Document of The World Bank

Public Disclosure Authorized Report No: ICR00001578

IMPLEMENTATION COMPLETION AND RESULTS REPORT (IBRD-47050)

ON A

Public Disclosure Authorized LOAN

IN THE AMOUNT OF US$ 200 MILLION

TO THE

PEOPLE’S REPUBLIC OF CHINA

FOR A

SHANGHAI URBAN ENVIRONMENT PROJECT

Public Disclosure Authorized

September 29, 2010

China and Mongolia Sustainable Development Unit Sustainable Development Department East Asia and Pacific Region Public Disclosure Authorized

CURRENCY EQUIVALENTS

Exchange Rates

Currency Unit = Renminbi Yuan (Y)

US$1.00 = Yuan 8.30 (at project appraisal) Yuan 1.00 = US$0.12 (at project appraisal) US$1.00 = Yuan 6.80 (at project closing) Yuan 1.00 = US$0.15 (at project closing)

FISCAL YEAR January 1 to December 31

ABBREVIATIONS AND ACRONYMS

APL Adaptable Program Loan PPI Private Participation in Infrastructure CEAM Chengtou Environment Asset Management Co. PPP Public Private Partnership CEIC Shanghai Chengtou Environment Industry QAG Quality Assurance Group Development Co. Ltd. QEA Quality at Entry Assessment CIDA Canadian International Development Agency QER Quality Enhancement Review CDM Clean Development Mechanism RAP Resettlement Action Plan CNG Compressed Natural GAs SCAESAB Shanghai City Appearance and DFV District Financing Vehicle Environmental Sanitation DRA Design, Review and Advisory (services) Administration Bureau EIA Environmental Impact Assessment SCC Shanghai Construction Commission EMP Environment Management Plan SEP Shanghai Environment Project FWP Fenging Water Purification Company Ltd. SEPB Shanghai Environmental Protection Bureau GDP Gross Domestic Product SFB Shanghai Finance Bureau GEF Global Environment Facility SMG Shanghai Municipal Government GIS Geographical Information System SMSC Shanghai Municipal Sewerage Company ICB International Competitive Bidding SPC Shanghai Development Planning Commission JOOC Jinshan Ocean Outfall Engineering Ltd. SSP1&2 First and Second Shanghai Sewerage Project MIS Management Information System SWA Shanghai Water Authority MOF Ministry of Finance SWAOD Shanghai Water Assets Operation & Dev. Co. MSW Municipal Solid Waste SWEC Shanghai Water & Environment Construction NDRC National Development Reform Commission Co. Ltd. NCB National Competitive Bidding UDIC Urban Development and Investment Corp. O&M Operations and Maintenance USTDA United States trade Development Agency PDO Project Development Objective WTO World Trade Organization PMO Project Management Office WWTP Wastewater Treatment Plant

Vice President: James W. Adams Country Director: Klaus Rohland Sector Manager: Ede Ijjasz-Vasquez / Vijay Jagannathan Project Team Leader: Sing Cho ICR Team Leader: Sing Cho

China SHANGHAI URBAN ENVIRONMENT PROJECT

CONTENTS

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

1. Project Context, Development Objectives and Design ...... 1 2. Key Factors Affecting Implementation and Outcomes ...... 7 3. Assessment of Outcomes ...... 11 4. Assessment of Risk to Development Outcome ...... 19 5. Assessment of Bank and Borrower Performance ...... 20 6. Lessons Learned ...... 23 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners ...... 25 Annex 1. Project Costs and Financing ...... 27 Annex 2. Outputs by Component ...... 30 Annex 3. Resettlement ...... 35 Annex 4. Economic and Financial Analysis ...... 36 Annex 5. Bank Lending and Implementation Support/Supervision Processes ...... 37 Annex 6. Beneficiary Survey Results ...... 38 Annex 7. Stakeholder Workshop Report and Results ...... 38 Annex 8. Summary of Borrower's ICR and/or Comments on Draft ICR ...... 39 Annex 9. Comments of Cofinanciers and Other Partners/Stakeholders ...... 49 Annex 10. List of Supporting Documents ...... 49 MAP IBRD 38039

A. Basic Information Shanghai Urban Country: China Project Name: Environment Project Project ID: P070191 L/C/TF Number(s): IBRD-47050 ICR Date: 11/03/2010 ICR Type: Core ICR PEOPLE'S REPUBLIC Lending Instrument: APL Borrower: OF CHINA Original Total USD 200.0M Disbursed Amount: USD 200.0M Commitment: Revised Amount: USD 200.0M Environmental Category: A Implementing Agencies: Shanghai Development & Reform Commission Cofinanciers and Other External Partners:

B. Key Dates Revised / Actual Process Date Process Original Date Date(s) Concept Review: 10/29/2001 Effectiveness: 02/11/2004 02/11/2004 Appraisal: 03/28/2002 Restructuring(s): 06/26/2009 Approval: 06/17/2003 Mid-term Review: 04/30/2007 04/02/2007 Closing: 03/31/2009 03/31/2010

C. Ratings Summary C.1 Performance Rating by ICR Outcomes: Satisfactory Risk to Development Outcome: Low or Negligible Bank Performance: Satisfactory Borrower Performance: Satisfactory

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

i C.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments Indicators Rating Performance (if any) Potential Problem Project Quality at Entry No Satisfactory at any time (Yes/No): (QEA): Problem Project at any Quality of No Moderately Satisfactory time (Yes/No): Supervision (QSA): DO rating before Satisfactory Closing/Inactive status:

D. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) Sewerage 73 73 Solid waste management 20 20 Sub-national government administration 7 7

Theme Code (as % of total Bank financing) Access to urban services and housing 25 25 Environmental policies and institutions 25 25 Other urban development 25 25 Pollution management and environmental health 25 25

E. Bank Staff Positions At ICR At Approval Vice President: James W. Adams Jemal-ud-din Kassum Country Director: Klaus Rohland Yukon Huang Sector Manager: Ede Jorge Ijjasz-Vasquez Keshav Varma Project Team Leader: Takuya Kamata Geoffrey Read ICR Team Leader: Sing Cho ICR Primary Author: Sing Cho

F. Results Framework Analysis

Project Development Objectives (from Project Appraisal Document) (a) To put in place some of the underpinnings and enabling conditions to pursue an integrated, metropolitan-wide approach for managing the urban environment; (b) install, in both the city center and districts, facilities already known to be high priority to achieve metropolitan-wide environmental objectives.

ii Revised Project Development Objectives (as approved by original approving authority) N / A

(a) PDO Indicator(s)

Original Target Formally Actual Value Values (from Revised Achieved at Indicator Baseline Value approval Target Completion or documents) Values Target Years (a) Investment program/services optimized across Shanghai Municipality; (b) Indicator 1 : financed in a more stable and market-based manner; and (c) organized, taking full advantage of public/private possibilities a) Significantly improved. Plan with various institutional (a) Comprehensive initiatives plan under implemented. (b) implementation. Long-term multi- Value (a) Limited (b) Long-term source financing is quantitative or (b) Limited multi-source being extensively Qualitative) (c) Very limited financing applied applied. (c) (c) Various PPI Substantial initiatives applied involvement of in the sectors private sector, and various public/private partnerships implemented. Date achieved 03/28/2003 12/31/2009 03/31/2010 Suburban programs approved by SWA; supported by Shanghai UDIC. MSW Comments master plan updated. Bond issue, 8-15 year loans from various sources, PPP, a (incl. % water company listed on exchange. Zhuyuan I a BOT. Landfill operated by JV. achievement) Private concession for incinerator Share of wastewater collection systems, and necessary additional treatment and Indicator 2 : disposal facilities completed to handle all wastewater generated within the outer ring road area Value See intermediate See intermediate See intermediate outcome quantitative or outcome indicators outcome indicators indicators below. Qualitative) below. below. Date achieved 03/28/2003 12/31/2009 03/31/2010 Comments (incl. % achievement) Indicator 3 : Completion of fourth-stage expansion of the existing Laogang sanitary landfill Full operation 8,900 ton/day Value receiving > 4,800 (target quantitative or Not started ton/day of (significantly Qualitative) garbage. exceeded)

iii Date achieved 03/28/2003 12/31/2009 03/31/2010 Comments Currently 85% more solid waste per day than the minimum target is being (incl. % received and managed at the landfill. achievement) Completion of three wastewater treatment plants in two districts that protect the Indicator 4 : water supply resources in the Upper Huangpu Catchment Two WWTPs Two WWTPs were Value were completed completed (plus quantitative or None (plus one with own one with own Qualitative) funds). funds). Date achieved 03/28/2003 12/31/2009 03/31/2010 Comments The Fengxian District WWTP was implemented using own and private sector (incl. % funds due to delays of the APL1 loan negotiation and effectiveness. achievement)

(b) Intermediate Outcome Indicator(s)

Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised approval Completion or Target Values documents) Target Years Indicator 1 : Urban WW: Enhanced primary treatment (m3/d) All upgraded to Value secondary (quantitative 0 2,900,000 treatment. or Qualitative) (See Indicator 2) Date achieved 03/28/2003 12/31/2009 03/31/2010 Comments New national regulations passed in late 2003 required cities (on the coast and on (incl. % large rivers) to invest in secondary treatment only, and thereby all WWTPs achievement) implemented under APL1 applied this treatment level. Indicator 2 : Urban WW: Secondary treatment of wastewater (m3/d) Value (quantitative 0 900,000 6,865,000 or Qualitative) Date achieved 03/28/2003 12/31/2009 03/31/2010 Combining the indicators 1 and 2, the target was exceeded by 80%. In parallel Comments with the APL1, Shanghai expanded and upgraded another large WWTP (incl. % (financed by the Bank under an earlier project) responding to new policy and achievement) increased flow. Indicator 3 : Upper Huangpu: WW treatment capacity (m3/d) 950,000 in all Value suburban Districts (quantitative 0 70,000 (of which Jinshan or Qualitative) & Fengxian Districts 114,000) Date achieved 03/28/2003 12/31/2009 03/31/2010 Comments The target 70,000 for Jinshan and Fengxian Districts was exceeded by 63%. (incl. % (two WWTPs implemented under the project, and one plant with own funds).

iv achievement) Indicator 4 : Wastewater tariffs implemented to meet financial projections Value No ( details see (quantitative Yes Yes section 4) or Qualitative) Date achieved 03/28/2003 12/31/2009 03/31/2010 Comments Despite significant tariff increases, impact of investments caused indicator not to (incl. % be fully met as per Covenant. The definition was stronger than for other Bank- achievement) financed projects in China due to the development level of Shanghai. Urban WW: Aggregate quantity of urban wastewater treated at wastewater Indicator 5 : treatment plants (% of system flow) Value (quantitative 60 80 79 or Qualitative) Date achieved 03/28/2003 12/31/2009 03/31/2010 Comments (incl. % achievement) Indicator 6 : Number of studies and training on institutional reforms implemented. Value (quantitative 0 18 18 or Qualitative) Date achieved 03/28/2003 12/31/2009 03/31/2010 Of the 18 consulting services (studies, training, etc.) activities, 5 were Comments implemented with loan financing, 5 with grant funding (from US TDA, CIDA), (incl. % and 7 with own funds; corresponding to 28%, 34%, and 38% respectively with achievement) regard to cost.

G. Ratings of Project Performance in ISRs

Actual Date ISR No. DO IP Disbursements Archived (USD millions) 1 06/27/2003 Satisfactory Satisfactory 0.00 2 12/24/2003 Satisfactory Satisfactory 0.00 3 06/02/2004 Satisfactory Satisfactory 10.00 4 12/07/2004 Satisfactory Satisfactory 15.08 5 05/17/2005 Satisfactory Satisfactory 18.91 6 11/17/2005 Satisfactory Satisfactory 34.72 7 11/28/2006 Satisfactory Satisfactory 77.56 8 12/20/2007 Satisfactory Satisfactory 111.33 9 03/19/2009 Satisfactory Satisfactory 151.72 10 04/27/2010 Satisfactory Satisfactory 199.70

H. Restructuring (if any)

v ISR Ratings at Amount Board Restructuring Disbursed at Restructuring Reason for Restructuring & Approved Restructuring Date(s) Key Changes Made PDO Change DO IP in USD millions . Reallocation of about USD 7 million from the Institutional Strengthening and Training 06/26/2009 N S S 158.28 category to the Goods category. . Extension of the loan closing date from March 31, 2009 to March 31, 2010.

I. Disbursement Profile

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1. Project Context, Development Objectives and Design

1.1 Context at Appraisal

Leading up to project identification Shanghai had made substantial progress in restructuring its economy and in upgrading its environmental infrastructure. However, in spite of considerable investments, less than two-thirds of wastewater and storm water in the core city were hygienically intercepted and disposed of, and only some eleven percent of sewage flows were treated to secondary treatment standards and safely disposed. An old landfill for municipal solid waste disposal had only about two years capacity remaining, and the water quality in the Huangpu River, the main source of drinking water, was becoming increasingly polluted, rendering it marginally acceptable as a water source. The inequality of access to services was also of concern to Shanghai Municipal Government (SMG), exacerbated by emerging income disparity.

Shanghai had established a strong partnership with the Bank through urban infrastructure projects with good results, including for wastewater, water supply and solid waste management. Implementation performance, including institutional advances, had steadily improved in these projects. The city’s strategic plans incorporated environmental issues to enhance the city’s competitiveness and continue rapid economic growth. (The GDP per capita in Shanghai was in 2000 US$ 4,173 and in 2009 about US$ 10,500.) This formed a good base for Shanghai to pursue more innovative ways of providing services to its citizens with Bank support through a longer-term phased program, including new financing instruments, extending services to its under-served areas in the city and to less affluent citizens in suburban districts, and changing the role of government from a provider of services to an enabler and facilitator. Both the Central and Shanghai governments determined that an APL program - the first one in China - would best serve Shanghai’s requirements.

SMG recognized that the current funding methods using short-term funding for long-term investments was risky, inefficient and not sustainable. Hence, SMG decided, with central government support, to develop a more responsive and innovative framework for infrastructure financing (see Annex 15 of APL1 PAD). Shanghai realized that it needed to broaden its access to capital and tap the domestic bond market. Local governments in China had, to a limited extent, previously issued bonds for manufacturing and transport, but not for environmental purposes. The suburban districts of Shanghai faced even greater obstacles than the core city in raising stable, long-term financing for its infrastructure. Therefore another initiative was to use Shanghai’s municipal-level strength to help its District governments secure long-term financing at reasonable costs. This was the main objective of the project support to a District Financing Vehicle (DFV).

The project directly supported two of the three themes of the CAS at the time: (i) to facilitate an environmentally sustainable development process; and (ii) to help improve the business environment, as China makes its transitions to a more urban society and a market-based economy. The overall APL program was also to have a demonstration

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benefit to China by: (i) developing innovative measures for long-term infrastructure finance; (ii) extending opportunities for public/private partnerships; (iii) improving regional environmental management; and (iv) demonstrating the imperatives of cost recovery for environmental services.

1.2 Original Project Development Objectives (PDO) and Key Indicators

PDO: The objective of the Project is to assist the Borrower’s Shanghai Municipality to: (i) develop policies and plans to support and enable an integrated municipal-wide approach to urban environment issues, and (ii) improve environmental management and infrastructure services in the core city and in the upper Huangpu catchment areas.

(The corresponding PDO wording in the PAD is: (a) To put in place some of the underpinnings and enabling conditions to pursue an integrated, metropolitan-wide approach for managing the urban environment; and (b) install, in both the city center and districts, facilities already known to be high priority to achieve metropolitan-wide environmental objectives.)

Key Indicators:

(a) Investment program/services optimized across Shanghai municipality; financed in a more stable and market-based manner; and organized, taking full advantage of public/private possibilities.

(b) Share of wastewater collection systems, necessary additional treatment and disposal facilities completed to handle all wastewater generated within the outer ring road area.

(c) Completion of fourth-stage expansion of existing Laogang sanitary landfill.

(d) Completion of three wastewater treatment plants in two districts that protect the water supply resources in the Upper Huangpu Catchment.

Water Quality and Financial Performance Targets (at project closing) Urban WW: Enhanced primary treatment (m3/d) 2,900,000 Urban WW: Secondary treatment of wastewater (m3/d) 900,000 Urban WW: Aggregate quantity of wastewater treated at 80 wastewater treatment plants (% of system flow) Upper Huangpu: WW treatment capacity (m3/d) 70,000

Wastewater tariffs to be implemented to meet financial projections (Yuan per m3) Shanghai Municipal Sewerage Company (SMSC) 1.71 Fengxian: Nanpai WW Co. 1.26 (sub-component deleted) Jinshan: Xinjiang Ocean Outfall Co. 1.26 Jinshan: Fengjing Water Purification Co. 1.41

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Triggers for APL2. It was agreed that an APL2 would be considered by the Bank when four of the six triggers shown in the Box below were met. In addition, triggers 1, 2, and 3 had to be among the four triggers fulfilled.

Triggers for APL2 1. SMG has approved a Solid Waste Disposal Master Plan covering all urban and suburban districts and Chongming County of Shanghai. Such Master Plan would contain the service charge policy, including adoption of market-oriented charges on users, fees for treatment, disposal and discharge, waste volume reduction measures, and recovery and reuse approaches.

2. (a) SWAOD has: (i) prepared and adopted a five-year capital investment plan which includes a capital financing plan, a debt management plan and a revenue adjustment plan; and (ii) formulated the preliminary design of long-term bonds to finance environmental infrastructure; and (b) SMG has: (i) reviewed said preliminary design and submitted it to the central government for approval; and (ii) completed a time-bound action plan for Phase 2 in preparation for bond issuance.

3. SMG has prepared an administrative framework and draft implementing regulations for social participation (i.e., various forms of ownership) in wastewater treatment and/or solid waste management.

4. SMG has: (a) initiated a study, including water quality modeling, for the purpose of developing an Upper Huangpu Catchment Management Plan; and (b) provided an interim report of such study which includes draft revised regulations of agricultural wastewater pollution control in the Upper Huangpu Catchment area.

5. SMG has piloted in Hongkou District approaches for urban services upgrading for poorer and underserved areas, which incorporate the principle of maintaining community life and minimizing clearing and permanent relocation of the residents of such areas.

6. SMG has: (a) completed the design for a District Financing Vehicle (DFV) for environmental services in its suburban districts, together with the institutional and financial arrangements necessary for the functioning of such Vehicle; and (b) in accordance with applicable national laws and regulations, submitted such design to the relevant agencies of the central government for approval.

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

1.4 Main Beneficiaries

The target population broadly included all the residents of the municipality, focusing on those who were un- or under-served by urban environment services. Governmental agencies involved benefitted through a sustainable mechanism of financing environmental infrastructure, and more effective systems for environmental management. The primary beneficiaries of the respective project component of APL1 were as follows (see Annex 2 for further quantifications):

Urban Wastewater Management. Residential households and property owners in under- served areas (called area A, B and C), all located in the urban core of Shanghai,

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benefitted in terms of improved environment (eliminated/reduced smells and periodic flooding from storms, etc.) and related public health, and enhanced property values and rents close to the waterways.

Urban Solid Waste Management. Project focused on solid waste disposal, since the collection systems were functioning well. Beneficiaries were residents living in the vicinity of the Laogang landfill, and the landfill operator and its staff. Residents along the waterways on which the waste is transported, and sanitary workers, were also beneficiaries in terms of reduced smell and spillage through the implemented containerization. (Most solid waste collected in the core city of Shanghai is transported by barges to the Laogang landfill site, about 60 km away from the city center.) The improved food waste system benefits restaurants and residents living nearby through improved collection. The Management Information System (MIS) benefitted the Shanghai Sanitation Bureau and the various local operators that the system serves.

Urban Planning and Pilot Upgrading. Some 81,400 households benefitted from better living conditions of this housing program. The Hongkou District Government benefitted from the project management experience, as an example of housing rehabilitation with in-situ resettlement, as did the governments in the municipality at large.

Upper Huangpu Catchment Management. Beneficiaries were residents living close to small waterways where sewerage was previously discharged without interception. District Government entities gained important project management experience for their second phase implementations. The investment contributed to some extent also to the protection (or limited further degradation) of the water source area (Upper Huangpu River) for the core city of Shanghai’s piped water supply, and thereby indirectly benefitted essentially all the residents in the city to some extent.

Institutional Strengthening and Training. Studies of the Upper Huangpu catchment area benefitted Shanghai Water Authority (SWA) for its planning and oversight of metropolitan-wide water quality improvement, and Shanghai Environmental Protection Bureau (SEPB) for its regulatory and enforcement functions. Study tours benefitted implementing agencies by getting exposure to operations of large scale infrastructure in other countries. Studies on Compressed Natural Gas (CNG) usage, the city’s air quality, and a Heritage Strategy, benefitted Shanghai Development Planning Commission (SPC) and Shanghai Finance Bureau (SFB) for their five-year planning, and many entities addressing heritage preservation in the municipality. Documentation related to the bond issue benefitted the Shanghai Chengtou (owner of the wastewater utility and landfill operator), as well as the national regulatory body and other cities in China. The beneficiaries of the DFV, prepared under APL1, were the suburban District governments and their public utility companies, and the residents they serve with sewerage, storm water, and solid waste management services.

1.5 Original Components

Urban Wastewater Management (Project cost US$345.7 million; IBRD$137.7 million)

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The objective of this component was to complete wastewater collection systems in the urban core, facilities to treat all wastewater generated within the Outer Ring Road in Shanghai, and support the first stage of a sludge management program. This comprised collection and trunk sewers, pumping stations, a large treatment plant and outfall, and related sludge treatment and disposal. Consultancy services for construction supervision and project management, and studies on sludge management and financial strengthening of the utility company was also included.

Urban Solid Waste Management (US$ 78.6 million; IBRD $ 30.0 million) Objectives were to: (a) establish environmentally sound and cost-effective municipal solid waste management services in the urban areas; (b) adopt user tariffs and handling charges that will ensure adequate cost recovery of these services; (c) adopt a market- oriented institutional arrangement for the services; and (d) introduce, on a pilot basis, a set of appropriate market-based instruments to support waste recycling. The project financed the implementation of the fourth-stage expansion of the existing Laogang landfill, to increase the handling capacity to at least 4,900 ton/day, which would extend the useful life of this facility by another 18 years or more, and equipment for waste transport and dock rehabilitation. It also included a food waste collection system and a computerized Management Information System (MIS).

Urban Planning and Pilot Upgrading (US$ 14.8 million; IBRD US$ 5.9 million) This component was concerned with urban planning, and the upgrading of infrastructure services in crowded and underserved areas in one District, in the context of SMG’s overall strategic urban development policies. It supported upgrading and pilot renewal projects with in-situ resettlement to the extent possible in older residential environments, some of cultural heritage value.

Upper Huangpu Catchment Management (US$ 45.7 million; IBRD US$ 16.5 million) The objective was to improve environmental management of the Upper Huangpu River Catchment and protect water resources in the area. It comprises: (a) policy development based on water modeling and an Upper Huangpu Catchment Management Plan establishing pollution sources and strategies for their control; and (b) investments in three wastewater collection, treatment and disposal systems covering several towns in two suburban Districts.

Institutional Strengthening and Training (IST) (US$ 9.0 mill.; IBRDUS $7.9 mill.) APL1 supported a range of technical assistance (TA) for capacity-building in the implementing agencies and SMG, including: (a) Upper Huangpu Catchment Management Plan; (b) procedures for private sector participation in infrastructure provision; (c) pollution reduction measures; (d) support for local bond issue; (e) preparation of policy and operating rules for a District Financing Vehicle; (g) training and study tours; (h) special studies; and (i) heritage strategy support. (Items (a) and (c) were described in the Loan Agreement under the previous project component.)

1.6 Revised Components NA

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1.7 Other significant changes

The following significant change occurred:

 During project implementation (in 2004 and 2005) Shanghai accelerated its construction of a middle ring-road which seriously affected the sewer implementation under the project. After thorough analysis of required design changes, it was determined that under the new circumstances pipe-jacking technology would be possible to use, and be more cost-effective to apply than the earlier specified traditional (excavation) approach of pipe-laying. Soft ground tunneling skills, which included pipe jacking, had been introduced in Shanghai under the earlier First and Second Shanghai Sewerage Project (SSP1 and SSP2), and also used in Shanghai Environment Project (SEP).

The following limited adjustments were made during project implementation:

 The Fengxian District WWTP and related sewer network was financed by the District with its own funds due to start-up delays in the APL1 and the urgency of the investment. The Bank financing of US$3.9 million was reallocated to the disbursement category Unallocated at the time, and later was used in the urban wastewater component. This sub-component was deleted from the project scope by an amendment to the legal agreements.

 The disbursement percentages were increased in May 2007 for some of the Works categories (from 48% to 79%), and for the Consultants’ Services category (from 91% to 100%) following changes in China policy and Bank policy respectively.

 The loan closing date was extended one year from March 31, 2009 to March 31, 2010 to allow for completion of all urban wastewater investments. Sewer implementations had been delayed due to the design adjustments mentioned above, and implementation of the large WWTP required some additional time to complete construction.

 Towards the end of project implementation, a loan amount of about US$7 million from the Institutional Strengthening and Training (IST) component (and US$13.9 million in Unallocated) was reallocated to the urban wastewater component, as the IST having been financed to a great extent by grant funds and own funds by the Borrower (See Annex 1 & 2 for details), and the price of goods for the wastewater investments had increased significantly beyond the estimates, partly due to high inflation in China in 2008. This was done as part of a formal project restructuring in 2009 together with the extension of the loan closing date.

In addition, facilities for methane gas extraction with transfer to the power grid were added to the Laogang IV landfill as part of a project by Shanghai to pursue carbon credit under the Clean Development Mechanism (CDM). The Bank team assisted Shanghai in

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structuring this CDM project but the related investments were financed by own funds outside the APL1.

2. Key Factors Affecting Implementation and Outcomes

2.1 Project Preparation, Design and Quality at Entry

The project benefitted from a sound background analysis. The APL followed on three urban environmental projects in Shanghai financed by the Bank: SSP1, SSP2 and SEP, and experiences from these were incorporated in the new, broader APL.

A Quality at Entry review by QAG in 2003 rated the project preparation “Satisfactory”. Preparations for this important program for Shanghai, and to some extent for China, were considered thorough by QAG, in the context of an advanced and financially strong client.

Over the course of the project implementation, the Bank’s practices have evolved. It is recognized that the PDO and KPIs for the project would have today been formulated somewhat differently, with the PDO being simpler and more narrowly defined, and some of the KPIs being more measurable. However, the PDO and KPIs were reasonably related and a high quality design easily led to the achievement of the PDO, even with the fairly long formulation of the PDO by today's standards. The risk rating in the PAD (p. 31) was appropriate at the time, but most of these risks did not materialize. See section 2.2 below for further information.

The siting of a wastewater treatment plant became a challenging task during project preparation. After project appraisal in March 2002, Shanghai decided, appropriately, to further study the pros and cons of two alternative sites. This caused the loan negotiations to be postponed for a year while these alternatives were thoroughly studied and a choice of site determined which the Bank could support. Loan negotiations were subsequently successfully carried out in April 2003.

Adequate participatory processes were carried out related to safeguards, as per Bank guidelines, including social surveys. A social study was also carried out in the Upper Huangpu area based on New Zealand grant funding, confirming the critical need for improved infrastructure services in the area. These studies influenced not only safeguard management but also project design more broadly, for example in terms of what to include in the project scope.

A high profile, international urban environmental conference was held by Shanghai in June 2001 during project preparation, and actively supported by the Bank, partly through the APL1 preparation budget. Some deliberations influenced Shanghai’s approach to its metropolitan environmental management and the content of the overall APL program.

2.2 Implementation

The only significant change during project implementation was a technology change for the pipe-laying. This and other limited adjustments made are noted in section 1.7 above.

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The Mid-term review was carried out in April 2007 without any major changes. Substantial supervision efforts were made regarding technical quality, safeguards, institutional development, financial innovations (DFV and bond issue), and the triggers for APL2. Project preparation of both APL2 and APL3 were undertaken in parallel with implementation of APL1. These loans were approved by the Bank in June 2005 and June 2009 respectively.

Periodic detailed design changes of the sewer implementation became necessary due to the construction of a ring-road in the area which had been accelerated at the same time. This caused an unusually high volume of variation orders for related APL1 civil works contracts, putting significant stress on the related review/approval processes, including required prior reviews by the Bank. The change to pipe-jacking (see 1.7 above) created increased costs of civil works but much reduced resettlement costs. Significant attention was put on this during supervision missions.

Wastewater Tariffs. The risk of insufficient tariffs for full cost recovery did materialize to some extent, since, in spite of the wastewater tariffs being increased periodically (and more than doubled during the project implementation), the related, strong loan covenant was not fully met during the last couple of years of the project. This was mainly caused by large new investments being recorded on the financial statements of the related utility companies, triggering higher depreciations. Sufficient operational funding was never an issue though, with SMSC being part of the financially strong Shanghai Chengtou (UDIC), and Jinshan District government making adequate budgetary allocations for debt service, as required.

With regard to the risk of Government being uncommitted to financing "intangibles” (see page 31 of the PAD) with loan funds, this was mitigated by SMG and the Bank together making efforts in mobilizing grant funding and ensuring that adequate own funds would be allocated to such investments to achieve the project objectives. Significant attention was given to this during project supervision since it was a concern particularly during the first few years of project implementation. In addition to some planned institutional strengthening and training items being financed by loan or grant funds, Shanghai undertook all but one of the remaining items with its own funds. TORs were still reviewed by the Bank’s team. Operational training for staff of the suburban wastewater treatment plants was cancelled due to lack of demand from the respective district governments. The staff had separately received necessary training and later demonstrated good competence through efficient management of the two plants funded by APL1.

A Quality of Supervision review by QAG in 2006 rated the project supervision moderately satisfactory, expressing concerns about slow implementation of the IST component at the time, and that both the environmental and social safeguards had been supervised by the same team member up to that time. Even though the one team member for these safeguard subjects was fully qualified and readily available for both tasks, QAG maintained its rating and insistence on the need for separate team specialists for this large project. With respect to IST, implementation accelerated after 2006, by Shanghai to a great extent using bilateral grant funding and own funds.

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Changes in Costs and Scope. The final cost of the urban wastewater component was US$ 379 million versus US$ 346 million originally estimated in the PAD, a difference of about 10%. This was mainly due to the significant revaluation (22%) of the RMB vis-à- vis the US dollar during project implementation. The total cost for the Upper Huangpu component became less due to the deletion of one WWTP from the project scope, having been implemented with own funds early on due to the start-up delay of the APL1. (See Annex 1 and page 17 of the PAD for details.)

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

M&E design. The Shanghai authorities were experienced in managing project investments following Bank guidelines. Routine aspects of monitoring were in place building on the system from previously Bank-funded projects. The project assisted in the expanded use of geographical information systems (GIS) by enhancing the management information systems (MIS) for solid waste management.

M&E implementation. As reflected in the Borrower’s Completion Report (See Annex 8), monitoring of service areas, served population, water quality, etc. was carried out by the implementing entities throughout project implementation. Six specific intermediate performance indicators were followed up closely, and others were monitored during full supervision missions about every six months, and by ongoing contacts between team members in the Bank Beijing office and SMG’s Project Management Office (PMO), including field visits, as required. The PMO submitted semiannual progress reports to SMG’s Leading Group and the Bank. The external environmental monitoring reports by a unit of the East Normal University in Jiangsu Province were particularly comprehensive, reflecting the experience and competence of this entity. The most challenging aspect of M&E was, as expected, to assess the degree of progress toward fulfilling the overall development objectives due to their longer-term nature, the difficulties in measuring them quantitatively, and the inter-linkages among APL phases and goals.

M&E utilization. Detailed monitoring data was collected by the respective implementing agency and used well for their project implementation and subsequent operations, as reflected by the tables of indicators in Annex 8. For example, the management of Laogang landfill closely monitored leachate volumes and composition during early operations and made adjustments to the related systems as required, particularly due to increased received waste volumes. Supported by the project implementation arrangements, with a very small dedicated PMO and the each involved government agency taking responsibility for implementation of their respective investments, the sustainability of the monitoring and evaluation activities is considered secure.

Compliance

The Borrower complied with the Bank’s relevant safeguard and fiduciary requirements, i.e. on financial management, procurement, disbursement, environmental assessment, physical cultural resources, and involuntary resettlement. No major issues occurred.

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Financial Management. Overall financial management compliance was satisfactory. The financial management system during implementation had no significant changes from appraisal. The project financial management system was acceptable to the Bank. Audit compliance was satisfactory; the PMO and implementing agencies submitted annual audit reports to the Bank in a timely manner. However, the auditors detected some weaknesses such as improper accounting treatments, cost increases, and slow implementation.

Environment Management Plan. During project implementation the EIA and EMP documents were updated to be consistent with changes in project scope and activities. EIAs for new investments were prepared, reviewed and cleared in accordance with domestic and Bank requirements. At the early stage of project implementation, institutional arrangement such as dedicated environmental staff at various levels of management and external monitoring agencies were not put in place in a timely manner. However at the request of the Bank, such issues were solved. The external environmental monitoring agency played a crucial role in ensuring implementation of the environmental quality monitoring plan and quality reporting. East China Normal University (ECNU) was engaged directly by sub-project owners to carry out monitoring and prepare the EMP external monitoring report. In situations when ECNU could not conduct special monitoring due to technical or instrument constraints, the sub-project owner engaged specialized monitoring agencies, but still had ECNU play a coordinating role to maintain quality standards, and translate the monitoring and evaluation results into management advice, which were provided to the Project Office and the sub-project owners. Mitigation measures, including technical, management and educational ones, were taken as appropriate. By and large, the project EMP compliance is considered satisfactory.

Resettlement. As reflected in Annex 3, the numbers of housing units removed and the resettled persons were drastically reduced compared to the original RAPs (as per numbers in the PAD). This was due to the change of pipe-laying technology found possible during the project, as explained in Section 1.7 above. These RAPs were revised as per Bank guidelines at the time. The resettlement objectives as set forth in the final RAPs were achieved by the loan closing. Total resettlement compensations of RMB 930 million (US$137 million) were expended. In spite of the decrease in the resettlement volumes, the total amount of resettlement compensation still remained high for the project due to significant increases in property values in Shanghai, triggering related increases in the compensation rates as per the municipal regulations.

2.4 Post-completion Operation/Next Phase

The project implementation arrangements, with the various municipal and district government agencies being directly responsible for implementation of their respective project investments, made the transition to operations and maintenance (O&M) very smooth. These agencies are monitoring indicators established and used during project implementation as part of their ongoing management and operations. In addition, Shanghai’s Development Planning Commission and Environmental Protection Agency are undertaking monitoring and evaluation as part of their Five-Year-Plan and Three Year Environmental Program processes respectively.

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SMSC is well established, staffed and budgeted - currently one of the largest sewerage operations in the world – with proven O&M processes and staff for large systems. The Jinshan District and its wastewater companies have, through the APL1, proved themselves to be competent entities, reflected in the project implementation performance. Through the ongoing APL2 and APL3 projects, the Bank continues to be engaged in the sector, and related monitoring, at the city as well as suburban district levels. Regarding cost recovery in the sector, see Section 3.2 below.

The solid waste sector has well established M&E processes at the Laogang landfill, operated by a joint venture of a subsidiary company of Shanghai Chengtou, Veolia Environmental Services, and the CITIC Pacific1, with international best practice landfill management. This facility – the largest in Asia in terms of received volumes - and its operations, is often referred to as a model in China and the region based on its application of state-of-the-art equipment and management techniques; a comprehensive leachate and treatment system; financial management with full cost recovery through tipping charges based on weighted waste; and methane gas extraction providing all electricity requirements for the landfill operations. The sector M&E is supported by a new MIS system managed by the Shanghai City Appearance and Environmental Sanitation Administration Bureau (SCAESAB) and implemented in stages under APL1 and APL2.

In order to further improve the water quality in Shanghai, particularly in the Upper Huangpu area, an initiative was taken by SPC and the Bank during the APL1 implementation for livestock waste management improvements. A grant of about US$5 million was mobilized, Shanghai Agricultural and Non-Point Pollution Reduction Project, from GEF’s East China Sea program, supporting a total program of about US$35 million, which was recently approved in June, 2010. This will further contribute to the metropolitan-wide environmental improvement efforts by Shanghai.

3. Assessment of Outcomes

3.1 Relevance of Objectives, Design and Implementation Rating: S

The project and indeed the overall program remain highly relevant for Shanghai. Metropolitan level management is becoming increasingly important with continued urbanization transcending jurisdictional boundaries, and requiring more equitable basic urban service delivery and environmental improvement, not only for the increasing population but also across larger, previously un- and underserved geographical areas. As outlined in Section 1 above, the continued economic growth and urbanization in China are putting stress on the local environments and public service delivery, requiring new, strategic development approaches.

1 CITIC Pacific is incorporated in Hong Kong SAR, China and publicly traded on the Hong Kong Stock Exchange. CITIC Pacific's largest shareholder is CITIC Hong Kong (Holdings) Ltd., a wholly owned subsidiary of CITIC in Beijing, Peoples' Republic of China.

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Through the APL program, Shanghai is continuing its pioneering role in China in the urban environmental sectors, being of strategic importance for the country and beyond by setting examples for other cities (more than 50 municipalities in China have a population of more than 1 million today). Shanghai was, for example, the first city in China to establish a wastewater tariff, to corporatize utility services, and to form a municipal Water Authority by consolidating the functions of a number of sector agencies. Innovations implemented in the APL1 project include: (i) advances in infrastructure finance (design of the DFV for support of suburban districts, bond financing, and refined tariff structures); (ii) enhanced metropolitan-wide infrastructure planning and management (through Shanghai Water Authority and Shanghai Chengtou (UDIC)); (iii) technical advances (pipe-jacking, reducing resettlement needs and costs); (iv) housing rehabilitation with in-situ resettlement, and (v) particularly comprehensive management of a large sanitary landfill through a public-private partnership (PPP) arrangement. The project also demonstrated the application of full implementation responsibility vested in the future operational entities making the transition from project to operational mode essentially seamless. Additional advances are being introduced in the ongoing APL2 and APL3 projects. (The APL program has to date been of demonstration value for China and the region, and has also provided valuable inputs to the Bank’s pool of learning and knowledge with regard to mega-city development.)

In addition to directly supporting the Bank’s assistance strategy for China at the time of approval (see 1.1 above) the project remains consistent with two of the three themes of the current China Partnership Strategy 2006-2010: (i) to facilitate an environmentally sustainable development process; and (ii) to help improve the business environment, as China makes its transitions to a more urban society and a market-based economy.

The strategic significance of the APL1 project - for Shanghai, China, and other mega- cities in the region - is reflected in its focus on establishing “underpinnings” (e.g. the Upper Huangpu Study; solid waste MIS; piloted infrastructure finance instruments; and strategic physical investments), and providing “enabling conditions” for an improved metropolitan-wide environment, supporting better quality of life across the municipality, and enhancing the city’s competitiveness. The identification of a GEF-supported livestock waste management program represents a direct link to a global priority, contributing to environmental improvements in the East China Sea.

3.2 Achievement of Project Development Objectives Rating: S

3.2.1. The APL1 project supported underpinnings and enabling conditions for Shanghai to pursue an integrated, metropolitan-wide approach for managing its urban environment, and achieve an environment supporting better quality of life and city competitiveness, are directly reflected by the following policy and institutional advances. The conference mentioned in section 2.1 introduced Shanghai to these and other ideas. They were later supported through ongoing dialogue during supervision missions, and in study tours and workshops.

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 Role of Government. A significant change was implemented by Shanghai in the environmental sector in 2005, with governmental entities such as Shanghai Water Authority (SWA) and Shanghai Construction Commission (SCC) focusing on policy and regulations, and the public utilities companies on operations and investments. That is, the government entities changing their role from direct service provider to policy maker and regulator. This has established a strong institutional platform for long-term sustainability.

 Shanghai Water Authority. The role of the SWA as the focal point for all water/wastewater related matters in the municipality was enhanced, including a strengthened role vis-a-vis the suburban districts in approving and overseeing their investment programs and service provision. This has strengthened the cohesiveness of the environmental improvements in the municipality overall (an area of about 6,600 km2, of which the core city is about 600 km2).

 Shanghai Chengtou. The responsibilities of the Shanghai Chengtou (Urban Development Investment Corporation/UDIC) were expanded to include all operational responsibilities for the water, wastewater and solid waste sectors in the core city, and to be a more active facilitator of (and sometimes investment partner for) the infrastructure development of the seven suburban district governments.

Water/wastewater Sector

Water Catchment Area Protection. Two comprehensive water management studies in the Huangpu River catchment area were carried out under the project, which provided SWA and Shanghai Environmental Protection Bureau (SEPB) with a thorough assessment of water quality and pollution sources, with recommended actions. They have since formed a basis for Shanghai’s Upper Huangpu water quality improvement plan being implemented at present.

Water Conservation. In April 2003, the Shanghai Finance Bureau, the Shanghai Planning Commission and the SWA issued a “Management Regulation of Water Resource Fee”. This regulation imposed charges on enterprises and individuals which directly use water from river, lake and underground. In April 2008, a Shanghai Water Resource Protection Fund was established to mobilize funds from both the private and public sector for investments. Seventy percent of the annual profit is being invested in public welfare projects. In addition to disseminating ideas about how to save water, the fund has also introduced modern technologies for water saving and purification, and has invested in construction of WWTPs and water resource management project.

Solid Waste Sector

Strategic Plan. Shanghai’s strategic plan for the sector was refined with support of grant- funded consultants, addressing overall systems design (transport system, technologies, cost recovery, etc.), recycling approaches, and management practices. This plan

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continues to guide all investments in the sector metropolitan-wide, with continued policy development and oversight by Shanghai City Appearance and Environmental Sanitation Administration Bureau (SCAESAB).

Landfill Tipping Fee. The district governments from where the garbage to the landfill originates pay the landfill operating company (the joint venture mentioned in 2.4 above) monthly an agreed amount per ton of garbage based on transport and weight records. As in most cities in China, households pay a “community maintenance fee” to their housing maintenance companies for a variety of common services. There is no separate charge for the solid waste collection.

Food Waste Management System. A pilot system for charging restaurants and other food facilities for collection and disposal of solid waste was implemented and is applied since 2005. The district government charges each facility periodically based on an agreed projected volume. At the end of the year payments are adjusted based on the actual amount of waste as per collection and transport records. As per local regulation the fee is currently up to RMB 60 (US$9) per barrel (240 liters) within a base quota, and up to RMB 120 (US$18) beyond this quota. Exact charge depends on the type of food facility and the size of collection containers used.

Management Information System (MIS). Phase 1 of a comprehensive MIS system for the sector was installed, creating a significant underpinning for continuous institutional improvements in the sector. It is being maintained by SCAESAB.

Both Water/wastewater and Solid Waste Sectors

Metropolitan-wide Utility Support. Shanghai Chengtou (UDIC), as the “holding company” for all environmental utility companies in the core city, has established a separate subsidiary, Chengtou Environment Asset Management Company (CEAM), to support the suburban Districts upon request with project planning, finance and management. Preparation of this District Financing Vehicle (DFV) was done under APL1, and is now being applied in APL2 and APL3 (with US$30 million of Bank funds assigned to it in each of these projects). This is one model for facilitating infrastructure development by suburban district/county governments in large municipalities in China. In a few cases, Shanghai Chengtou has also taken a full or part ownership of suburban government infrastructure facilities.

Broadened Long-term Finance. Infrastructure finance by the municipality now includes a variety of long-term sources, including bond issue, long-term (8-15 year) loans from domestic banks and insurance companies, increased user charges, finance through public- private partnerships (PPP), and listing of a water company on the Shanghai stock exchange. Examples of PPPs are the Zhuyuan WWTP I (capacity 500,000 t/d) implemented as BOT; the Laogang landfill; and a MSW incinerator operated as private concession. These advances have been examples for other cities in China and helped ensure financial sustainability of Shanghai’s infrastructure development.

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Municipal Bond Preparation. Thorough financial planning was achieved by Shanghai Water Assets Operations & Development Co. (SWAOD), a subsidiary of Shanghai Chengtou, as preparation for an issue of the first municipal bond in China in the urban environmental sector. RMB 1.5 billion (US$ 180 million at the time) was successfully raised by SWAOD in 2005.

Capacity Building. Study tours and training sessions in conjunction with international consulting services strengthened the capacity of both municipal policy and regulatory entities and management and technical staff of utility companies, including Shanghai Municipal Sewerage Company (SMSC). It included visits to other relevant mega-cities (e.g. Paris and Sao Paolo), and two study tours included workshops at the Bank’s headquarter.

Safeguards and Fiduciary Requirements. Two important advances were made for the continued APL program related to these requirements.

 Shanghai’s experiences of environmental and social safeguard monitoring during APL1 formed a base for the design of frameworks for these subjects for the innovative DFV component of APL2. Review and approval of the EAs and RAPs was delegated to the DFV implementing agency by the Bank, with only post- review by the Bank. This was the first such delegation arrangement by the Bank in China.

 A simplified disbursement process was agreed for the DFV component of APL2, with the Bank’s Task Team Leader for the project approving disbursements and replenishment requests based on progress reports from the DFV implementing agency, with post-reviews during supervision missions, as required.

Other metropolitan management initiatives contributing to Shanghai’s future development include:  Exploratory LNG and air quality studies were completed, providing some guidance for Shanghai’s initiatives for improved air quality.  A cultural heritage strategy was developed strengthening and facilitating related activities by governmental as well as non-governmental entities.

3.2.2. Priority facility investments made in APL1 (part (b) of the PDO), consistent with Shanghai’s long-term sector strategies and master plans, included:

In the wastewater sector, in the core city:  sewerage collection in large un- and underserved areas, essentially completing the required sewerage collection system for the core city of Shanghai for some time.  a related large wastewater treatment plant (WWTP) phase II at Zhuyuan with secondary treatment (capacity of 500,000 m3/day), 60 km outside the city center.

In the wastewater sector, in suburban areas:

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 priority sewerage systems and two treatment plants in underserved suburban areas of the Upper Huangpu of Shanghai (Jinshan District), representing early examples of facility installations which have now been duplicated elsewhere in the metropolitan area.

In the solid waste sector:  state-of-the-art sanitary landfill at Laogang, 60 km from the city center, now expanded to a capacity of receiving at least 8,900 ton/day of solid waste (as at present), with a useful life of 15 years or more from the time of loan closing.  arrangements for a pilot food waste collection system, which is now a permanent system.

Pilot urban upgrading investment:  housing rehabilitation in an old historic housing area with in-situ resettlement, as an example of a new approach to historical urban area rehabilitation for Shanghai, covering 2,517 houses with floor area of more than 1.3 million m2. A total of 81,361 households benefitted.

While the Laogang IV landfill is now operating at a much higher capacity than originally planned for, appropriate adjustments have been made through expansion of equipment and the leachate treatment facility with own funds, and investments in additional adjacent landfill cells are underway. The landfill is now by many internationally considered a model sanitary landfill.

Achievement of Triggers for APL2. Five of six triggers were achieved (a minimum four was required) in a timely manner, as confirmed by an independent review panel appointed in the Bank, allowing the APL2 project to be approved in July 2005, only two years after the approval of the APL1. A trigger related to the Urban Planning and Pilot Upgrading was not met at the time of appraisal of APL2 due to early implementation delays of this project component. This did not delay APL2 implementation however since Shanghai had already decided to expand such urban upgrading with its own funds only in due course, focusing the APL2 content on continued investments in the water/ wastewater and solid waste sectors, in the urban as well as in the suburban areas (through the DFV). See section 1.2 for further details about the triggers.

3.3 Efficiency

The lack of urban environmental services adversely affects all residents in terms of impact on the quality of life and constraints to economic opportunity and growth. Health and other economic benefits from delivery of urban environmental services are considerable, but not easily attributable; therefore economic cost/benefit analyses are usually not attempted for individual environmental infrastructure investments, and were not applied for this project. Cost-effectiveness standards (i.e. least-cost solutions) were instead applied to determine the most effective investment choices. Experienced sector design institutes in China evaluated options as part of feasibility and design studies,

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which were reviewed extensively by the Bank team, including international specialists. See Annex 4 for comments by project component.

3.4 Justification of Overall Outcome Rating Rating: S

The project objectives and its design and implementation continue to be consistent with China’s development priorities as per its 11th Five Year Plan, aiming to balance economic growth with distributional and environmental concerns. In addition to supporting two of three themes in the CAS for 2000-2005, the project remains fully consistent with the current Country Partnership Strategy 2006-2010 themes: (i) managing resource scarcity and environmental challenges; and (ii) improving public and market institutions. Metropolitan development continues to be critical for China’s (and the Region’s) continued urbanization and urban environmental improvements.

The major project objectives were achieved (or, in some case due to their long-term horizon, are expected to be achieved). The investments and related policy and institutional enhancements clearly facilitate a continued environmentally and institutionally sustainable development process by Shanghai, supporting continued economic growth. The investments in wastewater systems in suburban districts will improve the security of Shanghai’s water supply source (Huangpu River) while a new, complementary water intake and distribution system is developed in the Yangtze River (APL3). Wastewater tariff increases to date have strengthened the financial position of the wastewater utility companies (although further such steps are needed, and are underway).

Shanghai has moved aggressively to implement secondary treatment in all wastewater treatment plants, complying with related national regulations, significantly exceeding the performance targets set for the project. In the core city of Shanghai, the imbalance of access to sewerage and environmentally sound solid waste services has been addressed in underserved, low income areas.

With respect to underpinnings for a metropolitan-wide approach: (a) investment program/services are approved and coordinated by Shanghai Water Authority; (b) Shanghai Chengtou (UDIC) actively supports suburban Districts, upon request, with project management services, and has in a number of cases engaged as part owner of district utility companies; (c) Shanghai has mobilized investment financing through long- term bonds, loans with similar tenure from domestic banks and insurance companies, and listing a municipal water company on the Shanghai stock exchange; and (d) has engaged in large public-private partnerships (PPP) arrangements (Pudong Water, Zhuyuan WWTP I, a solid waste incinerator, and Laogang landfill).

The institutional development impact has been high, for example: strategic wastewater and solid waste development plans have been updated; financial innovations were implemented (bond issue, DFV); pilot housing rehabilitations were successfully implemented (albeit later than planned); and an innovative cultural heritage strategy for the city was developed.

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3.5 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development

Shanghai’s environmental services strategy supported by APL1 yielded significant benefits to relatively poorer areas in the municipality. In addition to the investments in Jinshan District (at the border with Zhejiang province), the Shanghai authorities had identified, as part of project preparation, an overlap between underserved areas and areas in need of upgrading in the city, and areas occupied by the relatively poorer sections of the population (project areas A, B and C).2 One of these areas (Hongkou) was included in the project as a pilot urban upgrading component which, albeit small, improved the living conditions of the mostly very poor residents. It demonstrated a new approach to addressing conditions of extreme densities and poor housing (90% of the households had no sanitary facilities and were not connected to sewer systems).

Resettlement. The resettlement objectives as set forth in the final RAPs were achieved by the loan closing including the intended improvement of livelihood for the people affected by the project. See section 2.3 for details.

(b) Institutional Change/Strengthening

Almost all of the institutional development activities were of a strategic nature (see tables in Annex 2 for details), involving officials across numerous municipal and district government entities and corporations, both at management and operational levels. The fact that preparation and implementation of the APL program involves many agencies, has encouraged and facilitated coordination and cooperation across the municipal organization, an environment otherwise characterized by fragmentation. Continued capacity development and institutional change is taking place as part of the ongoing APL2 and APL3 projects.

A particularly pioneering outcome (for China) was the implementation of a strategic organizational change in the utility sector (water, wastewater, solid waste, etc.), clearly separating the government functions (policy, regulation, oversight) from municipal utility and service delivery functions. Utility ownership and management (and reporting) were consolidated under its urban development investment corporation Shanghai Chengtou.

(c) Other Unintended Outcomes and Impacts (positive or negative)

The APL1 project triggered interest of Shanghai in pursuing sale of carbon credits through the Clean Development Mechanism (CDM), based on methane extraction from wastewater sludge and the waste at Laogang landfill. Both prospects were explored and prepared to an advanced stage with Bank support. Shanghai is currently pursuing carbon credits for Laogang through the private sector. With regard to the wastewater sludge, the

2 Although the reported GDP per capita for Shanghai was the highest among China’s cities in the early 2000, there was nevertheless a significant income disparity between the urban and rural population; over 3 percent of even the urban population within the municipality had an income lower than the locally defined poverty line. In addition, over 15% of the non-registered urban population (recent migrants) was estimated to be below this poverty line.

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timing of related constructions precluded any carbon credit at the time due to the expiration of the Kyoto protocol in 2012.

Agricultural (livestock) waste treatment was during APL1 implementation addressed by initiating a livestock waste investment program of about US$35 million, including grant support from GEF of about US$5 million. This program was triggered by the Upper Huangpu Catchment Study carried out early in the APL1 implementation. It is significant for the water quality in Shanghai, complementing large industrial and municipal investments in wastewater management to date.

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

4. Assessment of Risk to Development Outcome Rating: Negligible or Low Risk

The only item of some concern is the lack of full cost recovery (as defined by the loan covenant) in the wastewater sector, both at the city (SMSC) and the Jinshan District level. However, Shanghai is on a path of incrementally increasing tariff levels to achieve full cost recovery, with the next increase (applied across the municipality) scheduled to be approved on November 20, 2010 as follows:

Wastewater tariff (RMB per m3) From Current November 20, 2010 Residents (households) 1.08 1.30 Non-residents: Institutional 1.70 same Commercial/Industrial 1.80 same Special Trade 2.60 same (The water tariff for households will be increased from RMB 1.33 to RMB 1.63 per m3)

Although this represents an increase of more than 20% it will still not be enough for full cost recovery. It is worth noting that the covenant for SMSC includes a requirement for the tariff to contribute “ten percent (10%) of its average capital expenditures over a rolling three-year period”, a particularly strong requirement. Shanghai Chengtou (owners of SMSC) and Jinshan District are in strong position to support the wastewater companies financially, as required. The Bank is continuing supervising this through the ongoing APL2 and APL3 projects, both of which include investments by SMSC.

Other risks and uncertainties for the sustainability of the development objectives and its related outcomes are considered negligible. Key underpinnings and enabling conditions for a metropolitan-wide urban environmental management approach are now well established within Shanghai’s institutional structure. For example, the transformation of the Shanghai Municipality from service provider to a facilitator of services has taken hold since its introduction in 2005; district level investment programs are approved and coordinated by Shanghai Water Authority; Shanghai Chengtou (UDIC) is increasingly supporting the environmental improvements in suburban districts (including through its

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DFV); long-term multi-source financing is being increasingly applied; and various long- term private sector engagements are established and gaining further traction.

Regarding other physical investments: (i) appropriate maintenance arrangements are in place for the pilot housing improvements in Hongkou District, and some features of the pilot investments are used by Shanghai as model for housing rehabilitation in other areas of the city; (ii) the SMSC has proven maintenance procedures for its facilities; and (iii) Jinshan wastewater company has through the project proved its strong management capacity. The solid waste MIS system has been further enhanced under APL2, and has a well established management team.

5. Assessment of Bank and Borrower Performance

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

As reflected in the PAD and legal documents, particularly high requirements were established for this project due to the role of Shanghai in China’s development context. The APL program also represents a new level of Shanghai’s development, building on various previous Bank-finance projects in terms of, for example: extension of the scope to the metropolitan area; completion, with technical advances, of a previously established long-term sewerage management strategy for the core city; heightened cost recovery requirements; and significant policy and institutional development initiatives. The operation was Phase 1 of the first APL program in China, with elements of pioneering significance for both other cities and the national government in terms of experiences gained (about 50% of the overall program implementation period has now passed).

The Bank engaged a number of internal and external experts for project preparation reviews, including a Quality Enhancement Review (QER) in early 2002, and review by a Regional Operations Committee (ROC) in early 2003. Fiduciary, sustainability and risk assessments were thorough. The strong Bank performance was confirmed by a QAG quality-at-entry review rating of “Satisfactory” in late 2003. The Bank facilitated Shanghai’s mobilization of significant grant funding and the mentioned international environmental conference undertaken in conjunction with the project preparation.

The less than sufficient tariff for full cost recovery was the only risk materializing during project implementation. The potential controversial aspect of public reaction to proposed tariff increases was flagged in the PAD.

(b) Quality of Supervision Rating: S

In addition to ensuring high technical quality of investments, the Bank team paid particular attention to the policy and institutional development and related development impact (see Aide Memoires) and supported Shanghai in this regard through mobilization of significant grant funds (see Annex 1 & 2). The team introduced and used quantified

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intermediate and final outcome indicators, and worked closely with the implementing agencies for the achievement of their overall APL program. For example, the APL1 supervision supported Shanghai’s activities towards meeting the Triggers for an APL2 project, allowing that project to be approved already in mid 2005, two years after the APL1 approval. The team made substantial use of Bank resources in the Beijing office, ensuring high level of client responsiveness and limiting supervision costs.

Various technical and fiduciary issues were addressed proactively, and active supervision and support helped Shanghai to implement essentially all of the elements of the IST component of the project, albeit in some cases later than originally planned. Project performance was reported candidly and thoroughly throughout, as confirmed by a QAG review in December 2006. The panel noted that: “Strong aspects of supervision include: (i) effective cultivation of the borrower’s ownership of the infrastructure components of the project; (ii) an experienced and well qualified Task Team with key members having been associated with the project since inception; (iii) solid support from Management on key issues raised by the Team; (iv) effective supervision of the many large and complex construction components, which account for some 90% of project cost.” This review rated the Bank performance moderately satisfactory, since: (a) both the EMP and the RAPs had been supervised by the same person; QAG considered that a category A project should have a separate safeguard specialist for these two tasks; and (b) that the use of loan funds for the IST component was lagging. The Bank unit disagreed with the rating since the one team member for these safeguard subjects from the Bank’s country office was fully qualified and available on a timely basis for both tasks, but QAG maintained its rating and insistence on the need for separate team resources for this large project. With respect to IST, implementation accelerated significantly after 2006, to a great extent by Shanghai using grants and own funds. Following the QAG review two safeguard specialists were assigned to the team. The Bank team was to a large extent maintained during implementation.

Transition to regular operations was very smooth since project implementation responsibilities had been carried out by the respective operating company/entity. The Bank supervision and support in this regard is continuing to some of them through the supervision of APL2 and APL3.

Environmental Management. As mentioned above, at the early stage of project implementation institutional arrangement such as dedicated environmental staff at various levels of management and external monitoring agencies were not put in place in a timely manner. At the request of the Bank, such issues were resolved however. Well established institutional and reporting systems laid a corner stone for the project EMP compliance. The team environmental specialists working closely with the counterparts and provided specific analysis and advice on the implementation of monitoring activities and results, with recommendations on actions to take (see Aide Memoires).

(c) Justification of Rating for Overall Bank Performance Rating: S The performance is rated satisfactory on both the quality at entry and quality of supervision dimensions, and due to the overall outcome rating being satisfactory.

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5.2 Borrower Performance (a) Government Performance Rating: S

The rating refers to both the central government and SMG. Implementing agency performance (below) refers to the various implementing companies and entities in Shanghai: SMSC; FWPC and JOOC in Jinshan District; Hongkou District Government; SCAESAB; SPC; SFB; and CEIC, CEAM (DFV) and SWAOD in Shanghai Chengtou (UDIC). Government ownership was strong throughout project preparation as well as implementation. Supportive sectoral and institutional policies in place at the time were applied, and in a number of cases enhanced. For example, the transformation of SMG from service provider to a facilitator, transfer of managerial responsibility of the utility companies to Shanghai Chengtou (responsibilities earlier vested with government commissions and bureaus), periodic wastewater tariff increases, and introduction of policies for food waste management.

Project implementation was well organized, with responsibilities for investments and policy/ institutional development assigned to the respective sector company or agency. An overall Project Management Office (PMO) was established with effective core staff, with experience from previous Bank-funded projects, generally resolving implementation issues in a timely manner in spite of having very limited staff and funding at times. All fiduciary requirements were met, with particularly strong performance of the engaged external monitoring agencies. Stakeholder consultation and information disclosure were timely and adequate for all safeguards.

All covenants were complied with except the ones related to the cost recovery levels of the involved wastewater treatment companies. As mentioned, a new tariff increase is scheduled for late 2010. In addition, the following covenant has not been met literally: “Shanghai shall develop and adopt an administrative framework and implementing regulations for the execution of service or management contracts and/or concessions for wastewater services.” However, a draft regulation, which addresses not only the wastewater sector but also other environmental sectors, was submitted to the municipal legislative authority, but has not yet been approved. Various management contracts and concessions have been issued though based on national level regulations and less formal municipal guidelines and case-by-case municipal approvals.

(b) Implementing Agency or Agencies Performance Rating: S

All implementing agencies maintained strong commitment to achieving development objectives, proactively carrying out their respective parts of the project, and addressing obstacles as required. The Laogang landfill component in particular was carried out with first-class performance (rated highly satisfactory by the Bank throughout project implementation) by the joint venture of Shanghai Chengtou Environment Industry Development Co. Ltd. (CEIC) and its partner Veolia Environmental Services. Other components which are worth special mentioning are the timely and quality

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implementation of the two wastewater systems in Jinshan District, and the comprehensive preparation of the DFV (for implementation in APL2). All agencies counted on competent staff and carried out all fiduciary activities in a fully satisfactory manner.

Shanghai’s commitment to its overall environmental objectives for the metropolitan area was reflected in Fengxian District going ahead with the implementation of its WWTP and related sewerage system with own and private sector funding before loan effectiveness. As mentioned above, this investment was later formally deleted from the APL1 scope. The IST component was maintained as MS through project completion since some of the training never took place, or was weaker than originally intended, and that some of the TA was done with delay and less ambitious than originally intended.

Transition to regular operations was particularly smooth due to the project implementation responsibilities being carried out by the respective operating company or entity (the implementing agencies). Each of these agencies have established and applied adequate M&E processes. SMSC, for example, is currently managing a few of the world’s largest wastewater treatment facilities.

(c) Justification of Rating for Overall Borrower Performance Rating: S Both the government and the implementing agencies performance are rated satisfactory and the project outcome is satisfactory.

6. Lessons Learned

Programmatic Approach. To achieve significant sustainable impact of environmental infrastructure improvements and addressing complex policy issues in a major city, strategic planning, consistency in implementation, and time for evolution is required. For this, the APL approach with phased deliverables proved to be an effective approach. Shanghai’s strategic plans for their water, wastewater, and solid waste sectors were already established in the 1990’s with Bank support. A sustained commitment to this partnership between Shanghai and the Bank, which started almost twenty years ago, has enabled the dialogue on both technical designs and policy to grow, as reflected in the APL1 project.

Triggers for APL2. The approach with four out of six triggers to be met (three of which were defined as mandatory) in order to proceed with an APL2 proved effective, allowing some flexibility and adaptability without compromising development objectives or requirements. They were of sufficient number, closely related to the development objectives, and sufficiently measurable to prevent uncertainty or arguments of them being met or not. The same approach was applied for the triggers of APL3.

Site Visits as part of Feasibility/Design Work. Early project implementation demonstrated the importance of doing site visits as part of feasibility studies/design to prevent unforeseen complications (surprises) on the ground at implementation stage. Implementation of sewers in Area A, B and C were significantly delayed due to

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accelerated construction of a ring-road in the area, a risk which would likely have been identified at a site visit during the study/design work by local institutes. Although in the APL1 case, this work was done long before project start-up, a site visit would likely still have reminded the design team to liaise with the city’s road agency.

Implementation Arrangements. The implementation of APL1 showed the potential strength of future owner agencies of project investments to be the agencies responsible for the respective implementation, ensuring smooth transition from project mode to operations. In case of many agencies, as in APL1, a small, dedicated temporary Project Office for coordination is critical though, including for consolidated progress follow-up, issue resolution, and status reporting. It is critical that such Project Management Office be sufficiently funded and staffed to prevent delays.

Cost Recovery of Wastewater Services. As mentioned, the project applied a particularly strong tariff covenant for the cost recovery of SMSC, by not only covering O&M costs and the higher of depreciations or loan service cost, but also: “ten percent (10%) of its average capital expenditures over a rolling three-year period”. In hindsight, this requirement was too demanding taking into consideration that: (a) the wastewater utility sector in China is fairly “young” (for example compared to the water supply sector); (b) significant externalities exist which might justify some subsidization in the sector; and (c) particularly large investments undertaken in certain years, may create a requirement for sudden temporary large tariff increases, which would not be accepted by the users. Allowing a longer period of phased tariff increases might have been more appropriate. While the APL2 project - approved only two years after APL1 - maintained the same cost recovery covenant, this was revised for the APL3 projects when the above lesson had become clearer.

Urgent Investments. The deletion of one sub-component in the project (Fengxian WWTP; loan US$3.9 million) is a reminder that in situations where there is a risk of significant delay in loan negotiation or effectiveness, it may be more effective for a Borrower to exclude very urgent investments from the project scope and instead implement them with other funding, if possible.

Very Successful Landfill Implementation and Operations. The implementation of the Laogang IV landfill was rated highly satisfactory throughout the project. Shanghai adopted best international practices through its joint venture company, and by this not only achieved successful physical implementation but also built valuable local capacity for the future.

Use of pipe-jacking for pipe laying. At locations where traffic impacts were significant, the contractors were required to use pipe-jacking techniques to alleviate traffic problems. These techniques reduced the amount of road excavations, shortened the time required for reinstatement of road surfaces, and substantially reduced necessary resettlement and related costs. The contractor and the designer, STEC (Shanghai Tunnel Engineering Company) and STEDI (Shanghai Tunnel Engineering Design Institute), became, and still are, leaders in this technology in China, which is also applied in subway and other

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tunneling projects. This is an example of Shanghai’s readiness to be a leader in China when presented with new ideas.

7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners

(a) Borrower/implementing agencies The following issues and suggestions were raised in the Borrower’s report and a meeting with representatives of the implementing agencies on July 13, 2010 in Shanghai.

Procurement issues 1. “It is suggested that the World Bank should revise its Procurement Guidelines so that it would consist of two parts, i.e. General Guideline and Special Guideline, so as to increase the Guidelines’ flexibility and adaptability.” (The particular concern is about having the lowest bidder necessarily win a contract.) Comment: The Bank’s current guidelines provides for the possibility of disqualifying a lowest responsive bidder in extreme cases, i.e. where the lowest bid is significantly lower than the second lowest bidder.

3. “It is suggested that the Bank adopts a classified method, e.g. for those who have real experience and good credit, could World Bank consider simplifying its procedures, e.g. the World Bank authorizes those units to carry out the project in accordance with the Bank's procedures, or use the record method or the post review method?” Comment: The proportion of prior versus post review is determined based on a procurement assessment carried out for each project. The Bank agrees that previous experience of client and procurement staff with Bank procedures is an important factor.

4. “When the tendering documents are being reviewed, more attention should be paid to the big issues, such as the technical feasibility, rather than to small issues, such as the quantities of the spare parts.“ Comment: Good point. The appropriate focus of each review (case) would need to be determined based on its context, and possible need to ensure sustainability though.

Loan disbursement for land acquisition and resettlement compensation. “The land acquisition and resettlement costs account for a big proportion of the total project cost. It is suggested that the World Bank loan disburses part of the land acquisition and resettlement cost. This would facilitate project implementation.” Comment: The Bank is sometimes financing land acquisition and resettlement costs, particularly in low income areas. This is determined country by country and project by project, and in discussion between the Bank and Central Government.

China Conference on Social Safeguards. During the last 15 years, many urban infrastructure projects have been implemented in China with application of the World Bank’s OP4.12 Involuntary resettlement, including in Shanghai. The local academy and the external monitoring agency suggested that a conference on this subject for knowledge sharing, with participants from across China and from the Bank, would be very useful at this stage of China’s development.

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Comment: The Bank’s ICR team agrees that this would be useful.

(b) Cofinanciers NA (c) Other partners and stakeholders NA

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Annex 1. Projects Costs and Financing

(a) Project Cost by Component (in USD Million equivalent)

Due to the significant difference (about 22%) in the US$ / RMB exchange rate at the time of project closing vs. project appraisal, a Project Cost table is included for both these exchange rates. Exchange rate at project closing: US$ = RMB 6.8 Exchange rate at project appraisal: US$ = RMB 8.3

Project Cost by Component (in USD Million equivalent) US$=RMB 6.8 Actual/Latest Appraisal Estimate Percentage of Components Estimate (USD (USD millions) Appraisal millions) URBAN WASTEWATER 299.90 379.42 126.52 MANAGEMENT URBAN SOLID WASTE 68.90 62.36 90.51 MANAGEMENT URBAN PLANNING AND 13.70 10.21 74.53 PILOT UPGRADING UPPER HUANGPU 39.70 28.95 72.92 CATCHMENT MANAGEMENT INSTITUTIONAL STRENGTHENING AND 7.80 4.60 58.97 TRAINING

Total Baseline Cost 430.00 485.54 112.92

Physical Contingencies 33.30 - -

Price Contingencies 30.50 - - Total Project Costs 493.80 Interest during construction 16.40 16.40 100.00 Front-end fee IBRD 2.00 2.00 100.00 Total Financing Required 512.20 503.94 98.39

(b) Financing Appraisal Actual/Latest Type of Estimate Estimate Percentage of Source of Funds Cofinancing (USD (USD Appraisal millions) millions) Borrower 0.00 0.00 100.00 International Bank for Reconstruction 200.00 199.80 99.90 and Development Local Govts. (Prov., District, City) of 312.20 302.64 89.18 Borrowing Country Bilateral grant financing (all grant Parallel 0.00 1.50 - recipient executed) (*) financing

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Note: The costs above do not include the costs of land acquisition and resettlement compensation Project Cost by Component (in USD Million equivalent) US$=RMB 8.3 Actual/Latest Appraisal Estimate Percentage of Components Estimate (USD (USD millions) Appraisal millions) URBAN WASTEWATER 299.90 310.85 103.65 MANAGEMENT URBAN SOLID WASTE 68.90 54.67 79.35 MANAGEMENT URBAN PLANNING AND 13.70 8.36 61.02 PILOT UPGRADING UPPER HUANGPU 39.70 23.71 59.72 CATCHMENT MANAGEMENT INSTITUTIONAL STRENGTHENING AND 7.80 4.60 58.97 TRAINING

Total Baseline Cost 430.00 402.19 93.53

Physical Contingencies 33.30 - -

Price Contingencies 30.50 - - Total Project Costs 493.80 Interest during construction 16.40 16.40 100.00 Front-end fee IBRD 2.00 2.00 100.00 Total Financing Required 512.20 420.59 82.11

(b) Financing Appraisal Actual/Latest Type of Estimate Estimate Percentage of Source of Funds Cofinancing (USD (USD Appraisal millions) millions) Borrower 0.00 0.00 100.00 International Bank for Reconstruction 200.00 199.80 99.90 and Development Local Govts. (Prov., District, City) of 312.20 219.29 70.24 Borrowing Country Bilateral grant financing (all grant Parallel 0.00 1.50 - recipient executed) (*) financing

Note: The costs above do not include the costs of land acquisition and resettlement compensation

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(*) Bilateral grant financing supporting the implementation of APL1:

 US Trade Development Agency (TDA) grant of US$ 0.5 million to support SWAOD for its financial planning and preparation of a bond issue.

 US TDA grant of US$ 0.7 million to support strategic planning and institutional development of the solid waste management sector in Shanghai.

 Grant from CIDA, Canada of CAN$ 0.2 million (about US$ 200,000 at the time) to support the preparation of the District Financing Vehicle (DFV)

 Grant from CIDA Canada of CAN$ 115,486 (about US$ 100,000 at the time) to support the development of a Shanghai Cultural Heritage Strategy. (The total cost was about US$ 600,000, including the grant from CIDA, and additional costs covered partly by the firm and partly by the Shanghai Finance Bureau)

Grant financing supporting the preparation of APL1:

 Grant from Japan of US$ 0.8 million to support project preparation of the APL1.

Grant financing supporting the preparation of APL2 (in parallel with implementation of APL1):

 Grant from France of Euro 823,225 (about USD 1.1 million) to support project preparation of the APL2.

In addition, a grant from Finland of US$ 330,000 (managed by the World Bank) financed an Air Quality Study in Shanghai, carried out by a Finnish firm during early APL1 implementation.

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Annex 2. Outputs by Component

All outputs were implemented well, in accordance with original feasibility studies. The main change from these related to the sewer implementations in Areas A, B, and C, where it was decided during project implementation to introduce a pipe-jacking approach, significantly reducing the resettlement needs (see Lessons Learned). Although many IST outputs did not use loan funds, most of them were achieved using grant and own funds.

Urban Wastewater Management Rating: S

Part (1): Trunk sewer system to solve the wastewater disposal problems in three areas (called A, B and C) of the central city (areas with no sewerage system), covering a total service area of 172 km2, with a population of 2.4 million, and with a flow of about 1.1 million m3/d. Constructed facilities: 24.48 km of pipelines and 2 pumping stations

Part (2): Two wastewater collection systems to increase collection percentage and the existing facility utilization rate. The service area (different than in Part 1) is about 133 km2, with a population of about 1.6 million, and with a flow of about 0.8 million m3/d. Constructed facilities: 144 km of sewers, 13 new pumping stations, and rehabilitation of 5 pumping stations. Construction and rehabilitation of 13 storm water systems, 75.8 km storm water pipelines, and 11 related pumping stations (2 of which combined – sewerage and storm water - pumping stations).

Part (3): A wastewater treatment plant to increase the treatment rate of urban wastewater, with a designed capacity of 500,000 m3/d and effluent meeting Class 2 of China’s national discharge standard (secondary treatment). The discharge to the Yangtze River Estuary consists of two existing pipes of 2,100 m in combined length, each with a diameter of 2.4 m. In addition, a 100-m long emergency discharge pipe with a diameter of 3m was constructed.

Part (4): Land reclamation at the east side of the Zhuyuan Wastewater Treatment Plant for use as a sludge landfill site. The total area is about 230,400 m2, reclaimed by blow- filling method. In addition, 562 m of dyke has been constructed, with blow-filling of 560,000 m2 natural seashore. The sludge disposal method initially applied was to dispose sludge at an existing sludge landfill at the Bailonggang WWTP nearby. Co- disposal of sludge at the Laogang solid waste landfill was also developed and implemented later.

Part (5): Experimental rehabilitation of about 6 km of sewer pipes built under a previous Bank-financed project (SSPI), to gain experience with such rehabilitation.

The Collection System included separate wastewater and storm water systems in some areas, and combined systems in other. Main Conveyor and Wastewater Treatment. Wastewater was conveyed through a new 13.5 km main conveyor, including a pumping

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station, to a new 500,000 m3/day WWTP at Zhuyuan (adjacent to an existing plant), for full secondary treatment.

Urban Solid Waste Management Rating: HS

Part (1): The fourth phase of the Laogang Domestic Sanitation Landfill Site (Laogang IV) occupying an initial area of 3.36 km2, with an intended capacity to receive at least 4,900 ton/day of waste, with four landfill cells and auxiliary facilities, horizontal and vertical infiltration proof system, and a leachate treatment system.

The collection of domestic solid waste covers the entire core city of Shanghai (a population of about 10 million). In 2009, the proportion of containerized transportation of the solid waste had reached 100%, and the proportion of sorted collection of the domestic solid waste was 60%. In 2003, the corresponding figures were 24% and 50%. In 2009, Laogang IV treated a total of 3.5 million tons of domestic solid waste and generated 1.7 million tons of leachate. The landfill is currently receiving about 9,000 t/d. It has expanded its leachate treatment plant from 1,500 ton/day to 2,300 ton/day in recent years in response to the higher volumes being managed. The landfill operating company is currently also constructing an incinerator and an additional adjacent landfill site.

Part (2): Food Waste Collection System: 11 waste collection vehicles were procured achieving a safe and hygienic collection of food waste from large kitchens in restaurants, hotels, institutions, and hospitals.

Part (3): Management Information System (MIS) compatible with Shanghai’s geographic information system (GIS), with four sub-systems: (1) phase one of a digitized command center with a surveillance system for city appearance and environmental sanitation (second phase has been implemented under APL2); (2) public information service platform improvement; (3) an automatic weight system for domestic solid waste; and (4) other management improvements of sanitation infrastructure.

Urban Planning and Pilot Upgrading in Hongkou District Rating: S

Pilot approaches for urban services upgrading with in-situ resettlement were implemented in Shanyin Rd (Old Housing Restoration) and Liyang Rd (Historical House Protective Restoration). 2,517 housing units with floor spaces of 1,332,823 m2 were upgraded, benefitting 81,361 households. This was done in a cost-effective manner retaining a high proportion of residents and traders in their traditional but improved environments. The Hongkou pilot comprised residents with varying incomes, different house types in poor condition, with living space generally less than 15 m2 per household and basic services generally shared between multiple households.

Upper Huangpu Environment Management Rating: S

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Important measures were implemented in Jinshan District for protection of the water source area of the Huangpu River, from which the core city of Shanghai gets its piped water supply. The investments in WWTPs and related sewer networks improved the environment for the residents in the respective service area, in particular residents living close to small waterways where the sewerage was previously discharged without any interception or treatment.

Jinshan Sea Outfall Project: Xinjiang Wastewater Treatment Plant with secondary treatment and a related sewer network. The plant is being built in two stages with a total design capacity of 100,000 m3/d. The first stage with a capacity of 50,000 m3/d was implemented under APL1. The second stage is planned to be implemented by 2020, as wastewater volume increases. Physical Outputs: Sewage Conveyor of a total length of 2.23 km. The Xinjiang plant with a design capacity of 50,000 m3/d. Outfall: Multi- nozzle for outfall under water into Hangzhou Bay, with a length of 1,174 m from the high chamber to the diffuser; the diffuser is about 200 m long with 12 pieces of risers (interval of 18 m). Diameter of the outfall is DN1300～DN1650.

Fengjing Water Purification Plant: A wastewater treatment plant with secondary treatment, being built in two stages with a total design capacity of 42,000 m3/d. The first stage with a capacity of 14,000 m3/d was implemented under APL1, servicing an area of 4.47 km2. Physical Outputs: Plant, sewer networks, three lifting pumping stations, and supporting items.

Institutional Strengthening and Training (IST) Rating: MS

The following table shows the planned IST items with the respective outputs produced. Although all items except one were implemented, the moderately satisfactory rating at the end of the project was due to some implementations occurring with somewhat less ambition than originally planned.

IST Items Funding (US$) Outputs Upper Huangpu Loan: $ 1.1 million Final consultant report completed IST Catchment December 2005. 1.1 Management Plan Study Tour & Grants: 0.7 million Research financed by own funds, resulting Training for PSP Own funds: (included in the formulation of “Shanghai Urban IST Procurement in IST 1.7 below) Domestic Solid Waste Collection and 1.2 Procedures Disposal Management Method”, Shanghai (including solid Government Order No. 5. This became waste sector) effective on November 1, 2008. Pollution Loan: $ 0.2 million Final consultant report completed in IST Reduction October 2006. 1.3 Measures

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IST Support and Grants: US$ 0.5 mill. Completed in 2005 with consultant 1.4 Training for Local assistance. Main documentation produced: & Bond Issue . Five-year capital investment plan with IST  capital financing plan 1.5  debt management plan  a revenue adjustment plan . Preliminary design of long-term bonds for environmental infrastructure . A time-bound action plan in preparation for bond issuance A domestic bond of RMB 1.5 billion (about US$ 180 million) was successfully issued by SWAOD in July 2006. Preparation of Grants: US$ 0.2 mill. Completed with consultant assistance 2005 Policy &  DFV framework Operating Rules  Operations Manual IST for DFV  Sub-project appraisal report 1.6  Business development plan incl. human resource development plan  EA and RAP policy frameworks Executive Own funds US$ 0.8m Completed through own fund IST Management See detailed list of training and study tours 1.7 Training in file of Supporting Documents. Other Special Loan: $ 0.2 million Studies on the potential for CNG and Air IST Studies Quality Improvement in Shanghai 1.8 completed in 2006. Training and Own funds: US$ 1 m. Completed through own fund IST Study Tours See detailed list of training and study tours 1.9 in file of Supporting Documents. District WWT Cancelled due to lack of demand from IST Operational Staff districts. Operators had received training 1.10 Training through other activities. Heritage Strategy Grants: $ 0.4 m Completed with consulting assistance. Support Own funds: $0.2 m Report completed in April 2005. IST (see note) Note: Total cost about US$ 0.6 mill. incl. 1.11 costs covered partly by the consulting firm and partly by Shanghai Finance Bureau.

Engineering Services (Construction Management Consulting Services)

Table below shows planned engineering services with the respective outputs produced. Urban Wastewater Funding Outputs Management Development of Own funds: $3.5m Completed with own fund by way of two Sludge contracts. Second contract still on-going. UWW6.1 Management Plan Construction Loan: $2.0 mill. Completed July 2007 UWW6.2 Management Services

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Financial Own funds: $0.5 Completed at the end of 2007. Strengthening & UWW6.3 Tariff Policy Study Urban Solid Waste Management Corporatization Own funds: Completed with own funds. of Solid Waste $1.0m (for MIS) Study tour to R&D Center of Veolia Services & Headquarter in France, Paris Municipal Training for Note: Training Domestic Solid Waste Incinerator, Enterprise included in IST Compost Plant, Toxic and Harmful Operations items. Industrial Waste Treatment Plant, focusing USW 3.1 (including Phase on operational management. 1 of MIS system) Attended International Environmental Equipment and Technology Expo (Pollutec 2004 Lyon Eurexpo) learning about waste recycling & treatment plant management, and management of big scale landfills. Pilot Food Waste Own funds: $1.0m Completed with own funds. Carried out as USW3.2 Treatment a pilot study and research on the disposal Program of food waste in Luwan District. DRA Services for Grants: $0.7 mill. Completed through US TDA grant. APL2, Solid Study tours, surveys and solid waste USW 3.3 Waste Tariff master planning, including tariff Regimes, Market mechanisms, creating proposals for middle Based Instrument and long term reforms of SCAESAB.

Outputs produced related to the Triggers for the APL2:

Subject Output Solid waste sector: Solid Waste Disposal Master Plan

Municipal bond issue: Five-year capital investment plan including: . a capital financing plan . a debt management plan . a revenue adjustment plan Preliminary design of long-term bonds for environmental infrastructure A time-bound action plan in preparation for bond issuance

PPI Regulations: An administrative framework and draft implementing regulations for private sector (called social) participation

Upper Huangpu Area Interim report for Upper Huangpu Catchment Environment Management Plan (final completed shortly afterwards).

District Finance Vehicle Design of the DFV, including an Operations Manual with institutional and financial arrangements.

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Annex 3. Resettlement

Component Wastewater Solid Waste Upper Huangpu** TOTAL Final Final Final Final Impacts Unit PAD RAP Actual PAD RAP Actual PAD RAP Actual PAD RAP Actual

Land acquisition mu 767 535 536 5,190 5,040 5,037* 288 281 213 6,238 5,863 5,786 Housing removed m2 298, 973 69,979 70,800 - - 16,813 17,101 5,847 315,786 87,080 76,647 Affected enterprises No 73 84 84 - - 10 25 0 83 109 84 Affected persons No 7,005 1,412 1,416 - - 514 220 82 7,519 1,632 1,498

Compensation costs RMB mill 930 904 - - 10.1 25.6 940.1 929.6 Compensation costs USD mill 136.8 132.9 - - 1.5 3.8 138.3 136.7 (with USD = RMB 6.8 as per project closing)

* leased

** the appraisal data include both two WWTP in Jinshan District (implemented under the project) and one in Fengxian District (which was deleted from the project scope during the project implementation).

*** RAPs for the urban wastewater and Upper Huangpu investments were adjusted during project implementation based on improved designs and implementation technology (use of pipe-jacking instead of traditional excavation approach), drastically reducing the number of people which needed to be resettled.

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Annex 4. Economic and Financial Analysis

The lack of urban environment services adversely affects all residents in terms of its negative impact on the quality of life and the constraints it imposes on economic opportunity and growth. Health and other economic benefits from delivery of urban environmental services are considerable, but not easily attributable; therefore economic cost/benefit analyses are usually not attempted for individual environmental infrastructure investments, as for this project. Cost-effectiveness standards (i.e. least cost solutions) were instead applied to determine the most effective investment choices. The feasibility studies and designs of all project investments, conducted by highly qualified Chinese design institutes, evaluated various options in terms of least cost solution to satisfy the defined requirements. In this project, a significant example of this type of a particularly thorough analysis was Shanghai’s additional studies in 2002/03 of the most appropriate site and solution for its wastewater treatment plant.

The wastewater investments in the core city completed a backlog of sewerage services by intercepting discharges to urban creeks, taking the flows to a treatment plant on the coast, for discharge into the sea, as the least overall system cost. Clear economic benefits have accrued in the collection areas in terms of amenity and property values, but valuation and attribution of these are not possible. The same benefits apply to the pilot urban upgrading component, achieved through rehabilitation of basic infrastructure and housing. This component also demonstrated a new local urban planning approach for Shanghai.

The landfill investment was based on rigorous technical specifications. These were also used for an international tender by Shanghai for a private joint venture partner for the implementation management and operations and maintenance. This ensured a least cost solutions in meeting state-of-the-art environmental requirements for a sanitary landfill.

The wastewater investments in Jinshan District contributed to Shanghai’s strategic objective of improving the water quality in the catchment area of the Huangpu River, the current source of water supply for the core city. In addition to amenity and property value increases in the areas provided with sewerage systems, benefits include cost avoidance (postponed expenditures) in the water supply system for the city. (A new water intake is currently under implementation using Yangtze River as water source. APL3 is financing one of the components of this large project). The treatment processes for the two WWTPs constructed were carefully selected for cost-effective impact.

Shanghai Municipal Finances. The rapid growth of the municipality is shown in table below. See PAD page 75 for reference. (RMB Billion; US$ in parenthesis at RMB 6.8) 2002 2008 2009 Projected in Actual PAD (page 75) Actual Actual Receipts (excl. transfers 72.0 124.3 238.1 254.0 from central government) (10.6) (18.3) (35.0) (37.4) Expenditures 87.7 155.5 261.8 299.0 (12.9) (22.9) (38.5) (44.0)

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Annex 5. Bank Lending and Implementation Support/Supervision Processes

(a) Task Team members Responsibility/ Names Title Unit Specialty Lending Finance, Institutional, Mats Andersson EASUR Co-Task Manager Chandra Godavitarne EASUR Engineering Meredith Dearborn Document Production Vellet Fernandes EASIN Program Assistant David Hanrahan EASES Project Economics Jeffrey Lecksell GSDPG Cartography Zhentu Liu EASCS Procurement Patrick McCarthy Cons. Financial Analysis Hoi-Chan Nguyen Legal Legal Counsel Geoffrey Read EASUR Task Manager Keiko Sato Institutional Analysis Tony Shen EASCS Financial Mgmt. Chongwu Sun EASCS Environmental Water Quality & Wastewater George Taylor Cons. Treatment Strategies Chaogang Wang EASCS Resettlement Dong Yi EASCS Financial Mgmt. Chaohua Zhang EASCS Resettlement

Supervision/ICR Mats Andersson Sr Urban Management Specialist EASUR Axel E. N. Baeumler Sr. Infrastructure Economist EASIN Sing Cho Urban Specialist EASCS Yiren Feng Environmental Specialist EASCS Vellet E. Fernandes Program Assistant EASIN Yi Geng Sr. Financial Management Spec. EAPFM Xumei Guo Program Assistant EASCS Takuya Kamata Sr. Financial Specialist EASUR Eddie Ke-Siong Hum Consultant EASUR Naoko Kataoka Consultant HDNCY Toyoko Kodama Operations Officer EASIN Haixia Li Sr. Financial Management Spec. EAPFM Geoffrey Read Consultant EASCS Masato Sawaki Consultant EASCS Hiroaki Suzuki Lead Urban Specialist EASUR Supriya Sen Sr. Financial Analyst SASDE Dawei Yang Procurement Specialist EAPPR Songling Yao Social Development Specialist EASCS Jun Zeng Social Development Specialist EASCS

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Ji You Urban Specialist EASCS Hao Zhang Sanitary Engineer EASCS Zhun Zhang Consultant EASCS

(b) Staff Time and Cost Staff Time and Cost (Bank Budget Only) Stage of Project Cycle USD Thousands (including No. of staff weeks travel and consultant costs) Lending FY01 13 91.57 FY02 34 622.53 FY03 16 196.44

Total: 63 910.54 Supervision/ICR FY04 13 125.05 FY05 8 65.49 FY06 12 70.13 FY07 15 101.13 FY08 11 71.03 FY09 8 75.90 FY10 5 38.80

Total: 63 547.53

Comments: The high project preparation cost was due to a thorough preparation process for this large (US$ 700 million) APL - the first APL in China - including extensive QER/peer reviews, ROC, etc., and extra costs incurred by the Bank due to the one year delay from project appraisal to loan negotiation, during which time Shanghai undertook additional reviews of site alternatives for a large wastewater treatment plant to be financed by the project. Some budget was also used in FY01 to support an international environmental conference in Shanghai.

Annex 6. Beneficiary Survey Results NA

Annex 7. Stakeholder Workshop Report and Results NA

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

Summary of Borrower's ICR

Shanghai Municipal Government submitted a Borrower’s report dated July 29, 2010 (60 pages plus an Annex with site pictures), and later provided further data upon request of the Bank. This is a summary of the report with the headings and selected text essentially maintained as in the full report. For each project component, the full report includes a table with details of each contract, including contractor, signing and completion dates, procurement method, original and final contract price, and amounts disbursed.

1. Introduction In order to attract foreign and social funds into urban infrastructure and eco-environment construction, to further explore the investment and financing reform in infrastructure construction, Shanghai Municipal People’s Government (SMG) had repeated discussions with the World Bank about the implementation of the proposed Shanghai APL Project and did a lot of preparatory work, identified the initial objectives, overall framework, and principles for implementation of the project. It also proposed the basic components in phases, policies and institutional reform measures as well as the necessary technical assistance. On February 7, 2002, SMG submitted to the World Bank the Letter of Development and the Development Program for Shanghai APL Project, which meant Shanghai formally agreed to implement the APL project.

1.1 Background Since China’s reform and opening to the world and under the unified arrangement of the central government, Shanghai has achieved substantial progress in becoming an international economic, financial, trade and shipping center and has entered a new level in economic development, urban construction, social services, people’s living standards, and cultural and ideological progress. This has laid a solid foundation for establishment of Shanghai’s position as an international metropolis. However, Shanghai recognizes that there are quite a few difficulties in its developing process. One of the key issues to be solved is to strengthen its urban management and improve its urban eco-environment.

Among many other initiatives, in order to carry forward the infrastructure construction for environmental protection, Shanghai will continue its policy and institutional reform, gradually practice the Four Separations, i.e. separation of investment, construction, operation and management in water, environmental sanitation, and forestation sectors. The environmental construction and operation will gradually change from the existing administrative arrangement to competitive bidding. It will guide and encourage the enterprises and institutions of all kinds of ownership to participate in the urban environmental protection and construction according to the requirements of socialization, market, professionalism and industrialization to gradually form a multiple input mechanism consisting of government, enterprise and individual. It will widen financing channels and make an active effort to issue environmental protection and construction bonds. It will further implement the polluter pay policy, improve the sewage charge mechanism and increase the billing area for the sewage charge. It will gradually establish and complete the pollutant permit trading system based on a resource paid - use principle.

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1.2 Development Objective The implementation of Shanghai APL Project will help to speed up Shanghai’s urban infrastructure construction, improve its urban environment, and enhance its comprehensive competitiveness. The overall objective of the Development Program is closely related to the Five-Year Plan for Shanghai’s national economic and social development. The specific objective is to strengthen and enhance Shanghai’s comprehensive economic strength, service functions, development environment, innovative capability, management level, and quality of its people.

1.3 Components of APL1 and Loan Allocation APL1 consists of the following physical components. (The related Institutional Strengthening and Training items are included in the respective component here.)

Loan Allocation and Withdrawal Table Unit: million USD Loan No. Sub-project Allocation Final Withdrawal Amount 1 Urban Wastewater Management 151.2* 151,740,318.36 2 Urban Solid Waste Management 29.8** 29,896,602.58 3 Urban Planning and Pilot Upgrading in 6 6,000,000.00 Hongkou District 4 Jinshan Sea Outfall Project. 7.5 7,344,169.57*** 5 Fengjing Water Purification Plant 5 5,000,000.00 Total 199,981,090.51 * The original loan was 146 million USD. Later, 5.2 million USD loan savings from Laogang Phase IV was transferred to this component, therefore, the loan amount for this component was increased to 151.7 million USD. ** Original loan was 35 million USD. Later, 5.2 million USD loan savings from Laogang Phase IV was transferred to the Urban Wastewater Management Component, therefore, the loan amount for this component was reduced to 29.9 million USD. *** Loan withdrawal was 7,344,169.57 USD. This left 155,830.43 USD un-withdrawn. Because adjustment of withdrawal categories was not agreed by the World Bank at the time, and because completion of accounting settlement of the project had to be completed by the end of 2008, the project entity decided to give up the un-withdrawn 155,830.43USD for equipment.

1.4 Milestones This section lists dates from pre-appraisal to signing of the local on-lending agreements.

1.5 Indicators and Final Results The staged performance indicators for APL l during the implementation are as follows (as per Annex 1 to PAD – Shanghai Municipal People’s Government (Letter)):

Target A. At the beginning of 2002, water tariff in Shanghai was increased from Y0.88/m3 to Yl.O3/m3, which created a better environment for launching the APL1. At present, the tap water tariff for domestic users is 1.33 RMB Yuan per m3, and the wastewater tariff 1.08 RMB Yuan per m3. The combined tariff is 2.30 RMB Yuan per m3. Starting from November 20, 2010, the tap water tariff for domestic users will be adjusted to 1.63 RMB Yuan per m3, and the wastewater tariff for domestic users will be adjusted to 1.30 RMB Yuan per m3 , making the combined tariff 2.80 RMB Yuan per m3. (Wastewater tariff is calculated based on 90% of the water consumed.)

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Target B. In 2003, the proportion of sorted collection of domestic solid waste in Shanghai’s urban area reached 50% the proportion of containerized collection/transportation reached 24%, and the proportion of closed transportation 100%. In 2009, the proportion of sorted collection of domestic solid waste in Shanghai core city was 60% and the proportion of containerized collection/transportation was 100%.

Target C. In 2005, the proportion of wastewater collection in the built urban area was increased from the present 68% to 70%. In 2003, the service area of SMSC was 584.57 km2, in 2009 it was 756.25 km2. According to the present statistics, the city & town wastewater treatment ratio was in 2009 79% while in 2003 it was 63%.

Target D. APL1 Monitoring indicators End-of-Project Actual in Year of No. Indicators (2009) Target 2009 1. Urban WW: Enhanced primary Treatment (m3/d) 2,900,000 0 Urban WW: Secondary treatment of wastewater 2. 900,000 6,865,000 (m3/d) 3 Upper Huangpu WW treatment capacity (m3/d) 70,000 950,000 Aggregate quantity of wastewater treated at 4 80% 78.9％ WWWP (% of system flow) No. of studies & training on institutional reforms 5 18 18 implemented. Wastewater tariffs implemented to meet financial Year of 2002 Year of 2009 projections (Yuan per m3) . Shanghai Municipal Sewerage Co. 0.51 Domestic: 1.08 6 . Jinshan: Jinshan Sea Outfall Company 0.68 Government Enterprises: 1.70 . Jinshan: Fengjing Water Purification Co 0.68 Industries: 1.80

1.6 Triggers for APL2 The required triggers for the program to move to APL2 were satisfied in a timely manner. A table is included in the Borrower’s report with comments on each of the Triggers.

2. Institutional Structures of Shanghai (SH) PMO This section describes the project implementation arrangements and includes the institutional structure shown in two detailed organizational charts (as in the PAD).

3. Project Description APL1 consists of five project components, described below in sections 3.1-3.4 and 4.

3.1 Urban Wastewater Management (Third Shanghai Sewerage Project or SSPIII) The total investment approved was 4.61080 billion RMB yuan, including 146 million USD loan from the World Bank. Later, 5.2 million USD loan savings from Laogang Phase IV was reallocated to this component making the loan amount 151.2 million USD.

3.1.1 Components of SSPIII Part (1) Completing the trunk sewer system to solve the wastewater disposal problems for the central city, where there is no sewerage system. The total service area is

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about 171.68 km2 with a population of 2.4 million and the flow of about 1.09 million m3/d. Main components: Construction of 24.48 km pipelines and 2 pumping stations. Part (2) Construction of two wastewater collection systems to increase the urban wastewater collection and the existing facility utilization rate. The service areas of the collection systems are different from that of the trunk sewer. The service area is about 132.56 km2 with a population of about 1.6 million. The designed flow is about 0.768 million m3/d. Main components: Construction of 144 km sewers, 13 pumping stations, and rehabilitation of 5 pumping stations. Construction and rehabilitation of 13 storm water systems, 75.8 km pipelines, and 11 pumping stations (2 of which will be combined pumping stations with sewerage system). Part (3) Construction of a wastewater treatment plant to increase the treatment rate of urban wastewater. Plant with design capacity of 500,000 m3/d; the effluent would meet Class 2 of the national discharging standard. The discharger consists of two pipes with the diameter of 2.4 m each, with a total length of the two of 2,100 m. In addition, an emergency discharging pipe with the diameter of 3 m and the length of 100m. Part (4) Land reclamation at the east side of Zhuyuan Wastewater Treatment Works to be used as a sludge landfill site. Total area of about 230,400 m2, 91,400 m2 of which reclaimed by blow-filling, and 139,000 m2 of which to be blow-filled. 562.2 m of dyke built, and within the dyke there is 560,000 m2 of natural seashore for blow-filling. Part (5) Experimental rehabilitation of pipes built under the earlier SSPI project in order to gain experience of rehabilitation of urban sewers. The length will be about 6 km.

3.1.2 Completion and Operation Status Construction started at the end of 2003 and was substantially completed at the end of 2008. The operation status of the Zhuyuan No. 2 WWTW (the plant) is as follows:

Operation Status of Zhuyuan No. 2 WWTW Oct.- Dec., 2007 Year 2008 Year 2009 Jan. – Jun., 2010 Average Flow per 4.44 thousand M3 4.85 thousand M3 5.21 thousand M3 5.69 thousand M3 Day (10,000 Ton) Average Water Quality/Year Average In: 78.3mg/L In: 97.2mg/L In: 105.7mg/L In: 112.9mg/L BOD Out:7.9mg/L Out: 13.1mg/L Out: 7.7mg/L Out: 7.2mg/L In: 174.4mg/L In: 173.8mg/L In: 193.1mg/L In: 223.6mg/L COD Out: 41mg/L Out: 35.8mg/L Out: 34.3mg/L Out: 30.8mg/L In: 79.4.8mg/L In: 88.4mg/L In: 108.4mg/L In: 133.7mg/L SS Out: 9.6mg/L Out: 9.8mg/L Out: 9.8mg/L Out: 8.9mg/L Ammoni In: 24.8mg/L In: 23.8mg/L In: 23.8mg/L In: 24.5mg/L a Out: 20.7mg/L Out: 11.7mg/L Out: 15.7mg/L Out: 18.7mg/L Phospho In: 2.4mg/L In: 2.69mg/L In: 3.19mg/L

rus Out: 0.5mg/L Out: 0.48mg/L Out: 0.72mg/L

3.2 Urban Solid Waste Management (The First Shanghai Solid Waste Disposal System) According to the approved preliminary design by Shanghai Municipal Construction and Transportation Commission (SMCTC) in its Document (2004) No. 444, the total investment is 656.61 million yuan, including a World Bank Loan of 35 million USD, in which Laogang IV will use 33 million loan proceeds, and Food Waste Collection System and MIS will use 1 million each. Later, 5.2 million USD loan savings from Laogang

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Phase IV was transferred to the Urban Wastewater Component, therefore, the loan amount was reduced to 29.8 million USD and for Laogang IV to 27.8 million USD.

3.2.1 Components of Urban Solid Waste Management This component included three sub-components: (1) The Fourth Phase of Laogang Domestic Sanitation Landfill Site (Laogang IV), located in Nanhui District, occupying an area of 3.36 km2, and with a capacity of receiving at least 4,900 ton/day includes 4 landfill cells with auxiliary facilities, horizontal and vertical infiltration proof system, and a leachate treatment system. (2) Food Waste Collection System; to provide 11 domestic waste collection vehicles. (3) Management Information System (MIS): To mainly construct four sub-systems: (1) digitized command center for city appearance and environmental sanitation (first phase); (2) public information service platform improving and upgrading; (3) domestic solid waste auto-weight system improving and upgrading; (4) environmental sanitation infrastructure MIS improvement and upgrading.

3.2.2 Completion and Operation Status Construction started in 2003 and was completed in 2007. Laogang IV started trial operation in February 2005 and commercial operation in December 2005. Since then, the amount of solid waste it receives has kept on increasing as is shown in the table below: Average Amount of Solid Waste Treated Daily at Laogang IV (ton/day) 2006 2007 2008 2009 4900 6400 7800 8900

The collection of the domestic solid waste covers the entire core city of Shanghai. The proportion of containerized transportation of the solid waste has reached 100%, and the proportion of sorted collection of domestic solid waste has reached 60%. In 2009, Laogang IV treated 3.5 million tons of domestic solid waste, and generated 1.7 million tons of leachate. Laogang IV has expanded its leachate treatment plant from 1,500T/d to 2,300T/d. Laogang IV is now constructing a solid waste incinerator and additional landfill cells. In the future, the amount of waste to be landfilled will be reduced and the proportion of harmless treatment of solid waste will be increased. In 2009, the harmless treatment of domestic solid waste reached 82%, and it is expected that this will be over 95% in 2015. The charge for food waste has been applied since 2005.

3.3 Urban Planning and Pilot Upgrading (Historical House Protective Restoration) According to the Reply to the Adjustment to the Feasibility Study Report on Hongkou District Historical Area Protection Project (Phase I) by the Shanghai Development Planning Commission in September 15, 2006, the total investment was adjusted to 125.34 million RMB Yuan, with World Bank loan of US$6 million. After adjustment of the project contents several times, the project included three contracts (1) UIU1.1 Shanyin Rd and Liyang Rd Historical House Protective Restoration, (2) UIU1.3 Old House Comprehensive Rectification, and (3) UIU1.4 Old House Comprehensive Rectification.

3.3.1 Completion and Operation Status Urban Planning and Pilot Upgrading repaired 2,517 housing units with floor space of 1,332,823 m2 and brought benefits to 81,361 households. Under leadership of Hongkou

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District Government and PMO, and after hard work, the old style lane houses managed by Hongfang Group have changed to a new look. The project has brought a lot of benefits to the local residents and improved their living conditions and got their praises.

3.4 Upper Huangpu Catchment Management The Upper Huangpu Catchment Management consists of two projects, i.e. Jinshan Sea Outfall Project and Fengjing Water Purification Plant. These two projects are important measures for protection of the water source area of the Huangpu River.

3.4.1 Jinshan Sea Outfall Project The investment was 158.13 million RMB Yuan, including 7.50 million USD loan from the World Bank. The project intercepts wastewater generated in five towns, industrial zones, and core urban areas of Jinshan District. After secondary treatment at Xinjiang Wastewater Treatment Works, effluents are discharged into Hangzhou Bay. The plant is built in two stages; the first stage under APL1, with a designed capacity of 50,000 m3/d, and the second stage to be built by 2020 to reach a design capacity of 100,000 m3/d.

3.4.1.1 Components of Jinshan Sea Outfall Project. Jinshan Sea Outfall Project contains: (1) Sewage Conveyor with a length of 2.23 km; (2) Xinjiang WWTW with design capacity of 50000 m3/d; (3) Outfall: Multi-nozzle outfall under water (diameter DN1300 ～DN1650) with a length of 1,174 m from the high chamber to the diffuser.

3.4.1.2 Completion and Operation Status. The project started construction in February, 2005, was completed in December, 2006, and turned into trial operation in March, 2007. It has been under smooth operation as shown in table below. Operation Status of Jinshan Sea Outfall Year 2007 Year 2008 Year 2009 Jan. - June 2010 Average Flow/ Day M3 44,400 48,500 52,100 56,900 Service Area 167 km2 167 km2 167 km2 167 km2 Service Population 14 thousand 15.4 thousand 16.7 thousand 17.2thousand In:240.8mg/L In: 220mg/L In: 188mg/L In: 175mg/L BOD Average Out:23.3mg/L Out:18.7mg/L Out:14.92mg/L Out: 14.18mg/L In: 622.9mg/L In: 470mg/L In: 440mg/L In: 426mg/L Water COD Quality per Out: 96.8mg/L Out: 68.9mg/L Out: 56.8mg/L Out: 49.5mg/L Year In: 545.8mg/L In: 358mg/L In: 187mg/L In: 155mg/L SS Out: 48.7mg/L Out: 21mg/L Out: 14mg/L Out: 18mg/L

3.4.2 Fengjing Water Purification Plant The total budgetary investment approved is 107.95 million RMB yuan, including 5 million USD loan from the World Bank. The plant occupies 54 mu, the service area is 4.47 km2, and it has a design capacity of 42,000 m3/d. It will be built in two stages.

3.4.2.1 Components of Fengjing Water Purification Plant. The scope of the project includes one wastewater treatment plant, sewer networks, three lifting pumping stations and some additional items.

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3.4.2.2 Completion and Operation Status. Project started construction in December 2003, was completed in October 2004, and turned into formal operation in January 2005. It has been under smooth operation as shown in table below.

Operation Status of Shanghai Jinshan Fengjing Water Purification Plant Year Year Year Year Year Jan-June 2005 2006 2007 2008 2009 2010 Average Flow per Day (m3) 2356 6301 8573 9196 12307 11073 Service Area (km3) 12.63 12.63 12.63 12.63 12.63 12.63 Service Population 33,000 33,000 33,000 33,000 33,000 33,000 In: 809.9 In: 553.7 In: 240.6 In: 236.7 In: 209.2 In: 288.0 BOD（mg/L） Average Out:14.4 Out: 16.9 Out:12.6 Out: 12.4 Out:10.3 Out: 10.7 Water In:1686.2 In: 1021.3 In: 508.9 In: 450.4 In: 402.0 In: 551.3 COD（mg/L） Quality Out: 44.9 Out: 51.7 Out: 42.5 Out:42.6 Out:5.7 Out: 35.1 per Year In: 1267 In: 1092 In: 133 In: 171 In: 141 In: 199 SS（mg/L） Out: 11 Out: 11 Out: 11 Out: 8 Out: 9 Out: 12

4. Institutional Strengthening and Training, and Engineering Services

The completion status of the IST items under APL1 is as follows:

Name of IST Items Responsible Completion Status

Agency Upper Huangpu SWA Completed. Contracted to DHI Water & Environment and IST 1.1 Catchment Black & Veatch Int’l Ltd. Management Plan Final report submitted in December 2005. Study Tour & Completed (Own fund). Pilot study and research done for Training for PSP SWA/ “Shanghai Urban Domestic Solid Waste Collection and IST 1.2 Procurement SCAESAB Disposal Management Method”. This became effective on Procedures November 1, 2008 as per Government Order. Pollution Reduction SWA Completed. Contracted to Halcrow Group Ltd. & Fichtner IST 1.3 Meas. Gmbh. Final report in October 2006. Support and training SWAOD Completed through US TDA grant. IST 1.4-5 for Bond Issue` Domestic Bond was issued successfully in July 2006. Preparation of DFV` Completed through CIDA grant with Chreod Ltd. DFV’s Policy & Operating framework, management and operations manual, sub-project IST 1.6 Rules for DFV appraisal, business development plan, HR development plan, and DFV’s EA and RAP policy frameworks completed. Executive Mgmt. SHDRC Completed through own fund. A list of trainings conducted IST 1.7 Training* was submitted to the Bank during the appraisal of APL3. Other Special SHDRC Completed. IST 1.8 Studies CNG and Air Quality studies were conducted. Training and Study SHDRC Completed through own fund. A list of trainings & study IST 1.9 Tours* tours conducted was submitted to the Bank. District WWT Oper. SWA Cancelled. IST 1.10 Staff Training Heritage Strategy SFB Completed strategic plan through CIDA grant with Canadian IST 1.11 Support consultants. Final report submitted in April 2005.

Completion status of engineering (construction supervision) and other services were as follows.

Urban Wastewater Responsible Completion Status Management Agency

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Development of SMSC/ Completed through own fund. SMSC signed two contracts UWW Sludge Management SCAESAB with Environment Group: for May 25, 2006 – March 31, 6.1 Plan 2007, and for April 1, 2007 – March 31, 2011. The second contract is still on-going. Construction SMSC Completed. UWW Management Contracted to Mott MacDonald. 6.2 Services The consulting service was completed July 2007. UWW Financial Strengthen. SMSC Completed. Contract signed with Deloitte Consulting on 6.3 &Tariff Policy Study March 27, 2007 and completed in December 2007. Urban Solid Waste Management Corporatization of SCAESAB Completed through own fund. Study tour to R&D Center Solid Waste Services of Veolia HQ in France, Paris Domestic Solid Waste & Training for Burning Factory, Compost Plant, Toxic and Harmful Enterprise Industrial Waste Treatment Plant, focusing on operational USW 3.1 Operations management. Attended International Environmental Equipment and Technology Expo 2004 in Lyon to learn solid waste recycling and treatment plant operational management, and management of big scale landfill plant. USW Pilot Food Waste SCAESAB Completed through own fund. Pilot study and research 3.2 Treatment Program carried out on disposal of food waste DRA Services for SCAESAB Completed through US TDA grant. Study tours and APL2, Solid Waste surveys on the solid waste management, and tariff USW 3.3 Tariff Regimes and mechanism; both in domestic cities and abroad, for Market Based introduction of market mechanisms in medium and long Instruments term, and support the reform of SCAESAB.

5. RAP & EMP

5.1 RAP Land acquisition and resettlement were needed for the three wastewater systems/plants. Laogang Phase IV had borrowed land and no resettlement. Summary data of the RAP implementation is shown in attached table below.

5.2 EMP The following entities conducted environmental monitoring of APL1 projects throughout the project implementation: Shanghai Environmental Monitoring Center, Shanghai Water Environmental Monitoring Center, Shanghai Municipal Drainage Monitoring Center, Shanghai Luwan Environmental Monitoring Station, Shanghai Jinshan Environmental Monitoring Station, Centre Testing International (Shenzhen) Corp., Institute for Agri- food Standards and Testing Technology, Shanghai Academy of Agricultural Sciences, and East China Normal University. These entities spent a great amount of man-months and materials carrying out the monitoring, which results showed that the construction and operation of the APL1 sub-projects conformed to the requirement of the EMP.

6. Innovation Under APL1, two innovations for China in particular were introduced, Infrastructure Bond Issue and District Financing Vehicle. See descriptions in Annex 15, PAD of APL1.

6.1 Bond Issue The Bond “2006 Shanghai Water Assets Operation & Development Company Ltd. Bond” was issued in 2006. Total amount of the Bond was: 1.5 billion RMB yuan (about 180

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million USD at the time); Terms: 15 years. Purpose: all to be used as counterpart funds to the APL project and the Urban Water Supply System Construction Projects.

6.2 District Financing Vehicle During APL1, Chengtou Environment Industry Development Company Limited prepared a District Financing Vehicle (DFV) with Operations Manual, which was reviewed and approved by the World Bank, and allocated a loan of 30 million USD under APL2. The DFV started in 2005 with three sub-projects, i.e. Chongming Chengqiao WWTP (phase 1), Chongming Landfill (phase 1) and Qingpu Huaxin Wastewater Collection System, all of which have been very successfully implemented. In 2008, DFV started another sub- project, Qingpu Baihe Trunk Sewer Project. In APL3, DFV has got another 30 million USD World Bank loan. DFV will continue to work hard for its mission to create a better, more convenient and more effective vehicle for suburban environmental projects.

7. Comments on the World Bank Performance and Suggestions

The implementation of APL1 has produced good social and environmental results. However, during the implementation, some issues occurred. In order to carry out better the World Bank financed projects in the future, we have some suggestions as follows:

1. The World Bank’s Procurement Guidelines are used by all its member countries. However, each of its member country has its own national conditions. During the implementation of the Procurement Guidelines, people often have a bit awkward and forced feeling, particularly to let the lowest bidder win the contract. This has caused many negative impacts on the contract management. It is suggested that the World Bank revises its Procurement Guidelines so that it would consist of two parts, i.e. General Guideline and Special Guideline, to increase the Guidelines’ flexibility and adaptability.

2. The land acquisition and resettlement costs account for a big proportion of the total project cost. It is suggested that the World Bank loan disburses part of the land acquisition and resettlement cost. This would facilitate project implementation.

3. The procurement procedures of World Bank financed project are a set of scientific processes. It is suggested that the Bank adopt a classified method, for example: for those who have real experience and good credit, could the World Bank consider simplifying its procedures, e.g. the World Bank authorizes those units to carry out the project in accordance with the Bank's procedures, or use the record or the post review method?

4. When tendering documents are reviewed, more attention should be paid to big issues, such as technical feasibility, rather than small issues, such as spare part quantities.

Borrower’s Comments on ICR

The final draft of this ICR was sent to Shanghai (the Borrower) in September, 2010 for their review. The Borrower subsequently informed the Bank that, besides a few minor suggested edits (which were incorporated), they had no comments on the ICR.

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Summary of RAP Implemented Under APL 1

Name of Project Urban Wastewater Management Urban Planning and Pilot Fengjing Water Purification Plant Urban Solid Waste Management (SSSP III) Jinshan Sea Outfall Project Upgrading in Hongkou District Laogang Phase IV Items RAP Actual Difference RAP Actual Difference RAP Actual Difference RAP Actual Difference RAP Actual Difference Amount Land 5040 5037 534.58 535.97 +1.39 251.26 26.922 -224.338 0 0 0 37 43.8985 +6.8985 0 Acquisition (mu) (336 ha) (Borrowed) Of which: Cultivated Land 367.92 374.60 +6.68 0 18.0255 0 0 0 0 37 43.8985 +6.8985 0 0 0 (mu) Water Area (mu) 0 0 0 2.055 0 0 0 0 - 0- 0 0 0 0 Non-cultivated 166.66 112.68 -53.98 0 0 0 0 0 0 - 0 0 0 0 0 Land Construction 0 48.69 +48.69 0 0 0 0 0 0 0 0 0 0 Land (mu) Labor Allocated 381 208 31 0 0 0 0 32 56 +24 0 0 0 Of which: 381 208 -173 0 6 0 0 0 0 4 43 +39 0 0 0 Retirement Labor Allocation 0 0 - 0 25 0 0 0 0 28 13 -15 0 0 0 Households 460 472 +12 50 12 -38 0 0 0 17 9 -8 0 0 0 Resettled People Affected 1294 1416 +122 147 52 -95 0 0 0 73 30 -43 0 0 0 by Resettlement Resident Houses 69979 70800 +821 13557.52 4076.75 -9480.75 0 0 0 3543.86 1769.76 -1774.1 0 0 0 Removed (m2) Enterprises 59 84 +25 10 - -10 0 0 0 15 - -15 0 0 0 Affected Enterprise 78924. 37072. Buildings -41852.76 1402 - -1402 0 0 0 432.5 - -432.5 0 0 0 83 07 Removed (m2) Compensation 929732 903833 - Cost (RMB 10100884 25601942 +15501058 0 0 0 10854570 8622603 -2231967 0 0 0 242.00 533.91 25898708.09 yuan)

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Annex 9. Comments of Cofinanciers and Other Partners/Stakeholders NA

Annex 10. List of Supporting Documents

Project Appraisal Document (PAD) No. 23567-CHA dated May 20, 3002 Board Speech for June 17, 2003 Board Meeting Laogang Landfill Phase 4 (comprehensive ppt presentation) Draft Borrower’s Completion Report dated July 29, 2010 Summary Notes from Quality at Entry Review (QER), 2002 QAG Quality at Entry Review, 2003 QAG Supervision Review, 2006 Aide Memoires and ISRs Environmental Monitoring Reports by Independent Monitoring Agencies Semi-annual Progress Status Reports from the Borrower

49 IBRD 38039

MONGOLIA L JILIN CHINA O G N O LIAONING M DEM. PEOPLE’S SHANGHAI URBAN ENVIRONMENT PROJECT (APL 1) E I REP. OF KOREA N BEIJING Beijing TIANJIN HEBEI REP. OF APL1 PROJECT COMPONENTS: KOREA SHANXI SHANDONG Yellow QINGHAI NINGXIA Sea GANSU HENAN JIANGSU Area WASTEWATER TREATMENT PLANTS (WWTP) DRAINAGE CATCHMENTS SERVED SHAANXI of map ANHUI SHANGHAI SHI HUBEI OUTFALLS SICHUAN East SOLID WASTE LANDFILL (SWL) ZHEJIANG China XIZANG JIANGXI CHONGQING Sea UPPER HUANGPU PROTECTION PROGRAM AREA URBAN UPGRADING HUNAN FUJIAN GUIZHOU

TAIWAN YUNNAN GUANGDONG 121˚00' 121˚30' GUANGXI Chang Jiang HONG KONG (Yangtze River) MACAU RING ROAD VIETNAM LAO South (UNDER COMPLETION) MYANMAR PEOPLE’S DEM. HAINAN China Sea THAILAND REP. PHILIPPINES ROADS CHONGMING RAILROADS C h HEAVILY URBANIZED AREA an g Ji URBAN AREA an g COUNTY/DISTRICT BOUNDARIES (Y an gtz PROVINCE/MUNICIPAL BOUNDARIES e Riv TIDAL FLOW IN RIVER e r) 31˚30'

0 5 10 15 20 25

KILOMETERS APL 1 Changxing Wastewater JIADING BAOSHAN Service Areas Baoshan Island

Jiading Hengsha Zhuyuan Island JIANGSU WWTP

PUDONG Hongqiao International Airport QINGPU Bailonggang WWTP SHANGHAI (existing) Qingpu Pudong MUNICIPALITY International NANHUI Airport SONGJIANG MINHANG Laogang SWL

31˚00' Songjiang 31˚00' R. Huangpu FENGXIAN WWTP Nanqiao

Fengjing Fengxian JINSHAN ZHEJIANG Jinshan WWTP

This map was produced by the Hangzhou Bay Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any endorsement or acceptance of 121˚00' 121˚30' such boundaries.

AUGUST 2010