Tree Analysis 27 3. Sector Analysis 28 4. External Assistance 32 5. List of Subprojects 33 6. Biodiversity Conservation Activities 34 7. Terms of Reference for Consulting Services 36 8. Detailed Cost Estimates by Financiers 44 9. Project Organization Chart and Fund Flow 45 10. Project Implementation Schedule 46 11. Procurement Plan 47 12. Financial and Economic Analyses of the Project 49 13. Summary Poverty Reduction and Social Strategy 56 14. Gender and Social Action Plan 60 15. Summary Resettlement Plan 61

SUPPLEMENTARY APPENDIXES (available on request) A. Clean Development Mechanism: Project Design Document B. Biodiversity and Ecosystem Management: Global Environment Facility Proposal C. Institutional Assessment and Training Program D. Detailed Project Cost and Financing Plan E. Project Management Structure and Terms of Reference F. Institutional Assessment G. Resettlement Implementation Plan H. Summary Environmental Impact Assessment I. Detailed Financial and Economic Analyses J. Participation and Social Action Plans

LOAN AND PROJECT SUMMARY

Borrower People’s Republic of China

Classification Targeting classification: General intervention Sectors: Water supply, sanitation, and waste management; agriculture and natural resources; energy Subsectors: Environment and biodiversity; water supply and sanitation; waste management Themes: Environmental sustainability; inclusive social development; capacity development Subthemes: Natural resources conservation; human development; institutional development

Environmental Category A. An environmental impact assessment (EIA) was Assessment undertaken. The summary environmental impact assessment was circulated to the Board of Directors of the Asian Development Bank (ADB) and uploaded on the ADB website on 1 June 2007.

Project Description The Project will demonstrate an innovative integrated ecosystem and water resources management approach to improve the environmental conditions in Baiyangdian Basin. It will focus on the critical needs to conserve Baiyangdian Lake—one of the most important and vulnerable ecosystems in the People’s Republic of China (PRC). The Project also fits well with an umbrella program for biodiversity conservation currently being formulated by the PRC. The infrastructure interventions of the Project are designed primarily to improve waste management, reduce water and air pollution, provide clean energy, and improve the reliability of water supplies for communities in the basin, while the Global Environment Facility (GEF) component will complement these improvements by raising awareness and promoting the involvement of local communities in management of natural resources.

Project activities are aimed at promoting sustainable ecosystem and water resources management with emphasis on biodiversity conservation, urban development, and rural livelihood programs. The Project comprises four components: (i) subproject investments— 22 subprojects of seven different categories (13 wastewater treatment plants (WTPs); 3 water supply systems (WSSs); 2 reforestation; and one each for urban flood management [UFM], integrated water management [IWM], solid waste management [SWM]), and clean energy development [CED]; (ii) biodiversity conservation to support the proposed GEF-financed activities; (iii) institutional strengthening through a range of activities; and (iv) project management support.

The Project will also promote integrated mechanisms to strengthen coordination among line agencies that have management responsibilities in the basin.

Rationale The Project complements the initiatives of the Baiyangdian Ecosystem Rehabilitation Master Plan (2005–2015), which calls for an integrated effort to reduce pollution loads into Baiyangdian Lake and rehabilitate the ecosystem of the basin. As part of the first phase of the Plan, the Project will have a demonstration effect for future undertakings and will enable Baoding municipal government (BMG) achieve, in part, its wastewater management objectives set for 2010, which include attaining class III water quality in Baiyangdian Lake and class IV water quality in urban inland rivers. The Project will also support the 11th Five-Year Plan (FYP), 2006–2010, which includes building a “resource-efficient and environment-friendly society.” As part of the 11th FYP, the IWM (Wangkuai-Xidayang Reservoir link-canal) subproject will ensure adequate water supply to maintain the desired water level in the lake and replenish the aquifer at Yimuquan, a major groundwater supply source for Baoding City. The Project will also contribute to the achievement of Baoding’s 11th Five-Year Environmental Protection Plan, which involves a series of pollution control and ecological rehabilitation programs and includes comprehensive rehabilitation of Baiyangdian Lake Wetland Provincial Nature Reserve; and the comprehensive cleanup of Huanghuagou River dumps that contain solid waste, fly ash, and industrial waste. The Project will also further the objective of the China Biodiversity Partnership Framework, currently being formulated by the United Nations Development Programme with support from GEF. The Framework calls for containing biodiversity loss in nature reserves and mainstreaming biodiversity conservation while pursuing socioeconomic development. The proposed Project also supports ADB’s strategic priorities that also call for promoting sustainable ecosystem and water resources management, with emphasis on biodiversity conservation.

Impact and Outcome The impact of the proposed Project is improved quality of life, a sustainable ecosystem, and biodiversity conservation in Baiyangdian Basin. The outcome is integrated ecosystem and water management, and improved environmental conditions in Baiyangdian Basin.

Project Investment The investment cost of the Project is estimated at about $273.4 million Plan equivalent, including taxes and duties of $12.6 million and provisions for physical and price contingencies, interest during construction, commitment fee, and spread over an implementation period of 5 years.

Financing Plan A loan of $100,000,000 from the ordinary capital resources of ADB will be provided under ADB’s London interbank offered rate (LIBOR)- based lending facility. The loan will have a 25-year term including a grace period of 5 years, an interest rate determined in accordance with ADB’s LIBOR-based lending facility, a commitment charge of 0.15% per annum, and such other terms and conditions set forth in the Loan Agreement. The proposed GEF grant of $2,975,000 will meet part of the cost of biodiversity conservation and institutional strengthening components.

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Total Source % ($ million) Asian Development Bank 100.0 36.6 Global Environment Facility 3.0 1.1 PRC Government 32.0 11.7 Baoding Municipal Government 25.8 9.4 Baoding New Hi-Tech Zone Administrative 46.6 17.0 Commission County Governments 50.1 18.3 China Construction Bank 4.6 1.7 Asian Pacific Carbon Fund 1.8 0.7 Equity Investments 9.5 3.5 Total 273.4 100.0 Source: Asian Development Bank estimates.

Allocation and The Borrower will be the PRC, which will relend the proceeds of the Relending Terms ADB loan to Hebei provincial government which, in turn, will onlend the loan proceeds to BMG for further onlending to the city/township/county governments. The city/township/county governments, commission, autonomous zone will then onlend to the implementing agencies (IAs) on the same terms and conditions as those of the ADB loan.

Period of Utilization Until 31 March 2014

Estimated Project 30 September 2013 Completion Date

Implementation The 22 subprojects will be implemented in 13 different counties by Arrangements 24 IAs. BMG, acting through Baoding Development and Reform Commission (BDRC), will be the Executing Agency of the Project. BDRC has set up a central project management office (PMO) with 15 staff to implement the Project. A full-time project director has been appointed to head the PMO. The key PMO staff have expertise in financial management; civil and mechanical engineering; water resources, environmental, ecosystem, and project management; social development; and forestry. Each county will set up a project implementation unit (PIU) at their respective financial bureaus. PIUs will be headed by project coordinators, who will be the focal point for all project-related activities with the PMO. To coordinate the project activities among line bureaus and IAs, BDRC will set up a project Leading Group that will meet quarterly in the first 2 years and semiannually thereafter.

Executing Agency BMG, acting through BDRC

Procurement All procurement of goods and works shall be carried out in accordance with ADB’s Procurement Guidelines (2007, as amended from time to time). Contracts for goods estimated to exceed $1.0 million and contracts for works estimated to exceed $10.0 million shall be procured using international competitive bidding (ICB) procedures. Contracts for goods and works estimated to cost equal to or less than the above ICB values, but more than $100,000, shall be procured

through national competitive bidding procedures in accordance with the PRC Tendering and Bidding Law, 1999, subject to clarifications and modifications agreed with ADB. Contracts for goods and works estimated to cost $100,000 or less shall be procured using shopping procedures and those for less than $10,000 through direct contracting. The relevant sections of ADB’s Anticorruption Policy (1998, as amended to date) will be included in all procurement documents and contracts.

Consulting Services The Project will finance two consulting packages. Package A, for 236 person-months, financed under the loan, will comprise three international experts for 25 person-months and 14 national experts for 211 person-months. A consulting firm will be engaged to provide these services. The PMO will be responsible for the selection, contract negotiations, and contract management. Package B, for 180 person- months, financed under the GEF grant, will comprise eight international experts for 38 person-months and nine national experts for 142 person-months. ADB will recruit the firm and PMO will negotiate and manage the contract. In selecting these firms, the quality and cost-based selection (80:20) will be used and the shortlisted firms will be required to submit full technical proposals for contract budgets of more than $1.0 million. All recruitment will be carried out in accordance with ADB’s Guidelines on the Use of Consultants (2007, as amended from time to time).

Project Benefits and WTPs and WSSs will benefit about 1.12 million people (or over Beneficiaries 416,000 households) out of a total of about 6.65 million people living within the wastewater drainage area. Improvement in water supply will reduce the incidence of stomach and intestinal diseases for over 260,000 people. About 10,000 hectares (ha) of farmland will be protected from soil erosion, particularly during the rainy months, with the reforestation of Angezhuang Reservoir area. This will benefit a total of about 18,750 farm households and will prevent an annual loss in crop damage of about $2.2 million. At full development of the Baiyangdian lakeside reforestation subproject, a significant increase in tourist activity will generate about $585,000 annually. Rehabilitation of Huanghuagou River will reduce dust pollution by about 136,000 tons/year, and prevent further contamination of surface and subterranean water with a positive impact on the health of about 500,000 people in Baoding City. Health benefits will also be derived from the transfer of water resources for about 700,000 people in Baoding City and Li County. The UFM subproject in Anxin County will protect public and private property from flood damage. The incidence of respiratory diseases will be reduced by about 20% among the target population (about 240,000 people) who will benefit from the shift from coal to geothermal energy for space heating. The CED subproject is envisioned to save about 60,000 tons of coal annually and result in reduced incidence of sulfur dioxide (SO2, about 1,000 tons/year) and total suspended particles (TSP, about 500 tons/year) emissions. Biodiversity conservation benefits will accrue through restored habitats and protection for wild plants and animals including 192 bird species, v

of which at least seven are of global significance. All 19 of the 22 revenue-generating subprojects are financially viable, with financial investment rates of return of 7.6–15.9%. The economic internal rate of return of the subprojects is 14.5–23.6% and for the whole Project is 16.9%, indicating that the project investments are viable and robust.

Risks and The Project will adopt an integrated approach to address ecosystem Assumptions and water resources issues, and for the planning and implementation of project activities. Line bureaus and counties in Baoding Municipality do not often coordinate their operations. In the past, economic growth has taken priority over environmental management. The frequency of drought years has also been on the rise over the past two decades and climate change may further reduce water availability. If the constraints underlying these risks are not addressed, the project investments may not achieve the intended impact. These risks can be mitigated in part by project interventions, i.e., (i) inculcating integrated planning, monitoring, and enforcing appropriate policies and regulations; and (ii) building staff capacity and strengthening institutions. Other risks include (i) lack of understanding of ADB policies and procedures, (ii) changes in PMO staff, (iii) lengthy procurement decision making, and (iv) procurement fraud and corruption. To mitigate these risks, the Project will provide technical and management advisory support and training, particularly during the first 2 years of implementation. Delays in subproject completion can also jeopardize project investments. Implementation of the IWM subproject needs to be carefully monitored so that it is completed before the Government’s South-North Water Transfer Project takes over the Sha Aqueduct. The Government realizes the importance of water supply to the lake and will ensure its uninterrupted flow by coordinating the implementation of both undertakings.

The variety in project investments will limit its financial and economic risks. The water treatment, supply, and infrastructure investments will use established technologies and designs. Similarly, the reforestation subprojects will use indigenous species and modern techniques. The biodiversity conservation activities have been designed and will be implemented in close consultation with local communities. Therefore, the overall project risk is low.

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I. THE PROPOSAL

1. I submit for your approval the following report and recommendation on (i) a proposed loan to the People’s Republic of China (PRC); and (ii) a proposed administration of a grant from the Global Environment Facility (GEF), both for the Integrated Ecosystem and Water Resources Management in the Baiyangdian Basin Project.

II. RATIONALE: SECTOR PERFORMANCE, PROBLEMS, AND OPPORTUNITIES

2. In August 2005, the Asian Development Bank (ADB) approved project preparatory technical assistance (PPTA) to help Baoding municipal government (BMG) to formulate the Project.1 The PPTA was cofinanced by GEF. This report is based on the analysis of the PPTA, feasibility studies of the Government, findings of ADB missions, and discussions with officials and stakeholders. The project design and monitoring framework is in Appendix 1 and problem tree analysis is in Appendix 2.

A. Performance Indicators and Analysis

3. The PRC has achieved an unprecedented rate of economic growth over the last 20 years. One of the unintended consequences is severe degradation of the environment, especially the pollution of water bodies. The Government’s plans to contain water pollution have not kept pace with the rate of agricultural, industrial, and urban growth. During the 10th Five- Year Plan (FYP), 2001–2005, environmental management was unsatisfactory—eight of the 20 environmental targets remained unattained. In particular, emissions of sulfur dioxide (SO2) experienced a rebound, with an increase of 28% against the planned target of a 10% reduction, and a decrease of only 2% in the discharge of chemical oxygen demand (COD), compared with the planned 10% reduction. Treated sewage envisaged under the 10th FYP fell short of the target of 45% by about 8%. Only about 60% of the targets for pollution control for the major rivers and lakes were accomplished. Furthermore, aside from a number of high-profile environmental accidents—including the large-scale chemical spill in Songhua River Basin in 2005—the trend in ecological degradation persisted. Several factors contributed to the poor environmental performance during the 10th FYP. Among the most significant were: (i) inadequate attention of local governments to environmental protection, (ii) overheated economy with low resource-use efficiency, (iii) weak regulatory supervision and enforcement, (iv) weak cross-sectoral coordination, and (v) ineffective financing mechanisms.

4. Under the 11th FYP, 2006–2010, the Government has given priority to several environmental and natural resource concerns which include (i) land degradation, (ii) water shortage and pollution, (iii) air pollution, (iv) poor urban environmental infrastructure, (v) degradation of the rural environment, (vi) increasing frequency and intensity of environmental accidents, and (vii) global environmental issues such as climate change and greenhouse gas emissions. The Chinese Communist Party and the State Council issued a series of policy directives on environmental protection for the 11th FYP period. These policy directions are incorporated into the National Economic and Social Development Master Plan of March 2006. This Plan gives priority to (i) protection and rehabilitation of valued ecosystems, (ii) increasing efforts in pollution control, (iii) improving natural resource management, and (iv) sustainable utilization of marine and water resources.

1 ADB. 2005. Technical Assistance to the People’s Republic of China for Preparing the Ecosystem Development and Environmental Protection of Baiyangdian Lake Catchment. Manila. (This project was cofinanced by the GEF’s project preparatory grant, which was approved in March 2007).

5. As a guiding policy for the 11th FYP, the State Council Directive sets forth two broad environmental objectives for the next 5–15 years. By 2010, the environment of key regions and cities will be improved, and the trend of ecological degradation will be arrested. By 2020, the quality of the environment and the state of the country’s ecosystems will have improved significantly. There are many other specific targets set under the 11th FYP but the reduction in energy intensity by 20% and total pollution loading by 10% are the two most prominent.

6. The PRC is committed to the principles of the Millennium Declaration and its Millennium Development Goals (MDGs) set by the United Nations.2 Among the goals set under the MDGs, the PRC has been successful in providing the urban population with access to safe drinking water but progress in rural areas has been slow. Consequently, a large portion of the rural population still suffers from diseases caused by poor drinking water and inadequate sanitation facilities, i.e., wastewater treatment plants (WTPs), water supply systems (WSSs), and public toilets. Consistent with the MDGs, the PRC continues to demonstrate its resolve in checking environmental deterioration. Expenditure on environmental protection has continued to increase, and a considerable body of environmental laws and regulations has been promulgated. Following the 1992 United Nations Rio Summit, the PRC formulated the National Agenda 21. Many provinces and cities have since formulated their own environmental protection strategies. The new Western Development Strategy, adopted in 1999, also emphasizes environmental protection. The PRC is party to several important international conventions. New policies and environmental protection plans for the next 5-year planning period call for building a “resource-efficient and environment-friendly society”. Through these efforts, the Government expects to succeed in reversing environmental degradation in the long run.

B. Analysis of Key Problems and Opportunities

7. Baoding Municipality—which covers about 85% of 31,500 square kilometers (km2) of the Baiyangdian Basin and where Baiyangdian Lake is located—lies in the central part of Hebei Province (Map 1).3 Baoding City is 125 kilometers (km) from the provincial capital of Shijiazhuang in the south and 140 km from Beijing in the north. Baoding Municipality has a typical monsoon climate, with annual average precipitation of 570 millimeters and an annual mean temperature of around 12oC. The lake is the largest remaining semi-closed freshwater body in the northern PRC. It lies in the middle reaches of Daqing River Basin4 and ultimately discharges in Bohai Gulf, Yellow Sea. All of the lake body is located in Anxin and Xiong counties of Baoding Municipality. The lake has a surface area of 366 km2 and consists of a series of natural low-lying depressions and reed marshes. There are four large-scale reservoirs upstream of the lake, including Angezhuang, Longmen, Wangkuai, and Xidayang. From south to north, eight rivers—Baigou, Cao, Fu, Ping, Pu, Sha (Zhulong), Tang, and Xiaoyi—flow into the lake.

2 United Nations Development Programme (UNDP). 2005. UNDP Support China in Building All-Around Xiao Kang Society. The goals are: (i) eradicating extreme poverty and hunger; (ii) achieving universal primary education; (iii) promoting gender equality and empowerment of women; (iv) reducing child mortality; (v) improving maternal health; (vi) controlling HIV/AIDS, malaria, and other diseases; (vii) attaining environmental sustainability; and (viii) strengthening global partnership for development. 3 Baoding is the third largest municipality in Hebei Province, with a total area of 22,112 km2 and a total population of about 10.9 million, including about 1 million in urban areas. The municipality comprises 22 counties and 4 urban districts. Total gross domestic product of the municipality in 2005 was $14.0 billion or an increase of 14% over the previous year. Its growth rate during the 10th FYP, 2001–2005, averaged 11% per annum, with industrial as the lead sector, followed by services and agricultural sectors. 4 Daiqing River Basin is one of nine main river systems within Hai River Basin. It has a total area of 43,065 km2, mostly comprising Hebei Province, a small portion of Shanxi Province, and portions of Beijing and Tianjin municipalities. The basin is divided into three major geographic regions: (i) Taihang Shan, mountains from 500– 2,286 meters altitude, consisting of the western 40% of the basin; (ii) a low hill transition zone of less than 500 meters altitude, covering 10% of the basin; and (iii) the lowland plains occupying 50% of the basin’s land area.

8. The lake and its upper watershed in the Taihang mountains support significant biodiversity of regional and global significance within Daqing River Basin. The open water and aquatic beds of the lake are spawning grounds and feeding habitats for a diverse array of fish and other animal species, during the spring and autumn seasons, including up to 192 bird species. The lake is also an important refueling site for migratory birds on the East Asian– Australasian flyway. Seven globally-threatened bird species are regularly sighted in the area. During the peak migration season (south–north in May and north–south in September), more than 100,000 ducks transit through the lake. The Taihang mountains, which contain most of the last remaining natural forests in Baoding Municipality, support a wide range of rare and endemic animals such as the brown-eared pheasant (Crossoptilon mantchuricum), grey-sided thrush (Turdus feae), leopard (Panthera pardus), and golden takin (Budorcas taxicolor). The Taihang mountains are also recognized as the center of plant endemism in the PRC.

9. Historically, the lake served many environmental and economic services and was described as the “kidney” of the northern PRC. Because of its strategic position as a sink in Daqing River basin, it is a critical floodwater retention catchment of rainfall water inflows and surface runoffs for about 72% of the basin’s area. Specifically, it regulates floodwater discharges and water levels, and subsequently moderates waterlogging. It is likewise a pathway for the transport of substances, especially nutrients that help contribute to the purification of water and the regeneration of nutrients. The lake has been an economically important source of freshwater fish and reed production (at one time, 60% of all reed harvested in the PRC) as well as a source for drinking water and irrigation. It serves as a means for transport and one of the main recreation sites for local tourists in the northern PRC, particularly residents from key cities like Beijing and Tianjin.5 As a large body of water, the lake also moderates local and regional temperatures and therefore has an effect on the microclimate of its surroundings. The lake also has economic importance, especially for more than 200,000 people living within its wetlands and peripheral zones, as the lake resources provide them with (i) livelihood opportunities (i.e., freshwater fishery, reed production, and tourism-related jobs and businesses); (ii) water for drinking and irrigation; and (iii) major transportation routes.

10. In the last 4 decades, the functions and values of the basin as well as the lake have been eroded, with adverse impacts on its ecosystem. Construction of large reservoirs in the upstream has led to a dramatic decline in water inflows and surface runoffs into the lake, from an average of 1.73 billion cubic meters (m3) of water discharging into the lake in the 1960s down to 0.065 billion m3 in 2002. Sediment load had also decreased from 7.1 billion m3 in the 1960s to just 1.0 billion m3 by 1999. With the demand for water exceeding supply in Daqing River Basin, the frequencies of “no” or “low” inflows to the lake have become more acute, especially during dry years, thus contributing to more incidences of low water levels in the lake. Over the last four decades, the size of the lake has decreased by almost half because of controlled water flows, continuous droughts, and soil erosion. Moreover, rising population, expanded agricultural and industrial activities, with limited solid and wastewater disposal measures in the upstream and within the lake area, have transformed the lake into a major depository of wastewater discharges, pollutant substances, and sediments. It is estimated that half of the pollution originates from the upstream, while the other half emanates from the population of more than 200,000 living in the lake’s wetlands and surrounding areas. In addition, disturbances in the upper watersheds through indiscriminate logging, mining and quarrying, and conversion of forests and wetlands to agricultural/industrial sites, have contributed to massive soil erosion and land degradation. These, in turn, have caused excessive water obstruction along the tributaries that feed into the lake.

5 The number of domestic tourists visiting the lake and surrounding areas is about 1.5 million per year.

11. Eutrophication of the lake, caused by increasing pollution, has become a serious problem—with water quality deteriorating from class III to classes IV and V over the past 4 decades.6 Therefore, the ecosystem in the lake is constantly at risk. Aside from the regular occurrence of fish-kills each year, there has been a drastic loss in biodiversity as the habitat of biotic communities, especially those in the wetland-littoral zones, have reduced drastically. Currently, there are only 47 water plant, 54 fish, 192 bird, and 14 wild mammal species living in the lake.7 Livelihoods of people who depend on the lake’s resources have likewise been adversely affected. Moreover, the presence of heavy metals, toxins, and chemicals in the lake has increased the incidence of diseases. More detailed sector analysis is in Appendix 3.

12. Weak institutions, inadequate capacity of the local government, and poor planning in the use and allocation of the lake’s water resources—coupled with limited understanding of its integral role in a basin-wide management framework—have led to its overall degradation. This has been aggravated by existing conflicts and overlaps in the roles of government agencies at the provincial and municipal levels on water use and allocation driven by single-sector approaches. In addition, as economies in the urban centers grew rapidly (at an average of 11%/ year), economic growth became the primordial goal of local governments. Consequently, regulatory and policy measures to ensure sustainable management of the lake’s ecosystem were hardly enforced. The situation was exacerbated by the public’s inadequate awareness of their responsibility and limited incentives for the private sector to participate in the conservation of scarce water resources and the protection of the lake’s ecosystem.

13. Government Policies and Plans. The Government recognizes the urgent need to address prevailing ecosystem and water management issues in the basin through an integrated approach. It has included pollution control, sustainable use of water resources, and ecosystem management of the lake as one of the country’s priority programs for Agenda 21. Hebei provincial government designated the lake a Provincial Nature Reserve (PNR) in 2002, and in 2003, an area of 34,000 hectares (ha) of natural forest in the upper watershed was protected. BMG has taken the responsibility as the custodian of the lake ecosystem by overseeing its restoration and management. These actions are complemented by city ordinances that (i) prohibit setting up textile enterprises within 5 km of the lakeshores, (ii) introduce a gradual price increase in water tariff, and (iii) enhance the lake surroundings for improved local tourism. The Environmental Protection Bureau and local research institutes monitor the quality of the lake’s water resources. However, more efforts are needed to restore the lake’s primary functions to environmentally acceptable levels.

14. BMG’s 11th Five-Year Environmental Protection Plan (FYEPP), 2006–2010, calls for an 8% reduction in COD from the 2000 level, which is about 2% lower than the national target of 10%. It will reduce the lake’s pollution by 17% and improve its water quality to class III.8 The FYEPP aims to treat all urban sewage in Baoding City and about 60% (from 0% currently) in the 22 counties/cities by 2010. It also provides for a series of pollution control and ecological rehabilitation programs. The planned reduction in COD levels, by constructing 27 WTPs, under the water pollution control program, is relevant to this Project. The FYEPP also includes

6 The National Ambient Water Quality Standards for Surface Water divides water quality into five classes, with class III being a minimum standard for drinking water and class V being the lowest quality equivalent to raw sewage. 7 Baseline data from the 1960s is not available. However, it is believed that dozens of such species have become extinct. 8 ADB. 2002. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the People's Republic of China for the Hebei Province Wastewater Management Project. Manila (Loan 1985-PRC, for $82.360 million, approved on 19 December 2002). This ongoing Project is providing wastewater collection and treatment in Baoding, Chengde, Tangshan, and Zhangjiakou; capacity building for provincial and municipal sewerage companies; and introducing cost recovery and tariff structures.

(i) comprehensive rehabilitation of Baiyangdian Lake Wetland Reserve, (ii) safe disposal of fly ash from thermal power plants, (iii) promotion of clean energy by developing geothermal resources, and (iv) reduction in the number of people without access to safe drinking water. The implementation of the national south-to-north water reallocation program is envisaged to improve the availability of water for domestic use, thereby increasing the net inflow in the basin. The Baiyangdian Ecosystem Rehabilitation Master Plan, 2005–2015, likewise calls for an integrated approach in reducing pollution in the lake and rehabilitating ecosystems in the basin with a planned investment of over $1.0 billion.

15. ADB’s Operational Strategy. ADB’s country partnership strategy, 2008–2010,9 supports the 11th FYP; and aims to help the country achieve economic growth in an efficient, equitable, and sustainable manner. In particular, ADB’s strategy for the agriculture and natural resources sector supports the country’s transition to sustainable agriculture and natural resources management and rural growth with a goal of reducing rural poverty by (i) improving sector governance; (ii) providing infrastructure for rural development; (iii) addressing environmental issues such as land degradation, water and soil conservation, integrated water resources management, efficient water use and conservation, pollution control, and promoting sound natural resources management; and (iv) encouraging innovations responding to issues. The proposed Project supports ADB’s strategic priorities.

16. External Assistance. To overcome the constraints of its own programs, and to gain from international experience, the Government entered into a strategic partnership with GEF and other international partners to develop and scale up comprehensive resource management approaches that integrate ecological, economic, and social dimensions of biodiversity management. Water pollution severely endangers the PRC’s rich biodiversity, especially through human activities that destroy/degrade natural habitats, through land conversions, industrialization, poor management of water resources, and deforestation. ADB and other international agencies have provided a number of technical assistance and loan projects to assist the PRC in wetland and environmental protection, agriculture and natural resource development, soil conservation, forestry, flood management, wastewater treatment, and water supply. A list of relevant projects is in Appendix 4.

17. Lessons. Integrating water and ecosystem management is a relatively new concept in the PRC, as well as in Hebei Province, and there has been little external assistance directly for biodiversity conservation in Baiyangdian Basin. The United Nations Development Programme’s (UNDP) GEF project—Wetland Biodiversity Conservation and Sustainable Use in China, 2001– 2006, involving the wetlands of Sanjiang Plain, Dongting Lake, and Yancheng—provided some lessons. However, this project adopted an engineering approach to restoring the hydraulic regime at specific nature reserves, and its institutional arrangements from national level through State Forestry Bureau were complicated and difficult to implement at the local level. ADB’s ongoing Sanjiang Plain Wetland Protection Project10 is (i) taking a holistic approach for wetland protection and water resources management at basin level and not just at the nature reserve sites, and (ii) implementing the Project at the provincial level to improve interdepartmental coordination. This Project will continue these efforts by enabling the integrated management of the ecosystem and water resources in Baiyangdian Basin by (i) supporting institutional coordination, (ii) ensuring adequate water quality and flow discharging to Baiyangdian Lake, (iii)

9 ADB. 2008. People’s Republic of China: Country Partnership Strategy 2008–2010. Manila. 10 ADB. 2005. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the People's Republic of China for the Sanjiang Plain Wetlands Protection Project. Manila (Loan 2157, for $15 million, approved on 14 March 2005).

6 establishing links between communities around PNRs and sustainable livelihood development, and (iv) promoting sustainable tourism to increase biodiversity conservation.

18. ADB’s experience in water resources management in the PRC indicates that projects are well implemented, and that water and wastewater tariffs are increased as required. Lessons learned from previous projects were reflected in this project design by (i) undertaking thorough review of technical designs and technologies, rigorous financial and economic analysis, detailed assessment of cash flows and social issues; (ii) introducing institutional strengthening measures to improve corporate governance; and (iii) ensuring an adequate debt-equity ratio for the project implementing agencies (IAs). ADB’s forest development projects in general provide lessons from various countries, indicating (i) community participation; and (ii) partnership between forest department and participants, as key factors in the success of plantations and reforestation. These lessons have also been incorporated in the design of this Project.

III. THE PROPOSED PROJECT

A. Impact and Outcome

19. The impact of the proposed Project is improved quality of life, sustainable ecosystem, and biodiversity conservation in Baiyangdian Basin. The water quality in the basin and lake will improve and water quantity in the lake will be maintained. Improved sanitation and clean water supply will improve quality of life, and help contain morbidity and mortality rates. Biodiversity management will increase the population of endangered species and improve the habitat of migratory birds. In-lake communities will gain viable and sustainable livelihoods without degrading the environment.

20. The Project’s outcome is integrated ecosystem and water management, and improved environmental conditions in Baiyangdian Basin. The Project will reduce each of the following pollutants: COD by 37,884 tons/year; total suspended particles by 2,000 tons/year; SO2 by 428 tons/year; carbon dioxide (CO2) by 28,121 tons/year; and TSP by 535 tons/year. It will reduce morbidity rates by 10% and improve sanitation and hygiene for 1.12 million people. The Project will supply clean water to 260,000 people and provide enhanced flood protection to life and property for 51,000 people. It will help Baiyangdian in-lake communities take up eco-friendly alternative livelihoods, and maintain a sustainable water level at 6–9 meters (m).

21. The Project will comprise four components: (i) subproject investments—22 subprojects of seven different categories (13 WTPs, 3 WSSs, 2 reforestation; and one each for urban flood management [UFM], integrated water management [IWM], solid waste management [SWM]), and clean energy development [CED]; (ii) biodiversity conservation to support the proposed GEF-financed activities; (iii) institutional strengthening through a range of activities; and (iv) project management support. A complete list of subprojects is in Appendix 5 and a more detailed description of project activities follows.

B. Outputs

1. Subproject Investments

22. This is the largest component of the Project, comprising 22 subprojects in seven categories. A short description including key details of activities and outputs follows.

23. Wastewater Treatment Plants. The Project will support 13 WTPs, of which six are located north/northeast, five southwest, and two west of Baiyangdian Lake (Map 2). The estimated service population is about 650,000. Upon completion, these plants will treat an

7 estimated 365,000 m3/day of wastewater and restrict organic pollution loading to the lake— annual removal of 36,850 tons of COD or about 43% of the targeted annual reduction of 86,349 tons under the FYEPP. The current wastewater tariffs in the adjoining towns are CNY0.7–1.3/m3. During the project preparation consultations, beneficiaries expressed their willingness to pay for the service beyond the requisite threshold (CNY1.3/m3) that will recover the investment and operating costs.

24. The design forecasts are based on a comparison using a projection of several factors, i.e., population growth; increases in per capita water supply/use; and changes in industrial water use caused by increases in production, unaccounted water loss, and improved efficiency in water use. Almost all the subproject urban areas have existing combined sewers and essential pumping stations that discharge untreated wastewater into the adjacent rivers and eventually to the lake. Major industries within the service areas include tanneries, textile, paper, automobile, fertilizer, chemicals, and machinery plants.

25. Water Supply Systems. The Project will support three WSSs located in Yi County, Xiong County, and Dingzhou City (Map 3). Upon completion, they will supply over 106,600 m3/day of clean water to 194,000 domestic users. With rapid economic development and urbanization, the target population is projected to be around 430,000 by 2010. The new WSSs will help reduce the usage of private wells that cause unregulated and haphazard water drawdown. The existing wells waste a considerable amount of water. The current water supply network is also inefficient, causing water leakage rate of 20–40%. The new WSSs will ensure long-term and sustainable management of aquifers and significant savings in distribution networks. Current domestic water tariffs are as follows: CNY2.11/m3 in Yi County, CNY1.6/m3 in Xiong County, and CNY1.7/m3 in Dingzhou City. During the project preparation consultations, potential beneficiaries expressed their willingness to pay beyond the requisite thresholds that will recover the investment and operating costs.

26. Reforestation. Deforestation in many parts of the basin has caused land degradation. Especially in the hilly areas, denuded lands result in soil erosion. This subproject will support reforestation of 18,450 ha in two areas—around Angezhuang Reservoir in Yi County and around Baiyangdian Lake in Anxin County (Map 3). Reforestation around Angezhuang Reservoir will cover 9,800 ha consisting of 2,000 ha of fast-growing and high-yielding forests, 2,000 ha of water conservation forests, 4,850 ha of soil erosion control forests, and 950 ha of ecological protection forests with non-timber forest products. Another 8,650 ha area will be declared a mountain closure for forest recovery.11 Lakeside forestation will include (i) protection forests along lakeshore and main canals on 264 ha for 66 km; (ii) landscaping and protection forests on 1,200 ha around in-lake villages; (iii) environmental protection forests on 66 ha of barren land; and (iv) ornamental forests on 33 ha of tourist sites.

27. Urban Flood Management. Anxin County is located within the flood diversion area of Baiyangdian Lake (Map 3). With economic development and a population increase, the urban area has expanded northward. The existing embankment cannot protect the expanding city zone. This subproject will reinforce the quality of embankments and increase the protected area from 5.16 km2 to 19.47 km2; and improve the flood control standard from the recurrence period of 20–50 years to protect life and properties in the Anxin County effectively.

11 The mountain closure policy does not mean absolutely no access but implies that the subproject area will not be allowed for free grazing or logging. The mountain land belongs to local households and communities in addition to their farmlands. They will be allowed to harvest non-timber forest products, without interfering with subproject activities. Once reforestation starts, young trees will require protection from human and livestock interventions. The mountain closure policy guards against such interventions. The livelihood activities will not be affected, as local households have their farmlands separate from mountain lands.

28. Integrated Water Management. Wangkuai Reservoir on the Sha River currently discharges 170 million m3 down the Sha aqueduct to replenish the lake. However, starting 2010, this aqueduct will be used exclusively for the Government’s South-North Water Transfer Project—a national mega-project to link Yangtze River to Yellow River. It is, therefore, urgent to secure an alternative route to supply water to the lake and to maintain its ecosystem. The proposed link canal will connect Wangkuai Reservoir to Xidayang Reservoir (Tang River Basin) and upgrade the existing Tang aqueduct downstream of Xidayang Reservoir which discharges into the lake (Map 4). About 200 million m3 of water will be diverted per annum from Wangkuai Reservoir, and 128 million m3 is expected to replenish the lake after deducting conveyance losses. This volume is sufficient to maintain the lake’s water at an ecologically acceptable level (7.3 m). An alternative route considered was the existing Sha River, which has dried up since the construction of Wangkuai Reservoir. This alternative was deemed inefficient because through this route, only 60 million m3 will reach the lake because of the high infiltration rate of the Sha River course (conveyance efficiency is estimated to be only 30%). An additional benefit of the proposed design is floodwater harvesting. The excess floodwater that cannot be regulated by the two reservoirs will be used to recharge the Yimuquan aquifer located adjacent to Baoding City. This will contribute to increasing the groundwater resources that the city relies on as its source of drinking water.

29. Solid Waste Management. Huanghuagou is a heavily polluted river flowing through Baoding City (Map 5). Major sources of pollution include the (i) dump site adjacent to the river, which has no leachate control; (ii) open-air ash storage of Baoding Cogeneration Plant; and (iii) wastewater pit, which collects domestic and industrial wastewater and discharges to Huanghuagou River. This subproject aims to improve the environment of Huanghuagou River and its surrounding area through four interventions: (i) relocation of the dump site; (ii) closure of the ash storage; (iii) improvement of 0.5 km of Huanghuagou River; and (iv) rehabilitation of the area currently used for the dump site, wastewater pit, and ash storage into an eco-theme park and urban land for future development (Map 6). The existing waste materials were dumped here before 2003—dumping at this site has been prohibited ever since. These waste materials will be transported to Baoding Municipal Solid Waste Landfill, which has sufficient capacity to accommodate all 550,000 m3 of waste. The leachate from the dump site will also be treated in relevant facilities there. The ash (2 million m3) will be transported to concrete and brick factories and construction sites around Baoding and other cities, including Beijing and Tianjin.12 The ash- flushing water will be treated in the existing and proposed WTPs, while the settled silt from ash- flushing water will be disposed of in Baoding Municipal Solid Waste Landfill. Wastewater flowing into Huanghuagou River via wastewater pit will be intercepted and pumped to the existing Lugang WTP. This subproject will significantly improve the environment of the target area, and the eco-theme park is expected to raise public awareness on environmental protection.

30. Clean Energy Development. Xiong County, located northeast of the lake, has abundant geothermal resources. Currently, the coal chimneys, used for space-heating, spew ash on the lake, adding to its pollution (Map 3). Geothermal water is already used for space-heating of 600,000 m2 and there are 19 public hot-spring bathhouses. The purpose of this subproject is to enhance the use of clean geothermal resources to heat an additional area of 1,650,000 m2 of local private housing and public building complexes. Geothermal space-heating will replace the use of 60,000 tons of coal each winter; and will reduce emissions of CO2, COD, SO2 and ash that pollute both air and water. The geothermal resources will also be used for economic activities such as hot-spring bathing and other leisure/health attractions, as well as for 13 ha of

12 Fly ash is a valuable resource/raw material for cement, concrete, and many other value-added applications such as brick manufacturing and road construction—primarily because of its pozzolanic characteristic. Currently, the market demand for ash is good considering many highway projects, i.e., Changshi and Baochuang expressway.

9 geothermal greenhouses and 2 ha of aquaculture. The proposed geothermal space-heating plan comprises three main components: (i) geothermal resource production, (ii) reinjection system, and (iii) space-heating distribution system. The subproject will install 11 geothermal production wells and 10 reinjection wells, among other facilities such as heat exchanger stations and distribution pipes. Reinjection ensures sustainable exploration of geothermal resources, and reduces the environmental impact of discharged geothermal water. This subproject will improve both the air and water quality of Xiong County and will help initiate a program to make Xiong a “smokeless town.” Current space-heating tariffs are CNY12–15/m3 for domestic and CNY15–18/m3 for commercial consumers. During the project preparation consultations, potential beneficiaries expressed their willingness to pay for the service beyond the requisite thresholds that will recover the investment and operating costs.

31. The Clean Development Mechanism (CDM), established under the Kyoto Protocol and managed by the United Nations Framework Convention on Climate Change, has significant potential to provide additional carbon financing to support the development of clean energy projects in the PRC. This geothermal subproject is eligible for additional carbon financing but required development of a new CDM Methodology. As a result, the Technical Support Facility of ADB’s Carbon Market Initiative (CMI) has prepared a new methodology for this subproject together with a Project Design Document (Supplementary Appendix A). The new baseline methodology is under consideration by the Methodology Panel of the CDM Executive Board and its views are expected by the end of June 2008.

32. Estimated emission reductions under this subproject, based on the proposed 13 methodology, are 119,393 tons of CO2 equivalent (tCO2e) per year. At a price of $12/tCO2e, this could generate annual revenues of about $1.43 million to the subproject up to 2012.14 Assuming that the subproject would be operational by mid 2010 and reduce emissions for 2.5 years by 2012, the subproject would generate 0.29 million tCO2e, which will produce $3.58 million in revenues. The Asia Pacific Carbon Fund (APCF), under CMI, has expressed interest in purchasing a portion of the Certified Emission Reductions (CERs) generated by this subproject up to 31 December 2012. APCF can purchase up to 50% of CERs upfront.15 Based on the above calculations, APCF’s upfront payment to Xiong County could amount to $1.79 million.16 This would be equivalent to about 9.6% of the total subproject cost. In line with the Project’s social development objective, Xiong County has agreed to share 50% of the carbon credit revenues with the Xiong County poverty reduction agency to expand its activities. This will be an incremental amount over and above the prevailing budget of the Agency.

2. Biodiversity Conservation

33. Through a range of interventions, the subproject activities will help alleviate general ecosystem constraints in the basin by improving water quality and quantity. These improvements are a prerequisite for bringing about the global environmental benefits envisioned

13 These are preliminary estimates assuming that the proposed methodology is approved by the Methodology Panel of the Clean Development Mechanism’s Executive Board. 14 Market price varies considerably primarily based on delivery risk. Based on the current market, $12/tCO2e is considered to be a conservative estimate. 15 Asia Pacific Carbon Fund team will start negotiations with the implementing agency of the subproject to finalize the Certified Emission Reductions purchase agreement soon after the Clean Development Mechanism’s Executive Board approves the proposed methodology and after the final Project Design Document is available. 16 The first commitment period of the Kyoto Protocol ends on 31 December 2012. Carbon credits generated up to this point can be sold to the Asia Pacific Carbon Fund and it can purchase 50% upfront from the developer (Xiong County). Carbon credits generated after 2012 and through 2020 could be sold directly by the developer and may amount to about $6.2 million (assuming a conservative price of $5/tCO2e). Therefore, the subproject will potentially generate about $10.0 million of carbon credit revenues through 2021.

10 for the GEF component. These benefits will be realized by encouraging integrated ecosystem management in the basin, and strengthening conservation of globally significant biodiversity resources in two provincial nature reserves (PNRs): (i) Jin Hua Shan-Heng Lingzi Shan PNR, habitat for the endemic brown-eared pheasant (Crossoptilon mantchuricum) and other rare species; and (ii) Baiyangdian Lake Rare Bird PNR, a vital stopover along the East Asian– Australasian flyway for numerous species of rare and vulnerable migratory waterfowl (Map 7). The proposed GEF financing will support six “modules,” each of which is considered essential for achieving the desired global environmental benefits. The specific activities to be undertaken for each module are in Appendix 6. The full-size project brief for the GEF Secretariat’s consideration is in Supplementary Appendix B. The cofinancing has been endorsed by the Government as part of its GEF biodiversity allocation, and it is due for GEF Counsel’s approval by August 2008.

3. Institutional Strengthening

34. The capacity of county and IA staff to implement their respective subprojects is inadequate. A detailed plan will be prepared during the inception phase of the Project to determine the requirements for capacity building and institutional strengthening as well as develop the strategy for their implementation. A variety of training programs will be initiated that include on-the-job training; short-term in-country training through workshops, study tours, and short courses; and short-term overseas training through study tours and training courses. The staff and institutional capacity assessment during project preparation revealed that training will be required in the following areas: (i) project implementation, (ii) environmental management and safeguards, (iii) ecosystem management and biodiversity conservation, (iv) gender and development, (v) financial management, and (vi) project audit. A more detailed institutional assessment and training program is in Supplementary Appendix C.

4. Project Management Support

35. Given the inadequate staff capacity in key disciplines, a project management support office, complete with logistical facilities and technical staff, has been provided for effective project implementation. An international project implementation specialist will be provided to render technical advice to the project management office (PMO) and project implementation units (PIUs) in project supervision and capacity building in integrated ecosystem and water resources management. International and national experts in the following disciplines will also be provided to support project management: (i) institutional/training development; (ii) water resources planning; (iii) structural, civil, mechanical, electrical, wastewater, solid waste and geothermal engineering; (iv) watershed management; (v) resettlement and environmental monitoring; (vi) procurement; (vii) financial management; and (viii) forestry. They will provide technical assistance to concerned BMG and county agencies in the various aspects of project implementation, including, among others, community organization and social preparation, livelihood demonstration, environmental monitoring, institutional strengthening, gender and development, and project monitoring and evaluation, as necessary. Detailed terms of reference and a full list of experts are in Appendix 7.

C. Special Features

36. In the PRC, like most other countries, the threat to the environment is multi-sectoral but the response often follows a single-sector approach which is not always efficient. As elsewhere in the PRC, soil, water, and air pollution in Baiyangdian Basin is caused by the urban, industrial, and agricultural sectors. The agricultural sector, with its nonpoint sources—farm chemicals runoff, animal waste, and rural domestic wastewater—contributes more pollution than other sectors. Deforestation causes loss in biodiversity by destroying wildlife habitats. Soil erosion,

11 mostly caused by deforestation, is another major source of water pollution. This Project “integrates” the Government’s response to contain pollution in the basin by adopting a multi- sectoral, multidisciplinary, and interagency planning, investment, and monitoring approach. Seven different categories of investment under this Project will bring together agriculture, forest, water resources, urban development, energy, and environmental protection bureaus of BMG to coordinate their activities. Through the IWM subproject, this Project will also (i) integrate the efficient use of water resources between two sub-watersheds; and (ii) supply water to four different end users—the lake (biodiversity conservation); Baoding City (drinking water); Guohua Dingzhou Power Plant (industrial); and Baicaogou, Hu, Yimuquan, Hucheng, and Xihuanti Baoding inner-city rivers (pollution control). Through these investment and activities, the Project will integrate the ecosystem and water resources management that, in turn, will meet the objective of biodiversity conservation. Therefore, this Project (i) demonstrates an innovative integrated ecosystem management approach to bringing about improvements in water resources management within the basin; (ii) focuses on the critical need to conserve wetlands, one of PRC’s most important and vulnerable ecosystems; and (iii) fits well with an umbrella program for biodiversity conservation currently being formulated by the PRC.

37. While the infrastructure interventions of the Project are designed primarily to improve waste management, reduce water and air pollution, provide clean energy, and improve the reliability of water supplies for communities in the basin, the GEF component will complement these improvements by raising awareness and promoting the involvement of local communities in natural resources management. The Project has taken the initiative to apply Clean Development Mechanism to earn carbon credits under the CED subproject. There is a potential to arrange upfront financing of $5.4 million through the Asia Pacific Carbon Fund. In line with the Project’s social development objective, Xiong County has agreed to share 50% of the carbon credit revenues with the Xiong County poverty reduction agency to expand its activities. This will be an incremental amount over and above the prevailing budget of the Agency.

38. Another subject of increasing concern for the PRC is conservation of the nation’s vulnerable wetland resources. In response, the Government recently (2007) created a special Office of Wetland Conservation and Management within the State Forest Administration. Baiyangdian Lake has been recognized in Agenda 21 as one of the nation’s most critical wetland areas. It is expected that restoration of the wetland ecosystem in Baiyangdian Lake will bring about significant economic and environmental benefits. The China Biodiversity Partnership Framework, currently being formulated by UNDP with support from GEF, has identified several priority themes, including (among others) reduction of biodiversity loss in protected areas, and mainstreaming of biodiversity conservation in socioeconomic sectors. This Project will further these objectives, so it is consistent with the framework initiative currently under development.

D. Project Investment Plan

39. The total project investment is estimated at about $273.4 million equivalent. It includes provisions for physical and price contingencies which will be shouldered by the Government, interest during construction, and a commitment fee, and is spread over an implementation period of 5 years. Physical contingencies are estimated at 10% of all base costs while price contingencies are based on ADB’s estimates of local and foreign currency escalation factors. A summary of project cost estimates by component is in Table 1. Detailed project cost estimates by financier are in Appendix 8.

Table 1: Project Investment Plan ($ million)

Item Amounta A. Base Cost b 1. Subproject Investments a. Wastewater Treatment Plants 90.0 b. Water Supply Systems 16.4 c. Reforestation 7.8 d. Urban Flood Management 5.6 e. Integrated Water Management 25.5 f. Solid Waste Management 62.0 g. Clean Energy Development 18.8 Subtotal (A1) 226.1 2. Biodiversity Conservation 3.4 3. Institutional Strengthening 1.1 4. Project Management Support 10.5 Subtotal (A) 241.1 B. Contingencies c 19.5 C. Finance Charges During Implementation d 12.8 Total (A+B+C) 273.4 a Includes taxes and duties of $12.6 million. b In end-2007 prices. c Physical contingencies computed at 10% of base cost. Price contingencies computed using the foreign cost escalation factor of 0.8% for 2008–2011; and local currency escalation factors of 5.5% for 2008 and 5.0% for 2009–2011. d Includes interest during implementation and commitment charges. Interest during construction has been computed at the 5-year forward London interbank offered rate (LIBOR), with a spread of 0.2%. Source: Asian Development Bank estimates.

E. Financing Plan

40. The Government has requested a loan of $100.00 million from ADB’s ordinary capital resources to help finance the Project. The loan will have a term of 25 years, including a grace period of 5 years, an interest rate determined in accordance with ADB’s London interbank offered rate (LIBOR)-based lending facility, a commitment charge of 0.15%/annum and such other terms and conditions as set forth in the Loan Agreement. The Government has provided ADB with (i) the reasons for its decision to borrow under ADB’s LIBOR-based lending facility and the basis of these terms and conditions, and (ii) an undertaking that these choices were its own independent decision and not made in reliance on any advice or communication from ADB. In addition to the loan from ADB, which will finance about 36.6% of total costs, a proposed grant of $2,975,000 from GEF will finance 1.1% of project costs. The proposed GEF grant will finance all the activities of the biodiversity conservation component and part of the institutional strengthening and project management support components. ADB will administer the GEF grant. The proposed GEF financing will be provided to the IAs as grant. The Borrower will be the PRC, which will relend the loan proceeds amounting to $100.00 million to the Hebei provincial government on the same terms and conditions as those of the ADB loan. Hebei provincial government will onlend the proceeds of the loan to BMG, which will onlend to city, township, county governments. The city, township, and county governments then will onlend to IAs. Each IA will be a sub-borrower and will enter into an onlending agreement with the city/township/county government, commission, or autonomous zone for its share of the ADB loan funds and will be responsible for its repayment. All relending and onlending will be on the same terms and conditions as those of the ADB loan. The IAs will assume the foreign exchange and interest rate variation risks for the ADB loan. Counterpart funds will come from self- financing by the IAs. Table 2 shows a summary of the project financing plan. Detailed project cost estimates and a financing plan are in Supplementary Appendix D.

Table 2: Financing Plan ($ million)

Source Total Percent Asian Development Bank 100.0 36.6 Global Environment Facility a 3.0 1.1 PRC Government 32.0 11.7 Baoding Municipal Government 25.8 9.4 Baoding New Hi-Tech Zone Administrative Commission 46.6 17.0 County Governments 50.1 18.3 China Construction Bank b 4.6 1.7 Asia Pacific Carbon Fund c 1.8 0.7 Equity Investments 9.5 3.5 Total 273.4 100.0 a An additional amount of $0.2 million has been utilized for project preparation. b Current annual interest rates/maturity are: 7.47% for 1–3 years; 7.65% for 3–5 years; and 7.83% for >5 years. c This fund is managed by the Asian Development Bank and provides upfront payments for Clean Development Mechanism projects in exchange for revenues from Certified Emission Reductions. Source: Asian Development Bank estimates.

41. ADB typically seeks Board approval for the administration of grant funds from co- financiers only when cofinancing commitments are in place. In the case of the proposed grant funding from GEF, the financing is expected to be approved by the GEF Council in August 2008. To avoid any project delay, the Board is requested to approve the administration of the proposed grant, in an amount not exceeding the equivalent of $2,975,000, which is expected to be confirmed by GEF subsequent to the date of Board approval. Approval of the GEF grant will be reported to the Board in accordance with the standard reporting procedures. If GEF does not approve grant financing, the GEF-financed activities of the Project will not be implemented under the Project. Alternatively, the Government may make other arrangements satisfactory to ADB to cover the funding shortfall.

F. Implementation Arrangements

1. Project Management

42. The 22 subprojects will be implemented in 13 counties by 24 IAs. BMG, acting through Baoding Development and Reform Commission (BDRC), will be the Executing Agency of the Project. BDRC has set up a central PMO with 15 staff to implement the Project.17 A full-time project director has been appointed to head the PMO. The key PMO staff have expertise in financial management; civil and mechanical engineering; water resources, environmental, ecosystem, and project management; social development; and forestry. Each county will set up a PIU at their respective financial bureaus. PIUs will be headed by project coordinators, who will be focal points for all project-related activities with the PMO. IAs will engage the relevant design institutes to prepare detailed subproject designs. These detailed designs will be reviewed by a panel that will be assisted by an independent consulting firm. To assist IAs in the procurement process—i.e., preparing bidding documents, call for tenders, and bid evaluation—specialized firms will be engaged. To monitor the progress and quality of works, construction supervision firms will be engaged. The PMO staff will assist IAs in supervising the inputs of design institutes and the specialized consulting firms. To coordinate the project activities among line bureaus and IAs, BDRC will set up a project Leading Group that will meet quarterly for the first 2 years and semiannually for the remaining project period. The relevant IAs will establish project land acquisition resettlement units for supervising implementation, continuing public consultation,

17 The PMO was set up in October 2007. The PRC Resident Mission has provided initial training to the PMO/PIU staff on procurement, disbursement, and project administration through workshops in December 2007.

14 responding to grievances, and reporting progress. The grievance redress procedures are set out in the resettlement plans (RPs). To redress any other grievances, one staff member in each PIU and PMO will be nominated to receive complaints and arrange to provide an appropriate response or take necessary actions and follow up until the concern has been resolved. If the problem cannot be resolved by the PMO, the complainant can make a formal grievance in accordance with State Council Decree 431, 2005. A project website will be set up to disseminate information about the project scope, implementation progress, public consultation, and grievance redress process and updates. The project organization chart is presented in Appendix 9. Details of the organizational structure for the PMO/PIUs and terms of reference for their respective staff are in Supplementary Appendix E.

2. Implementation Period

43. The Project will be implemented over 5 years from October 2008 to 30 September 2013. The project implementation schedule is in Appendix 10.

3. Procurement

44. All procurement of goods and works shall be carried out in accordance with ADB’s Procurement Guidelines (2007, as amended from time to time). Contracts for goods estimated to exceed $1.0 million and contracts for works estimated to exceed $10.0 million shall be procured using international competitive bidding (ICB) procedures. Contracts for goods and works estimated to cost equal to or less than the above ICB values, but more than $100,000, shall be procured through national competitive bidding procedures in accordance with the PRC Tendering and Bidding Law, 1999, subject to clarifications and modifications agreed with ADB. Contracts for goods and works estimated to cost $100,000 or less shall be procured using the shopping procedures, and those for less than $10,000 through direct contracting. A procurement plan, setting out an indicative list of all procurement packages, the procurement methods to be used, and the timing of ADB review is in Appendix 11. The plan will be reviewed and updated on an annual basis. The relevant sections of ADB’s Anticorruption Policy (1998, as amended to date) will be included in all procurement documents and contracts.

4. Consulting Services

45. The Project will finance two consulting packages. Package A, for 236 person-months, financed by the loan, will comprise three international experts for 25 person-months and 14 national experts for 211 person-months. A consulting firm will be engaged to provide these services. The PMO will be responsible for the selection, contract negotiations, and contract management. Package B, financed by the proposed GEF grant, for 180 person-months, will comprise eight international experts for 38 person-months and nine national experts for 142 person-months. ADB will recruit the firm and the PMO will negotiate and manage the contract. In selecting these firms, quality and cost-based selection (80:20) will be used, and the shortlisted firms will be required to submit full technical proposals for contract budgets of more than $1.0 million. A summary of consulting packages is in Appendix 7. All recruitment will be carried out in accordance with ADB’s Guidelines on the Use of Consultants (2007, as amended from time to time).

5. Retroactive Financing

46. BMG has requested retroactive financing for the Yi County WTP for a maximum amount equivalent to $3,800,000 or 3.8% of the loan. As the processing of this loan has been unexpectedly delayed by almost 8 months, ADB has advised that retroactive financing could

15 apply to expenditures incurred before loan effectiveness and within 20 months prior to the signing of the loan agreement. All contracts proposed for retroactive financing will be undertaken in accordance with ADB’s Procurement Guidelines and ADB’s Guidelines on the Use of Consultants. The Government and BMG have been advised that approval of the retroactive financing does not commit ADB to financing the Project.

6. Anticorruption Policy

47. ADB’s Anticorruption Policy was explained to and discussed with BMG and the IAs. Consistent with its commitment to good governance, accountability, and transparency, ADB reserves the right to investigate, directly or through its agents, any alleged corrupt, fraudulent, collusive, or coercive practices relating to the Project. To support these efforts, relevant provisions of ADB’s Anticorruption Policy are included in the loan regulations and the bidding documents for the Project. In particular, all contracts financed by ADB and GEF in connection with the Project will include provisions specifying the right of ADB to audit and examine the records and accounts of BMG; the IAs; and all contractors, suppliers, consultants and other service providers as they relate to the Project. The project design and implementation arrangements provide for mitigating corruption risks. Risks associated with project management, including procurement and disbursement, will be mitigated by (i) engaging an international consultant and a national consultant to advise and assist in the procurement of goods and services, and the engagement of other consultants; (ii) introducing a dual signing system in which the civil works contractor awarded the contract will also sign an anticorruption contract with the employer; and (iii) periodical inspection by the PMO of the contractor’s activities related to fund withdrawals and settlements. In furtherance of the principles of transparency and accountability, BMG will cause the PMO to set up and develop a project website that describes the Project in order to provide the public with information on the Project including setting out (i) a summary of the audited financial statements of the Project, and (ii) tracking of procurement contract awards in accordance with ADB’s Procurement Guidelines. BMG will ensure that each IA establishes financial control and management arrangements compatible with ADB’s Guidelines on the Financial Governance and Management of Investment Projects Financed by ADB18 and ADB’s Loan Disbursement Handbook (2007, as amended from time to time).

7. Disbursement Arrangements

48. The loan proceeds will be disbursed in accordance with ADB’s Loan Disbursement Handbook. To facilitate project implementation and funds flow, an imprest account will be set up in a commercial bank acceptable to ADB upon loan effectiveness and a separate account will likewise be opened for GEF grant funds. Both accounts will be managed by Baoding Finance Bureau on behalf of BMG. The initial advance deposited in the imprest account will not exceed 6 months of estimated expenditures or 10% of the loan amount, whichever is lower. The direct payment procedures will apply for the large works contracts. If the Government initially funds eligible expenditures from its own resources, the reimbursement procedure will be used. To expedite funds flow and simplify the documentation process, the statement of expenditures procedure will be followed for liquidation and replenishment of the imprest account and for reimbursement of eligible expenditures not exceeding $100,000/individual payment. Payments in excess of the statement of expenditures ceiling will be reimbursed, liquidated, or replenished based on the full supporting documentation process. To expedite project implementation, BMG requested ADB to approve retroactive financing of eligible expenditures up to $3.8 million

18 ADB. 2002. Guidelines for the Financial Governance and Management of Investment Projects Financed by ADB. Manila.

(equivalent to 3.8% of the ADB loan), to be incurred prior to loan effectiveness but within a maximum of 20 months before the signing of the Loan Agreement.

49. The PMO requires additional capacity and experience to deal efficiently with the operation and withdrawal procedures necessary for the operation of the imprest accounts. Accordingly, assistance and training will be provided so that PMO staff can expedite loan and GEF grant disbursements. An assessment of the financial management capability of the Financial Bureau of BMG and IAs, and specific arrangements for managing the project funds, are provided in Supplementary Appendix F.

8. Accounting, Auditing, and Reporting

50. All agencies (PMO, PIUs, and IAs) involved in project implementation will maintain records and accounts that identify goods and services from loan proceeds and the GEF grant, financing resources received, expenditures incurred, and use of local funds. These accounts will be established and maintained in accordance with sound accounting principles and internationally accepted accounting standards. The PMO will review and consolidate these accounts and have them audited annually in accordance with sound accounting practices by the sovereign audit agency of the Government or other auditors acceptable to ADB. The audit report will include a statement verifying whether or not the funds disbursed by ADB were used for the purposes for which they were provided, as well as the auditor’s opinion on the use of the imprest account and statement of expenditures procedures. Copies of the audited accounts and auditor’s report will be submitted to ADB within 6 months after the end of each financial year. The PMO will prepare consolidated quarterly reports indicating progress made, problems encountered during the period, steps taken or proposed to remedy the problems, proposed program of activities, and progress expected for the next quarter. Both the loan and GEF grant will be covered in these reports. Within 3 months of physical completion of the Project, the PMO will submit to ADB a completion report that describes the achievements in relation to the Project’s expected impact, outcome, and outputs.

9. Project Performance Monitoring and Evaluation

51. To monitor the progress of the Project in achieving the planned outcome and outputs, the PMO will establish and maintain a project performance management system (PPMS), which will be designed to permit adequate flexibility to adopt remedial action regarding project design, schedules, activities, and development impacts. The PPMS will adopt the following agreed indicators: (i) physical progress of subproject implementation, (ii) results of the capacity development program, (iii) water quality and quantity improvements in the lake and other water bodies, (iv) improvement in biodiversity conservation, and (v) social development. At project inception, the PMO, in consultation with each IA, will develop comprehensive PPMS procedures to generate data systematically on inputs and outputs of the project activities; and the socioeconomic, health, and environmental indicators to measure project impacts.

52. The PMO will refine the PPMS framework, confirm achievable targets, firm up monitoring and recording arrangements, and establish systems and procedures no later than 6 months after project implementation begins. Baseline and progress data will be reported at the requisite time intervals by IAs to the PMO, including annual reporting on the environmental management plan (EMP). The PMO will be responsible for analyzing and consolidating reported data through its management information system, and for reporting outcomes to ADB through quarterly progress reports.

10. Project Review

53. In addition to regular monitoring, project performance will be reviewed at least once a year jointly by ADB, the Government, and BMG. The review will assess implementation performance and achievement of project outcomes and outputs, assess financial progress, identify issues and constraints affecting implementation, and work out a time-bound action plan for their resolution. ADB, the Government, and BMG will undertake a midterm review to assess implementation status and take appropriate measures—including modification of scope and implementation arrangements, and reallocation of loan and grant proceeds, as appropriate—to achieve the project objectives.

IV. PROJECT BENEFITS, IMPACTS, ASSUMPTIONS, AND RISKS

A. Benefits and Impacts

54. The Project will improve quality of life, ecosystem, and biodiversity in the basin. Twenty- two complementing subproject investments will be supported to mitigate water and air pollution that will subsequently improve environmental and ecological conditions in the basin. Thirteen WTPs will significantly reduce organic pollution loading of the lake as well as improve water quality in its extensive river network. Three WSSs will increase the availability of potable water as well as improve sanitation and hygiene among project beneficiaries. Reforestation of Angezhuang Reservoir and Baiyangdian Lake and rehabilitation of Huanghuangou watershed will improve the water retention capacity of these subproject areas. These interventions are also expected to facilitate biodiversity conservation and improve the integrity of the basin’s ecosystem. The Project will also generate significant social and economic benefits, such as improved living conditions and livelihood opportunities for communities living within the basin and especially by the lake. The flood control subproject is expected to significantly reduce damage to public and private infrastructure as well as to agricultural production due to flooding that have increased in frequency in recent years. The reservoir link-canal subproject will enable the recharging of the Yimuquan aquifer with clean water, and prevent the intrusion of polluted water from Caohe drainage area during low water table levels. Mitigation of this problem will reduce the incidence of stomach and intestinal diseases, which are likely to occur without the Project. The geothermal energy subproject—an alternative to using coal for providing space- heating to domestic, commercial, and industrial consumers—will contribute to energy cost savings as well as result in reductions in emission of air pollutants, with positive impacts on the environment and health of affected communities. Benefits from GEF interventions under the biodiversity and integrated ecosystem management component will emanate from improved wildlife and overall environmental conditions within the basin.

55. The WTPs and WSSs will benefit about 1.12 million people (or over 416,000 households), out of a total of about 6.65 million people living within the drainage area. Improvement in water supply will reduce the incidence of stomach and intestinal diseases for over 260,000 people. About 10,000 ha of farmland will be protected from soil erosion, particularly during the rainy months, with the reforestation of the Angezhuang Reservoir area. This will benefit a total of about 18,750 farm households and will prevent an annual loss in crop damage of about $2.2 million. At full development of the Baiyangdian lakeside reforestation subproject, a significant increase in tourist activities will generate about $585,000 annually. Rehabilitation of Huanghuangou watershed will reduce dust pollution by about 136,000 tons/year, and prevent further contamination of surface and subterranean water, with a positive impact on the health of about 500,000 people in Baoding City. Health benefits will also be derived from the reallocation of water resources for about 700,000 people in Baoding City and Li County. The construction of flood control facilities in Anxin County will protect and reduce flood

18 damage to an area of about 20 km2 including about 9,300 ha farmland (about 5,000 farm households), about 1,152 m2 of residential facilities, about 30 small enterprises, and the municipal facilities in Anxin County. The incidence of respiratory diseases will be reduced by 20% among the target population (about 240,000 people) who will benefit from the shift from coal to geothermal energy. The CED subproject will save about 60,000 tons of coal annually and result in reduced incidence of SO2 (about 1,000 tons/year) and total suspended particles (about 500 tons/year) emissions.

56. Project activities will enhance the environment and improve the ecosystem within Baiyangdian Basin. Biodiversity conservation benefits will accrue through restored habitat and protection for wild plants and animals, including 192 bird species of which at least six are of global significance.

1. Financial Analysis

57. Financial analyses were undertaken for each of the 19 revenue-generating subprojects, based on their respective revenue and cost streams over a 25-year period. Revenue from the 13 WTPs and 3 WSSs will be derived from subproject-specific operating capacity at the specified tariff/m3 charged to consumers. The geothermal energy subproject will generate revenues by providing space-heating services to about 1.65 million m2 of floor area in different types of buildings, about 525,000 m2 of public baths and swimming pools, about 100,000 m2 of hotel facilities, and drinking water supply of about 250,000 m3. The Angezhuang Reservoir reforestation subproject will derive revenue from the sale of timber while the Baiyangdian lakeside reforestation subproject will generate revenue from timber sales and tourism as well. For the remaining three subprojects—IWM, ash/waste-dump rehabilitation, and flood control— costs are likewise estimated but no financial revenues are quantified. Financial internal rates of return (FIRRs) and other financial indicators were estimated for 19 subprojects. The estimated FIRRs are in the range of 7.6–15.9%, above the weighted average cost of capital of 2.3%. This reflects their financial viability as well as ability to recover both investment and operating costs. However, the FIRRs are found to be sensitive to variations in revenue and costs. More detailed financial analysis is in Appendix 12.

2. Economic Analysis

58. The national policy for pollution control endorses the use of cost-effective wastewater management measures to achieve overall treatment targets. The least-cost analysis for each of the 13 WTPs indicates that the chosen technology entails the lowest cost compared with other technologies available. Separate economic analyses are also carried out for all of the 22 subprojects and the whole Project. Benefit estimates are based on data that reflect the current situation and on conservative assessments of future scenarios without the Project. Health benefits arising from WTPs and WSSs are quantified based on reductions in medical costs for about 1.66 million people, mainly from stomach and intestinal diseases and hepatitis, caused by improved water quality. Health benefits resulting from reduced incidence in respiratory diseases and subsequently in medical costs, affecting about 240,000 people, which will accrue to the clean energy subproject, are also quantified. Energy savings resulting from reduction in coal use (about 60,000 tons/year), subsequent reduction in SO2 (about 1,000 tons/year) and coal dust (about 500 tons/year) emissions are quantified and incorporated in the economic analysis of the clean energy subproject. Health benefits are also quantified for the ash/waste dump rehabilitation subproject, which will reduce dust pollution and prevent contamination of surface and subterranean water with a positive impact on the health of about 500,000 people in Baoding City. Health benefits will likewise accrue to the IWM subproject, which will impact on about 0.7 million people in Baoding City and Li County. Benefits generated

19 by the reforestation subprojects are quantified based on estimates of annual revenues from sale of timber and increased tourist activity as well as from prevention of losses in crop damage caused by soil erosion. Reductions in annual flood damage caused by the construction of flood control facilities served as the basis for estimating the economic benefits from the urban flood control subproject. The economic internal rates of return (EIRRs) estimated for each of the 22 subprojects are in the range of 14.5–23.6%, greater than the economic opportunity cost of capital of 12%.

59. The project EIRR is estimated at about 17% with an economic net present value of $190 million. Switching values indicate that benefits should decline by not more than 19% to maintain the project EIRR at 12%. Economic costs, on the other hand, should not increase by more than 23%. Simultaneous decrease in benefits and increase in costs should be at 10%. A 1-year delay in project benefits will result in an EIRR of 13.7%. More detailed economic analysis is in Appendix 12.

3. Risks

60. The Project will adopt an integrated approach to address ecosystem and water resources issues, and for the planning and implementation of project activities. Line bureaus and counties in Baoding Municipality do not often coordinate their operations. In the past, economic growth has taken priority over environmental management. The frequency of drought years has also been on the rise over the past two decades and climate change may further reduce water availability. If the constraints underlying these risks are not addressed, the project investments may not achieve the intended impact. These risks can be mitigated in part by project interventions, i.e., (i) inculcating integrated planning, monitoring, and enforcing appropriate policies and regulations; and (ii) building staff capacity and strengthening institutions. Other risks include (i) lack of understanding of ADB policies and procedures, (ii) changes in PMO staff, (iii) lengthy procurement decision making, and (iv) procurement fraud and corruption. To mitigate these risks, the Project will provide technical and management advisory support and training, particularly during the first 2 years of implementation. Delays in subproject completion can also jeopardize project investment. Implementation of the IWM subproject needs to be monitored carefully so that it is completed before the Government’s South–North Water Transfer Project takes over the Sha Aqueduct. The Government realizes the importance of water supply to the lake and will ensure its uninterrupted flow by coordinating the implementation of both undertakings.

61. The variety in project investments will limit its financial and economic risks. The water treatment, supply, and infrastructure investments will use established technologies and designs. Similarly, the reforestation subprojects will use indigenous species and modern techniques. The biodiversity conservation activities have been designed and will be implemented in close consultation with local communities. Therefore, the overall project risk is low.

4. Sustainability

62. The Project’s overall sustainability is assured as 19 of the 22 subprojects will generate revenues and become financially viable. The other three subprojects—IWM, SWM, and UFM— will also generate considerable benefits, and their respective IAs will be able to provide for appropriate operation and maintenance. Therefore, the overall fiscal implications for the Government will be limited. The single largest subproject, SWM (with 23% of the project cost), will clean up prime urban land and turn it into eco-theme park—encouraging urban and industrial development on its periphery. Similarly, WTPs and WSSs (39% of the project cost) and CED (7% of the project cost) will generate adequate revenues to pay for the operation as

20 well as investment costs. All the IAs are financially sound and fully responsible for the effective operation of project infrastructure.

B. Social Dimensions

1. Social Benefits

63. In Baiyangdian Basin, the ecosystem plays an important role in poverty reduction. Conversely, poverty has a detrimental impact on the lake’s ecosystem. There are 39 in-lake villages and another 44 around the lake. About 200,000 people live in the in-lake villages, and as many live in its peripheral zones. The in-lake households are the poorest of the poor in the whole basin, with per capita annual income of CNY627 ($90)—Hebei government has listed 24 of the 39 in-lake villages as “poverty villages”. However, the in-lake villages are depopulating at the rate of 0.7%/annum, as young people migrate to nearby towns in search of better jobs in the nonfarm sectors. The in-lake villages are also the most polluted as they often dispose of their solid and animal waste and domestic wastewater directly into the lake. Many make a living by running duck/fish farms on the lake, which create further pollution with animal feed and waste.

64. Rural poor, both in-lake and mountain communities, who earn subsistence from ecosystem-based activities, are most vulnerable to the loss of such resources. Given the persistent trend of out-migration of males to urban areas, these sources of income are predominantly supported by women and children. This includes undertaking small-scale fish farming, livestock rearing, and collecting ecosystem products, i.e., reeds, that may be sold for cash. The Project has ensured that needs and concerns voiced by local communities, especially women, are reflected in the design and implementation arrangements of all its components. Modalities will be adopted to ensure that women benefit from the employment opportunities generated by the Project. In addition, the Project will work—through its GEF component—with selected communities to (i) describe site-specific contributing factors to the degradation of the ecosystem; (ii) formulate environmentally-friendly solutions to the identified problems, with focus on those that offer opportunities for revenue generation; and (iii) pilot test selected projects that lead to environmental improvement and revenue generation. The outcome of the component will be to improve living standards; reduce livelihood dependency on the ecosystem; and contribute to water demand management, pollution control, and conservation of natural resources. Through the CED subproject, the Project has taken the initiative to apply the Clean Development Mechanism to earn carbon credits. In line with the Project’s social development objective, Xiong County has agreed to share 50% of the carbon credit revenues with the Xiong County poverty reduction agency to expand its activities. This will be an incremental amount over and above the prevailing budget of the Agency. The summary poverty reduction and social strategy is in Appendix 13 and the gender and social action plan is in Appendix 14.

2. Land Acquisition and Involuntary Resettlement

65. The RPs have been prepared for 17 subprojects; the other five subprojects will not require any resettlement. Most of the RPs are classified category B impacts, whereby less than 200 persons will be seriously affected. Permanent land acquisition for the total Project is estimated to be 293 ha, of which 71 ha is farmland; this will cause partial land loss (20% on average) for 4,508 persons. The IWM subproject will have the largest impact and affect 2,770 persons (nearly 50% of the total affected persons). However, even for this subproject, the resettlement impacts will not be serious and the income loss can be restored through cash compensation and improved irrigation. In total, the Project will require the displacement of only 13 houses with 49 persons, who will be compensated and relocated nearby. Nine enterprises will also be affected, but only two small private enterprises need to be totally relocated. Each

21 enterprise will be compensated and workers will not be adversely affected. The RPs have also addressed the temporary impacts caused during construction to 145 ha land (of which 27 ha is farmland) and 1,700 persons. For the construction of water supply and wastewater pipeline networks, mitigation measures will be taken to avoid or minimize disturbance to residents and shops. Compensation will be provided if disturbance causes direct impact or extends beyond 2 weeks. Local officials, village leaders, and affected persons were closely consulted during the feasibility study stage to avoid or minimize adverse impacts and to formulate compensation and rehabilitation measures. The estimated cost of land acquisition and resettlement is $48.5 million (including contingencies, taxes, and fees), 18% of the total project cost.

66. The PMO will be responsible for overall coordination of resettlement planning, supervision, monitoring, and reporting. The IAs will be responsible for implementing the RPs, financing the costs, and internal reporting to the PMO. The IAs have disclosed resettlement information booklets. The RPs will be distributed to the relevant townships and made accessible to affected villagers, and the RPs have been uploaded to the ADB website. Since these RPs are based on feasibility studies, they will have to be rechecked and, where necessary, updated based on the final design, disclosed to APs, and resubmitted to ADB for approval prior to the start of civil works. The summary resettlement plan is in Appendix 15.

67. National consultancy services are required for the external monitoring and evaluation of resettlement implementation. This will be financed by each IA but will be supervised by the PMO. A domestic institute, acceptable to ADB, will be engaged by the PMO (terms of reference are in Supplementary Appendix G). ADB requirements for resettlement monitoring are stipulated in the RPs and included in the loan covenants.

3. Environmental Impact

68. The overall project classification is category A because of the expected impact of the IWM and SWM subprojects. Environmental impact assessment (EIA) for these two and initial environmental examination for the other 20 subprojects were prepared. Based on these analyses, a consolidated summary environmental impact assessment (SEIA) was prepared and circulated to the Board of Directors, and uploaded on the ADB website on 1 June 2007. The analysis indicates that, by integrating ecosystem and water resources management, the Project will have a significant positive environmental impact on Baiyangdian Basin—especially the lake. Potential negative environmental impacts associated with some subprojects have been identified and can be mitigated to the point that there are no potentially significant residual environmental impacts. Appropriate mitigation measures and environmental management and monitoring plans have been prepared. The appropriate alternative analysis and public consultation have been conducted. The possible adverse environmental impacts associated with the subprojects will be prevented or minimized to an acceptable level if the EMP set out in the SEIA (Supplementary Appendix H) is implemented effectively.

V. ASSURANCES AND CONDITION

69. In addition to the standard assurances, the Government, Hebei provincial government, and BMG have given specific assurances which are incorporated in the legal documents.19

19 The full list of assurances is included in the loan and project agreements.

A. Funding from Global Environment Facility

70. In the event the GEF grant funding cannot be obtained, (i) the support for biodiversity conservation component, and (ii) the relevant training and consulting activities under the institutional strengthening and project management support components shall not be financed under the Project. Alternatively, the Government may make other necessary arrangements acceptable to ADB to cover the funding shortfall.

B. Land Acquisition and Involuntary Resettlement

71. BMG, through the relevant county governments and IAs, will ensure that:

(i) all land and rights-of-way required by the Project are made available in a timely manner; (ii) the 17 subproject RPs are implemented efficiently in accordance with their terms, all applicable PRC laws and regulations, and ADB’s Involuntary Resettlement Policy (1995); (iii) all those affected are given adequate opportunity to participate in resettlement planning and implementation; (iv) counterpart funds are provided on a timely basis for land acquisition and resettlement activities; any obligations in excess of RP budget estimates are met; (v) compensation and resettlement assistance is given to APs prior to dispossession and displacement to ensure those affected will be at least as well off as they would have been in the absence of the Project; RPs are updated where necessary based on detailed designs and resubmitted to ADB for concurrence prior to commencement of civil works; (vi) during implementation, advise ADB and reflect any significant material changes in project scope or other causes in an updated RP and submit to ADB for its approval and that relevant IAs disclose such updated RPs to APs prior to ADB approval; (vii) adequate staff and resources are committed to resettlement monitoring and supervision, and ADB is provided with quarterly reports on implementation and a resettlement completion report covering all subprojects; (viii) an independent agency, acceptable to ADB, is engaged to monitor resettlement progress through annual survey updates for the first and second year and in the last year of the Project implementation, the semi-annual progress reports will be prepared by the PMO with assistance of consultant; (ix) external monitoring reports are submitted simultaneously to ADB and the Government; (x) civil works contractor specifications include requirements to comply with the RPs and entitlements for permanent and temporary impacts to APs; and (xi) supervise contractors to ensure compliance with requirements of the RPs, applicable laws and regulations, and ADB’s Involuntary Resettlement Policy.

C. Environment

72. BMG shall cause each IA to construct, maintain, and operate the project facilities in strict conformity to (i) all applicable national and local government environmental laws, regulations and procedures; (ii) ADB’s Environment Policy (2002); and (iii) the environmental mitigation and monitoring measures set out in the approved EIA, the SEIA, the relevant summary initial environmental examination (IEE), and the EMP for the Project.

73. BMG will ensure that all IEEs and EIAs are (i) reviewed and updated following final detailed designs, (ii) approved by ADB prior to undertaking any works, and (iii) updated with all mitigation measures incorporated in the bidding documents and the civil works contracts.

74. BMG shall ensure that each IA (i) allocates sufficient resources to implement the environmental monitoring plan; and (ii) provides monitoring reports to the PMO, which will coordinate the preparation of a semiannual environmental report on implementation of the EMP in a format acceptable to ADB, for the duration of the Project.

D. Capacity Building

75. BMG will ensure that all IAs and other relevant stakeholders (i) follow the agreed project implementation plan, (ii) implement recommendations for capacity building and institutional strengthening, (iii) appoint suitable trainers and training institutions based on selection criteria, (iv) select staff for training using a transparent and objective methodology, and (v) take such steps as may be reasonable to ensure that staff who have received training under the Project remain with the Project throughout its implementation.

E. Condition for Loan Disbursement

76. A condition for disbursement of the loan proceeds for the ultimate benefit of any subproject requires that the Government certifies that (i) onlending agreement related to such subproject has been entered into between the relevant county/township/city government, commission, or special zone, and the concerned IA; and (ii) such onlending agreement contains the terms and conditions specified in the Loan Agreement and has become effective and binding upon the parties thereto.

VI. RECOMMENDATION

77. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Asian Development Bank (ADB) and, acting in the absence of the President, under the provisions of Article 35.1 of the Articles of Agreement of ADB, I recommend that the Board approve

(i) the loan of $100,000,000 to the People’s Republic of China for the Integrated Ecosystem and Water Resources Management in the Baiyangdian Basin Project from ADB’s ordinary capital resources with interest to be determined in accordance with ADB’s London interbank offered rate (LIBOR)-based lending facility; a term of 25 years, including a grace period of 5 years; and such other terms and conditions as are substantially in accordance with those set forth in the draft Loan and Project Agreements presented to the Board; and (ii) in the event the Global Environment Facility approves grant financing not exceeding the equivalent of $2,975,000 to the People’s Republic of China for the Integrated Ecosystem and Water Resources Management in the Baiyangdian Basin Project, the administration by ADB of such grant in accordance with the proposal set out in paragraph 41 of this Report.

30 May 2008 Liqun Jin Vice President

24 Appendix 1

DESIGN AND MONITORING FRAMEWORK

Data Design Performance Sources/Reporting Assumptions Summary Targets/Indicators Mechanisms and Risks Impact • Water quality in Baiyangdian • Annual public health Assumptions Improved quality of life, Lake restored from class V and reports by Baoding • Baiyangdian Ecosystem sustainable ecosystem, VI in 2007 to class III by 2015 municipal Rehabilitation Master Plan and biodiversity • Habitat for migratory birds government (BMG) (2005–2015) is conservation in maintained/enhanced • Annual State of the implemented. Baiyangdian Basin • Population of endangered Environment Report • Ecosystem focus is resident species maintained or by BMG and maintained in the 11th Five- increased relevant county Year Baoding • Reduced incidence of governments Environmental Protection waterborne diseases from Program. 2/1,000 persons in 2006 to 1.5/ 1,000 by 2015; and respiratory Risks diseases from 1.6/1,000 in • Adequate government 2006 to 1.3/1,000 by 2015 budget is not provided. • Household income of • Overheated economic Baiyangdian Lake communities growth. increased by reducing direct pollution loading to the lake

Outcome Assumptions Integrated ecosystem and • Reduced point-source water • Municipal and • 11th Five-Year Baoding water management and pollution loading (chemical County Environment Environmental Protection improved environmental oxygen demand [COD]) in Protection Bureau Program is implemented. conditions in Baiyangdian Baiyangdian Basin by 28% or reports • Local communities are Basin 38,000 tons/year by 2011 from • Annual livelihood willing to participate. the 2007 level of surveys by the 137,989 tons/year Poverty Alleviation Risks • Improved sanitation and and Development • Ineffective enforcement of hygiene for 1.12 million people Office of relevant environmental regulations. by 2011 who did not have counties • Weak interagency access to wastewater treatment coordination. in 2007 • Severe droughts. • Clean water supply for

260,000 people by 2011 who did not have access in 2007 • Reduced total suspended particulates (TSP) in Baoding City by 2,500 tons/year • Reduced sulfur dioxide (SO2) by 1,000 tons/year by 2011 • Reduced carbon dioxide (CO2) by 149,000 tons/year by 2015 • Enhanced flood protection for 51,000 people by 2011 who did not have protection in 2007 • Baiyangdian Lake communities take up eco-friendly alternative livelihoods by 2010 • Water in Baiyangdian Lake is maintained at sustainable level of 7–9 meters by 2015 from the average of 6.5 meters in 2005

Appendix 1 25

Data Design Performance Sources/Reporting Assumptions Summary Targets/Indicators Mechanisms and Risks Outputs Component I Assumptions 1. Wastewater treatment • 13 plants increase wastewater • Annual • Adequate counterpart capacity increased treatment capacity by Development funds are made available 365,000 cubic meters/day 3 Reports by BMG on time. 2. Efficient domestic (m /day) by end of 2010 and county • Industrial zoning water supply system • 3 model systems increase governments regulations are enforced. demonstrated domestic water supply by 106,600 m3/day by 2010 Risks 3. Watershed • 3 model systems avert leakage • Implementation of rehabilitation through and improve water supply subprojects is delayed by reforestation efficiency by at least 25% external factors. undertaken • 20,300 hectares (ha) of land • Weak interagency reforested by 2013 coordination. 4. Clean energy • 1.65 million square meters (m2) • Severe droughts. developed of floor area in residential and public buildings heated with geothermal energy by 2010 • 50% of potential carbon credit revenues allocated for poverty reduction in Xiong County 5. Solid waste • 0.6 million tons of solid waste management and disposed of in sanitary landfill; pollution cleanup 2 million tons of fly ash safely undertaken disposed of; 13 ha eco-theme park established by 2011 6. Improved urban flood • 14.31 square kilometers (km2) management of urban areas protected by provided 2010 • 200 million m3/year of water 7. Assured and transferred, of which increased water 128 million m3 reaches availability for Baiyangdian Lake by 2011 Baiyangdian Lake and Baoding City Component II Assumptions 1. Integrated ecosystem • 500 people trained; awareness • Biodiversity • Local communities are management and in 1,000 communities raised; conservation willing to participate in the biodiversity 10 demonstration projects lessons integrated in project activities. conservation carried out; biodiversity school curricula • Relevant staff is nominated measures management and monitoring • Dissemination of for training and on time. implemented programs established in awareness material 2 provincial nature reserves; through mobile Risks sustainable financing of audiovisual displays, • Financing of the environmental management dedicated environmental mechanisms set up by 2012 biodiversity website, management mechanisms 2. Sustainable livelihood • Income-generating pilots and wetland is implemented efficiently. program pilot-tested implemented (i.e., ecotourism learning center at • Weak interagency and expanded and non-timber forest the lake coordination. products); • Severe droughts. • 1,000 households trained for alternative livelihoods; 100 new sustainable businesses established; 100 staff trained on project, financial, and environmental management; 12 study tours arranged; mechanisms for stakeholder coordination set up by 2012

26 Appendix 1

Data Design Performance Sources/Reporting Assumptions Summary Targets/Indicators Mechanisms and Risks Component III Assumption Ecosystem and water • 12 staff training programs • Relevant staff are management institutions designed by 2009; 6 study nominated for training and strengthened tours carried out by 2010; and on time. The trained staff 8 fellowships awarded by 2010; keep working for the on-the-job training program project activities. undertaken continually until 2012 Assumptions

• PMO and PIU staff are Project management office Component IV • appointed on time and (PMO) with 15 staff and project Project management most stay with the project implementation units (PIUs) support provided throughout its with 3 staff established and implementation. operational by fourth quarter • Relevant staff are (Q4) 2007; adequate budgetary nominated for training and resources allocated; office on time. equipment and vehicles

procured by the Q1 2009; 416 person-months of Risk consulting services provided • Adequate counterpart funds through 2013 are made available on time.

Activities with Milestones Inputs ($ million) 1.1 Thirteen wastewater treatment plants constructed by 2010. • ADB loan: 100.0 1.2 Three water supply systems constructed by 2010. • GEF grant: 3.0 1.3 Two reforestation subprojects completed by 2013. • Government 1.4 One clean energy development subproject completed by 2010. financing: 154.5 1.5 One urban flood management subproject completed by 2010. • Equity: 9.5 1.6 One integrated water management subproject completed by 2011. • Local bank: 4.6 1.7 One solid waste management subproject completed by 2010. • Asia Pacific Carbon Fund: 1.8 2.1 Biodiversity conservation and monitoring program implemented by 2011. 2.2 Sustainable tourism activities strengthened by 2011. Total Cost: $273.4 2.3 Innovative alternative livelihoods demonstrated by 2010 and replication program established by 2013. • Civil works: 106.2 2.4 Mechanisms for improved integrated ecosystem management set up by 2009. • Other investments: 73.9

• Equipment: 68.3 3.1 Twelve training programs designed and delivered by 2010. 3.2 Six study tours carried out by 2010. • Consulting 3.3 On-the-job training carried out by 2011. services 3.2 3.4 Eight fellowships awarded by 2010. • Recurrent costs: 8.3 • Training, study tours, 4.1 Municipal PMO and county PIUs established by Q4 2007. conferences, 4.2 PMO and PIUs staffed and provided with initial training by Q4 2007. workshops: 0.7 4.3 Consultant for Asian Development Bank loan package, for 236 person-months, • Interest during engaged by Q4 2008. implementation: 12.5 4.4 Consultant for Global Environment Facility package, for 180 person-months, • Other charges: 0.3 engaged by Q4 2008.

PROBLEM TREE ANALYSIS

Deteriorating Unsustainable Adverse health Loss of livelihood economic impacts biodiversity opportunities growth

Ecosystem degradation of Development Problem Baiyangdian Basin

Soil erosion Reduced Water Solid waste entering Land Air pollution river flows pollution waterbody by flooding pollution Reduced capacity to dilute pollutants Water shortage

Low Rapid Unregulated Inefficient Inappropriate Non-point Discharge of Discharge of Leachate from Inappropriate Coal burning Deforestation precipitation economic exploitation of use of water water agriculture industrial domestic landfills and disposal of for space growth groundwater allocation pollution wastewater wastewater ash disposal solid waste heating

Over- Overgrazing Inappropriate Under- Limited Use of Weak Limited Inappropriate exploitation and cultivation reforestation priced water sectoral agrochemicals regulation wastewater facility and of fuelwood of marginal techniques tariff integration enforcement treatment management land capacity

2 Appendix

Low awareness Inadequate Inappropriate Weak Limited on environment policy framework financing institutional institutional protection mechanism capacity coordination Legend

Project

27 intervention

Source: Asian Development Bank.

28 Appendix 3

SECTOR ANALYSIS

A. Introduction

1. Baiyangdian Lake in Hebei Province is the largest remaining regulated freshwater body in the northern part of the People’s Republic of China (PRC). The lake lies in the middle reaches of the Daqing River basin and discharges into the Bohai Gulf, Yellow Sea. Much of the Baiyangdian Basin, totaling 31,500 square kilometers (km2) lies within Baoding Municipality and all of the lake body is located in its two Anxin and Xiong counties (Map 1). Historically, the lake served many environmental and economic purposes and was described as the “kidney” of the northern PRC. Because of its strategic position as a sink in the Daiqing River basin, the lake is a critical floodwater retention, rainfall inflows, and surface runoffs for about 72% of the basin’s area. Specifically, it regulates floodwater discharges and moderates waterlogging. It also transports nutrients that help contribute to the purification of water and the regeneration of nutrients. The lake is also economically important, especially for the more than 200,000 people living in and around the lake’s wetlands, providing them with their main sources of livelihood (e.g., freshwater fishery, reed production, and tourism services); water for drinking and irrigation; and major transportation routes. The open water and aquatic beds of the lake serve as spawning grounds and feeding habitats for a diverse array of fish and other animal species. As a large body of water, the lake also moderates the local and regional temperature and thus has an effect on the microclimate of its surroundings.

2. The lake and its upper watershed in the Taiheng mountains support significant biodiversity of regional and global significance within the Daqing River basin. The lake and its associated wetlands are primarily important as a refueling site for migratory birds on the East Asian–Australasian flyway. Seven globally-threatened bird species are regularly sighted in the area. The Taiheng mountains, which contain most of the last remaining secondary forests in Baoding Municipality, support a wide range of rare and endemic animals such as the brown- eared pheasant Crossoptilon mantchuricum, grey-sided thrush Turdus feae, leopard Panthera pardus, and golden takin Budorcas taxicolor. The Taiheng mountains are also recognized as a center of plant endemism in the PRC.

3. In the last 4 decades, many functions and values of the lake have been eroded. Construction of over 90 reservoirs (4 of them large) in the upstream has led to a dramatic decline in water inflows and surface runoffs into the lake, from an average of 1.73 billion cubic meters (m3) of water discharging into the lake in the 1960s, down to 0.065 billion m3 in 2002. Sediment load had also decreased from 7.1 billion m3 in the 1960s to just 1.0 billion m3 by 1999.

4. Increased water demand for irrigation, industry, energy, and residential uses has been a major reason for the construction of these reservoirs. With the demand for water exceeding supply in the Daqing River basin, the frequencies of no or low inflows to the lake have become more acute, especially during “dry” years. To compound existing water demands, population growth and expanded agricultural and industrial activities in the upstream and within the lake areas have increased wastewater discharges, pollutants, and sediments from these sectors into the lake. It is estimated that half of the pollution sources originate from upstream, while the other half comes from the more than 200,000 people living in and around the lake.

5. A body of water is assessed to be polluted when the water does not meet the criteria required for its designated use or function. Water pollutants can be chemical, physical, or biological in nature. In the PRC, water uses are classified in five categories: (i) class I, headwaters of major rivers and water bodies in nature reserves; (ii) class II, centralized water supply (level I), habitats of endangered and rare species, and spawning and feeding grounds of

Appendix 3 29 fish; (iii) class III, centralized water supply (level II), fish wintering grounds, routes of migratory species, aquaculture areas, and swimming areas; (iv) class IV, industrial use, and non-direct- contact water-based recreation; and (v) class V, for irrigation and landscaping. There is an ongoing program to classify/reclassify water bodies such as rivers, lakes, reservoirs, oceans, etc. according to type of functional use, based on a set of criteria that will be applied consistently nationwide. Baiyangdian Lake, under the program, has been classified class III in view of its importance to migratory birds, potential for aquaculture, and human use.

6. National standards for assessing water quality contain 22 parameters which measure the presence of pollutants such as biochemicals, e.g., chemical oxygen demand (COD), biochemical oxygen demand (BOD), nitrogen, phosporus; heavy metals (e.g., mercury, lead, and chromium); and other toxic substances (i.e., cyanide, phenol, and coliform); as well as physical factors such as temperature, pH, and turbidity (Table A3.1).

Table A3.1: Major National Standards for Surface Water Quality (GB383-2002) (mg/L)

Parameter Water Quality Class I Class II Class III Class IV Class V pH 6–9 6–9 6–9 6–9 6–9 Suspended Solis — — — — — Dissolved Oxygen ≥ 90% saturation 6 5 3 2 Biochemical Oxygen Demand (BOD) ≤ 3 3 4 6 10 Chemical Oxygen Demand (COD) ≤ 15 15 20 30 40 Organic Phosphorous (P) ≤ — — — — — Total Phosphorous (TP) ≤ 0.02 0.1 0.2 0.3 0.4 Ammonia Nitrogen (NH3-N) ≤ 0.15 0.5 1.0 1.5 2.0 Nitrate Nitrogen ≤ — — — — — Total Nitrogen (N) ≤ 0.2 0.5 1.0 1.5 2.0 Phenol ≤ 0.002 0.002 0.005 0.01 0.1 Total Dissolved Solid (TDS) ≤ — — — — — Fecal Coliform ≤ 200 2,000 10,000 20,000 400,000 Chlorine Residual ≤ — — — — — — = no standard exists or guideline is not specified. Note: In the People’s Republic of China, there are two water classifications; one describes functions and the other quality. Source: 2007 project feasibility study.

7. Oxygen-consuming organic matter measured in COD and BOD is the most common water pollutant in the PRC. Other common pollutants are nutrients that contribute to excessive growth of algae and other water plants which, in turn, deplete the water's oxygen supply. The major parameters for measuring nutrients are ammonia nitrogen (NH3-N) and total phosphorous (TP). The annual occurrence of fish kills since the early 1990s reflects the presence of high levels of nutrients in the lake.

B. Status of Pollution in the Baiyangdian Basin

8. Water pollution and degradation of the ecosystem in the lake have accelerated in the last two decades because of continued pressure from rapid economic growth, resulting in industrialization and urbanization. The current water quality in most of the urban inland rivers has been assessed class V or worse, and large-scale fish kills have occurred in the lake every year since the early 1990s. The situation is aggravated by lack of wastewater treatment facilities, with large quantities of untreated industrial and domestic wastewater directly discharged into rivers and other tributaries. This has subsequently resulted in the deterioration in the quality of water meant for domestic use. The lake, in fact, consists of several lakes with water quality falling classes in IV–V of the Environmental Quality Standard for Surface Water of the PRC as shown in Table A3.2.

30 Appendix 3

Table A3.2: Water Quality of the Major Lakes in Baiyangdian

Water Quality Major Pollutants Exceeding Monitoring Section Existing Water Quality Class Target Class the Required Limits Shaochedian IV III Zhaolindian IV III Wangjiazhai IV III Quantou IV III Duancun IV III BOD, COD, NH3-N, TP Caiputai IV III Guangdianzhangzhua IV III Nanliuzhuang Below V IV Gudingdian Not available V BOD = biochemical oxygen demand, COD = chemical oxygen demand, NH3-N = ammonia nitrogen, TP = total phosphorous. Source: 2007 project feasibility study.

C. Sources of Pollution in the Baiyangdian Basin

9. There are three main sources of pollution in the basin: (i) point sources, including urban and industrial wastewater; (ii) nonpoint sources that include agricultural and urban storm water runoff, and livestock wastes; and (iii) in-lake pollution sources, including domestic wastewater and leachate from wastes generated by in-lake villages, in-lake fish farms, and tourism.

10. Total annual pollution loads generated by all sources (i.e., point, nonpoint, and in-lake) are estimated at about 633,635 tons/year of COD, 92,741 tons/year of ammonia nitrogen, and 46,929 tons/year of total phosphorous. A large proportion of the total pollution load is produced by in-lake sources such as in-lake villages, fish and duck farms, and in-lake tourism. About 60.7% of COD, 59.3% of ammonia nitrogen, and 91.6% of total phosphorous produced by the in-lake sources reach the lake. A significant proportion of the total COD (about 31.5%) and ammonia nitrogen (about 43%) produced by point sources likewise reach the lake. The proportion of pollution loads, by type of source, reaching the lake are in Table A3.3.

Table A3.3: Pollution Load Reaching Baiyangdian Lake by Source

Ammonia Total COD Nitrogen Phosporous Source (%) (%) (%) A. Point Sources 1. Industrial wastewater 17.0 26.8 0.1 2. Urban domestic wastewater 14.6 16.2 2.4 Subtotal 31.6 43.0 2.5 B. Non-point Sources 1. Rural domestic wastewater 1.9 2.5 0.7 2. Agricultural runoff 2.2 5.9 2.9 3. Livestock 3.6 9.5 2.5 Subtotal 7.7 17.9 6.1 C. In-lake Pollution Sources 1. In-lake village wastewater 33.1 32.5 48.5 2. Fish farms 27.6 26.8 43.0 3. Tourism 0.0 0.0 0.1 Subtotal 60.7 59.3 91.6 COD = chemical oxygen demand Source: 2007 project feasibility study.

Appendix 3 31

11. The 18 counties and 5 cities in the basin generate an estimated total sewage of about 515 million m3/year or about 1.41 million m3/day. This pollution loading can be broken down as follows: (i) COD, about 137,989 tons/year; (ii) ammonia nitrogen, about 6,374 tons/year; and (iii) total phosphorous, about 1,347 tons/year (Table A3.5).

Table A3.4: Total Volume of Sewage Generated in the Basin, by City or County

Sewage Pollutants COD Ammonia Nitrogen Total Phosphors (million m3/year) (tons/year) (tons/year) (tons/year) Baoding City 121.35 34,894 1,566 374 Mencheng County 37.15 7,421 280 26 Qingyuan County 18.40 3,672 96 39 Laixian County 7.42 2,481 137 33 Fuping County 6.42 2,107 105 24 Xushui County 16.24 4,474 180 44 Dingxing County 11.43 3,398 190 48 Tongxian County 9.77 3,536 200 48 Goayang County 46.45 9,003 272 42 Rongcheng County 11.41 3,263 100 23 Laiyuan County 4.39 2,232 155 40 Wangdu County 4.34 2,097 166 36 Anxin County 11.75 2,348 223 25 Yixian County 8.71 2,688 274 33 Queyang County 3.72 1,984 135 36 Lixian County 65.19 13,655 421 45 Shunping County 4.75 1,636 139 21 Poyang County 5.74 1,726 87 19 Xiongxian County 10.51 3,261 149 36 Zhuzhou City 47.12 12,406 475 113 Dingzhou City 43.63 12,500 586 131 Angou City 4.84 2,351 162 40 Gaobeidian City 14.46 4,856 276 70 Total 515.19 137,989 6,374 1,346 COD = chemical oxygen demand Source: 2007 project feasibility study.

D. The Environmental Protection Plans and the Project

12. A total of 27 wastewater treatment plants are proposed under the water pollution control component of the 11th Five-Year Environmental Protection Plan. Under this plan, it is expected that all the urban sewage generated by Baoding City and about 60% of 22 other cities and counties will be treated by 2010. Baoding municipal government (BMG) is also making efforts, through its Baoding Ecosystem Rehabilitation Master Plan, to mitigate existing water pollution problems. It expects to achieve its wastewater management objectives set for 2010, which include attaining class III water quality in the lake and class IV water quality in urban inland rivers. The master plan calls for installing 23 wastewater treatment plants in the counties, cities, and towns surrounding and upstream of the lake with a total capacity of 665,000 m3/day. Of these, 13 wastewater treatment plants, with a total capacity of about 340,000 m3/day, are covered under this Project and account for 51% of the planned capacity.

13. This Project, therefore, significantly complements the initiatives under the 11th Five-Year Environmental Protection Plan and those under the master plan. The Project will enable BMG to achieve its wastewater management objectives set for 2010.

32 Appendix 4

EXTERNAL ASSISTANCE

Donor Project Title Year Amount ($ million) Asian Development Nanjing Qinghuai River Environmental Improvement 2006 100.0 Bank Shandong Hai River Basin Pollution Control 2006 80.0 Wuhan Wastewater and Stormwater Management 2006 100.0 Hunan Flood Management Sector 2006 200.0 Strengthening Flood Management Sustainability in Hunan Province 2006 0.5 Henan Wastewater Management and Water Supply Project 2005 100.0 Sanjiang Plain Wetlands Protection 2005 15.0 Fuzhou Environment Protection 2005 55.8 Jilin Water Supply and Sewerage Development 2005 100.0 Fujian Soil Conservation and Rural Development II 2004 80.0 Evaluation of Environmental Policy and Investment for Water 2004 0.5 Pollution Control in the Huai River Basin and the Taihu Lake Basin Sanjiang Plains Wetlands Protection Project 2004 15.0 Wuhan Wastewater Management 2003 83.0 Harbin Water Supply 2003 100.0 Hebei Province Wastewater Management Project 2002 82.0 Hebei Zhanghewan Pumped Storage 2002 144.0 Tianjin Wastewater Treatment 2000 130.0 Fuzhou Water Supply and Wastewater Management 1998 102.0 Zheijiang-Shanxi Water Supply Project (Phase I) 1997 100.0 Anhui Environmental Improvement Project for Municipal Wastewater 1996 28.0 Anhui Environmental Improvement Project for Industrial Pollution 1996 112.0 Preliminary Analysis of Guizhou Hongjiadu Hydropower and Hebei 1995 0.1 Zhanghewan Pumped Storage Hainan Agriculture and Natural Resources Development 1995 53.0 Beijing Environmental Improvement Project 1994 157.0 Dalian Water Supply Project 1994 160.0 Yunnan-Simao Forestation and Sustainable Wood Utilization 1994 77.0 Tangshan and Chengde Environment Improvement 1993 140.0 Qingdao Environmental Improvement Project 1992 103.0 International Bank Guangxi Integrated Forestry Development and Biodiversity 2006 5.6 of Reconstruction Conservation and Development Lake Dianchi Freshwater Biodiversity Restoration Project 2002 0.9 Sustainable Forest Development Project, Protected Areas 2001 16.3 Management Component Nature Reserves Management 1995 19.0 United Nations Conservation and Sustainable Utilization of Wild Relatives of Crops 2006 8.0 Development Biodiversity Management in the Coastal Area of China’s South Sea 2002 3.5 Programme Multi-agency and Local Participatory Cooperation in Biodiversity 2000 0.7 Conservation in Yunnan’s Upland Ecosystem Wetland Biodiversity Conservation and Sustainable Use 1999 12.0 United Nations Capacity Building of Clearing House Mechanism and Preparation of 2002 0.4 Environment Second National Conference of the Parties of Community of Practice Programme Support to the Implementation of the National Biosafety Framework 2001 0.9 of China Lop Nur Nature Sanctuary Biodiversity Conservation 1998 0.7 National Biodiversity Strategy, Action Plan and the First National 1997 0.6 Report to the Convention on Biological Diversity The World Bank Irrigated Agriculture Intensification Loan III 2005 200.0 Hebei Urban Environment Project 2000 150.0 Irrigated Agriculture Intensification Loan II 1998 300.0 Forest Development in Poor Areas Project 1998 200.0 Forest Resources Development and Protection 1994 200.0 Hebei Agriculture Development Project 1990 150.0 National Afforestation Project 1990 300.0 Sources: Asian Development Bank, International Bank for Reconstruction and Development, United Nations Development Program, United Nations Environment Program, and World Bank.

Appendix 7 33

LIST OF SUBPROJECTS

Description Treatment Sewer Wastewater Treatment Capacity Pipes No. Plants Location Treatment Process (m3/day) (km) 1 Liushi Town Li County CAST 20,000 4.6 2 Baigou Town Gaobeidian City UNITANK 30,000 20.4 3 Li County Li County CAST 30,000 15.0 4 Xushui County Xushui City Orbal oxidation ditch 30,000 10.0 process 5 Xinxing Town Li County Orbal oxidation ditch 25,000 4.3 process 6 Anxin County Anxin County Biolak 20,000 7 Yi County Yi County CASS 20,000 31.3 8 Dingxing Dingxin County Biolak 40,000 28.4 9 Dingzhou City Dingzhou City CAST 40,000 22.6 10 Mancheng County Mancheng County UNITANK 40,000 11.1 11 Xiong County Xiong County UNITANK 20,000 16.5 12 Tang County Tang County CAST 20,000 2.9 13 Wenquancheng Baoding City Wetland treatment 30,000

system Total 365,000 Capacity Water No. Water Supply Systems Location No. of New Wells (m3/day) Mains (km) 14 Yi County Yi County 14 30,000 129.8 15 Xiong County Xiong County 10 26,600 23.0 16 Dingzhou City Dingzhou City 10 50,000 35.4 Total 106,600 No. Miscellaneous Subprojects Location Description 17 Angezhuang Watershed Yi County (i) 9,800 ha of plantations including 2,000 ha of fast-growing Reforestation and high-yielding forests, 2,000 ha of water conservation forests, 4,666 ha of soil erosion control forests, and 933 ha of ecological protection forest with non-timber products; and (ii) 8,666 ha of mountain closure for forest recovery.

18 Baiyangdian Lakeside Anxin County Forest rehabilitation of 264 ha; reforestation of 268 ha; 1,200 Forestation ha of landscape forests; and 99 ha of green belts.

19 Urban Flood Management Anxin County Embankment of 6.7 km, and bank reinforcement.

20 Integrated Water Baoding City (i) Construction of 14.45 kilometers canal to connect two Management reservoirs to divert water from Wangkuai to Xidayang, and (ii) diversion of water from Xidayang to replenish Baiyangdian Lake and recharge Yimuquan groundwater.

21 Solid Waste Management Baoding City (i) Relocation of 0.55 million tons of dumped waste to Baoding Municipal Landfill, and (ii) Rehabilitation of the coal fly ash storage of Baoding Thermal Power Plant.

22 Clean Energy Development Xiong County 4.5 million m3/day geothermal water supply for space-heating, four central supply stations, and 18 km of supply pipelines. Note: Biolak is a multistage combined anaerobic and aerobic wastewater treatment process. CASS (cyclic activated sludge system) is a combination of a biological selector and variable volume process reactor. The process operates with a single sludge in a single reactor basin to accomplish both biological treatment and solids-liquid separation. In CAST (cyclic activated sludge technology), similar to CASS, the sequences of fill, aeration, settle, and decant are consecutively and continuously operated in a compartment reactor. UNITANK is a technology used for domestic and industrial wastewater treatment consisting of one reactor divided into three compartments. These are hydraulically connected by an opening in the common connecting walls. Each compartment is equipped with an aeration system. Sources: 2006 feasibility study reports for individual subprojects, and individual design institutes.

34 Appendix 8

BIODIVERSITY CONSERVATION ACTIVITIES

1. The biodiversity conservation activities under the Global Environment Facility (GEF) component will be organized in six modules. The summary description is provided below. More detailed and specific description of these interventions is in Supplementary Appendix B.

2. Module 1, Protected Area Management. Biodiversity management and monitoring functions will be strengthened in the two provincial nature reserves (PNRs), i.e., the Jin Hua Shan-Heng Lingzi Shan and Baiyangdian Lake Rare Bird PNRs (Map 7). Specific actions will include (i) training of at least five managers and 10–15 additional staff in each of the two PNRs, (ii) formation of community management groups in communities adjacent to each PNR, (iii) preparation of biodiversity management plans, (iv) development and implementation of regular biodiversity monitoring programs, (v) more effective biodiversity management over the 700 square kilometer (km2) area of both PNRs, and (vi) steps taken to pursue listing of Baiyangdian as a Ramsar Wetland of International Importance.

3. Module 2, Habitat Enhancement and Rehabilitation. A variety of pilot activities will be implemented to improve the quality and/or extent of important wildlife habitats. For the Baiyangdian Rare Bird PNR, these will include (i) constructed wetlands to increase habitat area and reduce discharge of nonpoint source pollutants to the lake, (ii) demonstration of composting toilets for “in-lake” and lakeside communities—to reduce nonpoint source pollution and provide compost for farm use, (iii) establishment of test areas to improve migratory bird resting and feeding islands, and (iv) removal of excess silt from the lake through appropriately scaled community-based initiatives. Demonstration of integrated pest management will be set up to reduce production costs and reliance on agricultural chemicals. For the Jin Hua Shan-Heng Lingzi Shan PNR, the preferred vegetation cover for the hemaji and other rare bird species will be increased or restored in areas that have been deforested or otherwise damaged through human activity. Four to five demonstration activities will be established for pollution reduction within the Baiyangdian Lake environs. Habitat enhancement will be undertaken in both PNRs, covering an area equivalent to at least 5% of the total designated core conservation areas.

4. Module 3, Eco-Friendly Livelihoods. Steps will be taken to improve environmental benefits of livelihood activities that are dependent on natural resources within the basin. Ecotourism training will be provided to small operators to improve visitors’ appreciation for biodiversity and natural ecosystem values. Technical support will be provided to Baoding Tourism Bureau and county bureaus to prepare ecotourism master plans. Reed producers in the lake and gatherers of non-timber forest products in the upper watershed will be trained to adopt improved methods of planting, harvesting, and processing so that impacts on habitats and natural resources are minimized. Value-adding for these products will increase income while reducing pressure on natural resources. Six demonstration activities of improved livelihoods will be undertaken relating to eco-tourism; and an additional six relating to harvesting, processing, and marketing of natural products. A tourism master plan will be drafted for Baoding Municipality. At least two trial eco-certification programs will be initiated, one each for tourism and natural products-based activities. A credit facility will be established to support sustainable livelihood options, especially among the poorest segment of the target beneficiary group.

Appendix 8 35

5. Module 4, Sustainable Financing. Mechanisms for self-financing of required environmental and biodiversity management services in both PNRs will be supported. Technical assistance will be provided to work with county authorities, as well as with other responsible agencies (e.g., Yesanpo Scenic and Cultural Heritage Area management committee in the upper catchment basin) to develop appropriate financing structures (e.g., user fees, cost sharing, or trust fund), based primarily on tourism revenue streams.

6. Module 5, Awareness. Promoting awareness in the basin will ensure long-term sustainability of biodiversity conservation. Awareness and participation of communities around both PNRs will be strengthened by (i) integrating biodiversity conservation lessons into curricula for at least 5% of all primary and secondary schools within the rural counties of Baoding Municipality; (ii) providing mobile outreach facilities (e.g., fully equipped vans or minibuses, with small libraries, audiovisual displays, interactive exhibits, etc.) to reach poor, remote communities around both PNRs; (iii) developing a Baiyangdian biodiversity website; (iv) developing feedback and monitoring mechanisms to measure and improve the effectiveness of awareness campaigns; and (v) providing materials and technical assistance to establish a wetlands learning center at the lake, including exhibits, signage, walkways, and boardwalks. Notes and pamphlets—on effective new policy measures, lessons learned, and best practices— will be prepared and published for distribution especially for high-ranking decision makers in the Government and executives in the private sector. All such material will also be posted on the project website for public access.

7. Module 6, Integrated Ecosystem Management. Activities will be integrated by (i) strengthening basin-wide institutional coordination mechanisms, especially through regular coordination meetings; (ii) increasing involvement and strengthening of local nongovernment organizations; (iii) improving capabilities for integrated, basin-wide monitoring of biodiversity, surface water flow, water quality, and other critical ecosystem parameters; and (iv) establishing a biodiversity and wetlands database as part of a basin-wide geographic information system clearinghouse that will serve as a resource for future planning and management decision making.

36 Appendix 7

TERMS OF REFERENCE FOR CONSULTING SERVICES

A. Introduction

1. Water pollution and ecosystem degradation in Baiyangdian Basin have accelerated in the last 2 decades because of continued pressure from rapid economic growth, industrialization, and urbanization. The degradation of the lake has diminished livelihood opportunities for communities living in the lake’s surrounding areas and has put them at risk from various types of diseases. Adding to the current problems is the weak capacity of county governments to implement and enforce environmental policies and safeguards to conserve the biodiversity of the basin.

2. The Project will support Baoding municipal government (BMG) and participating county governments in abating the continuing pollution and degradation in the lake and its river network as well as in rehabilitating its ecosystem in line with the priorities of the national, provincial, and municipal governments. The proposed Project is part of the first phase under the Baiyangdian Ecosystem Rehabilitation Master Plan, which calls for an integrated effort to reduce pollution loads in the lake and rehabilitate the ecosystems in the basin, with a planned investment of over $1.0 billion. This Project is to have a demonstration effect for future undertakings.

B. Scope of Services

3. BMG, through Baoding Development and Reform Commission (BDRC), is the Executing Agency (EA) for the Project. Consulting services are required to support the project management office (PMO) at BDRC and the project implementation units (PIUs) of the respective implementing agencies (IAs), to provide project management support and build capacity for integrated ecosystem and water resource management.

4. A consulting firm will be engaged by the EA to provide technical assistance to the PMO and PIUs throughout project implementation. In general, the consulting services will (i) support the PMO in project management, and (ii) advise and train the PMO and PIUs in the technical aspects of the Project. In particular, the consultant will develop approaches, procedures, and guidelines for implementing key project activities. The consultant will also provide assistance to concerned BMG and county agencies in various aspects of project implementation, including, among others, community organization, livelihood demonstration, environmental monitoring, institutional strengthening, gender and development, and project monitoring and evaluation, as necessary.

5. The Project will finance two consulting packages. Package A, for 236 person-months, financed under the loan, will comprise three international experts for 25 person-months and 14 national experts for 211 person-months (Table A7). Unallocated inputs (2 person-months of international and 11 person-months of national experts) are provided to be used for unidentified short-term specialists whose services may be required in the course of project implementation. A consulting firm will be engaged to provide these services. The PMO will be responsible for the selection, contract negotiations, and contract management. Package B, financed under the Global Environment Facility (GEF) grant, for 180 person-months, will comprise eight international experts for 38 person-months and nine national experts for 142 person-months. The Asian Development Bank (ADB) will recruit the firm, and the PMO will negotiate and manage the contract. In selecting these firm(s), quality and cost-based selection (80:20) will be used and the short-listed firms will be required to submit full technical proposals. All recruitment will be carried out in accordance with ADB’s Guidelines on the Use of Consultants (2007, as amended from time to time).

Appendix 7 37

Table A7: Consulting Packages (person-months)

Project Consultants Year 1 Year 2 Year 3 Year 4 Year 5 Total A. ADB Financed 1. International Consultants IWRM/Project Management Specialist/Team Leader 5 5 5 15 Watershed Management Specialist 2 2 4 Geothermal Energy Engineer 2 2 4 Unallocated Consultant Services 1 1 2 Subtotal (A1) 25 2. National Consultants Project Management Specialist/Deputy Team Leader 10 10 10 10 10 50 Structural Engineer 4 2 2 8 Civil Engineer 6 4 4 2 16 Mechanical Engineer 5 5 2 2 14 Electrical Engineer 5 5 2 2 14 Wastewater Process Engineer 4 4 2 2 12 Solidwaste Engineer 4 4 2 2 12 Geothermal Energy Engineer 4 2 2 2 10 Watershed Management Specialist 4 2 2 8 Water Resource Planner 4 2 2 8 Forest Specialist 4 2 2 2 2 12 Financial Management Specialist 6 3 3 3 2 17 Resettlement Specialist 2 2 2 2 8 Environmental Management and Monitoring Specialist 3 3 3 2 11 Unallocated Consultant Services 3 3 3 2 11 Subtotal (A2) 211 Subtotal (A) 236 B. GEF Financed 1. International Consultants Biodiversity Specialist 3 2 1 6 Institutional/Training Development Specialist 2 2 1 1 6 Environmental Management and Monitoring Specialist 2 1 1 1 5 Information, Education, and Communication Specialist 2 1 1 1 5 Ecotourism Specialist 2 1 1 4 Livelihood Specialist 2 2 2 6 Appropriate Technology Specialist 2 2 4 Environment Economist 2 2 Subtotal (B1) 38 2. National Consultants Biodiversity Specialist 6 6 4 4 2 22 Institutional/Training Development Specialist 3 3 2 2 10 Environmental Management and Monitoring Specialist 6 6 3 3 2 20 Information, Education, and Communication Specialist 6 6 4 4 20 Ecotourism Specialist 3 3 2 2 10 Livelihood Specialist 6 6 4 4 4 24 Appropriate Technology Specialist 3 3 3 3 12 Environment Economist 4 2 6 Geographic Information System 6 4 4 4 18 Subtotal (B2) 142 Subtotal (B) 180 Total 416 IWRM = integrated water resources management.

6. The focus of the GEF consultant team will be to introduce biodiversity conservation mechanisms to assist PMO/PIUs to establish a program for building environmental awareness among the beneficiary communities. The experts will work closely with PMO/PIU staff and relevant agencies, officials, and resource managers in developing guidelines and plans for participatory

38 Appendix 7 ecosystem management; and prepare implementation guidelines and procedures. This is to inculcate integrated ecosystem management in BMG planning and strengthen institutional capacity for implementing environmental policies as well as enforce rules and regulations.

C. Required Expertise

1. ADB-Financed

a. International Consultants

7. Integrated Water Resources Management/Project Management Specialist/Team Leader (15 person-months). The specialist will (i) support the PMO in the establishment and operation of effective administration, management, and procurement systems; (ii) provide guidance for recruitment and disbursement; (iii) assist the PMO in procurement and contract management; (iv) familiarize PMO and counterpart staff with ADB guidelines; (v) assess water use and consumption patterns by different sectors in Baiyangdian Basin, and provide guidance on how to monitor changes in water supply and demand to mitigate any adverse effects on the water balance; (vi) develop a methodology to forecast water demand by different users, i.e., domestic, industrial, agricultural, and environmental; and (vii) review the institutional and legal framework and propose alternative yet feasible basin-wide approaches for strengthening integrated water resources management among BMG and county bureaus.

8. Watershed Management Specialist (4 person-months). The specialist will (i) assess the condition of Baiyangdian Basin watershed, (ii) determine the requirements for effective watershed rehabilitation and management, (iii) evaluate the resources and capacity of BMG and county governments, (iv) determine opportunities for involving forest communities, and (v) recommend alternative strategies for implementing watershed rehabilitation and management interventions in the project area. The specialist will instruct and guide the works of the national watershed management specialist, water resources planner, and forest specialist, and will provide input to the integrated water resources management/project management specialist/team leader for the introduction of an integrated water resources management approach on a basin level.

9. Geothermal Energy Engineer (4 person-months). The engineer will (i) review the proposed design of Xiong County geothermal energy plant; and (ii) verify (a) the assessment of environmental impacts; (b) plant, equipment, materials, and construction standards; (c) detailed civil and mechanical designs; (d) prepared bills of quantities and detailed cost estimates; and (e) drawings required for construction and installation works. The engineer will also validate estimates of operation and maintenance costs of the subproject, including the recurrent cost of implementing social and environmental safeguards; and oversee the schedules of contract packages for the subproject prepared by the procurement agency.

b. National Consultants

10. Project Management Specialist/Deputy Team Leader (50 person-months). The specialist will assist the international integrated water resources management/project management specialist/team leader in providing support to the PMO in the (i) establishment and operation of effective administration, management, and procurement systems; (ii) guidance for recruitment and disbursement; (iii) procurement and contract management; and (iv) familiarization of PMO and counterpart staff with ADB guidelines.

Appendix 7 39

11. Structural Engineer (8 person-months). The engineer will (i) review the detailed designs of proposed subproject investments, particularly those pertaining to wastewater treatment, water supply, water resource reallocation, and flood control subprojects; and (ii) verify (a) the list of suggested investments; (b) hydraulic calculations for the water resource reallocation subproject; (c) the assessment of environmental impacts; (d) plant, equipment, materials, and construction standards; (e) detailed civil and mechanical designs; (f) prepared bills of quantities and detailed cost estimates; and (g) drawings required for construction and installation works. The engineer will also validate estimates of operation and maintenance costs of subproject investments, including the recurrent cost of implementing social and environmental safeguards; and oversee the schedules of contract packages prepared by the procurement agencies.

12. Civil Engineer (16 person-months). The engineer will work with the international structural engineer in (i) conducting the review of the design of proposed subproject investments, (ii) managing the construction of subprojects, and (iii) ensuring that all construction are carried out according to engineering quality standards.

13. Mechanical Engineer (14 person-months). The engineer will: (i) review the mechanical design of WTPs; (ii) review technical specification of procurement documents; (iii) review equipment installation and test program and supervise its implementation, so as to ensure the correctness of the design and quality requirement of procurement; and (iv) undertake technical training of WTP staff to operate electrical and auto control equipment, pump station, and dispose sludge.

14. Electrical Engineer (14 person-months). The engineer will: (i) review the electric and auto control design of the WTP area, pumps station, and sludge disposal; (ii) review the technical specification of procurement documents; (iii) review electric and auto control equipment installation and test program and supervise its implementation, so as to ensure the correctness of the design and quality requirement of procurement; and (iv) undertake technical training of WTP staff to operate electrical and auto control equipment, pump station, and dispose sludge.

15. Wastewater Process Engineer (12 person-months). The engineer will: (i) review the process design of WTPs, pump station, and sludge disposal; (ii) review the technical specification of the procurement documents; (iii) assist in debugging and test run; and (iv) undertake process training of the technology and operation of the WTPs, pump station and sludge disposal.

16. Solidwaste Engineer (12 person-months). The engineer will: (i) review the design of solid waste subproject; (ii) review the technical specification of the procurement documents; (iii) assist in debugging and test run; and (iv) undertake process and management training of project staff for landfill technology.

17. Geothermal Energy Engineer (10 person-months). The engineer will work with the international geothermal energy engineer in the (i) review of the proposed design of Xiong County geothermal energy plant; and (ii) verification of (a) the environmental impacts; (b) plant, equipment, materials, and construction standards; (c) detailed civil and mechanical designs; (d) prepared bills of quantities and detailed cost estimates; and (e) drawings required for construction and installation works. The engineer will also assist in the validation of estimates of operation and maintenance costs of the subproject, including the recurrent cost of implementing social and environmental safeguards as well as in overseeing the schedules of contract packages for the subproject prepared by the procurement agency.

40 Appendix 7

18. Watershed Management Specialist (8 person-months). The specialist work with the international and national watershed management specialists in the (i) assessment of the condition of Baiyangdian Basin watershed, (ii) determination of the requirements for effective watershed rehabilitation and management, (iii) evaluation of the resources and capacity of BMG and county governments, (iv) determination of opportunities for involving forest communities, and (v) identification of alternative strategies for implementing watershed rehabilitation and management interventions in the project area.

19. Water Resource Planner (8 person-months). The planner will work with the international watershed management specialist in (i) assessing water use and consumption patterns by different sectors in Baiyangdian Basin; (ii) providing guidance on how to monitor changes in water supply and demand to mitigate any adverse effects on the water balance; (iii) developing a methodology to forecast water demand by different users, i.e., domestic, industrial, agricultural, and environmental; (iv) reviewing the present institutional and legal framework for water resources management and provide recommendations for strengthening water resource management among BMG and county governments; and (v) recommending alternative feasible approaches for introducing integrated water resource management on a basin level.

20. Forest Specialist (12 person-months). The specialist will work with the international and national watershed management specialists; and will (i) assess the condition of the condition of the forest areas located within Baiyangdian Basin, (ii) determine the requirements for effective watershed rehabilitation and management, (iii) identify the species of suitable forest trees that may be planted and will thrive in the watershed to be rehabilitated under the Project, (iv) evaluate the resources and capacity of BMG and county governments for conducting reforestation activities, and (v) determine opportunities for involving forest communities in tree planting as well as in forest management.

21. Financial Management Specialist (17 person-months). The specialist will (i) advise the concerned finance bureaus on managing the interest and exchange rate risks by introducing the relevant financial products; (ii) design and develop a computerized financial management and reporting system for the Project; (iii) develop a manual and train PMO/PIU staff on the operation of the system; and (iv) for relevant subprojects, set up simple financial management systems and establish guidelines for reporting, review and revision of tariffs, billing, and income collection systems to achieve full operating cost recovery.

22. Resettlement Specialist (8 person-months). The specialist will: (i) survey the opinions of project-affected people; (ii) as an independent third party, monitor compliance with the resettlement plans; (iii) assist the PMO/IAs in supervising the resettlement process; (iv) assess incomes and living conditions for compensation before resettlement; (v) advise on measures to improve the resettlement implementation; (vi) undertake resettlement management training of PMO/IA staff; and (vii) prepare semi-annual monitoring reports for submission to ADB and the EA, which include: (a) investigation and assessment summaries; (b) main problems encountered; (c) mitigation and prevention measures for revised RPs; and (d) future actions.

23. Environmental Management and Monitoring Specialist (11 person-months). The specialist will: (i) assist the PMO to update environmental management plans (EMPs); (ii) supervise implementation of EMPs; (iii) monitor the Project's environmental impacts and benefits; (iv) assist the PMO in the design of the project performance management system (PPMS); (v) provide ongoing support for the preparation of environmental aspects of PPMS reports; (vi) prepare the first semi-annual environmental monitoring report for ADB; (vii) train and assist the PMO in preparing

Appendix 7 41 subsequent semi-annual environmental monitoring reports and PPMS reports; and, (viii) undertake site visits as required.

2. GEF-Financed

a. International Consultants

24. Biodiversity Specialist (6 person-months). The specialist will (i) help develop and implement biodiversity monitoring programs; (ii) properly record and disseminate results of monitoring activities; and (iii) provide input for the design, development, and implementation of habitat restoration demonstration interventions. All the above activities are to be carried out in two identified provincial nature reserves (PNRs) covered under the Project. The specialist will also lead efforts to elevate Baiyangdian PNR to a Ramsar Wetland of International Importance.

25. Institutional/Training Development Specialist (6 person-months). The specialist will lead activities designed to improve coordination and cooperation among government and nongovernment stakeholders, and build capacity, for the purpose of strengthening integrated ecosystem management. Such activities will include (i) capacity assessment for relevant agencies and institutions; (ii) liaison with representatives of affected government agencies, and nongovernment groups; (iii) organizing meetings among a broad spectrum of stakeholders; (iv) evaluating and presenting options for creation of institutional structures or mechanisms for long- term integrated management; and (v) ensuring that such structures or mechanisms are institutionalized and operationalized.

26. Environmental Management and Monitoring Specialist (5 person-months). The specialist will (i) conduct training needs assessment among staff and management in two PNRs, and organize training programs accordingly; (ii) guide preparation of two PNR management plans; (iii) ensure that local communities are involved in a participatory management planning process; (iv) seek endorsement of the management plans by the Government; and (v) integrate management functions with awareness activities.

27. Information, Education, and Communication Specialist (5 person-months). The specialist will (i) work closely with the environment management and monitoring engineer, and biodiversity specialist in developing an awareness program on biodiversity conservation, environment and ecosystem management; (ii) provide input in developing content for multimedia materials; (iii) guide the design and operation of mobile outreach programs and school curriculum materials; (iv) develop content for educational materials, displays, and facilities in the Wetlands Learning Center; and (v) prepare and publish the technical and policy notes.

28. Ecotourism Specialist (4 person-months). The specialist will (i) assess the potential of the project area for the development of ecotourism; (ii) determine alternative opportunities that may be developed into financially and environmentally sustainable ecotourism ventures, and initiate demonstration projects to pilot test these options; (iii) work with BMG to develop a tourism master plan and incorporate ecotourism planning into environment and biodiversity management and awareness plans; (iv) provide input to develop sustainable financing mechanisms to capture benefits of sustainable ecotourism development; (v) explore and develop opportunities to incorporate eco-certification as a means to add value for tourism activities; and (vi) generally strengthen/harmonize ecotourism activities in the project area.

29. Livelihood Specialist (6 person-months). Looking primarily at sectors and activities dependent on natural resources (e.g., reed production, non-timber forest products processing, etc.),

42 Appendix 7 the specialist will (i) identify opportunities that may be developed into financially- and environmentally-sustainable livelihood ventures, (ii) help to set up appropriate credit schemes to provide selected beneficiaries with seed capital for sustainable livelihood activities, (iii) develop and initiate demonstration projects for sustainable livelihoods, and (iv) explore and develop opportunities to incorporate eco-certification as a means to add value for production livelihoods.

30. Appropriate Technology Specialist (4 person-months). To promote cost savings within rural poor communities, and to encourage more environment-friendly practices at the community level, the specialist will lead the design, development, and implementation of demonstration projects for low-tech and appropriate technology improvements. These may include such demonstrations as (i) composting toilets, (ii) constructed wetlands, (iii) recycling, and (iv) integrated pest management.

31. Environment Economist (2 person-months). The economist will conduct several targeted economic analyses that will support critical initiatives under the Project. These will include (i) an economic valuation of Baiyangdian wetlands that takes into account the complete range of environmental goods and services provided, to highlight economy-environment linkages to high- level decision makers; (ii) a willingness-to-pay survey to determine appropriate levels of payment for environmental preservation and biodiversity management, based on the benefits accruing to the tourism sector; and (iii) development of a proposal for establishment of a sustainable financing program to support management operations in the two PNRs.

b. National Consultants

32. Geographic Information System Specialist (18 person-months). The specialist will (i) further develop the geographic information system (GIS), established during the project preparation, on biodiversity conservation and ecosystem management of Baiyangdian Basin; (ii) work closely with the international and national environmental management and monitoring specialists to incorporate environmental management/monitoring in the GIS; (iii) update the GIS with the latest monitoring data and progress of the Project (both ADB loan and GEF grant components); and (iv) train PMO/PIU staff as well as other relevant government agency staff in the use of GIS, including updating of information and how the GIS can be used to enhance biodiversity conservation and ecosystem management.

33. The following national consultants will support and work closely with their international counterparts. Their terms of reference, in general, are identical to those for the counterpart international consultants (paras. 18–25), but with the duration of engagement indicated below:

(i) biodiversity specialist (22 person-months), (ii) institutional/training development specialist (10 person-months), (iii) environmental management and monitoring specialist (20 person-months), (iv) information, education, and communication specialist (20 person-months), (v) ecotourism specialist (10 person-months), (vi) livelihood specialist (24 person-months), (vii) appropriate technology specialist (12 person-months), and (viii) environment economist (6 person-months)

D. Outputs

34. The consultants will provide the PMO with the following major outputs:

Appendix 7 43

(i) Project administration manual updates, including procurement plans and operational guidelines; and training needs assessment. (ii) Guidance and supervision of subproject construction and other investments. (iii) Monitoring framework and manuals, including beneficiary monitoring and contract guidelines, and participatory and beneficiary monitoring program. (iv) An information, education, and communication program using multimedia as well as design for web portal and data protocols; communication and outreach strategy, guidelines for conservation education, and public awareness. (v) Manual for ecosystem and environment management planning procedures and implementation guidelines, and guidelines for integration of biodiversity and cultural conservation into spatial plans. (vi) Groundwater/water balance study reports, and water resources planning guidelines. (vii) Training and capacity building of BMG, county government, and PMO/PIU staff on subproject implementation and management, biodiversity/ecosystem conservation and environmental protection and management; and manual and guidelines for environmental monitoring. (viii) Tourism site management guidelines for selected project areas identified as having potential for ecotourism activities. (ix) Update of biodiversity status and endangered species lists. (x) Other relevant reports and guidelines.

44 8 Appendix DETAILED COST ESTIMATES BY FINANCIERS ($ million)

Local ADB GEF PRCG BMG BNAC CGs CCB APCF EI Total Foreign (Excluding Duties & Amount % Amount % Amount % Amount % Amount % Amount % Amount % Amount % Amount % Amount % Exchange Taxes) Taxes

A. Investment Costs 1. Civil Works a. Subprojects 49.240 46.5 0 0 14.222 13.4 17.667 16.7 5.704 5.4 12.381 11.7 3.847 3.6 0 0 2.852 2.7 105.913 38.7 15.165 85.453 5.296 b. Wetlands Learning Center 00000.0155.00.28595.000 000000000.3000.100.2850.015 c. Project Management 0.15 95.0 0 0 0.001 5.0 0 0 0 0 0 0 0 0 0 0 0 0 0.016 0 0.002 0.013 0.001 Subtotal Civil Works 49.255 46.4 0014.237 13.4 17.952 16.9 5.704 5.4 12.381 11.7 3.847 3.6 002.852 2.7 106.229 38.9 15.168 85.750 5.311 2. Equipment a. Subprojects 35.481 52.9 0 0 7.533 11.2 0 0 0 0 18.872 28.1 0 0 0.895 1.3 4.352 6.5 67.133 24.6 21.553 42.248 3.333 b. Baiyangdian PNR Admin Office 0 0 0.005 51.4 0.004 48.6 0 0 0 0 0 0 0 0 0 0 0 0 0.009 0 0.003 0.006 0 c. Wetlands Learning Center 0 0 0.204 95.0 0.011 5.0 0 0 0 0 0 0 0 0 0 0 0 0 0.214 0.1 0.071 0.133 0.011 d. Project Management 0.893 95.0 0 0 0.047 5.0 0 0 0 0 0 0 0 0 0 0 0 0 0.940 0.3 0.311 0.582 0.047 Subtotal Equipment 36.374 53.3 0.208 0.3 7.595 11.1 00 0018.872 27.6 000.895 1.3 4.352 6.4 68.297 25.0 21.937 42.969 3.391 3. Land Improvement 00005.460 9.7 4.589 8.2 39.971 71.1 5.297 9.4 00000.865 1.5 56.182 20.5 0 53.373 2.809 4. Surveys and Design 00000.900 11.4 1.527 19.3 0.475 6.0 3.969 50.1 000.367 4.6 0.678 8.6 7.915 2.9 0 7.519 0.396 5. Institutional Strengthening 0000 001.121 19.4 0.399 6.9 3.125 54.2 000.528 9.2 0.590 10.2 5.763 2.1 0 5.763 6. Misc Implementation Costs 00000.124 5.0 000.025 1.0 2.116 85.1 00000.222 8.9 2.488 0.9 0 2.364 0.124 7. NGO Contracts a. International NGO 0 0 0.055 100.0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0.055 0 0.055 0 0 b. National NGOs 0 0 0.057 100.0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0.057 0 0 0.057 0 Subtotal NGO Contracts 000.112 100.0 00 00 00 000000000.112 0 0.055 0.057 0 8. Consulting Services a. ADB-funded International Consultants 1.284 95.0 0 0 0.068 5.0 0 0 0 0 0 0 0 0 0 0 0 0 1.351 0.5 1.284 0 0.068 National Consultants 0.513 95.0 0 0 0.027 5.0 0 0 0 0 0 0 0 0 0 0 0 0 0.540 0.2 0.513 0 0.027 Subtotal ADB-funded 1.797 95.0 000.095 5.0 00 00 000000001.891 0.7 1.797 0 0.095 b. GEF-funded International Consultants 0 0 0.789 95.0 0.042 5.0 0 0 0 0 0 0 0 0 0 0 0 0 0.831 0.3 0.789 0 0.042 National Consultants 0 0 0.451 95.0 0.024 5.0 0 0 0 0 0 0 0 0 0 0 0 0 0.474 0.2 0.451 0 0.024 Subtotal GEF-funded 001.240 95.0 0.065 5.0 00 00 000000001.305 0.5 1.240 0 0.065 Subtotal Consulting Services 1.797 56.2 1.240 38.8 0.160 5.0 00 00 000000003.197 1.2 3.037 0 0.160 9. Awareness 000.353 100.0 00 00 00 000000000.353 0.1 0 0.353 0 10. Ecotourism Facilities 000.384 100.0 00 00 00 000000000.384 0.1 0 0.384 0 11. Demonstration Projects 000.270 71.3 0.108 28.7 00 00 000000000.378 0.1 0 0.378 0 12. Revolving fund/credit facility 000.103 100.0 00 00 00 000000000.103 000.103 0 13. Habitat Restoration 000.171 100.0 00 00 00 000000000.171 0.1 0 0.171 0 14. Training a. ADB-funded Training 0.157 100.0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0.157 0.1 0 0.157 0 b. GEF-funded Training 0 0 0.040 100.0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0.040 0 0 0.040 0 Subtotal Training 0.157 79.7 0.040 20.3 00 00 00 000000000.197 0.1 0 0.197 0 15. Study Tours a. ADB-funded Study Tours 0.264 100.0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0.264 0.1 0 0.264 0 b. GEF-funded Study Tours 0 0 0.015 13.0 0.099 87.0 0 0 0 0 0 0 0 0 0 0 0 0 0.114 0 0 0.114 0 Subtotal Study Tours 0.264 69.8 0.015 3.9 0.099 26.3 00 00 000000000.378 0.1 0 0.378 0 16. Conferences and Workshops 0.079 95.0 0 0 0.004 5.0 0 0 0 0 0 0 0 0 0 0 0 0 0.084 0 0 0.079 0.004 17. Vehicles a. Vehicles (PMO/PIUs) 0.075 80.0 0 0 0.019 20.0 0 0 0 0 0 0 0 0 0 0 0 0 0.094 0 0.019 0.056 0.019 b. Vehicles (WLC) 0 0 0.064 80.0 0.016 20.0 0 0 0 0 0 0 0 0 0 0 0 0 0.080 0 0.016 0.048 0.016 Subtotal Vehicles 0.075 43.2 0.064 36.8 0.035 20.0 00 00 000000000.174 0.1 0.035 0.104 0.035 Subtotal Investment Costs 88.001 34.9 2.960 1.2 28.723 11.4 25.189 10.0 46.575 18.5 45.761 18.1 3.847 1.5 1.790 0.7 9.558 3.8 252.404 92.3 40.231 199.942 12.230 B. Recurrent Costs 1. Wetlands Learning Center 0 a. WLC Staff 0 0 0.000 0 0.026 5.0 0.499 95.0 0 0 0 0 0 0 0 0 0 0 0.525 0.2 0 0.499 0.026 b. WLC Operations Expenses 0 0 0.000 0 0.006 5.0 0.114 95.0 0 0 0 0 0 0 0 0 0 0 0.120 0 0 0.114 0.006 Subtotal Wetlands Learning Center 000.000 0 0.032 5.0 0.613 95.0 00 000000000.645 0.2 0 0.613 0.032 2. PMO Operations Expenses a. PMO Operations Expenses (ADB) 0 0 0.000 0 3.019 100.0 0.000 0 0 0 0 0 0 0 0 0 0 0 3.019 1.1 0 2.868 0.151 b. PMO Operations Expenses (GEF) 0 0 0.015 95.0 0.001 5.0 0.000 0 0 0 0 0 0 0 0 0 0 0 0.016 0 0 0.015 0.001 c. PMO Operations Expenses (Govt) 0 0 0.000 0 0.229 5.0 0.000 0 0 0 4.357 95.0 0 0 0 0 0 0 4.586 1.7 0 4.357 0.229 Subtotal MO Operations Expenses 000.015 0.2 3.249 42.6 0.000 0004.357 57.2 0000007.621 2.8 0 7.240 0.381 Subtotal Recurrent Costs 000.015 0.2 3.281 39.7 0.613 7.4 004.357 52.7 0000008.266 3.0 0 7.852 0.413 Total PROJECT COSTS 88.001 33.8 2.975 1.1 32.004 12.3 25.801 9.9 46.575 17.9 50.118 19.2 3.847 1.5 1.790 0.7 9.558 3.7 260.669 95.3 40.231 207.794 12.644 Interest During Implementation 11.747 94.0 0.000 0.0 0 0 0 0 0 0 0 0 0.754 6.0 0 0 0 0 12.501 4.6 0 0 0 Commitment Charges 0.252 100.0 0.000 0.0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0.252 0.1 0 0 0 Total Disbursement 100.000 36.6 2.975 1.1 32.004 11.7 25.801 9.4 46.575 17.0 50.118 18.3 4.601 1.7 1.790 0.7 9.558 3.5 273.423 100.0 40.231 207.794 12.644 ADB = Asian Development Bank, APCF = Asia Pacific Carbon Fund, BMG = Baoding Municipal Government, BNAC = Baoding New Hi-Tech Zone Administrative Commission, CCB = China Construction Bank, CG =county governments, EI = equity investments, GEF = Global Environment Facility, NGO = non government organization, PIU = project implementation unit, PMO = project management office, PRCG = People’s Republic of China Government, WLC = Wetlands Learning Center. Source: Asian Development Bank.

Appendix 9 45

PROJECT ORGANIZATION CHART AND FUND FLOW

State Agencies with Oversight Ministry Asian Responsibilities of Development - National Development and Reform Commission Finance Bank - Ministry of Land and Resources - State Forestry Administration - State Environmental Protection Administration

Hebei Provincial Agencies with Hebei Global Oversight Responsibilities Financial Environment - Development and Reform Commission Bureau Facility - Forestry Bureau - Environmental Protection Bureau - Land and Resources Bureau

Baoding Municipal Agencies with Baoding Baoding Oversight Responsibilities Municipal Financial - Construction Bureau Government Bureau - Environmental Protection Bureau 24 Implementing - Forestry Administration Agencies Baoding - Water Resources Bureau - Liushi Town Development - Land Bureau - Baigou Economical Construc- and Reform - Poverty Alleviation Office tion Development Co. Commission - State-owned Assets Bureau - Li County WTC - Xiushui County Hengxing Project Municipality Project Co. Management - Xinxing Town Textile City Office - Anxin County WTC - Yi County Yuquan Urban - Dingxing County Urban 14 Project Implementation Units Construction County-Level Agencies with - Li County - Dingzhou City WTC Oversight Responsibilities - Yi County County - Mancheng Country Municipal - Development and Reform Bureau - Anxin County (ADB Loan+GEF Grant) Financial Project Co. - Finance Bureau - Xiong County Bureaus - Xiong County WTC - Construction Bureau - Mancheng County - Tang County Real Estate - Environmental Protection Bureau - Xushui County - Baoding Baiyangdian - Forestry Bureau - Tang County Wenquancheng Longji - Water Resources Bureau - Dingxin City - Yi County WSC - Land and Resources Bureau - Dingzhou City - Xiong County WSC - Agriculture Bureau - Gaobeidian City - Dingzhou City WSC - Tourism Bureau - Wenquancheng City - Yi County Forestry Bureau - Poverty Alleviation Office - Baoding New Hi-Tech Zone - Anxin County Forestry Administrative Commission Bureau - Laishui County (GEF) - Xiong County Geothermal - Anxin County Water Resource Bureau - Baoding Hi-tech Dev. - Baoding Water Resources - Laishu County Forestry - Anxin County Wetland

13 Wastewater 3 Water 2 Reforestation 1 Solid Waste 1 Integrated 1 Clean 1 Urban Flood GEF Treatment Supply Subprojects Management Water Energy Management Interventions Subprojects Subprojects Subproject Management Development Subproject Subproject Subproject

Legend: Oversight Responsibility Command Line Coordination Flow of Fund Separate account will be established for administration of GEF grant funds

ADB = Asian Development Bank, GEF = Global Environment Facility, WSC = Water Supply Company, WTC = Wastewater Treatment Company. Source: 2007 project feasibility study.

46 Appendix 10

PROJECT IMPLEMENTATION SCHEDULE

2008 2009 20102011 2012 2013 ACTIVITY 1234123412341 2341 2341234

A. Project Management 1. Establishment of PMO and PIUs 2. Renovation of office facilities and hiring of staff 3. Preparation of work and financial plan 4. Selection and engagement of project consultants 5. Design and installation of project management information system (including PPMS), financial management system, and reporting system 6. Development of detailed terms of reference, approaches, procedures, and guidelines for various project activities 7. Procurement of vehicles and equipment 8. Selection of contractors for project facilities and services, including NGOs, civil works contractors 9. Training of PMO/PIU staff on financial management 10. Preparation of quarterly progress reports 11. Preparation of annual reports 12. Conduct of midterm review 13. Preparation of project completion report 14. Project closing B. Subproject Investments 1. Land acquisition 2. Resettlement 3. Design and preparation of bids 4. Bidding, evaluation, and contracting 5. Establishment of subproject investments: a. Wastewater treatment plants b. Water supply plants c. Clean energy development d. Reforestation e. Solid waste management f. Integrated water management g. Urban flood management C. Biodiversity Conservation and Ecosystem Management 1. Information, education, and communication campaign 2. Set-up of mechanisms for and implementation of biodiversity conservation and ecosystem management 3. Demonstration of innovative livelihood activities D. Institutional Strengthening 1. Training a. Training of PMO/PIU staff b. Training of local government staff 2. Fellowships 3. Study tours

NGO = nongovernment organization, PIU = project implementation unit, PMO = project management office, PPMS = project performance management system. Source: Asian Development Bank.

Appendix 11 47

PROCUREMENT PLAN

A. Project Information

Country People’s Republic of China Name of Borrower People’s Republic of China Project Name Integrated Ecosystem and Water Resources Management in the Baiyangdian Basin Project Loan Reference To be determined Date of Effectiveness To be determined Loan Amount $100,000,000 Of which, committed Nil Executing Agency Baoding municipal government, acting through Baoding Development and Reform Commission Approval Date of Original Procurement Plan To be determined Approval Date of Most Recent Procurement Plan To be determined Publication for Local Advertisement a To be determined Period Covered by this Plan a For international competitive bidding (ICB), invitations for bids, invitations for prequalification, draft prequalification documents, draft bidding documents, prequalification and bid evaluation reports are to be submitted to Asian Development Bank (ADB) for prior review and approval. For national competitive bidding (NCB), the first draft English language version of the procurement documents should be submitted for ADB review and approval regardless of the estimated contract amount. ADB-approved procurement documents should be used as a model for all NCB procurement financed by ADB for the Project, and need not be subjected to further review. ADB will review the bid evaluation report and award of contract on a post-review basis. For shopping and direct contracting, ADB will normally review the award of contract on a post-review basis.

B. Procurement Thresholds, Goods and Related Services, and Works

Procurement Method To be used Above/Below ($)

ICB Works > $10,000,000 ICB Goods > $1,000,000 NCB for Works $100,000 NCB Goods $100,000 Shopping Works

C. Procurement Thresholds, Consulting Services

Procurement Method To be used Above/Below ($)

Quality- and cost-based selection (QCBS) (80:20) At least $200,000

D. List of Contract Packages in Excess of $100,000 for Goods, Works, and Consulting Services

Expected Estimated Procurement ADB Contract Description Date of Comments Costs ($) Method Review Advertisement A. Goods (including related services) 1. Wastewater 38,873,000 ICB/NCB First 18 months Prior/post 1–26 contracts Treatment Plants 2. Water Supply 9,155,000 ICB/NCB First 18 months Prior/post 1–6 contracts Systems

48 Appendix 11

Expected Estimated Procurement ADB Contract Description Date of Comments Costs ($) Method Review Advertisement 3. Reforestation 408,000 NCB First 18 months Post 1–2 contracts 4. Integrated Water 10,304,000 ICB First 18 months Prior 1–2 contracts Management 5. Solid Waste 3,400,000 ICB/NCB First 18 months Prior/post 1–2 contracts Management 6. Clean Energy 7,595,000 ICB/NCB First 18 months Prior/post 1–2 contracts Development 7. Baiyangdian 478,000 NCB First 18 months Post 1 contract Lakeside Forestation 8. Urban Flood 897,000 NCB First 18 months Post 1–2 contracts Management B. Works 1. Wastewater 40,317,000 ICB/NCB First 18 months Prior/Post 1–14 contracts Treatment Plants 2. Water Supply 4,662,000 NCB First 18 months Post 1–2 contracts Systems 3. Reforestation 4,981,000 NCB First 18 months Post 1 contract 4. Baiyangdian 1,471,000 NCB First 18 months Post 1 contract Lakeside Forestation 5. Integrated Water 5,845,000 NCB First 18 months Post 1 contract Management 6. Solid Waste 20,367,000 ICB First 18 months Prior 1 contract Management 7. Clean Energy 7,709,000 ICB First 18 months Post 1 contract Development 8. Urban Flood 1,998,000 NCB First 18 months Post 1 contract Management C. Consulting Services 1. Package A: ADB- 3,320,000 QCBS First 18 months Prior 1 contract financed consultants (80:20), firm, FTP 2. Package B: GEF 1,120,000 QCBS First 18 months Prior 1 contract technical specialists (80:20), firm, FTP ADB = Asian Development Bank, GEF = Global Environment Facility, FTP = full technical proposal, ICB = international competitive bidding, NCB = national competitive bidding, QCBS = quality- and cost-based selection method.

Appendix 12 49

FINANCIAL AND ECONOMIC ANALYSES OF THE PROJECT

A. Introduction

1. The Project aims to improve quality of life in Baiyangdian Basin through sustainable management of its ecosystem and water resources. It will support a number of interventions under four complementing components: (i) 22 subproject investments of 7 different categories— 13 wastewater treatment plants (WTPs); 3 water supply systems (WSSs); 2 reforestation; and one each for clean energy development (CED), urban flood management (UFM), integrated water management (IWM), and solid waste management (SWM); (ii) ecosystem management and biodiversity conservation that will also demonstrate innovative alternative livelihoods; (iii) institutional strengthening by providing training for integrated ecosystem and water management, and increasing environmental awareness; and (iv) project management support by providing technical expertise for effective implementation of related interventions.

2. The main project benefits will be generated from the implementation of the 22 subprojects. WTPs will treat the affluent from domestic, industrial, and commercial users and significantly reduce organic pollution loading to the lake as well as improve the water quality in the extensive network of rivers in the basin. WSSs will increase the potable water supply and improve hygiene among project beneficiaries. Aside from financial benefits, WTPs and WSSs are expected to generate significant health and environmental benefits. Reforestation and forest conservation in Angezhuang Reservoir and the lakeside areas will improve the water retention capacity of the watershed and contain soil erosion. These interventions will also conserve biodiversity; and improve the ecosystem, living conditions, and livelihoods of the subproject communities. The CED subproject will exploit geothermal energy as an alternative to using coal for providing space-heating to domestic, commercial, and industrial consumers; and contribute to energy cost savings as well as reductions in emission of air pollutants, with positive impacts on the environment and health of affected communities. The UFM subproject is expected to significantly reduce damage to public and private infrastructure as well as to agricultural production caused by flooding, which has increased in frequency in recent years. The IWM subproject will divert water from the Wangkuai to Xidayang reservoir through a new diversion channel to provide an ensured and increased amount of water to the lake; recharge subterranean water sources during low watertable periods, significantly reduce water conveyance losses compared to the alternative route, and improve water supply and quality in and around Baoding City and Li County. The cleanup of Huanghuangou River, under the SWM subproject, will also improve water retention capacity, environment, and contain soil erosion. These interventions will also conserve biodiversity and improve the ecosystem, living conditions, and livelihoods in the basin.

3. Benefits from the interventions under the biodiversity conservation component will be derived from improved wildlife and overall environmental conditions in the basin in general and in the provincial nature reserve areas in particular. However, these benefits are difficult to quantify and, therefore, are not included in the financial and economic analysis.

B. Major Assumptions

4. Financial Analysis. The analysis is based on information and data provided by the relevant feasibility study reports carried out by the Government as well as information provided by the project preparatory technical assistance (PPTA). The specific assumptions applied in the analysis are as follows:

50 Appendix 12

(i) The analysis focuses on 19 revenue-generating subprojects—WTPs, WSSs, CED, and reforestation—and assesses financial sustainability by calculating their individual financial internal rates of return (FIRRs). (ii) Estimates of revenues, capital investment costs, and operating costs are expressed in yuan in 2007 constant prices. Tariffs used in the analysis are based on prevalent rates and below the willingness-to-pay threshold of potential beneficiaries, which was derived through a household survey conducted during the PPTA. The tariffs and price of timber used in the analysis are conservative estimates. (iii) Subproject-specific FIRRs are based on (a) with- and without-project incremental revenues derived from tariff charges for providing services related to wastewater, water supply, and clean energy and from revenues from sales of timber and tourist entrance fees; as well as (b) incremental costs incurred in subproject investment and operation and maintenance. A projection period of 25 years is assumed. (iv) Subproject-specific FIRRs are calculated after taxes. The sales tax rates are assumed at 7% and income tax rates are assumed at 33%. The weighted average cost of capital (WACC) for the investment subprojects is estimated to be 2.3% (Table A12.1).

Table A12.1: Calculation of Weighted Average Cost of Capital

Unit ADB PRCG CGs APCF EI Total A. Amount (CNY million) CNY (million) 530.0 53.0 480.0 8.0 124.0 1,195.0 B. Weight % 36.0 6.0 50.0 1.0 7.0 100.0 C. Nominal Cost a % 5.8 8.0 8.0 5.8 8.0 D. Tax Rate b % 33.0 - 0.0 33.0 0.0 E. Tax-adjusted nominal cost [C*(1-D)] % 3.9 7.5 7.5 3.9 7.5 F. Inflation Rate c % 0.8 5.5 5.5 0.8 5.5 G. Real Cost [(1+E)/(1+F)-1] % 3.1 4.1 4.1 3.1 4.1 WACC H. Weighted component of WACC (G x B) % 1.1 0.2 2.0 0.02 0.3 2.3 Note: Calculation of WACC is based on the financing plan of the 19 subprojects for which FIRR was estimated. ADB = Asian Development Bank, APCF = Asia Pacific Carbon Fund, CGs = county governments, EI = equity investment, FIRR = financial rates of return, PRCG = People's Republic of China Government. a Nominal cost is based on estimated interest rate charged by financier. b Based on corporate income tax. c Based on the latest Domestic and International Cost Escalation Factors . Source: 2007 project feasibility study.

5. Economic Analysis. The economic analysis mainly determines the incremental benefits and costs from the 22 subprojects which, aside from those mentioned above, include UFM, IWM, and SWM subprojects. The economic analysis is carried out for each subproject, and for the Project as a whole, following ADB’s Guidelines for the Economic Analysis of Projects.1 Specific assumptions used are as follows:

(i) The project life is assumed 25 years, including an implementation period of 5 years. Financial revenues and costs are expressed in 2007 constant prices. (ii) All taxes and subsidies are excluded from the economic evaluation of the individual subprojects and the Project as a whole. (iii) Economic costs and benefits are derived by adjusting financial costs and benefits by a standard conversion factor of 0.93. This is consistent with the standard

1 ADB. 1997. Gudelines for the Economic Analysis of Projects. Manila.

Appendix 12 51

conversion factor used in recent Asian Development Bank (ADB) projects for the People’s Republic of China (PRC).2 (iv) The real opportunity cost of capital employed in the analysis is assumed at 12% per annum, and represents the opportunity cost of capital for the PRC.

C. Results of the Financial Analysis

6. The financial analysis is undertaken for each of the subproject investments based on its respective revenue and cost streams estimated over a 25-year projection period. Annual revenue for each WTP and WSS subproject is calculated based on its specified operating capacity multiplied by applicable tariff charged to different types of consumers (Table A12.2). Annual revenues of about CNY37.25 million/year generated by the CED subproject are derived from space-heating of (i) about 1.65 million square meters (m2) of all types of buildings at CNY14/m2,3 (ii) about 0.53 million m2 of public baths and swimming pools at CNY10/m2, (iii) about 0.1 million m2 of hotel facilities at CNY10/m2, and (iv) drinking water supply of about 250,000 m3 at CNY5/m3. About 2,000 hectares (ha) of the Angezhuang Reservoir area will be planted with fast-growing and high-yielding trees at a rate of 900 trees/ha, with a yield of about 0.4 cubic meters (m3)/tree. Annual revenue generated by the Angezhuang reforestation subproject will mainly be derived from an annual harvest of about 200 ha of reforested area. Revenue of about CNY29.15 million/year is projected to start in year 10 at 80% capacity, gradually increasing to about CNY36.44 million/year at full development in year 12 with timber sales of about 72,882 m3/year and sold at a price of CNY500/m3. The Baiyangdian lakeside reforestation subproject will mainly provide shelter belts around the lake to protect embankments, main channels, and villages as well as improve the general landscape of the area to encourage tourism. Revenues totalling about CNY12.44 million/year are expected to be generated from (i) sale of timber of about 15,888 m3/year, harvested annually from about 44 ha at full development in year 14 and sold at a market price of CNY500/m3; and (ii) fees charged to tourists totalling about CNY4.5 million annually.

Table A12.2: Water Supply and Wastewater Tariffs (CNY/m3)

Subproject Domestic Industrial Commercial Water Supply Yi County 2.11 Xiong County 1.60 2.50 3.00 Dingzhou City 1.70 2.60 3.10 3 Wastewater Treatment Tariff ranges from CNY0.72 to CNY1.30/m m3 = cubic meter. Source: 2007 project feasibility study.

7. The CED subproject may quality for the Clean Development Mechanism and earn carbon credits. Over the first 3 years, the subproject may generate carbon credits of about CNY10.0 million/year based on a contracted price of $12/ton with the Asia Pacific Carbon Fund (APCF). Half of the revenues earned during this period will be utilized to pay back APCF for its CNY12.6 million upfront financing. Beyond the third year, carbon credit revenues will increase to about CNY43.4 million/year. In line with the Project’s social development objective, Xiong County has agreed to share 50% of the carbon credit revenues with the Xiong County poverty reduction agency to expand its activities.

2 ADB. 2006. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the People’s Republic of China for the Inner Mongolia Autonomous Region Environmental Improvement Project. Manila (Loan 2260, for $120 million, approved on 29 September 2006). 3 The tariff for space-heating ranges from CNY12–15/m2 for domestic to CNY15–18/m2 for commercial users.

52 Appendix 12

8. The estimated FIRR, for the CED subproject, based on tariff revenues alone is 6.8%; with tariff revenues plus 50% of carbon credit revenues, it is 7.8%; and with tariff revenues plus 100% of carbon credit revenues, it is 8.7%. Inclusion of carbon credit revenues in the benefits stream makes this subproject financially more viable and less sensitive to decrease in revenues or increase in cost.

9. All projected financial revenues derived by each subproject are evaluated against their corresponding total investment cost (i.e., capital investment and operating costs) in estimating the subproject-specific FIRRs (Table A12.3). Estimates of FIRRs are found to be greater than the estimated WACC of 2.3% and are some are sensitive to variations in revenues and costs. Overall, subproject investments are financially viable and robust.

Table A12.3: Financial Analysis of Subprojects

Switching Values Decrease Increase Decrease/ in Revenue in Cost Increase in to Maintain to Maintain Revenue/Cost Operating Annual Capital Operating FIRR=WACCa FIRR=WACC to Maintain Capacity Tariff Revenueb Investment Cost FIRR FIRR=WACC Subprojects (million m3/year) (CNY/m3) (CNY million) (CNY million) (CNY million) (%) (%) (%) (%) A. WTPs Liushi Town 7.30 1.30 9.49 48.97 4.71 8.0 28 36 17 Baigou Town 10.95 1.00 10.95 50.96 4.61 9.1 34 46 21 Li County 10.95 1.20 13.14 61.21 5.82 8.4 30 39 18 Xushui County 10.95 1.30 14.24 61.21 6.95 8.2 27 32 15 Xingxin Town 9.13 1.30 11.86 52.41 5.59 8.5 29 36 17 Anxin County 7.30 0.72 5.26 21.09 2.46 8.0 29 35 17 Yi County 7.30 1.25 9.13 46.77 3.99 7.9 29 39 17 Dingxin City 10.95 1.20 13.14 70.59 5.87 7.7 28 38 17 Dingzhou City 13.14 1.30 17.08 87.81 6.85 8.9 36 53 23 Mancheng County 14.60 0.95 13.87 61.41 6.10 9.2 33 42 20 Xiong County 7.30 1.05 7.67 35.06 3.25 9.2 34 45 21 Tang County 7.30 1.00 7.30 39.62 2.78 8.1 33 49 21 Wenquancheng City 10.95 0.72 7.88 46.82 3.16 7.6 32 49 21 B. WSSs Yi County 7.58 2.11 15.97 48.60 8.76 9.4 15 23 9 Xiong County 8.25 1.71 14.08 31.92 8.60 11.6 16 22 9 Dingzhou City 13.69 1.90 26.04 70.48 15.37 10.5 16 24 10 C. Reforestation Angezhuang 36.44 42.64 7.75 8.1 23 36 14 Baiyangdian Lakeside 12.44 16.37 0.58 15.9 52 >100 39 D. CED Xiong County Tariffs only 30.25 134.83 12.02 6.8 17 30 11 Tariffs + 50% carbon credits 32.34 134.83 12.02 7.8 20 35 13 Tariffs + 100% carbon credits 34.43 134.83 12.02 8.7 22 39 14 m3 = cubic meter, CED = clean energy development, FIRR = financial internal rate of return, WSS = water supply system, WTP = wastewater treatment plant. a Weighted average cost of capital (WACC) is 2.3%. b The gradual revenue build-up has been assumed in the early years; no increase in tariff is included in the remaining years. Source: 2007 project feasibility study.

D. Results of the Economic Analysis

10. Wastewater Treatment and Water Supply Subprojects. The national policy for pollution control endorses the use of cost-effective wastewater management measures to achieve overall treatment targets. At the same time, the investment must be able to generate greater economic benefits than the economic costs it has incurred. Therefore, two approaches are used to evaluate the economic viability of WTPs. The first is based on the basic requirement that the technology chosen for each investment be a least-cost option while the second is based on the criterion that the economic internal rate of return (EIRR) of that option be greater than the opportunity cost of capital of 12%. The least-cost analysis for each of the WTPs indicated that the chosen technology exhibited the least cost compared with other technologies available.

Appendix 12 53

11. Without the Project, untreated wastewater is drained into the river network of the basin leading to the lake. In the process, pollutants permeate the ground and contaminate the subterranean water that communities use for drinking. Most often, the untreated wastewater, mixed with irrigation water, is also distributed over extensive agricultural areas—causing significant soil pollution and degradation. In project sites where existing water supply facilities are inadequate, communities contend with drinking water that is below the standards of the National Sanitary Criteria for Domestic Drinking Water. These problems have resulted in serious health problems, particularly frequent occurrence of stomach and intestinal diseases and hepatitis, which were verified by extensive surveys of affected households in the project area undertaken by the PPTA. About 1.12 million people or about 416,000 households (or about 25% of the total population living within the wastewater drainage area) are affected by domestic and industrial effluents, while another 260,000 people or about 65,000 households are in need of improved water supply facilities. All these households will benefit from the WTPs and WSSs to be established under this Project.

12. The “cost of illness” approach was used to estimate the benefits of WTPs and WSSs investments. Improvements in drinking water have been found to decrease the incidence rate of stomach and intestinal diseases by 5% and hepatitis A by 0.6%. The cost of medical treatment for stomach and intestinal diseases is estimated at CNY115/person/year (about CNY107/person/year in economic terms); for treatment of hepatitis A, it is estimated at about CNY6,000/person/year (about CNY5,580/person/year in economic terms). With the projected large number of affected population in each of the subproject areas, the economic benefits resulting from reductions in medical costs are expected to be substantial. This is reflected in the estimated EIRRs for each of the WTPs (16.8–18.3%) and WSSs (17.6–18.6%), which are significantly greater than the opportunity cost of capital of 12% (Table A12.4).

13. Reforestation Subprojects. About 10,000 ha of farmland in the upper watershed of Baiyangdian Lake in Yi County will be protected from soil erosion, particularly during the rainy months, with the reforestation of the Angezhuang Reservoir area. This, in turn, will benefit a total of about 18,7504 farm households, which are expected to avoid crop damages caused by soil erosion at an estimated average annual cost of about CNY1,674/ha at the subproject’s full development or an estimated total economic benefits of about CNY16.74 million/year. Economic benefits from timber sales are about CNY34 million/year. The estimated EIRR for the Angezhuang reforestation subproject, by evaluating the projected economic benefits against its economic investment cost, is 16.4%. Revenues, mainly from timber sales and tourism, and costs estimated for the Baiyangdian lakeside reforestation subproject, are also expressed in economic terms in deriving the subproject EIRR estimated at 15.2%.

14. Clean Energy Development Subproject. The use of geothermal water in Xiong County as an alternative to coal to provide space heating to residential, commercial, and industrial buildings, will significantly reduce discharge of noxious gases and dust—improving air quality and reducing the incidence of diseases, particularly respiratory diseases in the affected areas. The subproject is expected to replace about 60,000 tons of coal annually. The CED subproject will provide incremental and non-incremental benefits. The non-incremental portion occurs because coal-based energy production will be replaced under the Project. Resultant resource cost savings were estimated and used as a benefit. Replacing coal with renewable resource also reduces pollution. Benefits of reduced pollution were added to the resource cost savings. The incremental benefits were not estimated because resource cost savings and environmental

4 Average farm size is estimated at about 0.53 ha (about 8 mu). With a total area of 10,000 ha expected to be protected from soil erosion by the subproject, total farm households are estimated to be about 18,750.

54 Appendix 12

benefits adequately justify the investment on this subproject. At an economic cost of CNY372/ton, the total economic benefit accruing to energy savings is estimated at about CNY22 million/year. Reductions in sulfur dioxide (SO2) (about 1,000 tons/year) and total suspended solids (about 500 tons/year) are likewise expected to be realized and will generate corresponding economic benefits of about CNY1.67 million/year and CNY0.26 million/year. Health benefits caused by lesser incidence of respiratory diseases are estimated at about CNY1.34 million/year. Including revenues, expressed in economic terms of about CNY34.64 million/year, the estimated subproject EIRR is about 23.6%.

Table A12.4: Economic Analysis of Subprojects Switching Value Decrease/ Decrease Increase Increase in in Revenue in Cost Benefits/Costs Base to Maintain to Maintain to Maintain EIRRa 12% EIRR 12% EIRR 12% EIRR Subprojects (%) (%) (%) (%) A. WTP Liushi Town 17.6 20 25 11 Baigou Town 17.0 18 22 10 Li County 17.3 19 23 11 Xushui County 18.0 20 25 11 Xingxin Town 17.5 19 23 11 Anxin County 17.8 20 25 11 Yi County 18.3 23 29 13 Dingxin City 17.5 21 27 12 Dingzhou City 17.3 20 26 11 Mancheng County 17.4 19 23 11 Xiong County 17.4 19 24 11 Tang County 17.2 21 26 11 Wenquancheng City 16.8 20 24 11 B. WSS Yi County 17.6 16 19 9 Xiong County 18.1 13 15 7 Dingzhou City 18.6 16 19 9 C. Reforestation Angezhuang Reservoir 16.4 23 30 13 Baiyangdian Lakeside 15.2 19 23 11 D. CED Xiong County 23.6 31 45 19 E. UFM Anxin County 14.5 15 17 8 F. IWM Wangkuai-Xidayang 18.9 19 23 11 G. SWM Huanghuaguo 18.9 31 45 18 CED = clean energy development, EIRR = economic internal rate of return, IWM = integrated water management, SWM = solid waste management, UFM = urban flood management, WSS = water supply system, WTP = wastewater treatment plant. a At 12% discount rate. Source: 2007 project feasibility study.

Appendix 12 55

15. Urban Flood Management Subproject. The construction of flood management infrastructure in Anxin County will reduce flood damage to agriculture, housing, and other public and private assets covering an area of about 14.31 square kilometres (km2) including about 9,300 ha of farmland (about 5,000 farm households), about 1,152 m2 of residential facilities, about 30 small enterprises, and the municipal facilities. Total economic benefits are estimated at about CNY7.57 million/year or about CNY7.04 million in economic terms. The estimated EIRR for the investment is 14.5%.

16. Integrated Water Management Subproject. The IWM subproject will construct a 14.6 km link-canal from the Wangkuai to Xidayang reservoir with a flow rate of 10 m3/second (Map 4). This is expected to reduce water losses currently incurred from diverting water through the existing 9 km natural waterway, which have been estimated at about 20 million m3/year because of the high infiltration rate along the sandy route. At an economic price of about CNY1.4/m3, the estimated economic benefits caused by reduction in water losses is about CNY27.9 million/year. The reallocation of water, by releasing excess water from the two reservoirs during the rainy season, will also enable the recharging of the Yimuquan aquifer with clean water to maintain pressure within the aquifer and prevent intrusion of polluted water from the Caohe drainage area during low watertable levels. The mitigation of this problem will bring about health benefits among affected communities accruing to reductions in the incidence of stomach and intestinal diseases, which are unlikely to occur without the Project. An estimated 700,000 people in Baoding City and Li County are likely to benefit at a total economic value of about CNY26.1 million/year. The estimated EIRR for the subproject is 18.9%.

17. Solid Waste Management Subproject. Rehabilitation of Huanghuangou River will significantly improve the environmental condition in the subproject area. About 0.6 million tons of solid waste, currently in the open field, will be disposed of in a sanitary landfill. The existing moat will be dredged, from which about 50,000 m3 of sludge, highly polluted by industrial waste, will be removed. This area has also been a dump for fly ash from a nearby coal-fired power plant, which is now adopting environmentally safe technology. Over 2 million tons of fly ash from its past operation will be safely removed for use in the construction of buildings and highways. Once this waste have been removed, the subproject area will be landscaped. These activities will significantly reduce dust pollution and contamination of surface and subterranean water with significant beneficial impacts on health and the environment affecting about half a million people in Baoding City. A conservative estimate of about 136,000 tons of dust, which annually affects Baoding City, will be reduced once the rehabilitation is complete. At a cost of about CNY0.52/ kilogram to reduce dust, the estimated economic benefits caused by dust reduction are about CNY70.83 million/year. Health benefits generated by reductions in the incidence of stomach and intestinal diseases due to contaminated drinking water (about CNY18.65 million/year) and respiratory ailments (about CNY4.19 million/year) are also expected to accrue to the subproject. The subproject is expected to realize an EIRR of 18.9%.

18. Economic Analysis of the Whole Project. The estimated overall project EIRR is 16.9% with an economic net present value of CNY1,462 million. Switching values indicate that, to maintain the project EIRR at 12%, benefits should not decline by more than 19%, and the economic costs should not increase by more than 23%. A simultaneous decrease in benefits and increase in costs should be 10% or less. A 1-year delay in project benefits will result in an EIRR value of 13.7%. The analysis shows that the Project is economically viable and robust. Detailed financial and economic analysis is in Supplementary Appendix I.

56 Appendix 13

SUMMARY POVERTY REDUCTION AND SOCIAL STRATEGY

A. Linkages to the Country Poverty Analysis

Is the sector identified as a national Yes Is the sector identified as a national Yes priority in country poverty analysis? priority in country poverty partnership No agreement? No

Contribution of the sector or subsector to reduce poverty in the People’s Republic of China (PRC):

During the 10th Five-Year Plan, 2001–2005, the population of extreme poverty in the country, by the Government’s definition, was reduced from 32.1 million to 23.7 million; and that of low-income poor declined from 62.1 million to 40.7 million, with the overall population of poor about 64 million. If the international poverty line of $1/day is applied, the figure is significantly higher, at 246 million or about 18.8% of the total population. Experience in the PRC shows that poverty is both a cause and effect of environmental degradation. The poor, lacking the daily necessities and basic means of livelihood, are forced to overexploit often fragile ecosystems. On the other hand, the poor have often to bear the disproportionate impact of environmental pollution and ecological degradation. A sustainable development strategy has been included in the 11th Five-Year Plan, 2006–2010, which emphasizes a “resource- efficient and environment-friendly, harmonious society” by maintaining a balance between economic growth, socioeconomic development, and environmental protection. The plan sets forth a series of environmental targets for urban environmental improvement, ecosystem rehabilitation, natural resources management, and mitigation of natural disasters.

The poverty-environment linkage is pronounced in Baiyangdian Basin, where poverty is intertwined with the degradation of natural resources and loss of biodiversity in the upper reaches characterized by deforestation, and in the middle and lower reaches by water shortage and environmental pollution. The Project will support Government’s efforts by tackling the root causes of poverty through the reduction of environmental pollution and rehabilitation of the ecosystems, by adopting an integrated ecosystem management approach. It will contribute to the achievement of the Millennium Development Goal (MDG) for environmental sustainability (MDG 7), to halve the proportion of people without sustainable access to safe drinking water and basic sanitation by 2015 (MDG target 10). Specific interventions include wastewater management, water supply, reforestation, watershed rehabilitation, better allocation of water resources, and use of cleaner energy and flood control. The poor will benefit from the Project as they are more exposed to flooding, health, and other impairments and do not have the income or other resources to cope with them.

The Project targets 11 counties/cities (Anxin, Baoding, Dingxing, Dingzhou, Gaobeidian City, Li, Mancheng, Tang, Xiong, Xushui, and Yi) and two development zones (Wenquancheng, New and High Tech Development Zone). The direct project area has a population of 1.09 million—620,000 (57%) urban and 470,000 (43%) rural. In 2005, the average annual disposal income per capita was CNY6,920 ($833) for urban areas and CNY3,380 ($407) for rural areas. The environmental and poverty reduction benefits will extend to the entire basin population of over 10 million. Therefore, the Project will be a key intervention in poverty reduction.

The health impact was analyzed during the project preparation. An order-of-magnitude analysis of the impact on morbidity and mortality indicates that the Project may reduce incidence of waterborne diseases by an average of 0.28 million cases/year. Most of these cases will not be serious enough to result in a medical consultation or reporting under the Government’s disease surveillance programs. The reduced disease incidence is associated with a reduction in loss of 1.4 million workdays/annum, with savings in medical costs and/or avoidance of lost earnings.

The Project will provide 13,200 person-years of work over the 5-year construction period. Project-related services, such as procurement of construction materials and equipment and follow-on multiplier effects for the regional economy, are expected to create an additional 39,000 person-years of work. It is estimated that about 30% of the construction jobs will be filled by the poor and vulnerable, including unemployed persons, rural migrants, and women. Since unemployment is a major cause of poverty in the project area, the poor will benefit disproportionately from this job creation. Those temporarily employed in construction will benefit from additional training and experience, which will provide them with opportunities in other infrastructure projects. Project operations will create 580 full-time permanent jobs. While these are primarily skilled jobs in wastewater treatment, water supply, water resource management, and clean energy operations, they will require on-the-job training and will, therefore, be available to unemployed workers who have basic technical training and experience from their previous work in state-owned enterprises.

Appendix 13 57

B. Poverty Analysis Targeting Classification: General intervention

What type of poverty analysis is needed?

The project area consists of one state-designated poverty county (Tang); two province-designated poverty counties (Yi and Quyang); and four municipality-designated poverty counties (Anxin, Mancheng, Xiong, and Xushui). For rural areas, the absolute poverty line is CNY627 ($83) and the low-income poverty line is CNY628–924 ($83–122) per capita/annum. In Baoding Municipality, the absolute rural poor population is 90,000 and the low-income rural poor population is 495,000. Similarly, the poverty incidence rate is 1.1% for the absolute poor, or 7%, by including the low-income poor population. The poor (absolute and low-income) population in the project counties is distributed as follows: Tang County (57,700); Yi County (45,900); Anxin County (24,100); Xiong County (14,400); Mancheng County (10,200); and Xushui County (11,800).

A social and poverty assessment was carried out for project interventions in compliance with the Asian Development Bank’s (ADB’s) Guidelines on Incorporation of Social Dimension in Bank Operations.a It included an urban affordability assessment, which confirmed that most of the households in the project area could afford the proposed wastewater (CNY1.3/cubic meter [m3]) and water supply (CNY1.5/m3) tariffs. The rural poverty assessment was undertaken using a field survey of 450 rural households and PRA in 10 villages, 4 counties, coupled with key stakeholder discussions. The PRA groups included: (i) three Baiyangdian in-lake villages in Anxin; (ii) two villages participating in reforestation subprojects in Yi County; (iii) five villages affected by the wastewater subprojects in Li County, Xiong County, and Yi County; and (iv) garbage collectors in Huanghuagou River area. Institutional consultations were held to discuss subproject designs and the experiences in poverty alleviation. The assessment concluded that the rural poverty is linked generally to a number of factors, including: (i) limited off-farm job opportunities; (ii) falling price of reed (for in-lake residents); (iii) deteriorating environment for fishing; (iv) diseases and illnesses; (v) lack of lands and rising production costs (irrigation, fertilizer); and (v) lack of roads. Some of the in-lake residents also mentioned lack of opportunities in the tourism industry and their inability to share the benefits of local tourism. The analysis concluded that poverty was closely linked to deterioration of the local environment and lack of alternative livelihood opportunities. These underlying causes of rural poverty require a strategy that promotes improved ecosystem and environmental management.

The Project will reduce poverty by (i) strengthening wastewater management to address water pollution; (ii) reducing the incidence of waterborne diseases, which are the major causes of rural absolute poverty in the project area; (iii) increasing income by providing alternative livelihoods, especially tourism, by improving the environment; (iv) providing opportunities for forest and ecosystem recovery; and (v) promoting tourism development.

C. Participation Process

Is there a stakeholder analysis? Yes No

Is there a participation strategy? Yes No

The project design process was linked to the Baiyangdian Lake Ecosystem Rehabilitation Management Plan using local experts working in a multi-stakeholder, multi-sector planning process. Consultations with stakeholders, beneficiaries, and Project-affected people have been undertaken in the project design phase and will continue during implementation. A participatory and consultative methodology was adopted to undertake the social analysis and rural livelihood survey during project preparation. It involved (i) a formal questionnaire survey with 1,050 households, 100 businesses, and 50 villages; (ii) discussions with project stakeholders; (iii) key informant interviews in rural communities; (iv) a series of stakeholder workshops in each of the subproject counties; (v) interviews with key government staff and non-government organizations; (vi) focus discussion with selected communities; and (vii) focus group discussions with women.

The participatory approach is part of the project design and will be used during project implementation, monitoring, and evaluation. Public consultations will be held during project implementation to seek feedback on tariff adjustments and affordability. Existing participatory policies that rely on public hearings to gain approval for tariff adjustments provide the mechanism for these consultations. In addition, wastewater and water supply companies have committed to establish a customer complaints desk to receive, process, and document customer complaints. Inclusive processes for public participation in water resources planning, wastewater tariff setting, tourism development planning, and wetland management plan will be put in place. Public consultations and disclosure of resettlement plans (RPs) were conducted during surveys, community meetings, interviews, and workshops. The results of these meetings have been integrated into the RPs, which describe the public consultation plan and grievance process. The consultations, including a grievance mechanism, will continue during land acquisition and resettlement so that the problems of affected persons will be properly addressed before project implementation.

58 Appendix 13

D. Gender Development

Strategy to maximize impacts on women:

Ecosystem degradation and environmental pollution contribute to gender inequities in income-generating opportunities and workload. Data from the household survey indicate that women are primarily responsible for caring for the sick and cleaning up after the floods. Time and effort spent on these activities means less time for income-generating activities, family, and rest. Improvements in ecosystem management, particularly improved wastewater and water supply services, will reduce this burden on women. Increased tourism will create more employment opportunities for women. To maximize the project benefits, women will be given priority in the employment opportunities generated by the Project, and women’s needs and interests will be represented (50% representation) through membership on customer committees of the wastewater and water supply companies. Meanwhile, women will receive priority consideration for training and other capacity building activities under the Project.

Has an output been prepared? Yes No

The Project will not have significant negative impacts on women, but the design aspects ensure gender is addressed to achieve equal participation of women on project activities and equal opportunities of women to access social services, training, employment and beneficiary agreements, and decision making. Relevant gender design features are included in the project-specific social action plan (Supplementary Appendix J).

E. Social Safeguards and Other Social Risks

Item Significant/ Not Significant/ Strategy to Address Issues Plan None Required The land acquisition and resettlement impacts are Significant considered significant, in accordance with ADB’s Full b Resettlement Involuntary Resettlement Policy (1995). Among the Not significant Short 22 subprojects, 17 will involve land acquisition and None resettlement problems. A total of 293 hectares (ha) of land None will be permanently acquired and another 145 ha will be occupied temporarily. Land acquisition will affect 4,508 persons in 1,042 households. Affordability of wastewater and water tariffs was analyzed Significant on the basis of citywide official income data. For all Yes Affordability income groups, the combined full-cost wastewater and Not significant water tariffs for the Project are less than 2% of total No income, and less than 4% of income for the poorest None households. Tariffs are thus considered affordable. Households living below the poverty line are most likely to be adversely affected by the tariff adjustment. To mitigate the impact of tariff adjustment, the project counties will provide assistance to people living below the official poverty line. In addition, the wastewater and water supply companies will provide monthly cash rebates on a per capita basis to poor households. This subsidy will be adjusted as the tariff increases. The wastewater and water bill subsidies largely offset the proposed tariff adjustment and are much better poverty reduction measures than the lifeline tariff, primarily because they can be properly targeted at poor households

Significant No jobs will be lost. Project activities will have significant Yes Labor positive benefits on both urban and rural employment Not significant opportunities for both seasonal and full-time employment. No

None

Appendix 13 59

Significant The Project does not cover any minority area. A small Yes Indigenous percentage of minority population living in the project area Peoplesc Not significant is not vulnerable and it has equal access to project No benefits. None

Other Risks Significant The Project will require adjustment of livelihood to meet Yes and/or the needs of long-term and sustainable ecosystem Vulnerabilities Not significant management. Current plans include employment No guarantees, subsidies provided for alternative livelihood, None provision of tariff subsidies for the urban poor, and interest-free credits for the rural poor to develop forestry.

a ADB. 1997. Incorporation of Social Dimension in Bank Operations. Manila. b The policy defines resettlement as “significant” where 200 or more people experience major impacts. Major impacts are defined as involving affected people being physically displaced from housing and/or losing 10% or more of their productive, income-generating assets. c Indigenous people are defined by ADB as “those with a social and cultural identity distinct from the dominant or mainstream society, which makes them vulnerable to being disadvantaged in the process of development.

GENDER AND SOCIAL ACTION PLAN

Activity Indicators and Targets Responsibility 14 Appendix 1. Establishment of a social development unit at the PMO to cover social development and social safeguards aspects of the Project 2. Training of PMO and IAs at beginning of the Project on social development (GAD, participatory and community-driven development)

3. Inclusion of the All-China Women’s Federation, Civic Affairs Bureau, and Poverty Alleviation Office in the project leading group at the PMO (municipal) and IA (district/county) levels 4. Adoption of a 30% target for women and a 20% target for poor and low-income household participation in public consultations 5. Ensuring equal access of women and the poor to employment opportunities created by the Project 6. Collection, analysis, and reporting of sex-disaggregated data as a routine part of all project activities (including participation in meeting, training and other activities, and on representation in decision-making processes and structures) A. Wastewater Treatment Plants 1. Ensure that poor households can afford wastewater treatment Offer of subsidies and fee exemption schemes based on PMO, IAs, Civic Affairs tariffs household income Bureau 2. Ensure women’s representation in the process to determine At least 30% of women participate in public consultation wastewater treatment tariffs meetings B. Water Supply Systems 1. Ensure that poor households can afford water tariffs Offer of subsidies and fee exemption schemes based on PMO, IAs, Civic Affairs household income Bureau 2. Ensure women’s representation in the process to set water At least 30% of women participate in public consultation tariffs meetings C. Reforestation 1. Ensure poor households’ access to the funding of the At least 20% of project funds should be distributed to the PMO, IAs, Poverty reforestation project poor, considering the constraints faced by such Alleviation Office, Forestry households Bureau 2. Ensure women-headed households’ access to available funds 10% fund should be distributed to women-headed under the reforestation subprojects households 3. Ensure poor and women-headed households’ access to Training plan should be available to the public and training opportunities and technical assistance during project especially to the poor and women implementation D. Solid Waste Management 1. Ensure garbage collectors’ access to project information Public consultations should include representatives of PMO, IAs garbage collectors E. Geothermal Energy Development 1. Ensure the affordability of water tariffs for poor households Offer of subsidies and fee exemption schemes based on PMO, IAs, Civic Affairs households’ income Bureau 2. Ensure women’s representation in the process to set water At least 30% of women participate in public consultation tariffs meetings to set tariffs IA = implementing agency, PMO = project management office. Source: Asian Development Bank.

Appendix 15 61

SUMMARY RESETTLEMENT PLAN

1. The Project consists of 22 subprojects. Resettlement plans (RPs) have been prepared for 17 subprojects; the other 5 subprojects do not cause any resettlement impacts. The Asian Development Bank (ADB) has classified 14 RPs category B impacts. All persons affected by the Project will be eligible for compensation and assistance. The cutoff date for eligibility for compensation and assistance was the date of the project proposal approval (April 2007). An official notification of the Project has been announced to all affected persons (APs).

2. To avoid or minimize land acquisition and resettlement, there was close consultation with local officials, village committees, and APs during project feasibility planning and RP preparation. Permanent land acquisition for the total Project is 293 hectares (ha), of which 71 ha is farmland; this will cause partial land loss (20% on average) for 4,508 persons. The subproject with the largest impact (nearly 50% of APs) is the Wangkai-Xidayang Reservoir link-canal subproject, which will affect 2,770 persons. However, the resettlement impacts, even for this subproject, are not serious and the income loss can be restored through cash compensation and improved irrigation from the subproject. In total, the Project will require the displacement of only 13 houses with 49 persons, who will be compensated and relocated nearby. Nine enterprises will also be affected, but only two small private enterprises need to be totally relocated. Each enterprise will be compensated and workers will not be adversely affected. RPs have also addressed the temporary land occupation of 145 ha, of which 27 ha is farmland, temporarily affecting another 1,700 persons. For the construction of water supply and wastewater pipeline networks, mitigation measures will be taken to avoid or minimize disturbance on residents and shops; compensation will be provided if disturbance causes direct impacts or extends beyond 2 weeks.

3. For people unavoidably affected, the resettlement objective is to achieve equal, or better, income and living standards in line with not only the laws and regulations of the People’s Republic of China (PRC), but also ADB’s Involuntary Resettlement Policy (1995). The PRC laws and regulations provide the legal basis for the Project—primarily the Land Administrative Law, the Decision on Reinforcing Reform in Land Administration (State Council, 2004, No. 28), and the Ministry of Land Resources Guidelines on Improving Land Acquisition and Relocation Regulations (2004, No. 238). Hebei Province and Baoding Municipality have also formulated related documents for implementing new regulations. All these documents have provided essential policy and procedural basis contained in the RPs.

4. Based on consultations with local governments and APs, and general practices in the subproject counties, the following resettlement principles were adopted: (i) involuntary resettlement should be avoided or minimized where feasible; (ii) compensation and entitlements provided for the APs should be able to at least maintain or improve their pre-project standard of living; (iii) all APs will be compensated and assisted, regardless of legal entitlements; (iv) where land per capita is not sufficient to maintain livelihood after land acquisition, compensation will be provided either in cash or as land replacement and other income-generating activities; (v) all APs will be adequately informed on eligibility, compensation mode and standards, livelihood and income restoration plans, project timing, and will be involved in RP implementation; (vi) no land acquisition will take place unless replacement land or sufficient compensation are given to APs; (vii) the Executing Agency (EA) and an independent third party will monitor compensation and resettlement operations; (viii) vulnerable groups will receive special assistance or treatment to ensure that they are better off; (ix) all APs should have the opportunity to benefit from the Project; (x) RPs should be combined with overall county/city/district planning; and (xi) implementing agencies (IAs) should provide adequate and timely funds, including any obligations in excess of the RP budget estimates.

62 Appendix 15

5. The land compensation will be paid to the affected village and/or APs; the resettlement subsidy and other compensation for individual asset loss will be paid to the APs. The affected owners will receive compensation at replacement cost for the lost structures and attachments without consideration of depreciation. The affected household can rebuild their houses by themselves with a free house plot provided by the village. APs can salvage the structural materials and a moving subsidy will also be provided. For affected enterprises, compensation will be paid directly to owners in cash according to the replacement or market value of the land and fixed property assets. Income losses from reduced production/sales and wages caused by the Project will be assessed and compensated to APs in cash.

6. The detailed programs of restoration and relocation have been set out in each RP to mitigate resettlement impacts for APs and restore their living standards according to the economic characteristics of affected villages. People can choose the options according to their own requirements. Since the resettlement impacts of most subprojects are not serious, the affected villages and APs will mainly be directly compensated in cash, but some villages may readjust land. The Project will not have any significant impacts on vulnerable groups and ethnic minorities. Vulnerable groups, if any, will be identified and provided preferential treatment to ensure their rehabilitation. Assistance measures include provision of employment for project construction, skills training, and employment information (including 30% women).

7. The cost estimate for land acquisition and resettlement of the 17 subprojects is $48.5 million, including contingencies and land taxes. Detailed measurement surveys will be conducted in each village and the compensation contracts will be negotiated and signed with village committees, households, and enterprises. The resettlement costs are included as part of the total project cost and will be funded by each IA.

8. APs have been informed of the key elements of land acquisition and resettlement through consultation during the planning stage and distribution of resettlement information booklets. During meetings, interviews, focus group discussions, public consultation workshops, and community consultation meetings, local representatives have participated in the planning; and concerns have been integrated into the RPs.

9. The Project Management Office (PMO) is responsible for overall coordination of resettlement planning, supervision, monitoring, and reporting. The relevant IA will establish project land acquisition resettlement units for supervising implementation, continuing public consultation, responding to grievances, and reporting progress. The grievance redress procedures are set out in the RPs. Since some of the RPs are based on feasibility studies, the RPs will have to be rechecked and, where necessary, updated based on the final design, disclosed to APs, and resubmitted to ADB for approval prior to commencement of civil works. The resettlement implementation schedules for the 17 subprojects were prepared based on the feasibility study and construction timetable. The PMO has agreed to a set of supervision milestones with ADB to ensure timely and effective implementation of resettlement.

10. Internal and external monitoring of resettlement implementation will be required. Internal supervision and monitoring will be done by each IA to ensure compliance with the provisions of the RP. The PMO will engage an independent agency, acceptable to ADB, for monitoring and evaluation. The detailed requirements and terms of reference for external resettlement monitoring are stipulated in the RPs. External monitoring reports will be forwarded directly to both the PMO and ADB, and will be uploaded to the ADB website.