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INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

STAFF APPRAISAL REPORT Public Disclosure Authorized : Environment Project

June 17, 1994

The above-captionedStaff Appraisal Report for China: Shanghai Public Disclosure Authorized

EnvironmentProjectis a revised version of the report prepared following

the approval of the Project by the Executive Directors of the Bank and

does not include informationdeemed confidentialby the Government of

Public Disclosure Authorized the People's Republic of China. Public Disclosure Authorized a 3 77 7- C /p4

ep 7C77f%

STAFF APPRAISAL REPORT

CHINA

SHANGHAIENVIRONMENT PROJECT

June7, 1994

INACCORDANCE WITH THE WDfRLD AWilS PbOUCY0-i DISCLOSUREOf IWRMTON rwouDOC.-MENT U AVAIABETO 7E PVUX.

Environmentand UrbanDevelopment Operations Division Chinaand MongoliaDepartment East Asia and Pacific Region I PRINCIPAL ABBREVIATIONSAND ACRONYMS USED

AIDAB - AustralianInternational Development Assistance Bureau BOD - Biological Oxygen Demand CIDA, Inc. - CanadianInternational Development Agency Incorporated COD - Chemical Oxygen Demand DC - Direct Contracting DRA - Design, Review and Advisory (Consultants) EA - Environmental Assessment EPB - Environmental Protection Bureau GDP - Gross Domestic Product GIS - Geographic InformationSystem GNP - Gross National Product ICB - International Competitive Bidding lTC - InternationalTendering Company (of Beijing) JGF - Japanese Grant Facility LCB - Local Competitive Bidding MSW - Municipal Solid Waste NEPA - National EnvironmentalProtection Agency NS - Nightsoil ODA - Overseas Development Administration PC - Project Component SAA - State Audit Administration SAES - ShanghaiAcademy of EnvironmentalSciences SCC - Shanghai Construction Commission SEMC - ShanghaiEnvironmental Monitoring Center SEP - Shanghai Environment Project SEPC - State EnvironmentalProtection Commission SEPO - Shanghai Environment Project Office SESAB - ShanghaiEnvironmental Sanitation Administration Bureau SFB - Shanghai Finance Bureau SlTC - ShanghaiInternational Tendering Company SM - Shanghai Municipality SMG - Shanghai Municipal Government SMI - Surveying and Mapping Institute SMWC - Shanghai Municipal Waterworks Company SOE - Statement of Expenditure SS - Suspended Solids SSC - Shanghai Sewerage Company SSPCC - Shanghai SewerageProject ConstructionCompany SUCIS - Shanghai Urban ConstructionInformation System SUPDRI - Shanghai Urban Planning and DevelopmentResearch Institute SWWTP - SongjiangWastewater Treatment Plant TA - Technical Assistance UNDP - United Nations Development Programme WHO - World Health Organization I CH]NA

SHANGHAI ENVIRONMENT PROJECT

LoAN AM PRoJEWrSummARY

Borrower: People's Republic of China

Beneficiary: ShanghaiMunicipality (SM)

Amount: $160 million equivalent

Terms: 20 years, including5 years of grace, at the Bank's standard variable interest rate.

Onlendsng Terms: From the Governmentof China to SM: 15 years including 5 years of grace at 90.63 percent of the Bank's standard variable interest rate, and a commitmentcharge at the Bank's standard rate, with SM bearing the foreign exchange risk. From SM to implementing public utilities: 15 years including5 years of grace at the Bank's standard variable interest rate, and a commitment charge at the Bank's standardrate, with the utilitiesbearing the foreign exchange rislc.

Project Description: The project would support achievement of a sustainable environmentfor the long-termeconomic and social developmentof Shanghai, while providing a competitiveframework for industrial growth. In particular, the project would focus on improving and protecting drinking water quality and controlling pollution. The main componentswould comprise: (a) constructionof a major raw water supply intake, pump stations, multibarrel supply main, improvementsto existing water treatmentfacilities and distribution network; (b) engineeringprotection measuresin the Upper Huangpu River Catchment; (c) wastewater collection and treatment in Songjiang Town; (d) construction of a water quality monitoring facility; (e) investments in mechanical plant and civil works to improve solid waste, nightsoiland hazardous wastes collection and disposal; and (f) technical assistance and training, including preparation of a water supply master plan, geographic information systems development in support of planning and the Shanghai Reform Action Plan, water supply managementand environmental monitoring,institutional strengthening, feasibility studies and future project preparation. - ii -

Project Benefits: The sustainedprovision of a safe potable water supply for Shanghai is a prerequisite to enable sustained public health and economic growth. The project would enhance the Shanghai Municipal Government's (SMG) economic reform efforts through implementationof fiscallyrational charges for water and wastewater services. The reform momentum would be supported by the sectoral breadth of the proposed investments, including water qualityand catchmentprotection, select wastewater treatment, solid waste and nightsoil management and technical assistance and training.

Risks: Project risks include (a) possible reluctance by SMG or Songjiang County governmentto approve and maintain the tariffs and service charges needed for financially sound operations; (b) possible unwillingnessby SMG to enforce the pollution control laws with respect to financially weak enterprises, resulting in continued increases in pollutant levels in the Huangpu River; (c) delays by SMG in implementing the institutional development and training components; and (d) a serious toxic effluent spill that would close the new water systemintake for a period. Project design has been structured to minimize these risks. Project Costs:L& L& Foreign IQ1 (S million)

Drinking Water Quality Protection 111.8 115.0 226.8 Upper Huangpu Pollution Control 25.4 22.3 47.7 SongjiangPollution Control 13.1 16.0 29.1 Water Quality Monitoring 1.2 2.7 3.9 Solid Waste/ Nightsoil Management 26.9 5.9 32.8 TA, Training & Studies 2.7 8.1 10.8

Total BaseCostLk 181 I110 1

Physical Contingencies 21.2 18.9 40.1 Price Contingencies 59.0 6.4 65.4

Total Project Cost 26u 125.3 456

La Project-financedgoods are exempt from import duties and taxes. a Includes cost of land ($15.0 million). Hnandg Plan: LQa EQe IQI ($ million)

Shanghai Municipality 261.3 35.3 296.6 IBRD 0.0 160.0 160.0

IDal 26k3 1925 456. Estimated Disbursements:

BankFY 1995 1226 1997 1 1229 (S million)

Annual 20.0 46.9 54.8 24.9 9.6 3.8 Cumulative 20.0 66.9 121.7 146.6 156.2 160.0

Poverty Category: Not applicable.

Economic Rate of Return: Not applicable.

Map: IBRDNo. 25283

v -

CONTENTS

1 The Envirommental Sector .1......

A. EnvironmentalConditions in China 1 B. InstitutionalFramework. 2 C. EnvironmentSector Issues and Problems. 3 D. GovernmentStrategy. 4 E. Bank Group Operationsin the Sector. 5 F. Bank Group Role and Sector Lending Strategy. 6

2 Project Background. 8

A. Project Area. 8 B. EconomicReform in Shanghai. 9 C. EnvironmentalConditions in Shanghai.10 D. Project Formulation ...... 14

3 The Proposed Project ...... 16

A. Project Objectives ...... 16 B. Project Description ...... 16 C. Project Cost Estimates ...... 19 D. FinancingPlan ...... 20 E. Procurement...... 20

This report is based on the findings of an appraisal mission which visited China in June/ July 1993. Project team members includedMr. Geoffrey Read (Senior SanitaryEngineer and Task Manager), Mr. Terry Hall (Sanitary Engineering Consultant), Mr. Lynn Holstein (GIS Consultant), Mr. Edward Ke-Siong Hum (Environmental Engineering Consultant), Mr. Patrick McCarthy (Financial Consultant), Miss Linda Mih (Operations Assistant), Mr. Tore Semb (Solid Waste Consultant), Dr. George Taylor (Chemical EngineeringConsultant), Mr. Lee Travers (Economist),and Mr. Zhang Zhun (Institutional Consultant). Assistance was also provided by Mrs. Chongwu Sun (Operations Officer), Miss Xiaolan Wang (Secretary)and Mr. XiaoyongWu (Interpreter)of the China Resident Mission. Peer reviewers for the project were Mr. Arthur Bruestle (Environmental Specialist),Mr. Daniel Coyaud (Senior Sanitary Engineer), Mr. Harvey Garn (Economic Adviser), and Mr. Graeme Lee (Senior Financial Analyst). The managing Division is EA2EU. The Division Chief is Ms. KatherineSierra and the Acting DepartmentDirector is Mr. Zafer Ecevit. - vi -

F. Disbursement ...... G. Land Acquisition 23 and Resettlement ...... 24 H. Environmental Impact Assessment ...... 25 I. Project Monitoring, Reporting and Supervision ...... 25 4 Project Mnagement and Implementation ...... 27 A. Project Management ...... 27 B. Implementation Responsibilities ...... 28 C. Status of Engineering ...... 30 S Finance ...... 31 A. Financial Management ...... 31 B. Accounting ...... C. Audits 31 ...... 32 D. MunicipalFinance ...... E. Water 32 Supply ...... 34 F. Sewerage Services ...... 37 G. Solid Waste and NightsoilManagement ...... 39 6 Economic, Social and Environmental Considerations .40 A. Project Justification .40 B. Least-Cost Solution .40 C. Project Benefits.40 D. EconomicBenefits .41 E. EnvironmentalImpact .43 F. Affordability .44 G. Project Risks .44

7 Agreements Reached and Recommendation ...... 45

ANE 1. Organization of Environment Protection in China ...... 49 2. Water and Air Quality Standards in China ...... 50 3. Detailed Project Description ...... 4. DetaiedCostEstimatesj/ 52 ...... 69 5. Schedule of Contract Pacges Z/. 6. Terms of Reference: Institutional Strengthening for SUCIS Implementation 7. Disbursement 71 Sche dule...... 76 8. Land Acquisitionand Res ntPan ...... 9. EnvironmentalAssessment ...... 90 10. Implementation Schedule ...... 104 - vii -

11. EnvironmentImprovement Monitoring Indicators ...... 105 12. Organizationof ShanghaiMunicipal Government ...... 108 13. ShanghaiMunicipal GovernmentFinancial Projections2/ . 14. ShanghaiMunicipal WaterworksCompany FinancialProjections 2/.... 15. SongjiangWastewater Treatment Plant Financial Projections2/. 16. Solid Waste and Nightsoil ManagementFinancial Projections2/ . 17. Economic Analysis ...... 109 18. SelectedDocuments and Data Availablein the Project File ...... 120

TABLES IN TEXr

3.1 Summary Cost Estimates ...... 19 3.2 FinancingPlan ...... 20 3.3 ProcurementArrangements ...... 22

5.1 Summary of Past MunicipalFinances ...... 33 5.2 Summary of Key Financial and MonitoringIndicators for SMWC ..... 35 5.3 Summary of Key Financialand Operating Indicators for SWWTP ..... 37 5.4 Summary of FinancialPerformance of SESAB ...... 39

6.1 Economic Cost Summary for Project Alternatives ...... 42

IBRD 25283

1/ Select details deleted at Borrower's request. 2/ Not shown, at Borrower's request. 46 - 1 -

1. THE ENVIRONMENTAL SECTOR I/

A. EVmONmwAL CONDmONSiN CHINA

1.1 Chinese cities have been undergoingremarkable growth and transformation since the early 1980s, reflecting trends in the economy at large. After two decades of stagnation, urban population and incomes have been increasing along with industrial production. The urban populationhas grown by about 5 percent a year during the 1980s, and now represents about 30 percent of the total population of China. However, the growing urban populationand industrializationare causing widespreadpollution in China, and environmental problems have become a central issue in Chinese cities. Water pollution poses the most severe problem and directly affects human health. Many important water resources, which are already scarce in most regions, have been seriously threatened. Further, few countries are as dependent on coal as China, with annual consumptionof about 1 billion tons. The combustionof bituminouscoal is causing serious atmospheric pollution from airborne particulate and sulfur dioxide emissions in many industrialareas. Moreover, growing toxic/hazardouswastes are not effectivelycontrolled and are emerging as a major environmental problem. In the absence of adequate environmentalmanagement programs, increasinglyadverse environmentaldegradation has had serious ramifications, including health hazards and undermining of sustainable developmentin the longer run.

1.2 The Chinese authorities are aware of the need to address environmental problems and recent official policy calls for economicdevelopment to proceed in tandem with environmentalprotection; China is confronted with the dilemma that promoting economic growth, alleviating poverty and protecting the environment are not always compatible, presenting difficult choices. The Government's good intentions notwithstanding, there remains considerable scope for improvements in integrating environmental management effectively into macroeconomic policies and economic developmentplans. In this connection,there are ample opportunitiesfor economicand enterprise reforms as well as sound investments that meet both environmental and economic objectives, as exemplifiedby the proposed project. However, there are also important instances in which economic and environmentalobjectives conflict to some extent. In particular, increased energy and raw material production are both a corollary of economicgrowth and a major cause of pollution. Further, some of the priority cleanup programs are, by nature, not economically productive. As a result, environmental protection objectives are often compromised by the scarcity of natural and financial

I/ For a detaileddiscussion, pleasw e China EnvironmentalStrategy Pa' (ReportNo. 9669-CEA, Apl 1992). resources. Thus, the Chinese authoritiesare faced with the challengeof formnulatinga coherentdevelopment strategy that wouldstrike an appropriate often-conflicting balancebetween the two objectivesof economicdevelopment and environmentalprotection.

B. INSXtIrlEONAL FRAMEWORK 1.3 EnvironmentalManagementArrangements. The for environmental institutionalframework managementin China provides a solid foundationfor approaches for dealing designing with environmentaland ecological problems. The State EnvironmentalProtection Commission (SEPC), which includes ministries the heads of all relevant and agencies,and ultimatelythe State Council,are at makingon the apex of decision- environmentalpolicy in China. SEPCprovides policy direction resolvesinteagency at times and disputes,but it meetsonly quarterlyand hence cannotregularly overall policy. The set Commissionrelies heavily on its secretariat, the National EnvironmentalProtection Agency (NEPA), which was established is responsible in 1979. This agency for all aspectsof environmentalpolicy, althoughit other agencies shares authoritywith for certainspecific natual resources.NEPA liaises with the environmental protectionunits within most of the ministriesand state policies entrprises, and sets the overall and regulationsgoverning provincial and municipalenvironmental bureaus (EPBs). protection &nnc I presents the institutionalframework for protectionin China. environmental 1.4 Environment Policies. Most environmentalprotecdon policies implementedat the subnational are level. Provincesare responsiblefor implementingnational policiesand are authorizedto act in the absenceof preemptive warranted nationalstandards; where by localconditions, they mayalso imposemore stringentstandards requiredby the national than those government. In all provincesand municipalitiesand in most counties around the country, EPBs have boen established commissions under local environmental headedby a deputygovernor or deputymayor. The municipal, and county urbandistrict EPBs are the basic units responsible for ensuring compliance environmentalregulations with and standardswithin their respective jurisdictions. They pollutioncharges from collect all enterprisesthat dischargewastewater, ecept those owned the Provincialor CentralGovernments, by from whichthe pollution charges are collectedand used by the provincial-levelEPBs. 1.5 SeveralCentral Government ministries are concernedwith water pollution waterquality and control, and they support NEPA in carrying out its environmental protectionwork As an example,the Ministryof Water Conservancyis responsiblefor determiningpolicies on the allocationand managementof surfacewater resourcesin the country. Its policiesare implementedthrough river basin commissions, conservancy provincialwater departmentsand water conservancybureaus at various levels. The Ministry local government of Geologyand Mineralsand the correspondinglocal government departmentsand bureausare responsiblefor allocationand management The Ministry of groundwater. of Constructionis responsiblefor urban and regional planning, infrastructuredevelopment and planningat the nationallevel. It providesguidance to the provinceson land use planning and infrastructuredevelopment, including urban water -3 -

supply and sewerage. The Ministry of Public Health is responsiblefor providing guidance to local public health bureaus on drinkdngwater quality regulations.

C. ENVIONMEWNTSECTOR LSS AM PROBLEMs

1.6 Issues in Enviromnental Management. While China has taken a major step in the right direction for the managementof pollution from new investments, much improvementis still needed in enforcing these requirements. Current industrial cleanup measuresinclude mostlyend-of-pipe treatment. Insufficientconsideration has been given to more efficientand economicalmethods for reducingpollution throughrecycling, process modification, and the use of less polluting inputs. Often when it is realized that technologicalupgrading is the preferred solution, lack of financial resources, especially foreign exchange, is an impediment. In many cases when highly polluting factories are relocated (a process that is tantamountto closing an existingfactory and constructinga new one), the same industrial process is used in order to take advantage of existing (old) equipment, and technologicalchanges are deferred until funds become available. In addition, environmentalassessments (EAs) are often performedtoo late to influenceproject approval, location and design, and are too narrow in scope (project-specificrather than region-specfic). For existing polluters, financing constraints and access to low waste technologiesare major hindrancesto acceleratingthe pace of pollution abatement.

1.7 Existing istmments. A pollution levy system that imposes penalties for exceeding national (or local) standardshas been introduced to deter pollution. However, the present fee is set considerablybelow the marginalcost of treatmentto meet the effluent standards,and most enterprisespay the fee rather than invest in treatmentfacilities. While the level of the levies was increased by about 40 percent in 1991, it remains inadequate. Further, there are shortcomingsin the present structure of the pollution levy system. Thus, the EPBs have to resort to administrativemeasures to compelthe enterprisesto bring their pollution discharge levels into compliance with the standards. In the wake of deepening enterprise reforms and increaseddecision-making at the enterprise level, both the levels and structure of the pollution levies need to be adjusted to provide greater financialincentives to the enterprises to protect the environment.

1.8 Pollution levies are the major source of funds for environmentalprotection. Approximately20 percent of the levy is retained by the local EPBs to cover their operating costs and the balance (80 percent) is returned to industrial enterprises for financing pollution abatement measures. However, the demand for pollution control funding far exceeds the amounts available from the levies at the current level of charging and collection. While the efficiencyof levy collectionin the municipalitiesgenerally is high, collectionefficiencies in rural county areas are often less than 50 pecent.

1.9 The Governmentis aware of these problems. The environmentalagenda of the 1990s calls for enhancementin the formulation, monitoring and enforcement of the pollution levies. In this connection,a completereview of the levy charging, collectionand allocation system is being undertaken by NEPA with the assistance of international consultants under a Japanese Grant Facility (aGF)-financedstudy. The objective of the - 4 -

study is to designa systemthat wouldbe more consistentwith the polluter-paysprinciple and reducethe administrativeburden on theEPBs through improvements in economicand financialmechanisms for environmentalmanagement. Recommendations emerging this from study would be implementedfirst on a pilot basis in selected cities, including Changzhouin SouthernJiangsu.2/ Effectiveimplementation of the pollution would levy system enhancethe financialincentives for pollutioncontrol and increasemobilization of resourcesfor environmentalprotection. 1.10 Desin Parameters for Future Policyand InvestmentsInitiatives. Much needs to be done to improvethe environment,but financingconstraints would probably impedepollution control for at leasta decade. Therefore,the real issuesare: (a) increase how to mobilizationof resourcesfor the sector; (b) how to utilizethe scarce resources efficiently and effectivelyto address prionty problems; and (c) how (i) to improve environmentalpolicy, (ii) the economicsystem and (iii) the govemmentbureaucracy to maximizepollution prevention and exert greater control.

D. GovERNMET STRATEGY

1.11 In rocet years, the CentralGovernment and local authoritieshave greater initiatives tamen to improve the environment. Since 1979, China has enacted a comprehensiveset of environmentallaws, regulationsand standards. The framework establishedthrough the EnvironmentalProtection Act of 1979and subsequentregulations provides for environmentalquality standards for different types of areas, pollution dischargestandards and levies for effluentexceeding the standards,and environmental impact assessmentsand permitsfor most investmentprojects. Air and water pollution controlregulations were introduced in Chinain 1979and 1988,respectively. The Chinese standards for waterand air qualityare summarizedin Annex2. Solidwaste legislation is still in the draft stage, while legislationpertining to industrialand hazardouswaste managementis incompleteand too recentto be effectivelyenforced.

1.12 The Chinese EnvironmentalProtection Law and ancillary regulations emphasize 'prevention first (includingrequirements for EAs on new projects) and "polluterpays principle"(including fees, finesand compensationpayments). With to a view achievingits environmentalgoals, the country has adoptedan eclecticassortment of command-and-controland incentivemethods. Command-and-controlapproaches include EAs; integrationof environmentalprotection measures at projectdesign, construction and operationalstages (the "threesimultaneous actions' system);relocation of industryaway fromdensely populated urban areas; requirements for low-polluting technologies in selected industries; centralizedtreatment of wastes;vehicle inspection programs; and a systemof responsibilitycontracts (with both voluntary and binding agreementswith industrial enterprisesand municipalitiesto achieve environmentaltargets). Economicincentive approachesinclude a pollutionlevy system (the principal method);taxes on polluting

Z Refer- Mi Sother Jisn EnviromulProtectionProjec-(Staf CHA). AppmiaReportNo.11370- - 5 -

inputs; and tax incentives. In addition, a system of standardsand permits is the basis for the pollution monitoringand control program.

1.13 Recent urban growth and industrialintion are a direct reflection of the economicand institutionalreforms being pursued by China. Recognizingenvironmental improvement as an essential part of economic development, the Government has established decentralized institutional and financial frameworks and sanctioned large investmentsin the sector. While public revenues consist predominantly of general tax revenues shared between the central and local governments, the Government recently introduced several new taxes and charges that local governments can fully use for environmentalinvetment and operations,and has also been encouragingincreases in user charges and other means of financingenvironmentally conscious urban services.

1.14 Under the current decentralizedsystem, the Central Government limits its role largely to guidance and interregionalcoordination, giving local governments great latitude to manage local affairs. Subject to tax-sharing arrangements and annual consultation,the local governmentsare largely free to allocateresources according to their priorities. NEPA and the Ministry of Constructionprovide policy and technical guidance for local governments on infrastructure and environmental issues and sanction major investmentprojects. Even on technical and regulatory matters, the central agencies no longer set rigid norms but allow local agencies to adapt guidelinesand standardsto local circumstances. The Centrl Government,in fact, encouragesthem to take initiatives and experimentwith new technicaland managerialsolutions, not only to allow local adaptation of national guidelinesbut also to find "best practices" throughdiverse experimentationand disseminatethem in other parts of the country. The reforms and experiments promoted include increases in public service tariffs, and loan financing for pollution reduction investments. Various innovations and large-scale investments for environmental improvementhave been pursued most activelyin coastalareas, consistentwith the Central Government'sdevelopment strategy that identifiesthese areas as the forefront of economic growth and interaction with the rest of the world.

E. BAK GROUPOpTnIoNs IN TE SEcroR

1.15 The BeijingEnvironmental Project (Credit 2312-CHA/Loan3415-CHA) and the Ship Waste Disposal Project (Credit 2391-CHA/GlobalEnvironmental Facility, Grant No. TF28613) were the first two free-standingenvironmental operations in China. The Bank Group is currently involved in eight projects in the water supply/sanitationsectors in China that also bear on pollution control. These projects, which are now being implementedsatisfactorily, are: (a) Shanghai SewerageProject (Credit 17794CHA/Loan 2794-CHA);(b) Medium-sizedCities Development Project (Credit 2201-CHA/Loan3286- CHA); (c) Liaoning Urban InfrastructureProject (Credit 2219-CHA); (d) Tianjin Urban Developmentand EnvironmentProject (Credit 2387-CHA); (e) ChangchunWater Supply and EnvironmentalProject (Credit 2457-CHA); (f) Rural Water Supply and Sanitation Project (Credit 2336-CHA); (g) Southern JiangsuEnvironmental Protection Project (Loan 3582-CHA); and (h) the Zhejiang Multicities DevelopmentProject (Credit 2475-CHA). Despite the complexityof these ongoing projects, and the initial unfamility of project -6 -

officials with some Bank Group procedures, implementationhas proceeded satisfactorily; the recently approve EnvironmentalTechnical Assistance Project (Credit 2522-CHA) will assist in strengtheningcentral environmentalmanagement capacity. Two environmental protection projects (in Liaoning Province and Hubei Province) are currently under preparation. Our ongoing dialogue in this sector is expected to remain productive and open.

1.16 The ongoing ShanghaiSewerage Project is being implemented successfully. Though behind schedule, this major infrastructureinvestment is being well managed, and constructedunder difficult logisticaland technical conditions. There have been delays with implementingfinancial improvementsincluding wastewater tariffs; these difficulties have been resolved and the Shanghai Municipal Government (SMG) has demonstrated commitmentto active financial reforms.

1.17 The commonelements of good practice learned under the above-mentioned projects include (a) commitmentof the concerned municipalauthorities to implement the projects; (b) strongproject managementoffices, with adequatestaff to provide the requisite coordination among multipleagencies; (c) thorough project preparation based on detailed feasibility studiesprepared by competentagencies and consultants; and (d) well-prepared bidding documentsand technical specifications. On the negativeside, the Bank has noted a tendencyfor China and its local governmentsto postpone the implementationof effective cost-recovery policies, and for the need to adopt long-term plans for the provision of essential urban environmentservices. The proposed project would address these issues.

F. BANKGRouP ROLE AD SECR LENING STATEGY

1.18 The Bank Group's Country Assistance Strategy, presented to the Board in August 1993, highlighted the need to support economic reform while assisting infrastructure modeniization in an environmentally responsive manner. The recently completedEnvironmental Strategy Paper (Report 9669-CHA, April 1992) concludedthat Bank environmentalassistance to China should focus on long-termprotection and resource conservation programs, strengthening sector management and supporting financially efficient least-cost environmental investments. It found that most environmental and pollution problems are best addressed at the municipal and regional level because individualsources of environmentaldegradation and, therefore,appropriate solutions would vary. These correspond to the principal centers of economic investmentdecisions. It is also around these levels of governmentthat China's environmentalpolicies and institutions are centered. Thus, it is at the municipaland regional levels that the Bank's comparative advantage can be used most effectively. As industry is by far the main source of pollution in the country, the Chinese authorities have accorded the highest priority to environmental protection in targeted industrializedcities and regions, including the Shanghai Municipal region, where the proposed project is located. 1.19 Environment-relatedsector work carried out by the Bank has included (a) an urban sector survey in Liaoning Province in 1985, in cooperationwith the United Nations DevelopmentProgram (UNDP) and the Australian InternationalDevelopment Assistance - 7 -

Bureau (AIDAB);(b) an urban sector study in ZhejiangProvince (Report No. 6612-CHA), August 3, 1987; (c) a study of the efficiency and environmentalimpact of coal use in China (ReportNo. 8915-CHA),March 20, 1991;and (d) the EnvironmentalStrategy Paper for China (ReportNo. 9669-CHA),April 1992. That paper identifiedmajor environmental issues and their underlyingcauses, assessed China's policies and institutionalcapabilities for addressing them, recommended areas for improvement, and proposed a multiyear program of environmentalassistance. This included a series of environmentaloperations, including the proposed project. We have recently commenced work, with Norwegian Governmentassistance, preparing with the central and the Hubei and Yunnan provincial authoritiesan urban environmentalservices sectorstudy, which will strengthenour sectoral understandingand underpin future lending.

1.20 In addition, various environmentalstudies are in progress: (a) three studies under the Global EnvironmentalFacility related to (i) the reduction of greenhouse gas emissions; (ii) loss of biodiversity in China; and (iii) ozone-depletingsubstances; and (b) five national studies under the JGF-financedtechnical assistance program to NEPA, covering (i) the environmentalimpact assessment process; (ii) waste minimization and pollution control in rural industries; (iii) hazardous/toxic waste management; (iv) economic/financialmechanisms for environmental management (para. 1.10); and (v) environmentalinformation management systems. Finally, under the Metropolitan EnvironmentalImprovement Program financed by UNDP and the World Bank, Beijing Municipality regularly exchanges information on environmental management and technology with four other Asian member cities.

1.21 It is concluded that Bank participationin the environment sector in China would continue to focus on (a) developing appropriate strategies for improving and maintainingthe quality of the environment (these would seek to optimize total benefits, including those from opportunitiesto improve the efficiencyof industrialproduction and the use of natural resources); (b) prioritizing the measures needed for environmental improvement, identification and preparation of plans for the most cost-effective investments; (c) financing high priority investments that would produce environmental benefits in the short term; (d) strengthening the institutions responsible for enforcing environmentalprotection regulations,as well as those that operate communitysystems for environmentalpollution abatement;and (e) promoting sound financial and cost-recovery policies to sustain healthy operation of pollution abatement.

- 8 -

2. PROJECT BACKGROUND

A. PROJECTAPEA

2.1 Shanghai Municipality(SM) is located in the Changjiang ( River) delta plain (see IBRD Map 25283). The municipalitycomprises a total area of some 6,340 square kilometers (km2), consisting of 12 urban districts and 9 rural counties. Shanghai's built-upurban areas covers 280 km2. Ten contiguousurban districts (referred to as the "city proper") cover 254 km2, and two additional urban districts contain the satellite towns of Minghang and . The city proper ranks as one of the densest settlementsin the world with 30,945 inhabitantsper km2. Shanghai is the second-largest metropolisin China, with a total 1991population of about 14 million, significantlygreater than Beijing (10.40 million) and Tianjin (8.77 million), and exceeded only by Chongqing in Sichuan Province; the urban population is about 9 million. The natural population growth rate was just 0.37 percent in 1990, but growing numbers of contract workers are migrating from remote rumralareas to fill jobs in Shanghaiand increasing the demand for services. By the year 2000, the municipalpopulation is projected to rise to 17 million, with an urban population of 11 million. Shanghai is one of three provincial-level municipal governments in China, the other two being Beijing and Tianjin, and is administeredby the ShanghaiPeople's MunicipalGovernment (SMG).

2.2 Shanghaiis one of the country's oldest and most importantindustrial bases and is a center of commerce, science, higher education, trade, and finance. It is the largest port in China and lies at the head of the YangtzeEconomic Zone (comprising the Municipality of Shanghai and the Provinces of , Zhejiang, and Anhui), which contains 182 million people and accounts for some 25 percent of the national output of industry and agriculture. This region has the potential of becoming one of the largest centers of international trade and commercein the Pacific region. The total labor force of the Municipalityis estimatedat 9.5 million, of which 11 percent work in the primary sector, and 60 percent and 28 percent in the secondary and tertiary sectors, respectively. Shanghaigross domestic product (GDP) per capita reached Y 6,663 in 1991, well above the national average of Y 2,163.

2.3 Growth in the secondary and tertiary employment sectors is expected to expand the labor force to 10.5 million as Shanghai enters the twenty-first century. Its gross nationalproduct (GNP) in 1991was Y 85.8 billion (4.3 percent of the national total), with 71 percent of value added coming from primary and secondary industry. Rapid growth in tertiary or servces sector activity is expected to contribute to increased GNP growth in future. Shanghai's average labor productivityof Y 29,183 in industry, average annual wages of Y 3,375 per capita, and savings of Y 1,118 per capita are among the highest in China. Its labor force is among the best educatedbut also the most elderly in - 9 -

China and employers face steeply rising pay-as-you-gopension costs. Shanghaiindustry generated Y 20.2 billion in pretax profits in 1990(down from Y 22.8 billion in 1988) with a net fixed asset base valued at Y 43 billion and working capital of Y 31 billion. These statistics, however, mask an economic growth rate that has been declining during the past decade and was among the slowest in China in 1990 (GNP grew by only 3.5 percent that year compared to the national average of 5.2 percent-a situation that is typical of China's heavily industrialized,sta-owned local economies). In common with a national surge in economic performance during the first half of 1992, Shanghai showed a 14 percent increase in GNP on an annualizedbasis. However, the sustainabilityof strong economic growth would depend on the effectiveness of the economic reform program on which Shanghaihas embarked, as well as the availabilityof adequate infrastructureand efficient managementof the residual public sector and its finances.

B. ECONOMICREFORM IN SHANGHAi

2.4 Policy reforms introduced over the past decade have already significantly increased the exposure of Chinese state industries to market forces, with measurable impacts on productivity growth. Serious constraints remain, however, to the more fundamental economic restructuring of the urban industrial sector. Shanghai embodies many of the more serious problems of obsolescent industrial structure and locational pattern, and has also suffered from the deteioration of its physical infrastructurebase and neglect of pollution control. Althoughthe city was initially slow to adopt system reforms launched in other coastal provinces, the current ladership is developing ambitious programs for the transformation of Shanghai's economic base, including multisectoral reforms and an enhancedrole for foreign investment.

2.5 In 1990, with Bank assistance a process was begun to (a) articulate Shanghai's comprehensive reform policies, (b) establish detailed action plans for implementation of reforms, and (c) to link the future public expenditure program and institutional development of Shanghai to the reform program. The main elements of Shanghai's proposed reform program are in the areas of enterprise reform, fiscal and financial reform, and housing, infrastructureand social security reform. Other important related elements of the program included pricing and trade reform, land reform, and labor market reform.

2.6 The integrated economicreform planningprocess was initiated in February 1991 following an International Workshop on the Economic Development of Shanghai sponsored by SMG, the World Bank, UNDP and the Ford Foundation. The workshop's conclusionsrecommended an agenda of reform priorities that were subsequentlydeveloped by SMG into a target timetable of preliminary objectives and measures covering four geneal, interrelated areas of action. This preliminary action plan was further developed by SMG through consultationwith experts provided by the Bank and UNDP in September 1991 into the Shanghai Economic Reform Action Plan. This Plan was subsequently adopted by SMG as its guiding policy framework and recognizedby the Bank as a basis for its future operationsin Shanghai, includingthe proposed project, two tansport projects and one industry project. - 10-

2.7 Mobility of labor and the developmentof a land market are also objectives of the reform program and would have an effect on the demand for new facilities and services. In addition, SMG is placing great emphasison the developmentof , on the east bank of the Huangpu River. This developmentis seen, inter alia, as facilitating enterprise restructuring, as well as urban restructuring in the existing city center, and is therefore regarded as contributingdirectly to the economic reform program goals.

C. ENVIRONMETALCONDOM SIN SHANGI

2.8 The principal environmentalproblems in Shanghai derive largely from the discharge of domesticand industrial wastewaterto the Huangpu River and its , and from the poor managementof solid and hazardous wastes, and of the considerable quantities of nightsoil. There is extensive urban and industrial development in the catchmentarea of the Huangpuclose to its confluencewith the Changjiangand extending many kilometers upstream. Studies completed in late 1992 concluded that, though significant,air pollution was not a major environmentalissue to be addressed through this project. Studies on this issue related to vehicularemissions would be carried out under the soon-to-be-approvedSecond ShanghaiMetropolitan Transport Project.

2.9 Water Quality. At present, 98 percent of Shanghai'spotable water supply is derived by abstraction from the middle and lower reaches of the Huangpu, and 89 percent is abstracted at intakes at or close to Linjiang, in the middle reaches of the Huangpu, where the river is tidal. The Linjiang intake, some 46 km upstream of the confluencewith the Changjiang,was completedin 1987 as the first stage of a program by the ShanghaiMunicipal Waterworks Company (SMWC)to improve the reliability of the water supplyby relocationof the major water abstractionupstream of pollutiondischarges. The longer-term intention was to relocate the abstractionpoint further upstream, at Da Qiao, some 30 km from Linjiang.

2.10 The current abstraction of water from the Huangpu is of the order of 20 percent of the average net river flow of some 315 cubic meters per second (m3/sec)and exceeds the 90 percentile flow. Thus abstractionof this magnitudewould be expectedto cause back flushing of pollution from further downstreamin the river, impactingupon the water quality.

2.11 Water movement in the Huangpu and its effect upon water quality at Linjiang is complex, principally because of the strong tidal influence of the Changjiang, the flow of which is about 100 times that of the Huangpu, and also of the exploitationof the upper Huangpu and its tributariesfor irrigation. Under conditionsof low natural flow in the Huangpu and high tidal influenceof the Changjiang,there can be net upstream flow in the Huangpu for periods of up to several days. As a result of these effects, water quality at Linjiang is influencedby four categoriesof polluting discharge to the Huangpu as follows: (a) dischargesupstream of Linjiang; (b) dischargesshort distancesdownstream of Linjiang that move upstream on a daily basis as a result of the normal tidal regime; (c) discharges further downstreamthat are carried upstream to Linjiang only under more extreme tidal conditions and at low natural flows in the Huangpu; and (d) accidental - 11 -

pollution as a result of spillages or discharges either at factories located along the of banks the Huangpu or from ships (some 7,000 vessels per day pass the Linjiang intake). 2.12 The quality of water abstracted at Linjiangand passing into supply is threat under in respect of the presence in the raw water of chemical species (such as chlorinated organic hydrocarbons)that are toxic or give rise to other health effects, and of chemicals that give rise to taste and to odor problems (such as phenol). These problems are exacerbated by the high concentrations of ammonia in the water that necessitate high dosages of chlorine for effective water disinfection. 2.13 Concentrationsof phenol are measured routinely at a number of locations, includingLinjiang, and data indicate that concentrationsat Linjiang frequently exceed the Chinese standard by a substantial margin and are at levels at which taste problems would occur. There are wastewater discharges close to Linjiang, in particular that from the Wujing Coke Works (10 kIm upstream of Linjiang), which could contain significant concentrationsof phenol.

2.14 A serious problemoccurred at the Wujing Coke Works in March-June 1989 when there were significantdischarges of phenol to the Huangpu. Data for the Huangpu indicate that at Linjiang levels of phenol were up to 10-15 times the Chinese standard during this period. It is important to note that phenol is derived primarily from industry and is the only pollutant of this type that is routinely monitored in the Huangpu, largely because of its particular importance in terms of taste problems in potable water. Its presence on a regular basis must, however, be regarded as indicative of a range of chemicals other of industrial origin that are not routinely monitored but that could also give rise to taste or health problems. 2.15 The problems of water quality in the Huangpu under conditions of natural flow, low even at the proposed abstraction further upstream at Da Qiao, have been recognized for many years. Taihu Lake, to the west of Shanghai (see IBRD Map 25283), is the source of the Taipu River, a of the Huangpu. In 1992, the Bank appraised a project to increase the storage capacity of Taihu Lake, primarily for flood protection purposes, but also as a multipurpose water resource facility. It is now proposed to discharge water, at rates up to 300 m3/secfrom Taihu Lake to the Taipu River at times of low natural flow in the Huangpu (typically about two months per year) to augment flows in the Huangpu and thereby sustain water quality at the abstractionpoint. 2.16 The Government of China has arranged for the construction of the Taipu Pumping Station (for which a sum has already been allocated in the IDA-financedTaihu Basin Flood Control Project-Credit 2463-CHA) of a capcity at least 300 m31sec. Shanghai Municipality(SM) has acquired the right to require discharges of water Taihu from Lake to safeguard the quality of water abstwactedfor supply (para. 5.13). 2.17 Upper Huangpu Basin Management. The Upper Huangpu Catchment a network is of waterways that receive polluting discharges from domestic, industrial and agricultural sources. A protection zone has been declared, covering a 5 kamwide corridor - 12 -

on either side of the river, in which pollution control is more rigorous and development more controlled. However, its effectivenessis limited because it is based mainly on administrative boundaries rather than true catchment area. If water quality is to be sustainedat a level acceptablefor potable supply then pollution control needs to be on an integratedriver basin basis, and coveringall formsof pollution. Efforts are ongoingunder the Taihu Basin Project to establishcoordinated water qualitycontrol measuresfor all three provinces in which the river basin is located (Jiangsu, Zhejiang and Shanghai).

2.18 There are significant discharges of industrial wastewater upstream of the present intake at Linjiangand there is also proposeddevelopment further upstream, notably in SongjiangCounty. In particular, the populationof SongjiangTown is expectedto grow by 36 percent by the year 2000 and this, coupledwith associated industrial development, would substantially increase wastewater flows. Analyses of the industrial data bases covering some 600 major polluters with discharges exceeding 10,000 m3 per year have been undertaken. The analyses have identified 33 most polluting industries, determined on the basis of annual discharge loads covering Chemical Oxygen Demand (COD), Biological Oxygen Demand (BOD), Suspended Solids (SS), Phenols and Oil. At negotiations, SMG provided an updatedprioritized list of the 33 most polluting factories in the Wujing, Minhang and Songiang drainage basins, together with a phased program for the factories to meet the effluent discharge standards by the end of 1996 [pan. 3.5(b)(i)].

2.19 Municipal Solid Waste Management. The overall responsibility for municipal solid waste collection and disposal rests with the Shanghai Environmental Sanitation Administration Bureau (SESAB) within SMG. However, in keeping with Central Governmentpolicy of economicreform, there has been a decentralizationof such responsibilityduring the past few years to the 14 district governments maling up SM. Generally, the streets of Shanghai are commendably clean, but there are serious environmentaland technical problems.

2.20 Of the approximately 12,000 tons of domestic, commercial and mixed industrial wastes generated in Shanghai daily, only 60 to 70 percent of this is formally collected and disposed of, but generally not in an environmentallyacceptable manner. Disposal of the remainder, mainly mixed industrial waste, is largely controlled. The building and construction industry generates a further 3,000 tons a day of debris that requires disposal.

2.21 The current solid waste managementsystem involves a complex system of collection, transfer, and transportationby water and land to the ultimatedisposal sites that are landfills located considerabledistances from Shanghai. The collectionvehicle fleet is old, the downtime of vehicles is unacceptably high, and replacement of vehicles and upgrading of the collection system is overdue. The dock transfer stations and the barge systemare unsatisfactoryfrom an environmentalpoint of view becauseof spillageof waste into the water during loading/unloadingoperations. - 13 -

2.22 Waste tends to pile up during inclementweather conditionswhen the barges cannot be used to transport the waste to the two major landfills, Jiangzen and Laogang. Instead, an emergency disposal site on the banks of the Huangpu is used, and wastewater from this site is a potentially serious source of pollution. Also, the Jiangzen landfill, which is located close to a proposed new airport, is polluting Therefore, nearby water wells. a solid waste transportationand disposal system needs to be environmentally developed that is sound and provides a reliable service under all weather conditions. 2.23 Efficient managementof the collectionand disposal of waste is the Government's impeded by labor and purchasing regulations, resulting in an overemployment problem, and paradoxically, underutilizationof the transportation fleet, and inadequately equipped workshopsand facilities. Managementis also compartmentalized, effective precluding cost and efficientoperations and the developmentand use of an integrated system. management

2.24 Nlghsoil Management. About 6.3 million people, or roughly 80 percent of the urban population, are served by nightsoil and septic tank collection and disposal systems. The remaining 20 percent of the urban population are served by piped sewerage systems, which generallyare combinedsewers in the city center outskirts. and separate sewers in the

2.25 About 2.5 million people use bucket latrines and are responsible emptyingtheir for buckets at designateddumping stations, or in some cases, into septic Public toilets tanks. connectedto septic tanks are emptied on a regular basis (weeldy or monthly), while the tanks serving housing developmentsand corporations are emptied every 2 to 6 months. Nightsoildumping stations are emptied daily. 2.26 The contents of dumping stations and septic tank sludge are collected trucks and in transported to barges for transport to storage facilities in the adjacent for counties subsequent use in agriculture. Becauseof limited capacity of the holding docks tanks at the and the storage tanks in the adjacent districts, substantial quantities discharged of sludge are into the rivers. Also, sludge barges cannot be operated during weather inclement conditions, and during these situations, the sludge has to be discharged rivers. into the

2.27 The present nightsoilmanagement system, responsibilityfor which rests with SESAB, entails a number of health risks during emptyingof buckets at dumping stations, in the handling, collection, transportationand storage of the sludge, and particularly in application of raw nightsoil to agricultural fields. The sludge should be stored for a reasonable period before being applied to fields, but the present treatment practices are inadequatein reducing pathogenicand other microorganisms. 2.28 SMG is committed to a policy of phasing out nightsoil disposal collction and because it is unhygienic and costly, and because demand is declining of the preference as a result of farmers for commercial ferdlizers. In the interim, the management and operation of the service need to be improved, through improved maintance, - 14 -

replacement of old and worn-out equipment, expanded storage facilities, and improved financialand managementinformation systems.

2.29 EnvironmentalManagement. Responsibilitiesfor the various facets of environmentalmanagement rest with a number of agencieswithin SMG. There is potential to improve planning and coordinationamong this multiplicityof agencies within SMG to avoid overlapping responsibilities, and to improve information flow, forecasting and analysis capabilitiesthrough additionalcomputerization and training.

2.30 The water and sewerage companies and other agencies providing environmentalservices would need to keep their tariffs and other service-related user charges constantlyunder review in order to meet the financialobjectives set for them by SMG. In particular, the pollution fees payable by industry for noncompliantdischarges of wastewater and emissions to atmosphere would need to be adjusted to generate an environmentwhere polluting industries would find it more economicto provide pollution controls and waste treatment than to continue to pay the pollution fees. A detailed evaluationand review of the pollution fee systemis the subject of a JGF-financedtechnical assistanceprogram to NEPA.

2.31 In order to fund the massive amounts required for Shanghaito improve its environment and service delivery, the proposed project would also complement the initiativesbeing taken under the ShanghaiReform Action Plan (para. 2.6).

D. PRojEcr FORmATION

2.32 Recognizing that industry is the main source of pollution in China, the Central Government has targeted Shanghai for receiving attention to improve its environment. It therefore approachedthe World Bank for supportin funding a long-term program of investmentsin environmentalprotection in Shanghai. At the same time, SMG recognizes that the sustainedprotection of the environmentis a prerequisite for long-term economicgrowth and considers that appropriate investmentsin environmentalprotection are of the highest priority. Presently however, agencies are required to plan only up to the year 2000. This time horizon is consideredtoo short given that the proposed project investments are expected to be completed by 1998. Therefore, understandings were obtainedduring negotiationsfrom SM that implementingagencies would be authorizedand instructed to adopt a 15-yearplanning horizon for infrastructureinvestments.

2.33 SMG has appointeda leading group to direct the preparation and execution of major urban projects, including the proposed project (para. 4.1). The group has directed that the project be prepared and managedby the ShanghaiMunicipal EPB. The Bankand bilateral agencieswere approachedfor assistance in fundingproject preparation. As a result, the Overseas DevelopmentAdministration (ODA) of the United Kingdom is funding a major Design, Review and Advisory (DRA) consultancyto review the initial preparation work already undertaken by SMG, and to assist in the completion of the remaining work supporting SMG-appointedconsultants. It is also funding the Shanghai Reform Action Plan (para. 2.6), which would provide advice and assistance to the - 15 -

ShanghaiFinance Bureau (SFB) toward improving the financial managementof SMG. A Japanesegrant is supportingthe initial project preparationof the Solid Waste and Nightsoil Management component, and Norway is supporting a Hazardous Waste Management Study. AIDAB is supporting the preparationof the ShanghaiEnvironmental Master Plan. The CanadianInternational Development Agency Incorporated (CIDA Inc.) is supporting the developmentof two systems: (a) a strategic planning information system and (b) a water supply managementinformation system. The terms of reference for (a) the Solid Waste and Nightsoil Management, (b) the Hazardous Waste Management, and (c) the Shanghai Environment Master Plan studies are included in the Selected Documents and Data Available in the Project File (A=enx 1a. - 16 -

3. THIEPROPOSED PROJECT

A. PRoJEr OBjEcivEs

3.1 The principalobjective of the projectis to provide a sustainableenvironment for the long-term economic and social development of Shanghai, while providing a competitiveframework for industrial growth. In particular, the project would focus on ensuring an adequatesupply of potable water and halting the rapid deteriorationof surface and groundwaterquality in Shanghai. Specificobjectives of the project are to: (a) provide safe drinking water;

(b) identify and control sources of pollution;

(c) expand water quality monitoring;

(d) improve municipalsolid waste and nightsoil management;

(e) improve municipal,environmental and utilitymanagement and finances; and

(f) support training, feasibility studies, and future investment project preparation.

3.2 The objectivesof the project all contribute to protecting the Huangpu River and its tributaries, the principal source of water used by Shanghaicitizens and industry. Unacceptable water quality at current intakes necessitates the relocation of the main municipalwater intake. The new intake itself would soon become unusable were not a number of complementaryinvestments undertaken to protect it. These include sewerage systemsin Wujing and Minhang districts and Songjiangcounty, those areas closest to the new intake site, to divert and treat wastewaterflows; improved handling of nightsoil and municipal solid waste to end direct dumping in the river and leaching from landfills; expandedwater quality monitoringto allow more rapid response to impendingproblems; and institutional strengthening to provide municipal managers with the information and skills needed to sustain improved water quality.

B. PRoJEn DESCRPTnON

3.3 The projectwould comprisefinancial and policy initiatives,and planningand managementreforms, supported by an investmentprogram of environmentallyoriented capital works and related institutionalstrengthening. The financial and policy initiatives developed as part of project preparation would focus on: (a) improving operational - 17 -

efficiency of urban services; (b) mobilizingresources through tariff increases and service charges; and (c) long-tenn environmentalplanning and investmentprograms. A summary description of the various project componentsis given below. A detailed description is given in Annex 3.

3.4 The investmentprogram would comprise the following project components (PCs). The indicated costs include physical and price contingencies. (a) PC1-Drinking Water Quality Protection ($291.7 million). The constuction of a major raw water supply system for SM, including an intake on the Huangpu River at Da Qiao (about 5.4 million ml/day capacity),pumping stations, multiple-barrellow-pressure supply main (about 25 km multiple-barrel culverts varying from 3.25m x 3.75m to 2.2m diameter), surge protection, telemetry and controls, selected improvements to the existing treatment facilities and distribution network, and the strengtheningof operational and financial procedures. (b) PC2-Upper Huangpu Catchment Pollution Control ($64.6 million). The protectionand improvement of waterquality at the newDa Qiaointake and conveyorsystem through the constructionof wastewaterconveyance systemsin Wujingand Minhangneighborhoods, including the provisionof secondaryand teriary sewers. (c) PC3-SongJiang Wastewater Pollution Control ($38.9 million). The protectionand improvementof waterquality at the new Da Qiaointake and conveyor system through the extensionof the domestic and industrial wastewatercollection and treatmentfacility in SongjiangTown, including provisionfor systemconnections.

(d) PC4-Pollution Sources and Water Quality Monitoring ($4.7 million). The constructionof a waterquality monitoring laboratory at the new water supplyintake, together with associatedsampling and analyticalequipment to monitorquality in the Upper HuangpuCatchment.

(e) PCS-Municipal SolidWaste and NightsoilManagement ($43.9 million). The developmentof appropriatesolid waste and nightsoilmanagement strategies,and investmentsin mechanicalplant and civil works for system improvements. (f) PC6-Institutional Strengthening through Technical Assistance and Traning ($12.8million). Supportfor and strengtheningof environment, financialand utilitymanagement and operations,training, preparation of a Shanghai Water Supply Master Plan, geographiciformation systems developmentin supportof plannig and the ShanghaiEconomic Reform ActionPlan, water supplyand wastewatermanagement and environmental monitoring,istitutional strengtheningof SESABincluding the management - 18 -

of workshopsand landfill operations, feasibility studies and future project preparation. Two key environmentalstudies currently under way and financed by others, namely the ShanghaiEnvironment Master Plan and the Hazardous Waste Management Study, would also be implemented in paadel.

3.5 The following assurances and understandings were obtained during negotiations:

(a) PCI-Dnkldng Water Quality Protection: rf) the understanding that SMWC would, in planning the investments,make adequateprovision for the eventualexpansion of the Da Qiao intake and conveyorto Linyiang,in order to caterforpossible abstractionsto meetfuture demandbeyond the existing capacity of 5.4 million m'Iday; and rii) the assurance that SMWC would, under its normalprogram of works, and within a timeframe acceptableto the Bank, compkte the following items of work, which are outside of the scope of this comnponentbut which are essential to ensure the compkte integrityofproject investments: (a)Longxi TreatmentWork; (b) trunk main program (c) Linjiangpumps and main to Yangsi, (d) Linjiang Teatment Works; and (e) Linjiang Tunnel and Shafts;

(b) PC2-Upper Huangpu CatchmentPollution Control: r) the assurancethat SMG would cause the 33 most polluting industries to complete process changes, or constructpretreatment facilities, within a time-bound Action Plan agreed with the Bank, in order to meet relevant dischargestandards; and ri) the understandingthat SMG would cause industriesin Wujing and Minhang neighborhoodsto pretreat as necessary and make connectionsto the 'northern trunk sewer, when it is completed;

(c) PCS-Municipal Solid Wasteand Nightsoil Management. (i) the assurance that SMG wouldinplement a time-boundAction Plan, agreed withthe Bank, for connectng existing septc tank and nightsoilfacilites to the city and countysewerage systesu, and rii) understandingsthat SMG would (1) cause SESAB to, before December31, 1996, assume responsibilityfor providing collection and saife disposal services for nonhazardous industrial solid wastes on request from industries, and (2) ensure that treatment and disposalfacilitiesfor nonhazardousindustrial waste have been established before the temporarylandfills are closed down.

(d) PC6-Instiulonal Strengthening through Technical Assistance and Training: the assurancethat SMG would implementa tme-bound Action Plan, agreed with the Bank, forprocurement, management,inplementaton and monitoringof this component. - 19 -

C. PROJECr CoSr ESIATES 3.6 The estimated cost of the project, including contingencies, is Y 3,972.5 million ($456.6 million). The foreign exchange componentis Y 1,698.7 million ($195.3 million), or about 43 percent of project costs. A summary of cost estimates is given in Table 3.1. Detailed cost estimates are provided in Annex 4.

Table 3.1: SummARYCosr ESsnmAs

S Total * million 3 jjllg 2 Foreign Local Foreign bass Total Local Foreign Total exchange coat.

Drinking wvter qualty protection 972.4 1,000.3 1,972.7 111.8 115.0 226.8 Upper Buangpu catch- 50.7 64.6 meat PC 221.4 193.6 415.0 25.4 22.3 SongJiag vastavater 47.7 46.7 13.6 PC 114.4 139.1 253.5 13.1 16.0 Water quality mai- 29.1 54.9 8.3 toriag 10.1 23.7 33.8 1.2 SolUd vast & night- 2.7 3.9 70.1 1.1 aoil ma-ag _ nt 233.5 51.2 284.7 26.9 5.9 32.8 18.0 TA, tra4i4ig & studies 23.6 70.8 9.3 94.4 2.7 6.1 10.8 75.0 3.1 Total Baseline Costs 1.575.4 1.47L.7 . 3.054.1 1l.l 170 0 ZSl.A 48.4 100.0 Physical contingencias 185.0 164.0 349.0 21.2 18.9 40.1 47.0 Price contingencies 513.4 11.4 56.0 569.4 59.0 6.4 65.4 9.8 18.6 Total Prosect Costs 2273.0 1.698.7 3.972.5 261.3 195.3 456.6 42.8 130.1

3.7 Project cost estimates are based on the DRA (para. 2.33) consultants' engineering designs, reflecting price levels prevailing in June 1993. The unit prices derived were through a reconciliation of data from the following sources: (a) quotadons obtained from manufacturers and supplicrs; (b) prices of goods and works from contracts recent in China; (c) constructioncosts accordingto prices publishedby the Government, adjusted for inflation; and (d) the findings of a 'Cost and Rates Study' commissionedby the Bank during project preparation, funded partly by the Bank-administeredAustralian Trust Fund. Physicalcontingencies of 15 percent have been applied to base costs components, for most except for the Drinking Water Quality Protection component where 10 percent has been adopted to reflect the confidencelevel of the estimated cost of this component. To provide for inflation during project implementation,the followingannual escalation rates have been applied: for local expenditures (excluding civil works), 5.45 percent for the second half of 1993, 12 percent for 1994, 9 percent for 8 percent 1995, for 1996, 7.2 percent for 1997, and 6.5 percent for 1998; for civil works, 15 percent for the second half of 1993, 20 percent for 1994, 12 percent for 1995, 10 percent for 1996, and 8 percent for 1997-98; for foreign expenditures,0.65 percent for the second half of 1993, 1.2 percent for 1994, 2.4 percent for 1995, 3.2 percent for 1996, 3.4 percent for 1997, and 3.2 percent for 1998. Project management and engineering overhead costs of 12 percent are also included. - 20 -

D. FINANCINGPLAN

3.8 The financingplan for the projectis shownin Table 3.2.

Table 3.2: PRoJEcr FNANCING PLAN ($ million)

Source Local Foreign Total Percentage

Shanghai Municipality 261.3 35.3 296.6 65.0 IBRD 0.0 160.0 160.0 35.0

Total 261.3 195.3 456.6 100.0

3.9 The loan wouldbe madeto the People'sRepublic of China. The loan of $160 millionequivalent would be for a 20-yearterm, includinga 5-yeargrace periodat the Bank'sstandard variable interest rte. Theproceeds of the loanwould be onlentto SM on termsand conditionssatisfactory to the Bank,at 90.63percent of the Bank'sstandard variableinterest rate for a 15-yearperiod including5 years' grace, and a commitment chargeat the Bank'sstandard rate, withSM bearing the foreignexchange risk. SM would onlendthe proceedsto SMWC, the SongjiangWastewater Treatment Plant (SWWIP) and the Shanghai SewerageCompany (SSC) at the Bank's standardvariable interest rate for a 15-year period including a 5-year grace period. These agencies would bear the commitment charge and the foreign exchange risks. Assurances wre obtained during negotations on the onlending temzs and conditions between SM and SMWC, SSC and SWWTP. E&cep:for PC5-MwucipalSolid Waste and Mghtsoil Managementcomponent, which would befuy financedfrom local budgetaryallocations, SM would make the loan proceeds available to the remaining implementing agencies on a grant basis through budgetary allocations. The executionof subsidiaryloan agreements between SM and (a) SMWC, (b) SSC, and (c) SWWTP, satisfactoryto the Bank, is a condition of effectiveness. A separate Project Agreement,including operational,financial and monitoringcovenants, would be executedbetween SM andIBRD. Approvalof the Loan Agreementby the StateCouncil is a conditionof loan effectiveness.

E. PROCUREMENT

3.10 Procurementprocedures and arrangementssatisfactory to the World Bank wereagreed with SMG. The Shanghai ntenationalTendering Company (SITC) and the InternationalTendering Company of Beijing(ITC) have been appointed procurement agents for the project. Bothcompanies are experiencedand competentprocurement agents that are familiarwith, and have had recent and relevant experience in, internationalcompetitive bidding(ICB) work on WorldBank Group-financed projects. The tenderdocuments used in the project wouldbe based on the standardbid documentsthat were preparedby the - 21 -

Ministry of Finance and approvedby the World Bank Group. All works and goods would be packaged whenever practical to attract maximum international Prequalification competition. of bidders would be undertaken for all civil works contracts estimated value with an over $10.0 million each and for all goods contracts with an estimated value over $1.0 million each, except for supply of steel plates and Yangshupu chemical equipmentreplacement. Annex S lists the Schedule of Contract Packages and the method of procurement, and Table 3.3 summarizesthe procurement categories procurement and the expected methods. The contract packages and the method of procurement agreed have been with the ShanghaiEnvironment Project Office-SEPO(pam. 4.1). 3.11 Civil Works. There is a total of about $272 million of civil works, of which about $210million (77 percent) would be procured using ICB procedures. Qualified domestic contractors under ICB would be eligible for a 7.5 percent preference in bid evaluation,in accordancewith the Bank's ProcurementGuidelines. be ICB procedureswould used for all civil works conats of estimatedvalue over $10.0 million contacts). (i.e., about eight All remaining civil works are too small, scattered or scheduled to be packaged too far apart to be of interest to foreign firms. Of the remaining works, million about $45 would be awarded through local competitive bidding (LCB) balance procedures and the by other procedures (not Bank financed). The LCB procedures promulgated recently by the Government have been reviewed and approved by Group. the World Bank Interested foreign bidders would be allowed to bid for LCB contracts. contratng Direct (not Bank financed) would be used for contracts to be made with power company the local to provide electricitysupplies to the pump stations, buildingsand facilities under the project and for conveyor contracts at railway crossings. 3.12 Equipment ad Materials. There is a total of about $104 million equipmentand of materials in the project, of which about $68 million (66 percent) would procured using be ICB procedures. Qualified domestic bidders would be eligible preference for a in bid evaluation of 15 percent or the actual customs duties and import payable by a tames nonexempt importer, whichever is less. All equipment and materials individual contract with values of over $200,000 equivalent would be procured using ICB procedures. Equipment and materials with individualcontract values of $200,000 or less would be awarded using LCB procedures acceptable to the Bank. $50,000 Contracts costing or less up to an aggregate amount of $0.5 million would be procured international through or local shopping procedures consisting of at least three price quotations. 3.13 Technical Assistance and Training. All consultants retained under project would be recruited the in accordance with the World Bank's "Guidelines for the of Consultantsby Use World Bank Borrowers and by The World Bank as Executing Agency- August 1981." Local consultants and counterpart staff would be engaged or assigned by the concerned agencies of SMG. Consultants have already been retained to provide for project preparation and design (pam. 2.33). SMWC has signed a contract with a consulting finn for the construction management and supervision of worls to be constructed under PCI-Drinking Water Quality Protection. The Terms of Reference for this and the other technical assistance and training assignmentsare in the Project File. typical terms of A reference for institutional strengthening of the Shanghai Municipal - 22 -

Table 3.3: PRocuREMNT ARRANGEMENTS ($ million, includingcontingencies)

Procurement method Project Component ICB LCB Other NBE Total

Civil Works

Water Supply 169.8 6.9 - 5.9 182.6 (47.6) (1.9) (49.5) Water Quality Monitoring - - - 1.9 1.9 (0.0) Wastewater 40.2 38.4 - - 78.6 (11.3) (10.7) (22.0) Solid Waste/Nighteoil - - - 9.1 9.1 (0.0) Equipment & Materials

Water Supply 56.5 1.5 - 4.1 62.1 (56.5) (1.5) (58.0) Water Quality Monitoring 1.7 0.3 - - 2.0 (1.7) (0.3) (2.0) Wastewater 10.1 - - - 10.1 (10.1) (10.1) Solid Wastehtight.oil - - - 30.0 30.0 (0.0) Other

Land Acquisition - - - 15.0 15.0 (0.0) InstitutionalDevelopment, - - 12.8 - 12.8 Studies and Training (12.5) (12.5) Implementation Support - - 5.9 46.5 52.4 (5.9) (5.9)

Total 278.3 47L1 18.7 112.5 456.6 (127.2) (14.4) (18.4) (160.0)

Note: Figures in parenthesisare amountsto be financedby the Bank. Other procurement methods include international and local shopping (for the industrial pollution component and small equipment for water quality monitoring, solid waste), and consultant services under technical assistance and traiiing. NBF = Not Bank financed.

Government's strtegic planning activities is shown in Annex . Implementation of technical assistance and training would be in accordance with a time-basedAction Plan, which was agreed at negotiations. - 23 -

3.14 Review of Bid Documents and Contracts. All civil works packages (about eight contracts, 78 percent of the works) in excess of $10 million and all equipment materials and contracts (about five contracts, 56 percent of the equipment and materials) $1 million of or more, and all consulting services contracts would be subject to the prior Bank's review. Other contracts would be subject to selectivepostaward review. 3.15 Prequalification. The StandardPrequalification Document for the Republic People's of China, issued by the Ministry of Finance and approved by the World Group, Bank would be used for preparing the invitation document. The ShanghaiEnvironment Project Office, SITC and ITC hold copies of this document(together with standard bidding documents for ICB and LCB works and goods invitations).

F. DI9uRsEmEr 3.16 The proposed loan of $160 million would be disbursed over a period of six years, as follows: 1. Civil Works (except PC4 $ 68.0 million 28 percent of expenditures & PC5) 2. Goods (except PC5) $ 66.6 million 100 percent of foreign expenditures, 100 percent of local expenditures (ex-factory cost), and 75 percent of local expenditures for other items procured locally 3. ImplementationSupport, $ 17.4 million 100 percent of expenditures InstitutionalDevelopment, Studies and Training 4. Unallocated $ 8.0 million Total S160.0 million 3.17 To expeditedisbursements, a Special Accountwith an authorized allocation of $9.0 million, representing about four months' average disbursements, would be established. It would be replenished monthly or whenever the Special Accountis drawn down to 50 percent of its initial value, whicheveroccurs first. Disbursementsfor training and contracts for civil works and goods valued at less than $300,000 would be made the basis on of Statements of Expenditure (SOE), to be certified by SM. Documents supporting the SOEs would be retained by SM and made available for inspection during the course of Bank supervisionmissions. All other disbursementswould be made against fully documented expenditures. A Scheduleof Disbursementsis given in Annex7. 3.18 Becauseof the relatively limited amount of IBRD funding that is proposed to be provided, SMG has decided to finance the following items included in the project, from its own sources: civil works of PC4-Pollution Sources and Water Quality - 24 -

Monitoring; and civil works and goods of PC5-MunicipalSolid Waste and Nightsoil Management. In view of the early start expected to be made by SM on some works, retroactive financingof up to $15.0 million would be provided for expendituresincurred from April 15, 1993, covering initial civil works, goods and services contracts. Constructionwork on preliminary works not financed by the Bank commenced in early 1993. The project is expectedto be completedby June 30, 1999, and, therefore, the Loan Closing Date would be June 30, 2000.

G. LAI AcQusoN AD RESEriMENT

3.19 Three project components would require the acquisition of land and resettlementof current users. These are the pump station and conveyor for the Da Qiao intake, the Wujing/MinhangTrunk Wastewater System, and the sewerage system and treatmentplant in SongjiangCounty Town.

3.20 Much of the land for the Da Qiao conveyor was acquired in 1985 and the affected people resettled at that time. The remaining land needing to be permanently acquired for this componentconsists of one parcel of 4.7 hectares at the intake site and an additional 1.5 hectares for an access road and 3 branch conveyors. The land to be acquired containsthe dwellingsof 87 families with some 350 members. Crops are planted on the land needing to be acquired. In addition, 295 hectares of farmland would emporarily be needed during constructionand later retuned to farmers. All such uses would be compensatedand all affected families would be resettled within the boundaries of their current village. Farmers losing land would be reemployed by SMWC or local commercial or industrial enterprises. SMWC would be responsible for funding land acquisition and resettlement, and affected counties would implement that resettlement. SMWC has prepared a resettlementplan acceptable to the Bank that gives details on the affected people, their losses, and how those losses would be compensated to ensure no adverse impact on their standardof living.

3.21 The constructionof the Wujing/MinhangTrunk WastewaterSystem would require only limited land acquisitionand no resettlement, as most of the work would be undertakenunderground as a tunnel, using current microtunnelingtechniques mainly under public roadways. The SongjiangWastewater Treatment Plant extension would require the acquisition of approximately 10.2 hectares of land. No residences and only one farm building are located on the main 10-hectareparcel of farmland, so losses there would be entirely of crop output. A second parcel contains a vehicle workshop, which would be relocated. Songjiang County expects to absorb 20 percent (approximately25 people) of the displacedfarmers in their operations, while the remaining 80 percent (or 112 people) would be reemployedthrough the SongjiangCounty Labor Bureau. Songjiangcounty has developeda resettlementplan acceptableto the Bank.

3.22 Prior to negotiations, SMG forwarded to the Bank, an updated and acceptableland acquisitionand resettlementplan. The Land Acquisitionand Resettlement Plan is presented in Annex 8. Its implementationwould be monitoredby SEPO. During negotiations,assurances were obtainedfromSM that it would cause its concernedagencis - 25 -

to (a) carry out resettlementof persons affected by the project in a manner and according to a schedul which is satisfactoryto the World Bank; and (b) report on the progress of carrying out the resettlementplan using monitoring indicators acceptable to the Bank.

H. ENVIRONNMTAL IeACT ASSESSMENT

3.23 The proposed project is a Category B project under the Operational Directive classification and would have an overall positive impact. Relocation of the water supply intake would ensure that the quality of water abstacted is improved by at least one class (Chinese water quality standard, Annex 2), from Class IV to Class m. Specific pollution control components of the project would remove substantial pollution loads and thus similarly improve water quality in the receiving watercourses. Chinese regulations require the preparation of an environmental assessment (EA) at the time of project design. SMG brought to negotiations a copy of the comprehensive Environmental Assessment Report, approved by SM and NEPA. The EA report was reviewed by the World Bank and found to be satisfactory (Ann)ex9. Although the balance of the project in environmental terms is decidedly positive, some negative impacts have been identified during the EA process and mitigation measures developed. In particular, appropriate arrangements have been made for the beneficial use, wherever possible, of construction spoil, and for the use in agriculture of sludge from wastewater treatment. Similarly, the siting of wastewater treatment plants is such that there is the minimum impact upon living conditions and that the discharges are to watercourses where the residual pollution load may be assimilated without significant detriment to local water quality.

L PROJcCr MONrORING,REPoRING AM SupEvISIoN

3.24 The proposed project implementation schedule is shown in Annex 10. The proposed monitoring indicators for environmental improvement are included in AnneLli. Financial monitoring indicators for SMWC and SWWrP are appended to the financial projections for those entities, in Annexes 14 and 15, respectively. The format and content of project progress reports and project impact monitoring indicators and methodology were discussed and confirmed during negotiations. Monitoring of the PC6-Institutional Strengthening and Training Component would be in accordance with the Action Plan agreed at negotiations.

3.25 Project impact would be monitored with respect to the objectives, for which the key indicators are summaized below:

(a) enhance drinking water quality: Indicatr. % Achievement of Class m standard;

(b) identify and control sources of pollution: iator. % controls on main polluters, and % system connections;

(c) expand water quality monitoring: Indicatr. % response time and deviation from quality standards; - 26 -

(d) improve municipalsolid waste and nightsoil management: Indicator. % landfill new usage, and % nightsoil service reduction;

(e) improve municipal,environmental and utility managementand finances: Indicato. Financialperformance criteria;

(f) support training, feasibility studies, and future investment project preparation: Indicat . % Achievementof ActionPlan.

3.26 Reports on project progress would be sent to the World Bank quarterly, commencingJuly 1, 1994. The last progress report of each year would include the latest project cost estimateand financingplan for the followingyear, including SM's approved budget for local counterpartfunds. A project completionreport, reviewing the planned objectives and the achievementsof the project, includingcosts and benefits derived, and performance and contributionof all parties associated with project execution, would be prepared by SM and submittedto IBRD within six months of the Closing Date.

3.27 To facilitateimplementation, a Project Launch Workshopwould be held in early 1994. Project supervision requirements would be based on our experience with supervisionof the ongoing ShanghaiSewerage Project. Bank supervision would require about 160 staff-weeksover the life of the project, of which about 76 staff-weekswould be at headquarters for the review of progress and audit reports, procurement actions and correspondence, and 84 staff-weeks would be in the field. More extensive supervision would be required during the first three years of the project during which time the technical assistancewould be made operationaland many procurementcontracts would be tendered, evaluated and awarded. Supervision would be provided by environmental engmeeringand financial staff, as well as other specialistsas needed.

- 27 -

4. PROJECT MANAGEMENT AND IMPLEMENTATION

A. PRoJEC MANAGEMENT

4.1 The Shanghai Major Construction Project Leading Group oversees the preparationand executionof all major urban projects on behalf of SMG. It is headed by a vice-mayorand supportedby the Vice Secretary-Generalof SMG and the Director of the ShanghaiConstruction Commission (SCC) as group deputy leaders, and supportedby the major governmentagencies concernedwith urban servicesand environmentalmanagement. An organizationalchart of the ShanghaiMunicipal Government is presented in Annex 12. The Group designatedthe ShanghaiMunicipal Bureau of EnvironmentalProtection as the agency responsiblefor managingthe proposed project. This Bureau organizedand staffed the Shanghai Environment Project Office (SEPO) to prepare and execute the project, includingthe supervisionand monitoringof contracts,maintenance of project records, and the submissionof progress reports to the Bank (paras. 2.33 and 3.26). SEPO has created and staffed subproject offices in each of the following implementing agencies: (a) Shanghai Municipal Waterworks Company (SMWC); (b) Songjiang County (for the construction of a wastewater treatment plant); (c) Shanghai Environmental Monitoring Center (SEMC); (d) ShanghaiEnvironmental Sanitation Administration Bureau (SESAB); (e) Shanghai Sewerage Project ConstructionCompany-SSPCC (for the construction of wastewater conveyance systems in Wujing and Minhang districts); and (f) Shanghai Academy of EnvironmentalSciences (SAES).

4.2 SEPO has interactedwell with the DRA Consultants(para 2.33), resulting in the project being prepared satisfactorilyto date. Assuranceswere obtained during negotianonsfromSM ta SEPO andits subprojectoffices wouldbe maintainedthroughout implementationwith stqffing andfitons satifactory to the Bank.

4.3 Day-to-dayconstruction supervision would be provided by local consulting engineers, assistedby internationalconsultants. SMWC has engageda consultingfirm for supervising the works to be constructed under PC1-Drinking Water Quality Protection component (para. 3.13). The consultants' duties would include verification of compliance with specificationsfor works and goods, supervisionof construction, quality assurance of constructionmaterials and major items of plant and equipment,testing and commissioning of completed works and advice on taining of staff to operate the completedfacilities. - 28 -

B. IMPLEMENrATONRESPONSIDIrEES 4.4 Implementationof the individualcomponents would be carried out by followingagencies: the

(a) PCI-DrinkingWater QualityProtection-Shanghai Municipal Waterworks Company(SMWC);

(b) PC2-UpperHuangpu Catchment Pollution Control-Shanghai Sewerage ProjectConstruction Company (SSPCC) on behalf of and as agent for the ShanghaiSewerage Company (SSC);

(c) PC3-SongJiangWastewater Pollution Control-Songjiang Wastewater TreatmentPlant (SWWTP);

(d) PC4-Pollution Sources and Water Quality Monitoring-Shanghai EnvironmentalMonitoring Center (SEMC);

(e) PC5-Municipal Solid Waste and Nightsoil Management-Shanghai EnvironmentalSanitation Administration Bureau (SESAB); and (f) PC6-InstitutionalStrengthening through Technical Assistance and Training- ShanghaiMunicipal Government (SMG). SMGhas confirmedthat the implementingagencies would be vestedwith ownershipof assetscreated all throughthe project, exceptfor SSPCC,which would implement on behalf of the ShanghaiSewerage Company (SSC).

4.5 Shangai Municipal Waterworks Company (SMWC). established SMWC was in 1952 as a state-ownedenterprise company, taking over the assets and liabilitiesof a foreign-ownedcompany that was createdin 1881to seve about people. 170,000 Upon the creationof the People's Republicof Chinain 1949, the servicearea coveredabout 2 137 k1I, servinga populationof around 4.4 million, with a peak water productionof about0.6 millionm3/day. In 1991,the servicearea covered375 2 the peak kIn, and dailyproduction was 4.7 millionm3, serving about 8 millionpeople. Annual water salesin 1991were 1,241 millionm3. 4.6 SMWC reports to the Shanghai Public Utilities Bureau, which responsibility, has overall, for water supplyplanning and the issuanceof licensesfor water extractionby major water users. SMWCsupplies water mainlyto the make five districtsthat up the inner core of the ShanghaiMunicipal area and has the necessarypermits abstractwater to from the HuangpuRiver. Other countieswithin SMG typicaly have their own water supplyarrangements, sometimes purchasing water in bulk from SMWC. 4.7 The organizationalstructure of SMWCcomprises a managementteam of five officers-a General Manager,throe Vice-Managers and a ChiefEngineer. Up to 49 units, - 29 -

includingdepartments and offices, water treatmentplants and a training center, report to SMWC management. A number of other companiesand departmentsperform functions for SMWC. The ShanghaiWater Pipeline ConstructionCompany, which is one of a group of companies also reporting to the ShanghaiPublic Utilities Bureau, is administeredby SMWC, but not as a subsidiary. It installs new pipes on behalf of SMWC and maintains water pipes in . The ShanghaiWater Supply Equipmentand Engineering Company, which is a subsidiaryof SMWC, maintainsthe water supply network of Pudong and also makes water meters and water purification equipment for domestic and industrial use. There is also a separate water meter factory, which is a department of SMWC.

4.8 Other Water Supply Companies. The following three companies in the field of water supply were establishedin 1992: (a) ShanghaiRaw Water Company, which has taken over the followingassets from SMWC: (i) Linjiang intake works, pumps and pipeline, and (ii) YuepuWater TreatmentPlant; (b) LinqiaoWater Company,which would build a water treatmentworks, partly financed by the Government of Italy, to service a part of the Pudong area; and (c) ChangjiangReservoir Company, which presently supplies water to SMWC's Huepu Treatment Plant, and would also supply the new works at linqiao when a conveyancehas been constructed. The rationale for the establishmentof these companieswas to facilitateaccess to the stock market in order to raise funds for the constuction of the facilities. SMGconsiders that as the above companieslack construction or construction-managementexpertise, they should not be assigned any implementation responsibilitiesunder the project.

4.9 Shanghai Sewerage Project Construction Company (SSPCC). SSPCC was establishedin 1986 to implementthe IBRD/IDA-financedShanghai Sewerage Project (Loan 2794-CHA/Credit 1779-CHA) on behalf of SSC (established in 1987). Organizationally,it comes under, and reports to, the ShanghaiMajor ConstructionProject Leading Group (para. 4.1). SSPCC's Manager, a senior engineerappointed by the Bureau of MunicipalEngineering Administration of Shanghai,is a memberof the Leading Group. Two deputy project managers, one technical, the other nontechnical,who are responsible for three and four departments, respectively,report to the Manager. An intemal audit department reports directly to the Manager. Total staff strength is about 300. Physical implementation of the $373 million Shanghai Sewerage Project by SSPCC has been satisfactory.

4.10 Songjiang Wastewater Treatment Plant (SWWTP). SWWTP, a state- owned enterprise established in 1993, presently disposes of about 50 percent, or about 27,000 tons, of the maximum daily average of the domestic and industrial waste of SongjiangTown. Under the project, SWWTP would be responsiblefor the construction, commissioning and operation of an extension of its existing sewerage system and wastewater treatmentworks in SongjiangTown.

4.11 Shanghai EnvironmentalMonitoring Center (SEMC). SEMC, which was establishedin 1981, is part of a national organizationresponsible for the determinationof environmentalstandards and the enforcement of environmentalregulations. It reports to the Shanghai Municipal Bureau of EnvironmentalProtection. SEMC is responsible for - 30 -

environmentalmonitoring of ShanghaiCity. Its major functions are: (a) environmental planning monitoring;(b) collecting and analyzingenvironmental monitoring data preparing and environmentquality reports; (c) providingtechnical and functionalguidance to districtand countymonitoring stations; (d) carryingout studiesfor environment assessment quality and monitoringtechnology; (e) organizingenvironmental investigations and offering technical arbitration in pollution conflicts; and (f) defining and revising environmentalstandards and regulationsfor Shanghai. 4.12 SMECis headedby a directorand has a staff of about160, includingsome 120 technicalstaff. Its organizationalstructure includes 13 departments, of whichnine are technical, and the balance,administrative and materialmanagement. It has experiencein contractingfor both civil worksand equipmentpurchases.

4.13 ShanghaiEnvironmental Sanitation Administration Bureau (SESAB). SESAB is a line organizationwithin SMG, reportingto SCC. It also has direct links to the Shanghai Planning Commission, which reviews and approves its annual budget. 4.14 The reponsibility for collectionand deliveryto transfer stations waste of solid and nightsoilwas decetralizd to the 14 Districts and 6 Countygovenments in 1985, and SESABis thereforenow directlyresponsible only for bulk transportationof wastesand ultimatedisposal at landfillsites. However,it continuesto providetechnical and functionalguidance to the districtand countysanitation bureaus.

4.15 SESAB'sorganizational structure comprises a centrl, or municipalbureau with 155staff, supportedby a numberof "mid-grade'and 'subordinate' unitswith a total of approximately12,550 staff. These units, of which the main ones are the Water TransportCompany, the TruckTransport Company, and WaterEnvironmental Sanitation Administration,are independentfor accountingpurposes. SESABand its mid-gradeand subordinateunits have hadexcperince in planningand implementingtheir past investment programs. The organization, therefore, is considered capable of planning and implementingthe sanitationinvestments proposed to be includedin the project.

C. STATUSOF ENGNERING

4.16 Project preparation and design work has been undertakenjointly by internationaland local consultantsand design bureaus to a high standard, and is well advanced. ODA of the British Governmentprovided financial support to SMGin this connection.Work on the finaldesign and bidding documents preparation for the Drinking WaterQuality Protection component are scheduledto be completedby the end of 1993. For the remainingcomponents of the project, this work is scheduledto be completed mid-1994. by SMG broughtto negotiations(a) the preliminaryengineering design of the Wujing/Mhang NorthernTrunk WastewaterSystem in connectionwith PC2; and (b) a study, satisfactoryto the Bank,of the assimilativecapacity of the receivingwaters of the proposedBailonggang wastewater outfall for this system(para. 7, Annex3). - 31 -

5. FINANCE

A. FINANCIALMANAGEMENT

5.1 Since 1978, economic reforms have evolved gradually toward an increasinglydecentralized financial system in China. Most of the industrialproduction and prces have become free of govenment control, and enterprises have to purchase most of their inputs at market prces. Enterprse reform has become a high priority of the Govenment. In this connection, the guiding principles of the recently promulgated 'regulations on transforming the management mechanisms of state-owned industrial enterprises' are to separate government administration from enterprise management, increase the autonomy and accountability of state-owned enteprises, and increase competitionand market-orientation. Ihe reform efforts to improve economicpolicies and enterprise efficiencies are essential for sustaining both economic development and environmentalprotection in the longer run.

5.2 In order for the enterprises to assume their increased responsibilities efficiently and effectively, strengthening of their financial management is essential. Toward this end, the proposed project would support the applications of modern management techniques and human resource development for SMWC, SWWTP and SESAB. Concurrently, ODA of the United Kingdom is supporting the financial strengtheningof the ShanghaiFinance Bureau (para. 2.33).

B. ACcOuNTING

5.3 Different accounting systems are used by enterprises (autonomous units), constructionunits (whichexecute investmentprojects) and local governmentdepartments, in accordance with regulations prescribedby the Ministry of Finance.

5.4 Enterprise Accounting. All the state-owned enteprises in China have followed a unified enterprise accounting system on an accrual basis. The accounting framework was developedin the context of a highly centralizedplanned economy. With a view to complementingthe ongoingefforts to deepen reforms in the financial sector and enterprise management, the accountingsystem in China needed modemizationto permit satisfactory financial management in an increasingly decentalized and market-oriented environment. As a first step, the general principles of enterprise (the term to include public utilities such as water and sewerage companies) accounting were revised by the Ministry of Finance, and introduced from July 1, 1993. As part of the reforms, enterprises are also required to produce five reports for submission to Government: balance sheet, income statement, source and applicationof funds, profit distribution, and details of main business. The first two reports are required to be produced monthly, the - 32 -

remainder on an annual basis. SMWC and SWWTP have adopted the new accounting reporting formats. and

5.5 Government Accounting. The regular government reflect department accounts expendituresincurred against budget allocationsby SM. Accounting a decentralized is handled in manner through transfers to subunits from which actual expenditures made and recorded are on a cash basis. Accounts are kept at all levels, and each reflects in subunit its accounts the budget allocation it receives from the unit above. 5.6 Project Accounts. Separateproject accounts would be SSPCC, SEMC maintainedby and SESABwhen implementingtheir respectiveproject components. These accounts would be set up in accordance with the Government State Construction Unit Accounting System. The system is comprehensive, and is adequate for recording works under construction and financial resources expended, in order to determine asset values and fixed liabilities inCurred upon completion of the projects. Project-related expendituresincurred by SMWC and SWWTP would be reflected within their respective entexpriseaccounting systems.

C. AUDm 5.7 As with other World BankGroup-financed projects in China, the Foreign InvestmentAudit Bureau of the State Audit Administration(SAA), established in 1983, wouldhave overall responsibility for auditing accounts concemingthe project. The actual auditing work would be conductedby the ShanghaiMunicipal Audit Bureau under SAA's supervision(confirmed during negotiations). This arrangement negoniaions, is satisfactory.During assuranceswere obtained that thefollowingannual audits would be submitted to the Bank within sa monthsafter the end of thefinancial year: (a)audit of theproject accountsmaintained by SEMC,SESAB and SSPCC;(b) audit of the Special audit of SOEs, Account; (c) and (d) auditsof thefinancial statements of SMWC,SSC and SWWIP.

D. MucIaaL FINANCE

5.8 Shanghai Municipality has two types of finance, extrabudgetary. budgetary and The revenues and expendituresrecorded on municipalbudgets are officiallysanctioned by the Center. The budgetaryrevenue is provided levied on businesses through taxes operatingwithin the ShanghaiMunicipal area. Whilethe base rate of thesetaxes and are set by the CentralGovernment, SM has substantialdiscretion to give tax exemptions,and is fully responsiblefor the administration extrabudgetary of the taxes. Most revenuesand expenditures consist of specialfees to enterprises for capitalexpenditures. andare used Budgetaryand extrabudgetary accounts are not consolidated;the accountsof Shanghai'spublic service corporationsare Iept on an therefore, enterprisebasis and, not consolidatedinto the municipalaccounts. Information on revenues the extrabudgetary and expendituresare closelyguarded, and were not, therefore,provided Bank. to the They are said, however,to be at least as large as the budgetarydata. - 33 -

5.9 Table 5.1 provides a summaryof five years (1988-92) of actual budgetary revenues and expenditures of SM, showing, also, the proportion of urban capital and environmentalprotection expenditures. Total revenuesper capita amounted to Y 1,470 in 1991, and represented about 22 percent of Shanghai's GDP. Annex 13 provides projections of SM's municipal finances up to the year 2000, together with some assumptionsunderlying the data. Generally,the projectionshave been based on Shanghai's past performance. However, given the additional accelerated growth projected for Shanghai,and possiblefurther changesthat mightarise out of the ShanghaiReform Action Plan (para. 2.6), the projections should be treated guardedly.

Table S.1: SummARYOF PAsr MuNcI'.L FINANCES (Y billion, unless noted)

1988 1989 1990 1991 1992

Total Revenue Collected 14.7 15.3 15.8 19.2 20.3 Less: Transfers to Center 10.5 10.5 10.9 11.1 10.9 Aggregate Local Revenue 4.2 4.8 4.9 8.1 9.4

Total Expenditures 6.5 7.3 7.6 10.1 11.2 Current Expenditures 3.6 4.3 4.6 7.1 8.2 Capital Expenditure. 2.9 3.0 3.0 3.0 3.0 of which Capital/Urban 1.0 2.0 2.1 2.0 2.5 an Z Total Expenditures 15.0 27.0 28.0 20.0 22.0 of which EnvironmentalProtection 0.1 0.1 0.1 0.1 0.1 as Z Total Expenditure. 2.0 1.0 1.0 1.0 1.0

Nat Income(Loas) (2.3) (2.5) (2.7) (2.0) (1.8)

Transfers from Center 2.3 2.5 2.7 2.0 1.8

5.10 Fnancial Resources for Environmental Protection. SMG's capital budget for environmental protection programs in 1992 amounted to about Y 11,873 million (equivalent to about $2,083 million), or about $160 per urban household, high for the income level. These funds form a part of the regulr municipalbudget and are allocated by SFB and SCC. They are elastic in that they are based on sales and income of the enterprises under SMGjurisdiction. While they stagnatedduring the austerity period in the late 1980s, they are liklly to increase steadily along with the ongoing economic recovery, given the current tax rates and revenue-sharingarrngements with the Central Government. The extrabudgetaryrevenues (para. 5.8) generally parallel the real rate of economic growth and the change in unit rates determined by SMG, subject to national guidelines. Revenue growth would translate directly into increased investment expenditures,which accountedfor the major part of the infrastructurebudget in the past.

5.11 Given the growth prospects of resources, especially for capital accounts, additional expenditures attributable to the project represent a relatively small portion of - 34 -

SMG's infrastructure budget, as follows: about 17 percent in the first year; 25 percent in the second year, declining to 11 percent, 3 percent and less than 1 percent in the third, fourth and fifth years, respectively. Debt service attributable to the project would equivalent be to less than 1 percent of the regular capital budget, rising to about 1.6 in the first percent year of repaymentof principal, and decliningthereafter. However, debt service on about 87 percent of project investments would be met from user charges, and would not, therefore, be a drain on the municipal budget. Additionally, the operation and maintenance expenses on the same 87 percent of project investmentswould be met from user charges. The operation and maintenance requirements on the remaining investments, project which would need to be met by SMG, would represent an insignificant percentage of budgetary revenues. These investmentswould, in addition, benefit both from savings due to enhanced system performance, and additional costs caused measures by the taken to reduce pollution and increase service reliability. Counterpartfunds the Drinking for Water QualityProtection (about 65 percent of project cost), would be raised by the Shanghai Raw Water Companythrough share issue (para. 4.8). There is, therefore, expected to be no drain on SMG's municipalbudget to implement this component.

E. WATn SUPPY 5.12 Shanghai Municipal Waterworks Company. Financial statements of SMWC, showing the past three years' audited operations(1990-92) and projections up to the year 2000, with detailedassumptions, are given in Tables 1, 2 and 3 of Annex 14, and summarized in Table 5.2. SMWC made small surplusesin 1990and 1991, of Y 9 million and Y 15 million respectively, after receiving a revenue subsidy from SMG of Y 41.93 milion in 1990. In 1991, a profits tax charge, which, at the standard rate of 55 percent, would have been Y 9.78 million, was replaced with a charge of Y 1.0 million. In October 1992, SWMC transferred assets valued at Y 398 million to the Shanghai Raw Water Company (para. 4.8), and made a payment to that company of Y 38 million for water purchased during the last quarter of 1992. Had the Raw Water Companynot been created, SMWC would have made a profit in 1992. SMG has confirmed that the dividends otherwise payable to it by the Shanghai Raw Water Company on the approximately 73 percent of the nominal share capital of the companyheld by it would accrue to SMWC. This is recorded as nonoperating income in SMWC's projectod Income Statement (An&ex14, Table 1). 5.13 In line with general economicand enterprise reforms, SMG has indicated that no further operating or capital subsidies would be made to SMWC, and in addition, has set financial objectives and approved tariffs for its water supply and sewerage companies. These are to earn rates of return on net current fixed assets in operation between of 8 and 15 percent. he projections in Annex 14 reflect the policy regarding subsidies; however, they are more modestin the rates of return assumptionscompared with SMG's stated financialobjectives. The projectionsalso provide for SMWC incurring part of the costs of pumping from Taihu Lake (pan. 2.16). The pumping capacity of the proposed Taihu Pumping Station would be a minimum of 300 m3/sec and up to this quantity would be discharged to the Taipu/Huangpu River system when required due to water quality considerationsat the Da Qiao Intake and requestedby SMG. The conclusion - 35 -

Table 5.2: SUMMARYOF KEY FINANCIALAND MONTORING INDICATORSFOR SMWC (Y million, unless noted)

Actual Est. 1990 1991 1992 1993

Water Sold Mms 1,225 1,241 1,290 1,344 Operating Revenue 178 277 357 577 Operating Expense 189 258 341 505 Net Income 9 15 16 66 Average Tariff (Y/m') 0.14 0.22 0.28 0.43 OperatingRatio 1.17 0.99 1.00 0.99 Capital Expenditures 100 180 -206 381 Debt Service Coverage Ratio - - - 9 23 Contributionto Investment (3-year average) - S 35.9 168.1 - 36.3 Return on Revalued Assets - S -2.54 -0.86 -1.18 -5.02

of the agreement (para. 2.16) to operate and finance the operationalcosts of the proposed Taihu Pumping Station in an acceptablemanner, is a conditionof effectiveness.

5.14 Followingtwo formal tariff increasesin 1990and 1992, SMWC's revenues incrased from Y 133 million in 1989 to Y 357 million in 1992, a 2.7-fold increase over the period. Operating expenses increased by 88 percent over the same period, with personnelexpenses increasing by 92 percent and power costs by 89 percent. Water tariffs, as measured by the average price per e 3, have risen from Y 0.11 in 1989, to Y 0.14 in 1990, to Y 0.28 in 1992, and to Y 0.43 in 1993 (the latest increase being as a result of a conditionof appraisal). The current and previous tariffs are as follows:

Type of Consumer 1990 1992 1993 ------(Im')------

Domestic, bulk supplies end smaller hotels 0.18 0.28 0.40 Standposts 0.13 0.28 0.30 Industry and other 0.26 0.36 0.51 Semitreated industrialwater 0.18 0.28 0.40 Foreign ships 0.50 0.60 0.80 Other ships No charge

5.15 SMWC would need to be permitted to increase its tariffs regularly in order to meet the capital and opeating costs of the project-financedand complementaryfcilities. As water tariffs, properly applied, can discouragehigh usage, thereby leading to possible - 36 -

reduced consumption and to the deferment of future capital investments, the development of possibly more responsive tariff structures would be included SMWC. in technical assistance to

5.16 Assurances were obtained during negotiationsthat to (a) generate SM would cause SMWC revenuesfrom its water supply operationsin its fiscal year to cover its operatng 1994, sufficient and maintenance costs including depreciation, (b) complete, June 30, 1995, a pro-forma by revaluationof its assets, valued as at December 31, accordance with criteria 1994, in agreed with the Bank and, thereafter, make annual adjustments in accordancewith criteria agreed with the Bank; (c) earn,forfiscal year 1995 and each fiscal year thereafter,an annualreturn of not less than thefollowing averagecurrent net percentageof the valueof itsfixed assetsin operation:2 percent in 1995, 3 1996,4 percentin 1997, percent in 5 percentin 1998,6 percentin 1999, and 7 percent in 2000and eachyear thercafter;(d) commencing not laterthan fiscal year surcharge 1995, collectand retainthe made when a large water user exceeds the water quota allotted prepare, before September to it; and (e) 30 in each of itsfiscal years,forecasts satisfactoryto the Bank, (O)to review whether it would meet the requirementsset followingfiscal forth above in such year and the year, and rii)to furnish the results of such review to the Bank. revew would show If any such that SMWC would not meet the requirements set out above, would take all necessarymeasures, SMWC includingadjustments to structure or lewls of its tariffs and charges,in orderto meet the requirements.

5.17 An increase of SMWC's tariffs to levels sufficient the covenanted to permit SMWC to meet requirement stated in (a) above is a conditionof effectiveness. 5.18 Accounting and Auditing. SMWC maintainsits accounts on basis. All accounting an accruals records are computerized;however, the final accounts are compiled manually as the accountingprogram does not produce them presently in the required form. SMWC produces 19 reports, for use intemally and by SMG. would From July 1, 1993, it produce five standardizedreports for SMG (see para. 5.4); free however, it would be to produce, and would probably continuewith, most of use. its present reports for intemal SMWC's accountingand financial reporting is sound, and accounting there is a good level of awareness among the senior staff of the finance department. 5.19 The Shanghai Municipal Audit Bureau carries out annual audits of accounts and financial statements the of SMWC. It reported SMWC as having one of the better accounting system in China. SMWC has provided the Bank with three years (1990-92)audited financial statements. Under the project, it would copies be required to provide of audits of its financial statements to the Bank (para. 5.7). 5.20 Billing and Collections. All supplies, even those metered. Only to standposts, are about 10 percent of water produced is unaccounted for, SMWC's records. according to There is an ongoing program of meter inspection and repair, with a policy of exchange coupled and replacement of meters after 5 and 10 years, respectively. The billing operation is soundly based, with bills delivered by hand to the customer on the day after the meter is read. Bills are prepared on a series of personal computers using program written in-house, a with readings being take directly from the meter reading records, thus reducing the risk of error. Customerscan pay their bills either at the offices - 37 -

of SMWC, or at some 300 designated banks around the city. Accounts not paid within nine days of delivery of the bills to the customer can be settled only at the offices of SMWC, where a surcharge of 5 percent per day (with a minimumof Y 0.20 per day) is added. Virtually all bills are paid withinnine days of issuance, and 100 percent collection is attained within two months. For the purposes of the projections, therefore, a collection rate of 100 percent is assumed.

F. SEwERAGESERVICES

5.21 Sonjiang Wastewater Treatment Plant. Financialstatements of SWWTP showingthe past three years' audited operations(1990-92) and projections up to the year 2000, with detailed assumptions,are provided in Tables 1, 2, and 3 of Annex 15, and summarizedin Table 5.3. SWWTP's accounts were prepared on a cash basis, with no provision being made for depreciation, doubtful receivables, etc. The projections, therefore, were constructed from SWWTP's Fund Flow Activity financial statement and its overstandard discharge tariff collection schedule, as there was no readily available income statementsand balance sheets.

Table 5.3: SummARYOF KEY FINANCLALAND MONITORING INDICAToRsFOR SWWTP (Y million, unless noted)

Actual Eat. 1990 1991 1992 1993

3 WastewaterVolUme m 6.2 8.3 9.4 9.8 Wastewater Treated m' 6.2 8.3 9.4 9.8 Sewer Connection. ('000) 89 104 125 146 Sewerage Coverage (Z) 36 34 33 32 Operating Revenue 2.0 2.5 2.7 4.2 Operating Expense LS 2.4 3.1 3.4 3.2 Net Income 0 -0.2 -0.2 1.0 Average Tariff (Y/Im') 0.32 0.30 0.29 0.43 Operating Ratio 1.48 1.49 1.47 0.91 Capital Expenditures 0 0 0.5 1.4 Covenant Revenue Requirement 2.9 3.7 3.9 3.8 Sewer Income minus Covenant - - - 0.3

LB Excluding deprciaion.

5.22 SWWTP operationshave been financed from three sources: (a) an annual subsidyof Y 1.0 million from SFB; (b) a standardwastewater 3 discharge tariff (Y 0.12 per m from 1988 to March 1993, and Y 0.40 per m3 thereafter); and (c) 30 percent of an overstandard discharge tariff of Y 0.40 per COD m3 (the remaining 70 percent being remitted to the SongjiangCounty Construction Bureau for municipalconstruction). Tariffs are collected only from industrialcompanies; no tariffs are colected from domestic users. Total revenue grew from Y 2.0 million in 1990 to Y 2.7 million in 1992, or averaging about 16 percent per year, with about 50 percent coming from a single source-the - 38 -

Songjiang Paper Mill. This mill, however, closed in June 1993. In line with general economic and enterprise reforms, and as in the case of SMWC (para. 5.13), no operating further subsidies would be paid to SWWRP. Operating costs increased at about 19 percent per year over the period 1990-92. 5.23 The financial projectionsassume that SWWTP would: (a) retain all of the proceeds of tariffs and charges relating to the collection and treatment of wastewater Song.iang in Town; (b) receive capital equity contributionsfrom SCC, Songjiang County the Shanghai and EPB to cover all the local project investment costs and part of the foreign exchange costs (with the balance of the foreign costs being covered by the proceeds of loan); the and (c) achieve financial objectives similar to those being achieved by SSC under the World Bank Group-financedSewerage Project (Loan 2794-CIA/Credit 1779-CHA). 5.24 Assuranceswere obtained during negotiations that commencing infiscal year 1995,SWW1P would be permutted to bill, collectand retain all tariffsand chargesrelating to the collection, eatmentand disposal of wastewaterin SongfiangTown. Commencing withSWWTP's fiscal year 1996,SWWrP would produce rewenues sfficient total to r()cover its operatingcosts and the amountby which its debt service requirementsexceed depredation and rii) havea debtservice coverage of at kast 1.3. SWWTP bWfore wouldprepare September30, in eachfiscal year, forecasts satisfactoryto the Bank, reviewing whetherit wouldmeet the requirementsset forth above in such year fiscal and thefollowing year, andfurnish the resultsof such reviewto the Ban. If any such reviewwould show thot SWWTPwould not meetthe reqirementsset out above,SWWTP necessary wouldtake all measures,including adjustments to the structureof its tariffs and charges, in orderto meet the requirements.

5.25 Understandingswere obtained during negotiationsthat SM would Songjiang (a) cause County Governmentto facilitatethe connectionsof premisesto SWWTP's sewer system; and (b) faclitate the connections to the northern" trunk sewer in Wujing and Minhang neighborhoods.

5.26 Accounting and Audit. Effective July 1, 1993, SWWTP commenced keeping its accounts, and preparing its financial statements, in the new formats mandated by the Ministry of Finance in Beijing (para. 5.4). During the project period, would SWWTP be required to provide copies of audits of its financial statements to the Bank (pam. 5.7).

5.27 Shanghai Sewerage Company (SSC). The debt service obligations operation and and maintenance requirements ansing out of the constructionand subsequent operationof the conveyancesystem pertaining to PC2-UpperHuangpu Catchment Pollution Controlcomponent would be the responsibilityof SSC. 5.28 The finances of SSC are being monitored under the ongoing World Bank Group-financedShanghai Sewerage Project (Loan2794-CHAICredit 1779-CHA). financial The obligationsof SSC under that project are (a) to producerevenues sufficient to cover(i) its totalopeating costsand (ii) theamount by whichits debtservice requirements exceeddepreciation; and (b) to havea debtservice coverage of at least 1.3. has To date, SSC beenin compliancewith theabove. Assuranceswere obtained dunng negotiations that - 39 -

these same financial obligations arising out of the proportion of the proposed project relaong to SSC would be met for eachfiscal year.

G. SoLD WASrE NIGHISOL MANAGEMENT

5.29 A financial analysis has been undertaken of the cost effectiveness of the short-termimprovements proposed to be implementedon an incremental basis during the project implementationperiod. In additionto enhancingthe efficiencyand productivityof equipment and manpower, a 25 percent reduction in labor costs is planned to be implementedover the five-yearimplementation period. Projectedconsolidated revenue and expenditure statements of SESAB covering (a) its operations and the existing without project situation; (b) the proposed project investments;and (c) an alternative incineration project are shown as Tables 1, 2 and 3 of Annex 16, and summarizedin Table 5.4. The long-term financial benefits of the proposed investments are shown, together with justification for improvingon existinglandfill methodsof disposal rather than adopting an incineration strategy.

Table S.4: SummARYOF FINANCLALPwRFORmANCE OF SESAB

Present value operating coats Present value average Discount + depreciation incrementalcoat (Y/ton) rate (Z) (Y million) Solid waste Nightsoil

Existing Situation 10 3,477 228 71 12 3,217 227 70 15 2,879 225 69 ProDosed Proiect (Improved Landfill Disposal) 10 3,192 209 65 12 2,960 209 65 15 2,657 208 64 IncinerationAlternative 10 3,751 246 77 12 3,459 244 75 15 3,080 241 74

5.30 The projectionsand analysisclearly demonstrate that the proposedproject investmentswould assist in the disposalof more solidwaste and nightsoilat a lower cost per ton than is the case with the existingsituation, and in a more environmentallyeffective manner. The long-termenvironmental benefits, which cannot be meaningfullyquantified, are substantialand are descibed in para. 6.10.

- 40 -

6. ECONOMIC, SOCIAL AND ENVIRONMENTAL CONSIDERATIONS

A. PROJEcrJUSTrCATION

6.1 Justificationof the projectis basedon the followingconsiderations:

(a) the projectwould provide a raw watersource for Shanghaithat allowsthe safe supplyof drinkingwater meeting national health standards;

(b) associatedsewerage investments would protect the qualityof the new source of watersupply and, in conjunctionwith other investments such as Shanghai Sewerage(Loan 2794-CHA/Credit 1779-CHA), would reverse the overall deteriorationof surfaceand groundwaterquality in Shanghai;

(c) in addition to protecting water quality, the improved managementof municipalsolid waste and nightsoilsystems would reduce land and water pollutionand associatedhealth hazards, and enhancethe city environment; and

(d) SMG is committedto improvingthe environment,having already established an organizational framework for environmental management, and is prepared to address the longer-term environmental improvement requirements arising out of the ongoing Shanghai EnvironmentalMaster Plan Studies.

B. LASr-COsT SOLumION

6.2 The selectionof the water supplyand transmissionalternative, as well as the proposed Songjiang wastewaterinvestments, have been subjected to rigorous least-cost analysis. Final design decisions on the Wujing-Minhangwastewater conveyance system would undergo similar analysis once design alternativeshave been prepared. On the basis of the analyses conducted and environmentalconsiderations, and further confirmed by sensitivity tests, the least-cost investments in water quality protection and catchment pollution control were recommended for implementation. Details are contained in Annex 17 (paras. 8-10).

C. PRoJEcr BENEFm

6.3 The cost-effectiveprovision of a safe potablewater supplyfor Shanghaiis a prerequisiteto the sustainedpublic health and economicgrowth of the mostimportant - 41 -

city on the eastern seaboardof China. The project would enhancethe government's efforts to reform the economy, through the implementationof fiscally rational charges for water, wastewater, nightsoiland solid waste services. The momentumof economicreform would be supportedby the sectoral breadth of the proposed investments, includingwater quality protection, catchmentprotection, wastewatertreatment, waste minimizationmeasures, and solid waste and nightsoil management;these would provide an enabling framework for development.

D. ECONOMICBENEFtns

6.4 The primary project benefits-pollution abatement and the guarantee of a reliable and safe driking water supply for Shanghairesidents that meets the World Health Organization (WHO) and Chinese quality standards-can be identified but not easily quantified. Significantbenefits of the new intake include those of improved health, the amenity value of safe and more palatable water fIee from unpleasanttastes and odors that currently prevail, and reduced risk of an accident forcing intake closure. The sewerage investmentsfurther reduce the risk of pollution accidents forcing an intake closure and reduce the pollution load in the Huangpu and certain of its tributaries. Those latter benefits would reflect in increased amenity value of the river and contribute to a broader effort to restore river quality to a level in which fish can return. The municipal solid waste and nightsoil management improvements would reduce direct dumping of both pollutants into the river, again improving water quality and amenity value, and lessen illegal dumpig on land, reducing pollution both of land and groundwater, and increase amenity values. Additionalimpacts would be realized in reduced water treatmentcosts for the municipality, for industries directly extracting river water or groundwater, and for citizens now forced to use filters or purchase bottled water.

6.5 All of the above project benefits are, in theory, quantifiable. In practice, reliable estimates of the various magnitudes would be very costly to obtain. Health benefits from urban water supply improvement have been shown to be particularly intractable to analyze short of a full-scale epidemiologicalresearch effort, the time and expense of which were not deemed justified when current supplies have already been shown to fail internationally accepted norms. The reduced risk has been addressed in Annex 17 (paras. 20-30), but again, economic magnitudes were not assigned due to the cost of obtaning satisfactoryestimates. Most amenityvalue estimationtechniques perform badly in highly distorted markets such as those that characterize Shanghailand and water, and were therefore not applied in this situation. Under these circumstances, the appropriate strategy in making project choices is to establish the economic least-cost approach to attain the desired health and service goals, instead of attempting to calculate an economic rate of return. The least-cost strategy shaped the choices made in this project, and is discussed in the followingparagraphs and, in more detail, in Anna 17. Water Supply

6.6 The no-project altemative has been shown to result in unacceptable levels of pollutants in the drinkig water supply of Shanghai. The broadest possible array of - 42 -

interventionshas been consideredfor remedying that problem and four alternatives, each with several variations, were judged the most feasible and subjectedto fiullfinancial and economic costing (see Annex 17 for details). The alternatives considered were: (a) relocation of the intake to Da Qiao; (b) improved water treatment at the current Linjiangintake; (c) constructionof a new intake on the Changiang; and (d) water pollution abatement sufficientto maintain water quality at acceptable levels at the present intake. This option would require, inter alia, the completionof two seweragesystems, the Phase II sewerage system for the Pudong and Puxi areas and the Zhonggangsewerage system for the Wujing and Minhang Districts.

6.7 Construction, operating and maintenance (O&M) costs of the four alternatives cited above were estimated using economicprices (the financial estimatesfor the alternatives can be found in project files). The results are shown in Table 6.1.

Table 6.1: ECONOMIC COS SummARY FOR PROJECr ALTERNATVE (Y million)

Annual Present operating costs value of capital Capital at full and oDerating costs Option cost development 10S 122 15S

Da Qiao Intake 2,198 127.0 2,795 2,604 2,369 Advanced Water Treatment 3,867 457.4 6,701 6,131 5,442 ChangjiangConveyor 9,189 401.6 10,698 10,316 9,201 Improved Pollution Control 6,604 814.3 11,586 10,606 9,425

6.8 The Da Qiao alternativeis clearly the superior option, such that the Da Qiao intake option costs so much less than the other options that no reasonable alternative assumptions about construction or O&M costs would alter the choice. In addition, the benefit stream would commenceearlier (in 1997) with the Da Qiao option than either the Changjiang conveyor or improved pollution control. Given the magnitude of the investmentand remaining design work, neither of those alternatives could be completed until after the year 2000. Advancedwater treatmentcould probablygo on stream at about the same time as the Da Qiao intake. The four options have different risk profiles (analyzed in Annex I) not captured in the economic prices, with the Da Qiao intake superior to advanced water treatment, but once they come on stream, the Changjiang conveyor and improved pollution control both dominatingDa Qiao. Improved pollution control remains an elementof the project, but with a different focus and investmentpattern than envisaged in the option above. - 43 -

PollutionAbatement

6.9 Pollutionabatement to protect Shanghai'ssurface water and groundwater requires a combinationof seweragesystems and treatmentplants, reduced discharges pollution fromindustry, and improvedsolid and hazardous-wastehandling. The project includesinvestment in new and expanded seweragesystems and treatmentplants Songjiang in County,a rapidlyindustrializing area whosesurface waters discharge into the Huangpujust above the new water intake. The least-coststrategy to bring Songjiang surface water to Class II would involverelocation of some highly pollutingindustry (particularlya papermill), process technology innovations in others,improved end-of-pipe processingof industrialwastes, and the expansionof one existingsewerage construction systemand of another. The Countywould implement sewage tariffs sufficientto offset the full cost of the seweragesystem. The unmeasuredbut substantialbenefit of reduced pollution,argues for a stronglypositive economic rate of return on this component. 6.10 The municipalsolid waste and mghtsoilmanagement component of the project includessupport to upgradelandfills, close down temporarydumps, additional establish landfillsfor both municipaland nonhazardousindustrial waste, convert the particularlydangerous emergency dump at Sanlintang,on the banksof the Huangpu to a River, containerizedtransfer station, introduce a fully containerizedwaste and road transportationsystem, and upgradethe manuallyhandled collection points container to enclosed facilities. The componentwould address the pollution and public health problemsassociated with uncontroled dumpingand inadequatetreatment of nightsoil before land application. The bucketlatrine and septictank systemswould phased be gradually out, to be replacedby connectionsto the sewers. It wouldalso investin technical assistanceto strengthenthe institutionalcapability in order to enhancethe and low equipment manpowerproductivity, improve equipment cost effectiveness,and enableSESAB establish to proper workshopand landfill operation management. The financialbenefits that wouldaccrue are reflectedin the projectedaverage unit cost, whichwould decline about from Y 164per ton to Y 102. This assumesthat vehicleutilization would be increased from about50 percentto about85 percent,and that the staff wouldbe trimmedby about 25 percent. The associatedcost savingsare estimatedto be about40 percent,or ton. Y 60 per An estimated60 tons/dayof solidwaste spillage into the rivers from the docksalone wouldbe stopped,uncontrolled dumping of nightsoilwould be reducedby 1,000-2,000 tons/day, and about 3,000 tons/day of haphazardindustrial waste dumping controlled. would be Approximately2.5 millionpeople would be connectedto sewers, with the result that nightsoiltreatment and land applicationwould be greatly reduced. Additional aesthetic and environmentalbenefits would come from the improvedcollection services, closingof temporarydumps and controlledlandfilling.

E. ENVIRONmENrALIMpAcT 6.11 The project would contributesignificantly to improvingthe environmentand is rated category -B- in terms of the World Bank's OperationalDirective Environmental on Assessment. Accordingly,a detailedannex of the environmenthas been - 44 -

prepared (Annex 9), which summarizesthe findings of the Chinese EAs on the various componentsand reflects the appraisal mission findings.

F. AFFORDABILTY

6.12 The present water tariffs are low for both residentialand industrial use. The averagedomestic water bill equalsabout 0.5 percent of averageper capitacash income and consumer surveys show that this amountis regarded as a trivial element of the household budget. Industrial tariffs are currently not high enough to inhibit excessive use of water by internationalproduction standards. The tariff structure proposed for implementation under the project would result in the 5 percent of lower quartile population paying about 1.6 percent of average monthly household income on water by the year 2000. Pricing policy options would be explored under the Water Master Plan.

G. NxojEcr RiSKS

6.13 Project risks include (a) possible reluctance by SMG or Songjiang County governments to approve the tariffs and service charges needed for financially sound operations; (b) possible unwillingnessby SMG to enforce the pollution control laws for inancially weak enterprises, resulting in continued increases in pollutant levels in the Huangpu; (c) delays by SMG in implementingthe institutionaldevelopment and training components;and (d) a serious toxic effluent spill that would close the new water system intake for a period. The risks have been the subject of continuousdialogue during project preparation. An acceptable schedule of water and wastewater tariff increases was developedduring appraisal;and a carefullydesigned institutional development and training program would ensure SMG ownershipof specific project components. There is also a minorrisk that the assumptionsof revenuecollection and unaccounted-forwater may prove optimistic; this would necessitatehigher tariff adjustments.

6.14 The risk of a toxic spill would be reduced by the sewerage and industrial pollution abatementcomponents of the project, and subsequentlyon implementationof the recommendations of the Hazardous Waste Management Study, now under way (para. 2.33). Should a toxic spill occur, the decision to relocate the intake through the project to a point far upstreamof the industrialand shipping centers representingthe most probable sources of a spill would have substantiallydecreased the danger to the drinking water supply. To provide additionalprotection, the current intakes would remain available for standby operation.

6.15 Sustainability. Proposed revenue and service charge enhancements, together with the investmentsto improvethe qualityof drinkingwater and reduce the risks to Shanghai of toxic spills in the water supply would provide a framework for project sustainability. The operationsand maintenancecosts to support the investmentswould be provided through existing revenue arrangements; these would be fiurtherstreamlined and enhancedas part of the project.

- 45 -

7. AGREEMENTS REACHED AND RECOMMENDATION

7.1 The followingassurances were obtained at negotiations:

(a) SMWC wouldcomplete the additionalworks needed to complementproject- related works, within an agreed time frame, as part of its normal capital works program [pam. 3.5(a)(ii)];

(b) The 33 most polluting industries in the Upper Huangpu Catchment would complete process changes, or construct pre-treatment facilities, in accordance with an agreed time-bound Action Plan, in order to meet relevant discharge standards [para. 3.5(b)(i)];

(c) An agreed time-bound Action Plan would be implemented for connecting existing septic tank and nightsoil facilities to the city and county sewerage systems, and thereafter implemented[para. 3.5(c)(i)];

(d) Loan proceeds would be onlent to implementingagencies on terms and conditions satisfactoryto the Bank (para. 3.9);

(e) Implementationof technicalassistance and training would be in accordance with an agreed time-boundAction Plan [paras. 3.5(d) and 3.13];

(f) Implementing agencies would (i) carry out the resettlement of persons affected by the project in a manner and according to a schedule that is satisfactory to the Bank; and (ii) report on the progress in carrying out the resettlement plan, project progress and project impact using monitoring methodologyand indicatorssatisfactory to the Bank (para. 3.22);

(g) SEPO and its subproject offices would be maintained throughout implementation, and with staff and functions satisfactory to the Bank (para. 4.2);

(h) The following annual audits would be submitted to the Bank within six months after the end of the financialyear: (i) audit of the project accounts maintained by SEMC, SESAB and SSPCC; (ii) audit of the Special Account; (iii) audit of statements of expenditure; and (iv) audits of the financial statementsof SMWC, SSC and SWWTP (pam. 5.7);

(1) SMWC would (i) generate revenues from its water supply operations in its fiscal year 1994, equivalent to not less than its total opeaing and - 46 -

maintenancecosts includingdepreciation [(para. 5.16(a)]and (ii) earn, for fiscalyear 1995and each fiscalyear thereafter,an annualreturn of not less han the followingpercentage of the averagecurrent net value of its fixed assetsin operation: 2 percentfor fiscalyear 1995,3 percentfor fiscalyear 1996, 4 percent in fiscal year 1997, 5 percent for fiscal year 1998, 6 percentfor fiscalyear 1999and 7 percentfor fiscal year 2000and each fiscal year thereafter[para. 5.16(c)]; (j) SMWCwould complete, by June 30, 1995, a pro-forna revaluationof its assetsvalued as at December31, 1994in accordancewith criteria agreed with the Bankand, thereafter,make annual adjustments in accordancewith criteriaagreed with the Bank [para. 5.16(b)]; (k) SMWCwould, commencing not later thanfiscal year 1995,be permittedto collectand retain the surchargemade when a large water user exceedsthe water quotaallotted to it [para.5.16(d)];

(1) SMWCwould, before September30 in each of its fiscal years, prepare forecastssadstory to the Bank (i) to reviewwhether it wouldmeet the requirementsset fourthin para. 7.1(i) abovein suchyear and the following fiscalyear; and (ii)to furnishthe resultsof suchreview to the Bank. If such any reviewwould show that SMWCwould not meetthe requirementsset out above,SMWC would take all necessarymeasures, including adjustments to structure or levels of its tariffs and charges, in order to meet the requirements[para. 5.16(e)];

(m) SWWTPwould, commencingin fiscal year 1995, be permitted to bill, collect and rein all revenuesfrom its nondomestictariffs and charges elatingto wastewatercollection, treatment and disposalin SongjiangTown (pam. 5.24);

(n) SWWTP would, commencingin fiscal year 1996, produce revenues sufficientto (i) cover its operatingcosts and the amountby which debt service requirementsexceed depreciationand (ii) have a debt service coverageof at least 1.3 (para. 5.24);

(o) SWWTPwould, before September 30 in eachfiscal year, prepareforecasts satisfactoryto the Bank to reviewwhether it wouldmeet the requirements set forthabove in suchyear and the followingfiscal year, and to furnishthe resultsof suchreview to the Bank [para.5.24]; and (p) SSC wouldfor each fiscalyear producerevenues sufficient to cover (i) its total operating costs; and (ii) the amount by which its debt service requirementsexceed depreciation; and to havea debt savice coverageof at least 1.3 [para.5.28 (a) and (b)]. - 47 -

7.2 The followingunderstandings were obtainedduring negotiationsand referred to in the minutes of negotiations:

(a) Implementing agencies would be authorized and instructed to adopt a 15-yearplanning horizon for infrastructureinvestments (para. 2.32);

(b) SMWC would make adequateprovision in planning for the expansionof Da Qiao intake and conveyor to Linjiang to cater for possible abstractions to meet future demands beyond the existing capacity of 5.4 million m3/day [para. 3.5(a)(i)];

(c) Industries in Wujing and Minhang neighborhoods would pretreat, as necessary, and make connections to the 'northern trunk sewer, when completed [para. 3.5(b)(ii)];

(d) SESAB would before December 31, 1996 assume responsibility for providing collectionand safe disposal services for nonhazardousindustrial solid wastes on request from the industry [para. 3.5(c)(ii)(1)];

(e) Treatment and disposal facilities for nonhazardousindustrial waste would be established before the temporary landfills are closed down [para. 3.5(c)(ii)(2)];and

(f) Sewer connections in SongJiang County and Wujing and Minhang neighborhoodswould be facilitated(para. 5.25).

7.3 The following are conditionsof loan effectiveness:

(a) Execution of subsidiary loan agreementssatisfactory to the Bank between SM and (i) SMWC, (ii) SSC and (iii) SWWTP (para. 3.9);

(b) Approvalof the Loan Agreementby the State Councilof China (pam. 3.9);

(c) Conclusionof the agreementto operate and finance the operationalcosts of the proposed Taihu Pumping Station in an acceptable manner (pana. 5.13); and

(d) Increase in SMWC's tariffs to levels that would permit it to meet its 1994 financialcovenant (para. 5.17).

7.4 Subject to the foregoing, the proposed project would be suitable for a Loan of $160 million equivalent for a period of 20 years, including 5 years of grace, at the Bank's standardvariable interest rate, to the People's Republic of China.

- 49 - ANNEX 1

ORGANIZATION OF ENVIRONMENT PROTECTION IN CHINA

|Pople's Republic of China SitatCouncil

3Biijing, Shanghai Provincial & National Miniatrio,s & Tianj in Autonomoue Izvironmental State Mhnicipal Regional Protection Commiasions Governments Gvormnents Agency Admdnistration

Provincicl Environt atl Protection Bureaus(EPBO

_oermenvn.ats

Si ll r Arrangemat_. as under hncl- Huicpal U BB Covonrsnts

Urbald District L Couty

Urba, DistrictL County EPB~

| Urba Neighborhood, Town, TownabLip

| | Urb^n ~Iogh- borhood, Tovn, Township EP Office.

-50- ANNEX2

WATER AND AIR QUALITY STANDARDS IN CHINA

ENVIRONmEwAcL QUALITY STAARD FoR SURFACE WATR CHNES STANARD GB 3838-88 (REPLAaNG GB 383843)

IN 1 C 5 j OwII la I cO a I c-.w C" I v AUl .sur _S." s w 4M sn a, f...&..sa -s. i, ,r-, ., M. AA PM*pa66 m11sn*15 S"- ta,au& a e-us'.. p ,ea. ,, Plsa"M msUr A a. fl" . fi*M es.-5.. tl f "Mr v .4 5 uy r n C l'TiAaC * sI.w .t. if rasy _ _ _ . . 4 Kuula4. _P *w Ois aw..* b_ srn . s ..

I.* Gas. * a ,.o,- & a... a a b u.m

I V r,zr _>nr4 ~A"fgvaass 4 t-tn_4 nr. a saiegr onlrd < I 2' ____*______d"mi~I4 r ______n ______*_ C * r t4_ Cvmases vmmif d_ us -mm Pane

3 Sssspsss(3051 - 210 210 zw ]-1 4I I C s(0)Cnd _ 210 [ 2S0! 2IN 1 240 1 2o 1 1s | MM -C i 0-oJ.6 _ o. I _ zo * I TowiShA.sm 0.1 1 0. S i0 7 __T__ __-e_e_ 0.1.0 1* 1 L.0 1.0 i 1.1, MAi 0.0:) 0 z::j | ^ asTZ < } ~~~~~0.05M .1.O, Ma 0.oI 10 1 S.ua. IsI -C I)I __ to_ _ I 12 |10 1 T .aM CM 0.0: I 0.1 0 O I 1.0 112 1.1 D.rs OM A I 0.02 06O I I 3 _____O_

10i TUM.Vl 4 e_0.0: 0.1( am 0. I 0.:a j 0: 2 Tea psu" < C sS aL0. r.&) 0 I 1. a i _ _ I t3 Csm su s Me a -C I! 2 1 .o . * -- T ID 2i DTeaIM *.. I Ci001 L I woa< o.s_____Loo.1I am j I 3 2.::0.1 I sI COD -CW I U |IU U I ___ Zs__ 171 SODS TaI..PI < I I I C . O. 3 I 0~ I t Il 10 .1 I un"* (&S4r C 1.0 f . 01 1..0 1 1.3 1 1.3 V9I} 4C I.01 0.02 I 0.3 021= - , _ :_, *0MI Tl n .C O.03 rI 2 0. iI 0.:. 0 1 21I T.usT i. -C I 0.0000 :.moo0I .a O.ool I wl0. 0.3 = I Tl" esnasZ < I o1.m11 G. 0.00 .O 3 0.005 S 01 L M3 3 l< 0l.0 I .td 3 o.td O.t' I 0. 2- I Tl < 0.01 I 0.0 1 0.01i1°°l :N^- i TZ<* | F tirM |~~~Mal 0.010'0 rfi MS)10: j . :sw,,; ..... 61 ;Pee .0M2 I atx : 0305 021 it1 11M:s.. lass-ls as source aa001s 1 2 .0S O S .O 0.: :s .Um.S $.d.ua . .: O ! 0.: 1 0.3 2 3 1 :9 _^ i :§.Ilta r>4l I :OoO )sC 3:s. supL) < I o0 ub MU O. 1s iupy prciu n. a.oon *150 (fiCnZa fis sI (frh O.O

IV Msiy md for water soures. moral ifuru1 up. uuoalr_a. n Miriy syLoe as source ua runt ra protcort area for cmstusurl drnkl reer ou;piy. ptrccous rLst prwacL* rc . spawning g-oftd for fuhandu&t repa. :11 nMo-y s,:i bodiys asaumeot in tor cu roa.a e.-'vrnj ge sut pply, fishery prosmic wa and publie swrns ^g arL

V Mas.sy su=sic for *Sg d.uadl -. uar s_uply. ai t am ares" for loPsin.

sc.e WAInc- s -actr r:i=c a si..onc *'r a nuz1cr of poasiasJ as,. class&rd=:on -wl be accrorng to ii j are. W'here Mc.-c 1eas.s dtcrenc: ba.-r. asasoau. roras. &L&ssafi&Aon c"a be asd. - 51 - AN 2

AIR ENVIRONMENTALQUALrY STANDARD CBWNESESTANARD GB 3095-85

A.r cnvLro=neotal qualiry uSdivided Dnw _ce clAsse as foUows: Class I Required for the prot--ioc of amrual ecoloy and human heslth frc= bamful effecu under loag tem exposue. Class UI Required for the protectioa of hunsm beslth and Lai and vegetauon in urbaz ad rural areas against harmfl coctstions Eh:t can arise under long and shor tenrmex;posure. Class m Required for the protection of bumau -.omu:n.ies agaiast acute or chronic toxic illnesses, and for nor'al growth of animal and vegetation life (e_:pt for tiose wimh a!Hergiccomditioms).

The hifi!ig - Ir r.f te air poiltZ=Ls fcr Lhethree staieards are lisLo.:- the hl-below.

|I '-:_g: L tmlisumd'rd -- Pollutant SazzzlimgTizc I Class I 1 Class II C:ass m I Total Suspended jDaily Avengte' (1S | 0.30 C.50 S_ li_s_ Ay I:idwc -e 0.30 1.00 1.50 )us. Daly Avenge - 0.05 0.15 0.25 _Azy Incident 0.15 0.50 0.70 Sulphur Dioxide Yearly Averaset 0.02 0.06 0.10 Daily Av-age 0.05 0.i5 0.25 . IDcident 0.15 0.50 0.70 NiLrou.sOxides Daily Avernge 0.05 0.10 0.1S Anv Incident I 0.10 0.15 0.30 C.rnom Monoxide Daily Avenge| 4.00 4.00 6.00 A--v Ln::dez ______I 10.00 10.00 ______t __._t _ ___I 20.00 L.4.t Che:mstry One Hour Avenge 0.12 0.16 OL^'toz Rc2cnzt 0.20 j_| (O ,)I

N'otes

* 'Daily vesa-g refers to the lamit which u am be ede by tbe averageof the sapJa tkm it a day. ''Ay Lacidmt' mefmrto the limit which muK ami be eacded by any ample saL "Yeary Avcrate' refen to the liait whoch =u t be e by the avenge in a year of the 'dtiy average&' d. T.S.P. Toal suwpeLded solids tefer to pamcuhaea wvh.cham smaler tde 100 LicroeA. Dust Dut rcfers to pmnuculu whch ar smalccr then 10 mucrom. This iteAm a reference xandrd onrly. Ozone Light Cbec.ury Ouodaon Reagent (03). one hour average value should sot be cxccded once :n a :monh. -52 - ANNEX 3

DETAILED PROJECT DESCRIPTION

1. The componentsof the proposed project investmentsare described in detail below and summarizedin tabular form.

A. PC1-DRBnKNGWATER QUALuy PROTECoToN:RELOCATION OF RAWWATER INTAxE FROM LNeNG T DA QIAO($291.7 million)

2. Introduction. The scheme is designed for the year 2000, based upon the relocation of the raw water intake for the major potable water supply for Shanghai, from Linjiang to Da Qiao, with a raw water capacity of 5.4 Mm3/d, together with urgent rehabilitationof existing treatment facilities. The scheme components include allowing flexibility for future expansion by about 50 percent if this is deemed appropriate in the light of longer-term demand analyses and comparison of alternatives for least-cost development.

3. Da Qiao Intake Scheme. The scheme is designed to cater for the peak daily demand in the year 2000 of 6.6 Mm3/dbased on the medium demand forecast. A total of 5.0 Mm3/d of fully treated water would be provided from the Da Qiao source. This equates to a raw water capacity of 5.4 Mm3/d when the assumed 8 percent transmission and treatment losses are taken into account; Figure 1 shows a schematic layout of the new water conveyor system. The works would comprise:

(a) Intake on the north bank of Huangpu river located about 1.5 kam downstream from Songpu bridge comprising the intake structure, screens, pipelines, pump station, and miscellaneousworks;

(b) Intake Pumping Equipment comprisingabout 12variable- and fixed-speed pumps each of capacity of about 6.5 m3/sec;

(c) Balancing Tank at Intake of about 40,000 e capacity;

(d) Raw Water Conveyor System comprising the following culverts and pipelines: from Intake to Zhong Che Cun, about 14.2 kamof four-section culvert of about 3.75 m * 3.25 m size; from Zhong Che Cun to Linjiang, about 4.0 km of four-sectionculverts of about 3.6 m * 3.25 m size; Zhang Che Cun to Changqiaobranch, about 3.0 km of two-sectionculvert of about 3.9 m * 3.25 m size; Longxi branch of about 2.5 kn of pipeline/tunnelof about 2.2 m diameter;Changqiao branch of about 3.5 km of pipeline/tunnel of about 3.5 m diameter; Linjiang tunnel comprising a length of about - 53 - ANNEX 3

Figure 1: SCEMATIC DErAIs OF DA QUo SCHME

Gencral Layout

/ ; wenwT Do Qao PS& Balancingtank Z./jtv/ / S

me im,cl d I. in hs project

(9 ~~~~ > _ < |~~Nr WTW-Wag.tTiwem Airw atkj LinJisng hmgloP PS|

WTW-Wac.r T,_.^mm Works PSPumpSti 3 f

Hydraulic Profile

Legend 12,, PressureEnvelope Longxd 7l7 , io7mn TreatmentWorks PumpingStation

Changqiao

. 1,,. 8, ,v, 0s t-^s ~ ~ ~ ~ ~ m 1.71

s i ' '

Da Qiso Intake ZhwanChoCun andPump Station Huang Pu River Crossing - 54 - ANNEX 3

0.7 klm of about 4.0 m diameter (to be constructed by SMWC utilizing separate funding);

(e) Pump Station at Changqiao of capacity of about 1.7 Mm3/d with about five pumps each of capacity of about 4.25 m3/sec and about three pumps each of capacityof about 1.0 m3/sec, 10 m head; and

(f) Balancing Tank at Linjiang of about 20,000 ni capacity (to be constructed by SMWC utilizingseparate funding).

4. Rehabilitation of Existing Facilities. This comprises the rehabilitationof treatmentplants, control systemsand other works included in the project including:

(a) Yangshupu Water Treatment Plant comprising replacement of chlorine equipment of about 2,400 kg/hour capacity; alum dosing plant of about 120,000liters/hour installedcapacity; and ammoniaplant and equipmentof about 160 kg/hour capacity; together with civil works;

(b) Nanshi Water Treatment Plant comprising civil works and hydraulic improvementsof 0.95 Mm3/d capacity; and

(c) Telemetry and Central Control comprising communicationand control system for SMWC's water supply operations.

5. The following items of work, which are outside the scope of PC1, are essentialto ensure the completeintegrity of the PCI works. These additionalworks would be carried out by SMWC under its normal annual programof works utilizing local funds:

Desroton EstimatedCost (Y million)

Longxi Treatment Works 350 1996-98 Trunk main program under programming 1994-97 Linjiang pumps & main to Yangsi 280 1997-98 Linjiang TreatmentWorks 280 1997-98 Linjiang Tunnel and Shafts 20 1993-97

B. PC2-UPPERHUANGPU CATCHMNT POLLUrMON CONTMOL ($64.6 million)

6. Introduction. The Huangpu Catchment, which extends over an area of 23,800 kIn, is a network of waterways, all of which receive polluting discharges from domestic, agricultureand industrial sources. It is therefore of the utmost importancethat water quality in the river is afforded the required degree of protection for drinking water purposes. It is necessary to implement and operate an effective water pollution control strategy for the whole catchmentto maintainthe drinkingwater quality from the Huangpu River in the long term for the water supply for Shanghai. Factors that need to be taken - 55 - ANNEX3

into account in such a strategy include the tributaries entering the river and the need to control developmentin critical areas of the river catchment. 7. Wujing/Minh Wastewater Conveyance System. This project component would comprise the followingworks: (a) Wujing/Minhang trunk wastewater conveyance system comprising about 15 km of reinforced concrete-linedtunnel, tunnels, culverts, pipelines, other or construction, in sizes in the range 0.8 to 2.5 m, access shafts and/or pump stations to convey wastewaterfrom south to north through Wujingand Minhang, includingan inverted syphon crossing the Huangpu River; (b) A system of secondary conveyor sewers comprising about 25 km of pipes of reinforced concrete or other materials in the range 300 to 1,600 mm diameter; and (c) Systemand property connectionstotaling about 35 m length in sizes between 200 and 300 mm diameter. Flows would eventually discharge into the Changjiang (Yangtze River) at Bailongang through the proposed east-flowing conveyor. The assimilative capacity of the proposed outfall at Bailongangas reported by SMG was reviewed during negotiations be satsfactory. and found to

8. The componentwould be supportedby strengthenedpollution control Upper Huangpu in the Catchmentcomprising a program to address industrial and other at various pollution locations in the catchment in accordance with a time-bound Action program, Plan. The which would not be financedunder the project since other sources available, of finance are would focus on selected in-factoryuprocess change and effluent pretreatment, principally at 33 priority industrial units to ensure compliancewith standardsfor discharge to the sewerage system (see para. 9 below).

Industrial Wastewater Pollution

9. Analysis of the industrialdata bases covering some 600 major polluters with discharges exceeding 10,000 m3/d has been undertaken and the 33 priority polluting industries determined on the basis of annual discharge loads covering Chemical Oxygen Demand (COD), BiologicalOxygen Demand (BOD), SuspendedSolids (SS), Phenols Oil. and These pollution loads were considered together with location in relation intake and to Da Qiao hydraulicconsiderations to determine the priority industries that are responsible for most of the industrial pollution in ShanghaiMunicipal area, contribute between 50 and 80 percent of the overall pollution load, and contribute of the pollution at Da Qiao. - 56 - ANNEX-3

Options for Mnhang and Wuiing Discharges

10. Earlier studiesindicate the importantneed to control the industrialdischarges in Minhang and Wujing in order to safeguard the drinking water quality of the Huangpu River at Da Qiao. At present, these wastes discharge directly into the Huangpu over a 30 km stretch of river betweenMinhang (only 10 km below Da Qiao) and Linjiang. This situationis a serious cause for concern,particularly during adverse tidal conditionsat times of low (or negative) net river flow at Da Qiao. 11. It is important that the proposed measures to improve water quality by control of these discharges are effective, economic and readily enforceable. Control of these discharges, some of which are understoodalready to be partially treated, requires investment on the part of industry and this approach would not remove problems of plant upsets and releases of pollution as a result of spillage or leakages from storage tanks. 12. Where dischargescurrently exceedthe discharge standards, a fee is payable. The fee rates are understoodnot to have been increased since 1988, although the charge is increased by 5 percent for each successive year that standardsare not met. Although the levels of the fee and water tariff are such that it is probably not economic to use dilution by mains water to achieve standards, neverthelessthe levels of fee appear to be too low to have the required incentive purpose in respect of complying with standards. This would clearly impact upon the preparednessof industry to undertaketreatment plant investmentat projected financingcost.

C. PC3-SONGJIANGWASTEWATER POLLUrMON CONTROL ($38.9 million) 13. Introduction. The SongjiangWastewater Pollution Control works are an essential part of the Upper Huangpu CatchmentPollution Control program and comprise the extension of the existing sewerage system, property connections and wastewater treatment at Songjiang.

14. The provisionof new wastewatercollection and disposalfacilities for Sijing, a fast-growing industrialtown with a populationof about 15,000, located some 13 kamto the north of Songjiang and about 20 km from the Huangpu River, would be dealt with under a subsequentprogram since the pollution load from this center does not directly affect the sustainabilityof Da Qiao intake. The MaogangStud Stock Farm waste treatment scheme, as a demonstration plant for the treatment of farmyard waste in the Upper Huangpu Catchment,would also be executedunder a separateprogram. Songjiang, Sijing and Maogang are all located within SongjiangCounty. 15. Songliang Wastewater Scheme. The scheme caters for wastewaterflows of 112,000 3 m /d in year 2010 with trunk conveyorsewer extensionsdesigned to meet this requirement with phased implementationto suit the town planning development. The extensions to the treatment facilities would be implementedin two phases, each of about 45,000 m3/d capacity. Each phase would comprise two procss streams. The works to be implementedunder this component of the project would comprise: - 57 - ANNE 3

(a) Trmk Conveyance System Extensions totaling about 22 km of reinforced concrete or other pipe materials in sizes between 300 and 1,200 mm diameter;

(b) Link Sewers and Connection comprisingabout 30 km of secondary sewers and property connections in sizes between 200 and 300 mm diameter, includinginterception of dry-weather flows in existing combined sewerage system and nightsoil from communal facilities;

(c) Pump Stations. Reinforced concrete pumping structures, equipment and electrcal connectionsof about 22,000 m3/d total capacity;

(d) Refurbishment of Existing Wastewater Treatment Works to provide effective treatment for about 18,000 m3/d of mixed wastewater; and

(e) Wastewatr Treatwent Extension Works to provide effectivetreatment 3 for about 45,000 m /d of mixed wastewater. The process would include pnmary and secondary sedimentation, aeration and sludge digestion (one stream only).

D. PC4-POLUmON SouRCESm WATERQuAL MONTORING($4.7 million)

16. A new laboratory, to be operated by the ShanghaiMunicipal Environmental Monitoring Center (SEMC), would be constructed close to the new intake at Da Qiao, located on the bank of the Huangpu with nver access. The laboratory would allow SEMC to centralize monitoring of the upper Huangpu Catchment, in terms of both river quality and individualpollution sources. Suitablevessels would be provided to allow access to all parts of the upper catchment for water quality monitoring to be undertaken, and for samples to be returned rapidly to the new laboratory by river to minimizesample transport time, thereby improving both monitoring efficiency and data reliability. Road vehicles equipped with refrigeration facilities would be provided for samplingland-based pollution sources.

17. The new laboratory would be equipped with a wide range of analytical instrumentationto enhance facilities both for the current routine monitoring activities and to permit the analysis of a range of specific micropollutants. The latter is essential in view of the industrial nature of the Huangpu Catchment and the fact that the Huangpu River serves both as a potable water source and a receiving water for industrial wastewater discharges, some of which may contain chemicals of concern in terms of qualityof potable water. Monitoringdata managementwould be enhancedby the provision of computerized information managementsystems.

E. PCS-MuMCVIAL SOUD WA= AM NIGErSOIL MANAGEMEr ($43.9 millon)

18. The objectives of this project component are to alleviate the environmental pollution and health risks associated with the present municipal solid waste and nightsoil - 58 - ANNE 3

managementpractices; and to enhance the efficiency and productivity of the Shanghai EnvironmentalSanitation Bureau's (SESAB)systems, equipmentand manpower.

19. Municipal Solid Waste (MSW). The investment program proposes measures that would yield long-term environmentalimprovements, including upgrading landfills at Laogang and Jiangzen, closing down or controlling landfill oprations at numerous temporary dumps in the city, and developing new collection, treatment and disposalfacilities for municipaland nonhazardousindustrial solid wastes. The emergency dump at Sanlintang,on the banks of the Huangpu River, would be removed and replaced by a major waste transfer station, enabling the MSW to be taken to the LaogangLandfill.

20. Measures to improvethe cost-effectivenessand environmentalconditions of the collectionand transportationsystems would be implementedon an incrementalbasis. Both the water and road transportationsystems would over time be fully containerized. Initially, it is proposed to upgrade four to six transfer stations (docks) along the Huangpu River and SuzhouCreek for container transport, and to introduce compatible barges and trucks. This would eliminatespillage of waste into the watercoursesduring barge loading, and reduce the vulnerabilityof the system during inclementweather conditions.

21. While the collectioncoverage is high, there is still scope for improvements. It is proposed to start to replace concrete collectionbins with covered plastic and steel containers and compatible mechanized container-loading trucks, improving the environmental conditions and enhancing equipment utilization, as manual loading is eliminated. Competitivebidding for the provision of MSW collection services would be tried out in two districts on a pilot basis, but this activity would have cost implicationfor the short-term investmentprogram.

22. Nightsoil (NS). The nightsoildisposal system, based on storage, treatment and farm application in the adjacent counties, no longer functions satisfactorily. The demand for NS is diminishing,farmers prefemng commercialfertilizers. As the county facilities become dilapidated and overloaded, uncontrolleddumping into the creeks and rivers surrounding Shanghaitakes place. The proposed NS improvementprogram would (a) reduce the volumeof NS by mechanicaldewatering and dischargingthe supernatantto existing sewers, and transporting the concentratedNS to the counties, and (b) phase out the bucket latrines and septic tanks by connectingpublic toilets and buildings directly to sewers. A pilot project is proposed in four subdistricts.

23. People complainabout NS spillage, public health hazards and smell from the NS collection vehicles; to address this, improved collectionvehicles would be introduced through the project.

24. Two technical assistance subcomponentsare proposed to strengthen the institutionalcapability of SESAB,one aimed at improvingthe managementof information, systems performance, accounts and service revenues; and the other aimed at enabling SESAB to establish proper workshop and equipment management and landfilling operations. - 59 - ANNE 3

F. PC6-INsgTunoNALSTIENGTHENG TROUGH TECHNcALASSrANCE Am STmIEs ($12.8 million)

25. A comprehensiveprogram of institutionalstrengthening, technical assistance, studies and training are included that would support and complementproposed physical investments. Details of the scope of work are contained in the reports prepared during project preparation (fully describedin Annex 18), and summarizedbelow and in Annex 5. PRojer COMPONENrSUMMARY

No. Component Location Description Capacity/Size Function PCI DrinkingWater OualitvProtection Intake and Pwnp Da Qio Reinforcedconcrete intake Station (PS) and 5.4Mm'/d To absact raw water from pump sructure,balancing reservoir of 40,000m capacity, Huangpu river andpump to 12 vertical Linjiang pump mixed flowpumps (each 6.Sm3Iusc, station, and 17m head, 8 Cbangqiao andLongxi constant speed, 4 Treatment Work variablespeed) meters, pipework, electricalequipment Conveyor Da Qiuo to Zhang Reinforcedconcrete low preue 4 No 3.25*3.7Sm Cbo Cun multiplesection culvert To convey SA4MmO/drw 14.2km water from Da Qiao to Zhang Cho Cun Conveyor ZhangCho Cun to Reinforcedconcrete low premsur 4 No 3.25*3.60m To LinjiangTunnel multiple sectionculvert convey 3.3Mm3/draw 4.0km water from Zhang Che Cun to Linjiang Tunnel Conveyor Thing Cbo Cun to Reinforced concrete low premure 2 No 3.25*3.90m To convey ChangqiaoBranch multiplesection culvert 2. Mm3/draw 3.0km. water from ZhangChe Cun to Changqiao Branch Changqi&olLongxi Branchto Pipeline Pressre pipeline, steel with mortar 1.7km 3.5m dia To Chbngqiaoand lining, cathodicprotection convey raw water to Longxi 1.2km 2.2m din Changqiao andLongxi Treatment Works ChangqiaoLongxi Changqiaoand Tunnel constructionwith reinforced 1.8km 3.5m dia Tunnels Longxi concrete segment To convey rw water to or other lining 1.3km 2.2m dia Changqiao andLongxi Treatment Works

... Coninued No. Compont Location Description Capity/Si Function

Chsngqiao Pump Changqiao Reinforcedconcrete Station stutureb with l.7MmY/d To raiseopreu of raw - No sspended bowl constant water speod to inlet of Changqiao Fump setb (5 No eachof Treatmnt Works 4.25ml/sec, 3 No each of 1.Om3/sec, lOm head) Nanshi Treatmnt Yanqiso Civil works and hydrulic 0.9SMMm/d Works iovents To improve pure of rw water to supply Nanshi TreatmentWorks Yangshupu Yangshupu Reinfored corete and building 1.4Mmi/dTo Treatment Works Tatment Work mtucturewith Chlorine, ChemicalPlant Mum and replac outdated Ammoniadosing equipmont chlorination,alum and ammonia dosing equipment Telemetry and Shanghai city, Tdemetry and SCADAcontrol Commnication central control Linjiang & Da system for SMWC opeationl and control Qiao system for SMWCwater control supply operations Power Supplies Da Qiao & Substtion and power supplies Changqiao To prvide power sTplies for Da Qiso and ChangqiaoPump Sttions DistributionSystem Shanghai citywide Pressurepipelines deeL, ductile iron to be determined Distribution maerls to improvementto be selected improve em pressures Ditribution Network Shgnghaicitywide Sysemtic anlysis of disribution Analysis sydem Detormineplamned strengtheningof distibution sydem Miscellan Shanghai Miscellaneous Equipmnt opertion To support sydematic equipmentincluding flow met, network pressure analysisand metr and softwae operational ctivities

... Continued No. Component Location Description Capecity/Sizu Function

PC2 Unper Huantou To PollutionControl be determined: To ensr compliancewith 33 priority effluent dischargestandards, industries In-factory Wujingand to be control pollution levels in Constructionof 'in-factoty addressd Hugpu catchment,and Pretreatment Minhang effluentpretreatment facilities for at Priority Industries sustain viability of Da Qiao those industriesidentified s major water supply system polluters of Huangpucatchment Wujing Sewer Wujingand Reinforcedconcrete culvert or pipe 1Skm Primary Conveyor Minhang First Stage of systemto materials,tunnel constnrutionor by convey 0.7Mm/d wastewater pipe jacking, with reinforced from Wujing/Minhangareas concrtet egmentor other lining in to miesbetweon 0.3 and 2.5m, pump stations and ccess shafts, and HuangpuRiver cossing Wujing Sewer Wujingand Reinforcedconcrete or other pipe 25km SecondafyConveyor Minhang To convey wastewaterfrom materialsin sizes between 300mm Wujing and Minhangareas to and 1,600mmdia, and pump primary conveyor stations

Link Sewes Wujingand Reinforcedconcrete or other pipe 35km Minhang To convey wastewaterto materialsin sizes between 200mm tnmk sewer system and 300mmdia PC3 Sonniing WastewaterPollution

Songjiang Extensionof existing tunlk Songjiang 6.7km 300mm dia To convey wastewaterto sewerage system, reinforced 5.7km 450mm dia SongjiangTreatment Plant Wastewater concreteor other pipe materials Conveyor 1.4km 600mm dia System 1.8km 800mm di& 3.3km lO00mmdia 3.2km 1200mmdia

.. Continued No. Component Location Description Capacity/Size Function

Songjiang Songjiang Reinforcedconcfete pump I Nox2M,OOOm~/d To convey wastewater Wasteater structus and 3 to equipment, I Nox l,SOOm/d Sonajiag treatment plant Conveyor Syem pipewo, screens,elcbical equipment Link Sewers and Songjiang Reinforcedconcrete Connetions or other pipe To convey wastewaterto materials,pump stationsand equipment tunk sewer system Songliang Son4iang Extensionof existing Songjiang 63,OOOm3/d To wastewater WTP fom treat wastewaterfrom 18,000/d to Songjiangto acceptable Treatment Plant 63,000m3/d with (WTP) treatment quatityfor dischargeto Pc comrising primar and Huangpuriver secondary sdimentation, aertion and sludge digestion PC4 Water Ozlitv

Da Qiao Reinforcedconcrete and building Huangpu MonitoringCenter construction riverwater quality to house equipment, monitoring facility. laboratory, for water quality monitoringand analysis. WaterMonitoring Da Qiao Supplyand instIlation of Equipment equipment Huangpu river water quality and facilitiescomprising, monitoring fcility. analyticalequipment, 2 No boats for river water sampling,2 No vehicles for oporations. LAbonato Da Qiao Supply of computerizedlboortory To improve water Informction datamanagement system qualitydata Managemet Sydem mnagement

... Continued No. Component Location Description Capacity/Size Function

PCS Municitl Solid Waste and Niehtsoil Manatement MunicipR1Solid W"o Ssalintang Excavate, transportand diopose of 147,000 tons To provide facilityfor solid MSW stockpiledat the site, waste transfer operations SanlintangTranfer Convert the site to a transfer staion Station Civil Works for barge to road container tanwspoirtation.

Transfer Station Sanlintang Rail track crane for 17 rni (alt. 10 4,750 tons/day Equipment 3 Equipmentfor transferring n ) containers, containersto trucks or storage. Trport System Sanlintang to Flatbed trucks for 2 containersper 70 To tranport solid waste from laogang Lanfill load. Sanlintangto Laogang Landfills. Leogang Landfill LAogang Improvingthe infratcture for - Civil Works Upgradingof Laogang container truck trsportation, Landfill site. upgrading road bridge andrepair of weighbridges.

LoogangLandfill Laogang Equipmentfor unloodingcontainers Equipment 4 containercranes, Improvingthe barge andtransportation to landfillsite. 16 tippingtrucks, unloadingcapacity and Equipmentfor improvedwaste 2 compectors, 1 upgradingthe disposal compactionin the landfill, and mobile compositor medhodsat LaogangLandfill productionof compostto be usedas site. cover MAterial.

Laogang Landfill Laogan Monitoringand laboratoy Wells and Monitoring Monitoringthe groundwater, equipment samplingpumps, surface water andair quality andportable gas at the landfill. monitors.

... Continued No. Component Location Description Cspcity/Size Function

Jiangzien Landfill Pudong Site improvement,excavation and 1.2 million tons Improve Civil Worb plaing cover material the environmental on old fill, conditions at the landfill. build leachatehandling systemand monitoringwells. Jiangrzhn Landfill Pudong Povide steel wheeled compctor. I No. Improvedwast compsction and loger useful life of the site. Tempoay Duwp Xinjin, Dacng, Cloing down 2 and refurbishing5 1.0 mifliontons Sites Civil Works Jin Quio, Qiyi sites. Improvingthe envionment (2), Gucun and and upgrading for temporary Ho uo existing dump sites. New LandfiU Sites Various Siting and prepartion of new Civil Works landfill - To provide suitablelandfill sites for MSW and sites closer industrialwaft. to the waste generation areas West of ° . Trnsfer DocksCivil Huangpu River Demolitionof existing buildings, 4-6 docks Works and Suihou Creek. new foundations, Contanerization of waste for buildings, improvedtrprtation. concrete slabs and river walls. Water Transport Various Modifyexisting System 100-tonbarges for 36 No. Improvedefficiency, contsiner trnsport, and supply of 108 No. new environmentand workers' 80-ton barges. sfety Container System Various Supply 17 m? (alt. 10 mn) 823 No. containo. As Above. Collection System Various Removeconcreb Civil bins and replace 1,000 No. Improve the Works with encloses and steel and/of environmental plastic bins. conditionsat collectionpoints.

.Continued No. Component Location Description Capacity/Size Function

Collection Sydem Various Supply bin-lifting collection 50 No. Improve the collection velicles, efficiency. Pilot Collectdon Shanghai Contracting out collection services 2 districts Improved collection sevices. Project in open competition. No additional investments. Nightsoil

Zhabei and Putuo Build dewatering stations, 4 subdistrict pilot Study the feasibility of NS Pilot Project Districts connecting septic tanks at public area dewatering and discharge to toilets to sewers. sewers. Nightsoil Hadling Shanghai Supply of collection vehicles and 30 No. Equipment Volume reduction before mobile sludge dewatering units. 2 No. trn ationand disposal. PC6 Technical Assistance. Project Mansaement and Tmaining

Water Distribution SMWC Local/Foreign Technical assistance - To assist SMWC in Analysis and equipment systematic analysis of the distribution network system for improved operational planning. Shanghai SEPB Local/Foreign Technical assistance Environment To improve the efficiency and Tmining Center effectiveness of SEPB Trining Center. Financial Accounting SMWC Local/Foreign Assistance nd Managemnnt for To assist SMWC in the SMWC development of improved financial accounting efficiency and techniques.

... Connnued No. Component Location Description Capcity/Size Function

Water Supply SMWC lAxal/ForeignTechnical InflvmationSytem Assi - To improve opertional efficiency, long-rtnge planning capcity and facilities managment. Istitutional SESAB Local StUghening and foreigntechnical Stgthod assistanc to develop mangemet tochnicaland information financialmanaement, and sydsem, budget and improved service accomting prc and billing system. performance. Workshop SESAB Localand foreign techmical Mangement assistanc Improved maintenanceand to enble SESABto rq,ir routines establishproper workshop and vehicle maae3t. utilization.

Future Project Shanghai Local/PoreignTechnical Prepration Aistane - To assist SMO and concerned agencies in prepartion of future investmentprograms Wujing Sewer SSPCC Local/ForeignTechnical Feasibility/Design Aistance - To assist SSPCCin formulatingleast-cost study/ design options. Huangpu River Basin SEPB Local/ForeignTchnical Aidstac Monitoring SEMC - To assist SEPB/SEMCin InfonnstionSysem implementingHuangpu basin and Water Quality water quality management. Modeling Poect Mangement Songjiangand Local/ForeignTchnical Aidance Study/Design Other - To assist in management studies and design studies.

... Continued No. Component Location Description Capcity/Siu Function

WaterSupply Mister SMWC Local/Foreign Plan TechnicalAssidsane - To assist SMWCin developinga soundbasis for long-term water supply developmmtsin Shanghai. Strategic Planning ShanghaiUrban Local/ForeignTechnical Asistanc - InformationSystem Planningand To assist SUPDRIin DesignResearch forrmlating and implerenting Institute(SUPDRI) a high level stdrtegic informationsystem. InstitutionalSupport and Mapping Institute(SMl) to prde digital map t bases in line with SMI's agreed sftrtegy of information systems. InformationSystem Shanghai Local/ForeignTechnical Construction Assistance To strengthen SUCISoffice Commission capacity to provide guidance (SUCIS) and leaders por a networkedinformation system for ConstructionCommission agencies. Trinine Project Training SongjiangWWTC Training of SWWTC personnel in - Improved agency constructiontechnology and capability. operation PollutionSoumres SEPBMonitoring Training of SEPB personnel in - Iroved and Water Quality Center opertion dn maintenance agencycapability Monitoring of aefficiency in operationof monitoringequipment water quality monitoring equipment for sustainedriver quality control. Wastewater ShanghaiAgencies Training of sector professionals Treatment in - Improved agency capability Technology recent wastewatertechnology for future, applications developmentoptions in relation to of local applications wastetr tchnology

SUMMARYAccoutrs Cosw SUmmARY

RMB ------USS X Total ------X Foreign Local Foreign Base Total Local Foreign Total Exchange Costs I. INVESTMENTCOSTS A. CivilWorks 924.7 833.3 1758.0 106.3 95.8 202.1 47.4 B. Materlsis& Equipment 223.1 530.6 753.7 57.6 C. TA Training 25.6 61.0 86.6 70.4 24.7 & 23.6 70.8 94.4 2.7 D. LandAcquisitn Resetimt 8.1 10.8 75.0 3.1 & 102.5 0.0 102.5 11.8 0.0 11.8 E. Design,Spn and Mgt 301.4 0.0 3.4 0.0 301.4 34.6 0.0 34.6 0.0 F. ConstructionSupervision 0.0 44.0 9.9 44.0 0.0 5.1 5.1 100.0 1.4

TotalBASELINE COSTS 1575.4 1478.7 3054.1 PhysicatContingencies 181.1 170.0 351.0 48.4 100.0 185.0 164.0 349.0 21.3 18.9 40.1 PriceContingencies 513.4 47.0 11.4 56.0 569.4 59.0 6.4 65.4 9.8 18.6 ….… - - TotalPROJECTS - - . - - . . - -. COSTS 2273.8 1698.7 3972.5 261.4 195.3 a======456.6 42.8 130.1 =f======mftgf===-r=3===… … …ft…======s== ==s ______.__- ______-- _ -- - - _..______._____...______…______ValuesScaled by 1000000.0- 2/2/1994 16:43 SUMMARY AccouNs BY YEAR (Yuan)

Totals Includlng Contingencies Totels Including Contingencies

1993 1994 1995 1996 1997 198 gss--3us3.s----s..R.M.fl.t3....uul.*us-- Total 1993 1994 1995 1996 1997 u---n---sm.s--.u- u.ufu..Usa-uu..3U.n-su.MSSSS-e------1998 Total 1. IIVESTMENTCOSTS ws--stncruwu ...... A. Cvlil Works 1.9 654.7 933.2 B. Materials 620.0 154.7 3.9 2368.3 0.2 75.3 & Equipuwnt 0.0 231.1 525.1 80.7 107.3 71.3 17.8 0.4 272.2 C. TA & Trainlng 47.4 22.5 906.8 0.0 26.6 60.4 0.0 18.7 19.3 30.2 21.0 9.3 5.4 2.6 104.2 0. tand Acquslitn 22.0 111.1 0.0 2.1 2.2 3.5 * Resetltmt 11.4 63.1 29.0 13.1 14.0 2.4 2.5 12.8 E. Design. Spn and Ngt 0.0 130.6 1.3 7.3 3.3 1.5 1.6 0.2 106.7 181.9 86.1 25.7 3.9 0.0 15.0 F. Construction Supervislon 404.7 0.0 12.3 20.9 9.9 3.0 3.0 14.1 17.2 13.0 3.3 0.4 50.9 0.5 46.5 0.3 1.6 2.0 1.5 0.4 0.0 5.9 Total PROJECTCOSTS 16.6 1088.5 1705.6 843.0 266.1 52.7 3972.5 1.9 125.1 196.0 96.9 30.6 6.1 456.6 Values caled b 100000...... 0-2/2/1994.16:43 E ~~~~ValuesScaled by 1000000.0 2/2/1994 16:43 - 71- ANNEX6

TERMS OF REFERENCE: PC6-TECHNICAL ASSISTANCE AND TRAINNG

INSITuloNAL STRENGTHNINGFOR SUCIS IMPLENAnoN Background

1. To supportthe dynamiceconomic growth of the City of Shanghaiand ensure that there is a coherent basis for planningthe related required urban services, the Shanghai MunicipalGovernment (SMG) has been investigatingand planningGeographic Information System (GIS) implementation. A decision was made in 1987 was made to establish a computerized system to manage the large of amounts of informationrequired for urban planning, infrastructure developmentand construction, environmentalmanagement, and urban services administration. A Project was establishedin the ConstructionCommission to coordinate system planning and development designated the Shanghai Urban ConstructionInformation System (SUCIS).

2. SUCISfocuses on implementation,by the year 2000, of a new shared system for land and infrastructurerecords managementto support governments' response to the rapid pace of developmentin Shanghai and to facilitate managementof infrastructure constructionand environmentalmanagement. SMG's Ten-Year Strategyfor development and implementationof SUCIS identifies 10 principal subsystems largely based on the existingorganizational structure of the ConstructionCommission: (a) mappingsubsystem [responsibilityof the Surveyingand Mapping Institute (SMI)]; (b) undergroundpipeline subsystem-data base of municipalpublic facilities (water supply, sewerage, gas, electric power, etc.); (c) housing and real-estate management subsystem; (d) urban planning subsystem;(e) environmentalsanitation subsystem; (f) environmentalprotection subsystem; (g) construction commission headquarters office subsystem; (h) twaffic management subsystem; (i) undergroundpipeline subsystem; and () land administrationsubsystem.

3. As part of the Ten-Year Strategy, a pilot project was conducted in part of an inner urban district to help identify techniques, functionality, and institutional mechanismsfor SUCIS implementation. A Middle-StageProject is now in progress as an extensionof the pilot project in order to provide a better test of data sharing and subsystem integration. Participatingagencies would each acquiretheir own technologyand build their own data base. Communicationrequirements and approachesare still being detemined.

4. SMG is proposingto spend considerableresources on GIS technologyby the end of this decade. The eventual level of functional benefit would be directly related to the manner in which this investnent is managed. At the present time, the overall SUCIS initiativeis being constrainedby a lack of adequateresources (human, financial, technical) - 72-

anda looselydefined information policy framework. Consequently,effective mechanisms institutional requiredto implementSUCIS throughout Shanghai have not beenadequately designednor are sufficientresources being allocated towards eventual implementation the system. of Consultancyassistance under the ShanghaiEnvironment Project (SEP)would address the overall institutionaldevelopment of SUCIS under this assignment. technicalassistance (TA)

5. Themapping subsystem of SUCISwould provide the unifiedgeographic for all the other base subsystems.Topographical mapping is providedby SMI at two primary scalesin urbanareas (1:500and 1:2000)and containsmany of the featuresused by other agencies. There are approximately4,800 1:500 scale maps that comprise of Shanghai, the urbanarea compiledfrom aerial photography through stereo compilation and fromfield survey measurements. The paper and mylar manuscriptscovering converted the city are being to computerformat (digitized) by manualline tracingwith simpleDOS-based CAD technology. However,the resultingdigital data are not of well suitedto construction spatialentities as requiredfor GIS implementation.A numberof SMG already agencieshave acquiredGIS softwarethat requires GIS data formats, and several others preaing to acquire are such software. To use the digitalmap data from SMI, the data must be convertd to GIS format Assistancein doing so would be assignment. providedthrough this 6. The Shanghai Urban Planning and DevelopmentResearch Institute (SUPDRI),within the ConstructionCommission's Planning Bureau, has been GIS technology workingwith in parallelwith SUCIS development, including involvement in the Middle- StageProject. SUPDRIbegan GIS investigationand experimentation developed in 1987, and has a system with limited scope in terms of data and applications. SUPDRI currently requires assistancein developinga PlanningInformation System, as part of SUCIS, to help guide strategicdecisions on land uses, tanwsport, economic infrastructure,and developmentin the rapidlygrowing metropolitan region. A relatedtechnical SEP-supportedassistance assignment would provide this expertise. 7. The ShanghaiWaterworks Company (SWC) is responsiblefor maintaining and developing one of the largesturban water distributionsystems in the world. It been involvedin has SUCISsince its inception,including participation in the pilot projectand the currentMiddle-Stage Project. SWC, alongwith its subsidiaryorganizations, assistance requires in developingand implementinga comprehensiveWater Information System Shanghaiin for order to manageits resources more effectivelyand efficientlyin repair, maintenance,and system augmentation. This assistancewould be providedunder the fourthSUCIS-related SEP-supported TA assignment. Objectives 8. The aimof this TA (InstitutionalStrengthening for SUCISImplementation) is to enhancethe following GIS-related institutional mechanisms within would SMGto a levelthat enable the cost-effectiveimplementation of SUCIS across Shanghai: concerningorganizational policies mandatesregarding the gathering, processing, storage, retieval - 73 - ANNEX 6

and dissemination of geographically referenced information; definition of roles and responsibilitieswithin SUCIS' constituentorganizations; definition of realistic levels of resources (human, technical, financial) to fulfill the required organizational mandates within SUCIS, including measures to obtain, sustain, and eventually augment these resources through the formal municipalbudgeting and programming process (including transparent measures for cost-recovery); systems for inter- and cross-organizational exchange of information; an overall technology architecture that meets realistic requirements of SUCIS' participants (includingdata communicationand exchange); and a monitoringand evaluationmechanism that would provide the necessary feedbackto SMG on technical, management,and financialaspects of SUCIS. Scope of Work

9. Much of the backgroundwork required for this TA has been performed by the SUCIS General Office and in the course of CIDA-financedWorld Bank preparation studies. Thesereports should be reviewedas backgroundto the followingtasks comprising the work required under this TA: (a) analyze strategic issues concerning successful implementationof SUCIS and achievementof the objectives outlined in the SUCIS Ten- Year Plan; (b) in consultationwith SMG agencies and the SUCIS General Office, develop managementprinciples dealing with the following technical issues: data management; technologystandards; system design methodsand standards; and data communicationand exchange; (c) define standard interagency data managementresponsibilities including, where possible, primary, secondary, and tertiary responsibilities and primary data collection, storage, and maintenanceresponsibility by data set and agency; (d) develop modelinteragency agreements for data sharing, exchange,and pricing, and facilitateactual agreementsbetween agencies or groups of agencies on related policy; (e) review options for systemfinancing and prepare recommendationsfor fundingimplementation and ongoing operation of SUCIS; (f) establish the organizationalstructure for a secretariat to support developmentand applicationof SUCISpolicy and defineprofessional competency standards required to staff the secretariat;advise on the implementationof this secretariat; (g) design a trainingprogram to develop skills required for SUCISdesign and implementation;(h) in consultation with SMG and SUCIS management, consolidate resolution of specific management issues into a policy framework for SUCIS design and implementation; (i) prepare a final report documenting immediate, intermediate, and long-term policy directions, and indicatingthe steps linking policy requirementsin each time period. Work Organization and Program

10. The Consultantwould report to the SEP Office of SMG, and work closely with the SUCIS Steering Committeeand the SUCIS General Office.

11. The TA would be conducted by a Consultantcomprised of a single team of Chinese and foreign specialists. Experdse of the Chinese specialists would include systems planning and design; geographic data management and data base design; information technology networks design and operation; and information technology managementand policy development. - 74 -

Study Outputs and Reports

12. An inceptionreport defining the program of work and the key issues requiringresolution would document the statusof SUCISdevelopment and define issues the key to be resolvedto successfullyestablish necessary implementation policy. The inceptionreport would also define the scheduleof work, indicatingthe sequence subsequent of worldngpapers and a scheduleof workshops.Each workingpaper would be followedby a reviewperiod and a workshop. An InterimReport documenting modifications proposed to theSUCIS policy framework and institutional changes required to implementation support wouldbe prepared. The Draft Final Reportwould be reviewedin a final workshopprior to preparationof the final versionof the Final Report.

13. The followingreports would be preparedand submittedby the Consultant: RZort: Due Date (from commencementof work): StudyInception Report 1 monthafter contract Monthly signing ProgressReport durationof assignment Worling Papers to be definedin Inception InterimReport Report Draft start of month8 Final Report end of month Final Report 26 end of month30. 14. Tberewould be a detailedreview period after the submissionof eachreport. Reports would be preared initially in draft, and finalized after the aproval of the ShanghaiEnvironment Project Office (SEPO)and the SUCISLeading Group. Twenty copies of Draft Reportsand 40 copiesof Final Reportswould be required. Reportswould be producedin Englishand Chinese. Level of Effort 15. Approximately14 person-monthsof foreignand 70 person-monthsof local consultanttime is envisagedover a 30-monthperiod. The multidisciplinary should foreignteam be comprised of specalias in design of geographicinformation systems; informationtechnology policy and strategicplanning; structuring multiagency information technology projects; institutionaldevelopment; and informationsystems training and technologytransfer.

Facilitiesto be Provided by the Client 16. SEPO would enter into the contract with the Consultantand would be responsiblefor logisticalaspects and formal correspondence. Day-to-daycontact working and relationships,however, would be with the staff of the SUCISGeneral Office and the SUCISLeading Group. SEPOwould use its goodoffices to fcilitate the Consultant's work and nominatean officer to act in liaisonwith the World Bank, local counterpart organizations,and the Consultantthroughout the contractperiod. - 75 - ANNEX 6

17. The SUCIS General Office would provide:

(a) furnished, serviced, cleaned and air-conditionedoffice accommodations, together with telephone and telex facilities for noninternational communication;

(b) a designated,suitably qualified officer to work with the Consultanton a full- time basis, together with selected line staff for both implementationand tIaining, proposed as part of the project preparation process;

(c) access to all available relevant reports and data required to undertake the assignment;and

(d) access to computerand communicationshardware, software, and data bases existing within the Shanghai Municipal Government's Construction Commissionconsidered necessary by the Consultant for the efficient and effective conductof the work.

Facilities to be Provided by the Consulant

18. The Consultantwould include in its proposal the followingitems:

(a) all staff and personnel costs including international and local travel and housing accommodations;

(b) interpreters and secretarial staff support; and

(c) internationalcommunications costs and cost associatedwith report writing, tnslation, and printing.

Comments by the Consultant

19. The consultantis requested to make any comments on and suggestionsfor improvements to these terms of reference in its technical proposal. The financial implications,if any, of these suggestionsand commentsare to be shown separately.

-76- ANNEX7

DISBURSEMENT SCHEDULE ($ million)

Bank fiscal year Disbursement(S million) Project Bank (FY) & semester Semester Cumulative Profile Profile L- (2) (2)

1994 Second 0.0 0.0 0.0 0.0 1995/b First 10.1 10.1 6.3 3.0 Second 9.9 20.0 12.5 6.0

1996 First 20.9 40.9 25.6 10.0 Second 26.0 66.9 41.8 18.0 1997 First 31.1 98.0 61.2 30.0 Second 23.7 121.7 76.1 42.0 1998 First 16.3 138.0 86.2 54.0 Second 8.6 146.6 91.6 66.0 1999 First 6.3 152.9 95.6 74.0 Second 3.3 156.2 97.6 82.0 2000 First 2.4 158.6 99.1 86.0 Second 1.4 160.0 100.0 90.0 2001 First - 94.0 Second - 98.0 2002 First - 99.0 Second - 99.0

2003 First - 100.0

La Disbursementprofile for China(all sectors),issued May 1992. lk IncludesSpecial Account disbursement of $9.0 million.

- 77 - ANNEX 8

LAND ACQUISIT[ON AND RESEITLEMENT PLAN

PC1-DRDNKG WATER QUALrrY PROTECON REI'nzLENr PLAN ANIMPLmENTATION PROCEDURE Introduction

1. The relocation of the existingraw water supply intake from Linjiang to Da Qiao is the principal component of the Shanghai Environment Project. In addition to improving the river water quality for the people of Shanghai, a better investmentclimate for the economicdevelopment of Shanghaiand the Pudong New Area would be achieved.

2. The eisting water intake is located in the polluted middle reaches of the Huangpu and the present project is to relocate the intake in the upper reaches of the Huangpu at Da Qiao near Songpu Bridge. The scheme would comprise:

(a) 5.4 Mm3 Raw Water Pumping Station at Da Qiao;

(b) 16.6 km long 4 box concrete culvert (each box 3.75 x 3.25 m) from Da Qiao to a junction at Zhang Che Cun in the CaohangTownship of Shanghai County;

(c) 4.2 Ikmlong 4 box concrete culvert (each 3.60 x 3.25 m) eastward to the west bank of the HuangpuRiver at Linjiang;

(d) o.72 Im long 4.0 m diameter tunnel across the Huangpu to enter a regulating reservoir at Linjiang Pumping Station;

(e) 3.0 Ian long 2 box concrete culvert (each box 3.90 x 3.25 m) from Zhang Che Cun northward to a bifurcationpoint (C) located on the south side of the proposed outer ring road;

(f) 3.35 km long 3.5 m dia steel pipe including 1.1 km of 3.5 m dia tunnel from point (C) eastward to ChangqiaoWater Works; and

(g) 3.15 km long 2.2 m dia steel pipe including 0.8 km of 2.2 m dia tunnel westward to the new treatment works at Longxi.

3. The works are located in Songjiang County, Shanghai County and . - 78 - ANNEX 8

4. In order to minimizedisruption, the works are located wherever possible in open county. The culvert would have a 2-meter cover to allow cultivation after completion. Some areas of land would have to be acquired and a few dwellings would have to be removed and their occupantsresettled; some disruption would therefore occur. All inhabitants and units affected would be given proper compensationand resettlement in accordance with statuary regulations.

5. Laws and Regulations Related to Demolition and Resettlement. The Shanghai Government has officially approved the project in the document, 'Shanghai Planned Investment' (1993) No. 51:

fThewater diversionfrom the upper reaches of the Huangpu River second phase project is approved to be listed as a subitem of the Shanghai EnvironmentProject for the use of the World Bank Loan." 6. Shanghai Government Release (1987) No. 51, 'Utilization of Land Acquisition Costs for StateConstruction in ShanghaiCity,' stipulatesthe responsiblebody for land acquisition:

'Land acquisition is the sole responsibility of the County People's Governmentunder the organizationand guidance of the Land AdministrationBureau of Shanghai City. Land acquisition costs include land compensation, green crops compensation, compensation for surface and underground items of rural collectives and individuals, resettlement allowances, construction and development funds for new vegetable farms, land acquisition administrativc funds, unforeseenexpenses, and other expenses as stipulated by the state and city.' 7. The administrative requirements for land acquisition is contained in "Shanghai GovernmentRelease' (1980) No. 119:

'At the time of land acquisition the necessary land for construction must be assured and in addition the immediate interests of local inhabitantsmust be considered.

The project unit responsible should make appropriate arrangementsfor the livelihoodof communeteams, units and individuals affected.

All communes teams, units and individuals affected by land acquistion should abide by the State Decrees and actively support the State construction so as to ensure construction starts on time.' - 79 - ANNEX 8

8. Compensationstandards are set out in the document, 'Financial and Material CompensationCriteria for Land Acquisition in Shanghai City.' Guidance on house evaluationis contained in the document, 'Provisional Criteria for Housing Evaluation in Shanghai City."

9. The detailed administrative requirements are set out in 'Detailed ImplementationRegulations for Demolitionand Resettlementin Shanghai," Decree No. 4, People's Government of Shanghai. For demolition and resettlement of housing, the followingdocuments must be obtained: 'Approved constructionplan, plaming license for use of construction land, certificate for use of land, and license for demolition and resettlement." It is also necessaryto hold an agreementsigned by the relocatee on terms of compensationand resettlement.

10. Program of Demolition, Removal and Resettlement. According to engineeringdesign, the Da Qiao Pump Station would require a permanent plot of land as well as land to be leased for construction. For the conveyor only, the vent stacks and junction wells require land acquisition; the remainder of the land would only be leased. The land to be leased is 120 m wide for four-box conveyor, 95 m wide for two-box conveyor; the land to be leased for Changqiao3,500 mm diameter steel pipe branch line is 70 m wide, and that for Longxi 2,200 mm dia steel pipe branch line is 35 m wide. All installations within the range of the land to be acquired and leased are required to be dismantledand moved.

11. To inhabitants with their housing removed, the township or village governmentwould be entrusted to build house for them at a nearby site chosen within the scope of their own village. The duration of house building is considered as four to six months. Units would be given compensationor resettled at another plot of land to be acquired. The labor force from land to be acquired would be substantiallyrecruited as workers of the Da Qiao Pumping Station or absorbed by local township enterprises.

Study to Minimize land Acquisition, Demolition and Resettlement

12. An on-site survey has been carried out along the entire length of the buildings located within the width of land to be leased. Buildings in the area but not directly in the excavationzone would be preserved wherever possible by reducing width of land to be leased at local spots together with the use of protective measures.

13. For the Changqiao and Longxi branch pipelines that have sections partly passing through densely populated area, it is recommended that pipe laying would be replaced by pipe-thrust boring at a depth of 20 m underground; hence, considerable demolition and resettlementcan be avoided. Since the culvert constructionline stretches to 4-5 k:min one constructioncontract, it is impracticalto start constructionsimultaneously along the entire length. It is recommendedtherefore that constructionwould be conducted section by section and the application for land leasing would follow in step with different constructionperiod. Contractors would be requested to backfill and level the ground in - 80 - ANNEX8

time at the construction site, so that the duration of land leasing may be reduced to a minimum.

Investigation and Verification of Amount of Demolition and Resettlement 14. Demolition and resettlement was carried out once in 1985 along the conveyor length, but regulations were not enforced further due to financialrestrictions and postponement of the project. Now followingthe optimizedand verified project scheme jointly compiled by the ShanghaiMunicipal Engineering Design Institute and the British Mott MacDonald ConsultingCompany, an investigationteam of five from the Shanghai Municipal Waterworks Company carried out a detailed survey for land acquisition, demolition,removal, and resettlementfor the present project from October 1992to January 1993. This has receivedsupport from governmentsof county, townshipand village along the entire pipeline and from the planning and related departments of Shanghai City. Through the on-site investigation,the amountof demolition, removal, and resettlementhas been defined, and an estimate has been compiled for compensation and resettlement expense in accordance with related regulations. 15. Ihe Amount of Permanent Land to be Acquired. The amount of permanent land to be acquired is small relative to the amount of land to be used in the whole project, mainly due to the comparativelylarge amount of land temporarily leased for culvert construction. The culvert line is 30.2 km in full length (inclusiveof Changqiao and Longxi branches). It is divided into six contract packages. Different time-scalesfor temporary land acquisition would be arranged according to the construction schedule and in consideration of the combined economic and social effects. Farmland along the conveyor line would be leased (generally no demolitionor resettlement)as well as areas for temporary installationduring construction(see the Project File for location drawings).

16. Amount of Land to be Acquired or Leased and Buildings Removed. Quantitiesfor the land acquisition, land leasing and resettlement as shown in Table 1.

(a) Da Qiao Pumping Station. All the land to be acquired is farmland. Thirteen houses have to be removed and the inhabitants resettled locally;

(b) Main Conveyor: Da Qiao-Linjiang. A construction width of 120 m is required, but would be locally reduced to avoid unnecessarydemolition of buildings. The permanent land to be acquired is all farmland; land leased within the construction width is 80 percent farmland with the remainder road, railway or river. Four separate areas (total 120,000 m2 of farmland) would be leased for temporary installation. For access to the site existing tractor roads would be utilized where possible but an allowance of one access every 500 m x 150 m long x 8 m wide has been made. Two units would be demolished; mainly boundary walls storage areas and a few buildings. - 81- ANNEX8

Table 1: SummARYOF LAN ANDREErNENr REQUnREMEM

Do 01,.. ei.n Uracb Ppel. to Pfpel Cbay be lo.thnut ce.yor conveyor C qto to 1ougP " borigso Total

Pezaeaet lead to beaquired (eu) 46.S00 11.700 1.500 1.000 - 5.000 Lead to be looed for ee.atmc. 400 64.400 tim (VP) - 2, 54.000 279,000 151.100 ao,5o0 5.000 14.000 2,772.300 Lad to be leased for t_prery ziaete±ttoa Cu) 39.640 120.000 13,000 24O000.j 4,400 - - 201,540 Area to be leas" for easess to emotruetie sites (ue) - 51,000 - - - - - 53,000 to be deioUed Imbr 1} 11 40 4 17 Area (MP) - - 7 1.000 1,400 3,500 $00 2.500 _ _ 10,200 LeA to be ecqired for bmaee or site (u') - - 4,500 - - - 44.500 units to be donalishad ummr I1 14 4 Are (u) - - 2 - 2,000 14.000 2,400 1,400 - - 13,600

La IdClud land to be leaed for acceu.

(c) Brnch Conveyor to Cbangqiao and Longxi. The permanent land to be acquired is all farmland. For leasing within the construction area, a 95 m wide constructionwidth has been allowed; the area is mainly farmland but partly river and township grade roads.

(d) Changqiao Branch Pipeline. The pemanent land acquisition is mainly famland; for temporary leasing during construction mainly farmland but includes part city road and part river. Land to be leased temporarilyduring constructionis all farmland.

(e) Lonipd Branch Pipeline. The land leased for the 35 m constructionwidth is 60 percent farmland with the remainder ether river or township grade roads. For temporaryinstallations, all land to be leased is farmland. Units to be demolishedinclude four buildingsand part of the boundary wall.

(f) Changqiao Lift Pump Station. All land to be acquired or leased is farmland.

(g) Changqiao/Longxl Thrust Bores. All land to be acquired or leased is farmiland.

Resettlement

17. Resettlement Program for Inhabitants. Since there are not many inhabitants and no concentration of residence to be moved along the entire pipeline, all those individual households would be settled down nearby in their own village according to regulations. If there are in the city or township new communal residential quarters affording better living conditions to the existing residence, those households would be demolishedand may be allowed to move in those new quarters. inhabitantswho build their own house would obtain a building area equal to the existing plot as compensation, and those to move into new quarters would be allocated 55 m2 (building area) per household in general. -82 - ANNEX 8

18. ResettlementProgram for Units. Since the ground layer on top of the conveyor after completioncan be restored only for farming, and not for building, units to be demolishedwould generally move to other selectedplaces nearby under the auspices of the ShanghaiMunicipal Waterworks Company. Some of these units would reduce their use of land throughinternal rearrangementand obtain compensationas allowance for land being acquired.

19. Resettlement Program for Labor Force. The principle of labor force resealement is that those who have land to be acquired would be recruited as workers at the Da Qiao Pumping Station; some of them may enter local township enterprises for placement on a voluntary basis. 20. The land acquisitionfor Da Qiao Pumping station would make redundant 74 laborers; of this total 14 are over 45 year or want to work in local township enterprises. According to the ShanghaiMunicipal GovernmentRegulations this latter group would be compensated at the rate of Y 35,000/person. The remaining 60 persons would be employedon the oprating and maintenancestaff of Da Qiao Pumping Station; the Water Companywould also arrange for the cultural educationand technical training of this group that would represent about two thirds of the total pumping station staff. 21. Along the length of the culvert the only land required to be acquired is that associaed with the air vent shafts-about 30 m3/shaft. The land to be acquired in each township is of the order of 100 m2/township. Individual laborers would be compensated according to the Shanghai GovernmentRegulations.

Costs for Land Acquisition, Land Lease, Demolition, Removal and Resettlement

22. All costs for land acquisition, land lease, demolition, removal and resettlementwould originate from the domesticcounterpart fund of the subproject,totaling Y 90.53 million.

23. Principle and Criteria of Land Acquisition, Demolition, Removal Compensation Expenses. According to related regulations, compensation through evaluation would be given to inhabitantsand units who have building being demolished; the units would be given expenses for land acquisition, equipment moving, compensation for loss due to stoppage of production (including compensation for personnel due to suspensionof work).

Compensation criteria and expenses (Yuan) of major items:

(a) land Acquisition. The standardcompensation rate would be in accordance with ShanghaiMunicipal Government regulations. The compensationcovers direct and indirect economic loss caused by land acquisitionand is slightly higher than the income which would be derived from farming (Table 2); - 83 - ANNEX 8

Table 2: LAI AcQuIsmoN BY CouNrY

Location Type Area Total (y/m2) (Y million)

Songjiang County basic paddy field 105 5.15 Shanghai County half paddy field 150 9.26 half vegetable Total Land Acquisition Cost 14.42

(b) Land Lease. The total leaseduration would be three years with two years for construction (The project contractors are requested to lease land according to schedule and to level the ground after completion of constructionin due time with backfill of original tillage soil) plus one year as allowancefor inadequacyin soil fertility;

Total land lease expense: Y 55.89 million as detailed in Attachment 1.

(c) Relocation Costs for Inhabitants. Total costs as Attachment 1 is Y 8.65 million; and

(d) Dismantling and Moving Expenses for Units. Due to dismantling of warehouses, the Shanghai Glass Enclosure Factory, the Meilong and Longxing TownshipFlavoring Factory would suffer loss from suspension of production and would be given a compensation of Y 20,000 each, amountingto a sum of Y 60,000. A further Y 10.06 million is required as compensationto other units, as shown in Table 3.

24. The expenses for land acquisition, land lease, demolition, removal and resettlement make a grand total of Y 89.03 million, as detailed in Attachment 1. The compensationfor moving electric poles, trees, etc. amounts to Y 1.50 million, giving a grand total of Y 90.53 million (see Attachments2 and 3 for details).

Organization and Responsibility: Land Acquisition, Demolition, Removal and Resettlement

25. The land acquisition, demolition, removal and resettlement work is an arduous and complicated task, requiring a strong political policy, widespread social relations, and timely completion, which would directly affect the progress of the project and livelihood of the people. Consequently,the ShanghaiMunicipal Government has paid high attention, promulgateda series of policy regulationsand establisheda city and county two-levelorganizations, with accumulatedabundant experience. - 84 - ANNEX 8

Table 3: LIA AcQuISmoN FORINDUS-RAL UNITS

Item Area Unit Unit rate Total (Yuan) (Y million)

Moving expenses for highway maintenance squad room and office building Lump sum - 0.20 Moving axpense for cattle sheds, etc. Lump sum - Damage to concrete floor 0.10 3,000 m' 90 0.27 Damage for dismantlingbuildings (storiedhouse) 5,000 m2 800 4.00 Basic buildinge,cattle sheds, etc. 21,400 ml Boundary walls 250 5.35 800 m 100 0.08 Total 10.06

26. The relocation of the water intake is a major environmental implemented project to be by the Shanghai Municipal Government. In order to assure implementation the successful of this item, the Municipal Govemmenthas set up an environment office as the project organization for overall liaison and coordination. As the proprietor PC1 loan, the Shanghai of the MunicipalWaterworks Company has set up a subprojectoffice organization corresponding and to the project constructionoffice, with a working team of personnel responsible 11 for the earlier stage project dealing with acquisitionand resettlement issues. In Shanghaiand SongjiangCounty, which are districtsof major constructionwork, a site office for the inital stages of the project has been set up together with planning and land the local managementdeparanents. This would assist the Shanghai Municipal Waterworks Company to jointly carry out the program. 27. Responsibilityof the resettlement project team of the Shanghai Waterworks Company: Municipal

(a) In areas of construction defined in the design to carry out on-the-spot investigations and determine the amount of expenses for land acquisition, land lease, demolition, removal and resettlement; (b) To confirm the expenses for compensationthat would arise from domestic circumstances;

(c) To conductland allocationlicense of project constuton, certificatefor use of land, license for housing demolitionand removal; (d) To map out plan for demolition, removal, resetlement and action plan; - 85 - ANNEX8

(e) Being responsible for the disposition of surplus labor force from land acquisition.

28. Responsibilityfor the site office for initial stages of the stage work project in ShanghaiCounty and Songjiang Countyis as follows:

(a) To provide working personnel of 20 for each organization;

(b) To sign agreement with inhabitants and units to be removed, on compensation and resettlement, under the supervision of the Shanghai Municipal WaterworksCompany;

(c) To draw up a report on compensation for various installations and agricultural production that would be affected; and

(d) To carry out the demolition, removal and resettlementplan. Program

29. Preparatory Work Stage. From October 1992 to March 1993, the ShanghaiMunicipal Waterworks Companytogether with working personnel of Shanghai County and SongjiangCounty has carried out on-the-spotinvestigation of the project and expense estimate, and formulatedplans for the initial stages of the project.

30. According to plan of action, the ShanghaiMunicipal Waterworks Company would from May 1993 apply for land allocation license for construction planning, certificate for use of land from the ShanghaiMunicipal Planning AdministrationBureau, the ShanghaiLand AdministrationBureau, and would accomplishin September 1993.

31. Implementation Stage. The Da Qiao Pumping Station: From September 1993 to February 1994.

32. The Conveyor:

(a) Songjiang County section: From September 1993 to January 1994;

(b) Shanghai County section: From November 1993 to April 1994.

33. Changqiao and Longxi branch line, (includingpipe-thrust boring): From September 1993 to April 1994.

34. Changqiaoand Nanshi Booster Pumping Stations: From October 1993 to March 1994.

PC2-UIm HUANGPUCATCMENT POLLUrnONCONMMOL - 86 - ANNEX 8

35. The constructionof the WujingJMinhangTrunk WastewaterSystem would require only limited land acquisitionand no resettlement, as most of the work would be undertakenunderground as a tunnel, using current microtunnelingtechniques mainly under public roadways.

PC3-SONGJLANGWASnEWAM POLLUTIONCONTMOL

36. The Songiang wastewater treatment plant extension would require the acquisition of approximately 10.2 hectres of land. No residences and only one farm bulding are located on the main 10 hectare parcel of farmland, so losses there would be entirely of crop output. A second parcel contains a vehicle workshop, which would be relocated. Songjiangcounty expects to absorb 20 percent (approximately25 people) of the displacd farmers in their operations, while the remaining 80 percent (or 112 people) would be reemployedthrough the Songiang county labor bureau. Songjiang county has developed a resettlementplan acceptable to the Bank. - 87- ANNEX8

ATTACHMENT 1 BUDGETARY ESTIMATE FOR LAND COMPENSATION

Total prica Item/Category Unit price (Y) Amount (Y m11ion)

Land Acauisition Costs SongjiangCounty: paddy field 105/m2 49,143 m2 5.16 Shanghai County: paddy field, vegatable fam, 501 each 150/32 61,733 D2 9.26 Subtotal 14.42 Land leaae Casts at 2 years' duration plus 1 year for soll inadequate of fertility Paddy field 20.2/32 1.8921 Mm.2 38.22042 Vegetable farm 29.97/3 0.32297 Mm2 9.67941 Orchard go/r2 0.02133 lb2 1.9197 Rest (voodLandfishpond) 7 5/*2 0.81046 IM2 6.07815 Subtotal 55.8993 Compensationfor Residence Removal Reward expense for removal 500/household 87 households 0.0435 Resettlingbuilding expense (axclu- sive lend acquisitionexpense) 652/32 0.0102 lb' 6.6504 Compensationfor dismantling 1 (average) 040102Ifi2 192951.9584 Subtotal 8.6523 ComPenastionfor Unit Demolitionand Removal Stories house (exclusive of lend acquisition expense) 800/mi 5,000 *2 4.00 Cattle shed, etc. (exclusive of Lend acquisitionexpense) 250/m2 0.0214 lmb 5.35 Concrete floor go/32 3,000 *2 0.27 Inclosingwall 100/32 800 m2 0.08 Moving cattle sheds 0.10 ovinlgoffice bldg., squad room 0.20 Damage, suspension of production 0.06 Subtotal 10.06 Other CompensationCosts Sidevalk trees 360/tree Zlectric poles 5,000/people 1.50 Greenbelt 45/m2

Total 90.53

- 88 - ANNE 8

ATTACIMENT 2 STATUS OF RESIDENCE DEMOLITION AND REMOVAL

No. of households Area of residence Region to be moved to be removed (m2 ) Population

Songiiang County Chedun Township 13 1,000 61 Shanghai County ZhuangqiaoTownship Jinjiazhai 7 1,750 39 Shanghai County Caohang Township Gujiatang 4 650 18 Shanghai County Caohang Township Xiaosunjiazhai 3 180 15 Shanghai County Meilong Township Zhujiatang 23 2,380 78 Shanghai County Heilong Township Jiting Brigade 20 1,740 79 Shanghai County Heilong Township ChangmucunNo. 2 Teem 10 1,980 36 Shanghai County Meilong Township ChangmucunNo. 1 Team 7 520 24

Total 87 10.200 350

- 89 - ANNEX 8

ATTACEIMENT 3 STATUS OF DEMOLIIION AND REMOVAL OF UNITS

RexionlCatexory

Main Channel Enclosing wall 2 places 500 m Storage ground 2 places 3,000 M2

Chanmaiao, Lonaxi Branch Channel War-house (one-story) 2 houses 1,600 m2 Office building (three-story) 1 building 2,400 a' Cattle shed 3 sheda 360 M2 Watch house (fishpond) 2 houses 40 mf Paved ground 7,650 32 Enclosing vall 450 m

Chanaaiao Waterworks Branch Pipeline Warehouse (one-story) 7 houses 1,700 m2 Cattle shed 4 sheds 320 M2 Shop building (one-story) 3 buildings 600 m3

Lonezi Waterworks Branch Pipeline Enclosing vall 50 m Cattle shed 1 shed 80 ml Guard house (composite) 1 house 100 M2 Warehouse (composite) 1 house 300 32 Paved ground 900 M2

-90-90-

ENVIRONMENTAL ASSESSMENT 1/

Introduction

1. Shanghaiis located in the Changjiangdelta plain and is the largest and most heavily industrialized urban agglomeration in China. At present, 98 percent of the Shanghaiwater supply (some 4.7 Mm3 in 1990) is obtained from the middle and lower reaches of the Huangpu River, with 89 percent being abstracted at intakes at or close to Linjiang. The lower reaches of the Huangpu have become increasingly polluted by discharges of domestic and industrial wastewater, and the Linjiang abstraction (capacity 2.7 Mm3/d) was completed in 1987 as the first phase of the Shanghai Municipal Waterworks Company (SMWC) program to improve the reliability of drinking water quality by relocating the major abstractionpoint to Da Qiao, some 30 kamupstream and further away from the major sources of pollution of the river.

2. Water demandprojections indicate a requirementof some 6.6 Mm3/d by the year 2000. This level of demand is equivalentto about 20 percent of the average flow (about 315 m'/s) of the Huangpu and of similar order to the 90 percentile low flow. Abstraction of such a major proportion of the river flow affects water movement in the river and results in upward movement of poorer quality from the lower reaches of the river. The situation is exacerbated by the tidal effects caused by the large flow of the Changjiang(average flow of the order of 30 000 m31s some 100 times that of the Huangpu. The effect is particularly acute under extreme low flow conditionsin the Huangpu, when there may be net upstream flow at Linjiangfor periods of several days. As a result, water quality at Linjiang is regarded as unsatisfactory and unreliable, in respect of increasing treatment costs and danger to the public in terms of consumption of water containing chemicals causing taste and potential health problems.

3. In order to address these concerns, the water-related components of the project are focused on improvement of water quality in the Huangpu considering the following principal issues:

(a) enhancementand protection of the qualityand reliabilityof the water supply for Shanghai;

(b) reducing treatmentand distribution costs;

1/ TMeEnvironental Aammat Report pepard by the ShanghaiMumcipal Govenmmt u m the ProjectFile. This Annexrepresets a Project-widemummay. - 91- ANNEX 9

(c) ensuring an adequatesupply through at least the year 2000. 4. Technical support and training would be provided to SWC and environment to other sector agencies in Shanghaiincluding the Shanghai Environment Protection Bureau (SEPB), ShanghaiResearch Institute for EnvironmentalProtection (SRIEP)and the ShanghaiEnvironmental Monitoring Center (SEMC) in terms of environmentalplanning, management and monitoring. In particular, comprehensive water quality monitoring facilities, includinga new laboratory, are being provided to assist SEMC in water quality monitoring and planning for the upper Huangpu basin.

Administrative and Institutional Framework 5. The State Environmental Protection Committee is the highest level authority of on environmentalpolicy and includesthe State Council and heads of all relevant ministriesand agencies. The national EnvironmentalProtection Agency(NEPA) functions as the secretariat of SEPC and is responsible for all aspects of environmental policy although shares authority with other agencies for certain natural resources. NEPA sets overall policies and regulations goveming the provincial and municipal environmental protection bureaus (EPBs) and implementationof environmental policy is through the municipaland provincial EPBs. Project Description

6. The proposed project componentscomprise:

(a) Huangpu River Water Quality Protection-relocation of the water supply intake from Linjiang to Da Qiao and construction of pumping stations, multiple-barrellow pressure supply main, improvementsto existing water treatment and distribution systems;

(b) Upper Huangpu Catchment Pollution Control-pollution control investments in the upper Huangpu catchment including sewerage for Minhang and Wujingto divert wastewaterflows into the Shanghaisewerge system for ultimate treatment/dischargeto the Changiiang, supported by promotion of wastewater treatment/in-plantprocess improvementsat key industries in the catchment;

(c) SongJiang Wastewater Pollution Control-provision of domestic and industrialwastewater collection and treatmentfacilities for Songjiangcounty (includingone treatmentplant);

(d) Pollution Sources and Water Quality Monitoring-provision of a new water quality monitoring laboratory at the new supply intake together with extensive analytical and associated equipment to develop effective water quality monitoringfor the upper Huangpu basi; - 92 - ANNEX9

(e) Solid Waste and Nightsoil Management-investigations into appropriate solid and hazardous waste and nightsoil management strategies to be supportedby suitable investmentsfor system improvements;and

(f) Technical Assistance and Training Components-including project management,financial management, geographic informationsystems, river basin water quality management,planning and monitoring.

7. Of these components only (a), (b) and (c) involve physical works in the immediate term and are therefore covered by the EA studies. Physical works will be involved in (e) in due course. The EA for this componentis therefore only qualitativeat this stage; a more comprehensivequantitative EA will be prepared for the proposed works when identified in detail.

Baseline Data

8. Shanghai is China's largest and most heavily industrialized conurbation, producing about 11 percent of national industrialoutput. ShanghaiMunicipality, located in the Changjiang delta plain, occupies an area of 6 200 kin2, of which 300 Ikm2 are classified as urban. The Shanghai Municipalityarea (population 7.5 million in the 12 districts in ShanghaiCity and a further 6 milion in the adjacentfive counties) is bordered to the north by Jiangsu Province and to the east by Zhejiang Province.

9. Shanghai lies in a convergence zone of cold, dry and warm, humid air masses. Rainfallpatterns are influencedboth by monsoonsand temperatecyclones. There are well-definedseasons with average monthlytemperatures ranging from 3.4°C in January to 27.2°C in August. Annual average rainfall is 1,148 mm with a pronounced rainy season from June to September. The prevailing wind is northwesterly in winter and southeasterlyin summer.

10. The river Huangpuflows through the Shanghaimunicipal area, flowing into the Changjiang at Wusongkousome 18 km to the north of the city. Flows in the Huangpu are measured at the gauging station at Mishidu, close to Da Qiao. The average flow at Mishidu is approximately 315 m3/s, but the river is tidal and this figure therefore represents the net downward flow. Maximumrates of flow on the flood and ebb tides can reach 10,000 and 6,000 m3/s, respectively. Under extreme conditionsof low natural flow in the Huangpu and peak tidal influence from the Changjiang, of which the flow can exceed 100 times that of the Huangpu, there can be net upwards flows at Mishidu for periods of up to several days.

11. The main sources of the Huangpu, which all rise outside the Shanghai Municipalityarea, are as follows (percentagecontributions to the flow in parentheses);

ianlugangRiver (outlet from ) (50.3%) Taipu River (outlet from Taihu Lake) (42.9%) DamaogangRiver/Yuanxiejing River (6.8%) - 93 - ANNEX 9

All sources are generally of good quality, although the Damaogang has significant concentrationsof ammonia, believed to be as a result of agricultural pollution. 12. Water quality in the Huangpu declines as it traverses the Municipality Shanghai area as a result of dischargesof domesticand industrialwastewater and runoff from agricultural areas. The estimated total discharges of BOD and ammonia to Huangpu the are 280,000 tons/year and 91,000 tons/year, respectively, of which 62,000 tons/year and 28,000 tons/year, respectively, are to the upper catchment. 13. Water quality problems are exacerbatedby the pattern of water movement in the Huangpu which is dominated by the tidal influence of the Changjiang. Under conditions of low natural flow in the Huangpu, this tidal influence causes extensive upstream movementof pollution from the lower reaches of the river. 14. A water quality protection zone has been created by the Shanghai Municipality in the upper Huangpu catchmentextending a distance of 5 km from either bank of the river upstream of the city as far as the Municipalityboundary, which crosses Dianshan lake. The objective of creating the zone was to control the discharge wastewater of mto the river; the zone boundarywas based on administrativeboundaries rather than the whole catchmentand its effectivenessis therefore limited. 15. There are nevertheless significant discharges of pollution to the upper Huangpu as referred to above. This pollution originates from a number of sources including domestic and industrial wastewater, livestock-rearingactivities and runoff from agricultural land. Thus, in order to sustain water quality at Da Qiao, it is necessary to have an effectiveintegrated basin managementprogram for the upper Huangpuas a whole. Water Qualty Standards

16. Two categories of national water quality standardare appropnate in respect of water quality in the Huangpu reflecting its status as a source of potable water for Shanghai, the EnvironmentalQuality Standard for Surface Waters (GB 3838-88) and the Sanitary Standard for Drinking Water (GB 5749-85). In addition, there is a Shanghai Municipality EnvironmentalQuality Standardfor SurfaceWater covering six water quality classes. The National StandardGB 3838-88defines water quality standards applicableto five different classes of surface water and water to be abstracted for potable supply should meet at least the Class Ell standard. 17. The longer-term water quality objectivesproposed for the Huangpu are as follows:

(a) Upstream of Mishidu - Class II (b) Mishidu to boundary of Shanghai City - Class m (c) Shanghai City downstream - Class IV - 94 - AN 2

18. Water at the Linjiangand more downstreamintakes fails to comply with the Class m standard for a number of important parameters. At Da Qiao, water generally complies with the Class m standard.

19. In terms of parameters with specific impact on potable water quality the concentrationsof phenols and ammoniaat Linjiangand downstreamare cause for concern because of frequent taste problems of water in supply. Concentrations of phenol at Linjiang repeatedly exceed Chinese standards for drinking water, largely as a result of discharges of industrialwastewater to the Huangpu upstream of Linjiang. In particular, an upset in 1989at the coke works at Wujing, some 10 km upstream of Linjiang, caused phenol concentrationsto exceed the drinking water standard by factors of 10 or more. Levels of ammonia, indicative of pollution from a number of sources (domestic and industrial wastewater;agricultural runoff) are also high and necessitate the use of high doses of chlorine in disinfectionof water for potable supply.

20. Since the major source of phenol in the Huangpu is industrial wastewater, concern has been expressedthat there may be other industry-derivedchemicals in the raw water at Linjiang that could give rise to taste problems in themselves or as a result of reactions with the high levels of chlorine used in disinfection. Surveys carried in 1992 indicatedthe presenceof concentrationsexceeding WHO standardsof chemicals of concern on health grounds (carbon tetrachloride, 1,2 dichloropropane, 1,2 dichloroethane and chloroform)under extreme low flow conditionsin the Huangpuand on grounds of potential taste problems even at average flows.

21. Concenations of phenol at Da Qiao are consistentlywithin the Chinese drinkingwater standardrequirements, and ammoniaconcentrations are typically lower than those at Linjiang by factors of 2 to 3. Under normal flow conditions concentrationsof chemicals with potential to cause health and taste problems are not cause for concern.

Effects of Talhu Basin Project

22. The implementationof the multipurposeTaihu Basin project, also supported by the World Bank, will includethe constructionof the Taipu Pumping Station to augment flows in the upper Huangpu by means of dischargesfrom the lake to the river Taipu, one of the sources of the Huangpu. Dischargesof up to 300 m3/sto the Taipu will be possible, but part will be abstracted for use in agriculture in Zhejiang province and there will be further losses into the network of waterwaysadjacent to the Taipu and upper Huangpu.

23. It is estimatedthat at the 90 percentilelow flow (monthlyaverage) condition in the Huangpu of 80 n3ls, the effect of the discharge of 300 m3/s would be to increase 3 flows by only 90 m /s. Nevertheless,there would be a substantialbeneficial effect of this enhancedflow, particularly in the upper reaches of the Huangpu. The potential effect of the Taihu discharge at the 90 percentile low natural flow is shown below for waxerquality at Linjiangand Da Qiao, from which it will be seen that it is possible to sustain acceptable water quality at Da Qiao but not at Linjiang (shown in Figure 1). -95- ANINEX9

Peak Ammonia-N Concentrations(mg/ ) 90S low flow Location + Taihu 90S low flow /a discharge (300 m3/mec)

Linjiang 5.6 Da Qiao 4.0 1.91 1.0

La Nmety percentile monthly average flow. Daily flows within the month could be considerably lower, at times even net upstream flows. Lk For comparison, this concentration is approximately the average concentration Linjiang. at

Solid Waste and Nightsoil Management

24. Approximately 12,000 tons per day of domestic, commercial, construction/demolition industrial and wastes are produced in Shanghai. Most construction/demolition waste is probably reused and most domestic and commercial wastes is collected, but there is little control over industrial and hazardous wastes. Shanghai is served by three major landfills, the largest of which is Laogang, some 70 k:m from Shanghai on the banks of the Changiiang. Transport of refuse to the site is by river/canal.

25. A total of some 6,300 tons per day of nightsoil (contents of bucket latines, public toilets and septic tanks) are collected in Shanghai and transported to transfer stations (docks) where it is loaded onto barges. These haul the nightsoil by river to storage tank facilities in adjacent counties, from which it is sold to farmers as a soil conditioner or ferdlizer. There is a declining demand for agricultural use of nightsoil, and it has been estimated that substantial quantities of nightsoil may be discharged to the Huangpu. There is also evidence that nightsoil is being used without the necessary storage, with the associated health risks. In addition to the environmental problems, the nightsoil management system is very costly.

Consideration of Alternatives

26. Alternatives to the relocation of the intake from Linjiang to Da Qiao to achieve at least the same degree of improvement in water quality have been investigated. The schemes evaluated were as follows:

(a) Advanced water treatmept at Linjiang;

(b) Abstraction from the Changjiang; - 96 - ANNEX 9

Fgure 1: HuANGPURIvER WATER QuALmrr MODELINGANALYSIS

Risk of Pollution Reaching Intake Sites Under Three Flow Conditions - 97 - ANNE 9

(c) Enhanced water pollution control in upper Huangpu by means of constructionof seweragesystems and wastewater treatment. 27. These alternatives were rejected in favor of the chosen schemeprimarily for reasons of greater cost and respectivelyof: (a) excessive land take in urban areas to extend existing water treatment sites and inability to sustain drinking water quality at times of gross pollution incidents;

(b) excessive environmentalimpact of reservoir (necessarybecause of excessive chloride concentrations in the Changjiang under certain flow/tidal conditions)and constructionof long (in excess of 40 kmn)water conveyors through urban areas; and (c) excessive time period required for construction of facilities required to be effective. 28. The program of wastewatertreatment at Songjiangand of on-site wastewater treatment at key industries and sewerage of the Wujing and Minhang areas was selected on the basis of the particular significanceof Songjiangand the Wujing and Minhang areas in terms of pollution loads in the catchment, cost effectivenessand potential speed and effectivenessof implementation. Alternativesto Wujing/Mfinhangsewerage included more widespread and more extensiveindustrial wastewater treatment and a sewerage scheme based on treatment and discharge to Hangzhou Bay. The former would involve substantial a very number of individual treatment plants and would not provide domestic treatment of wastewater in the areas nor effectively solve the potential problem at industrial of spfllages sites close to the intake. Discharge to Hangzhou Bay could be problematic in environmentalterms.

Impacts and Mitigation

29. The project as a whole is highly positive in environmentalterms and negativeimpacts the are greatly outweighedby the benefits. Nevertheless,impacts have identified been in the EA process for all componentsthat require detailed analysisand mitigation measures. The principal impacts are described below for each project component. Huangpu River Water Quality Protection 30. The relocationof the water supplyintake, coupledwith the beneficialeffects of the water transfers to the Huangpu from Taihu will give a substantialimprovement in the quality of water supplied to Shanghai. There are, however, a number of impacts associated with the construction and operation of the facilities involved which require detailed assessment and in some cases mitigation. The principal impacts are discussed below, and all significant impacts are listed in Table 1, together with the associated mitigation measures. -98 - ANEX 9

Intake Relocation Effects on Water Movement

31. Relocationof the intake, coupled with the increased abstraction, will affect the flow pattern and water qualityat and downstreamof Da Qiao. The quantity abstracted is about 75 percent of the 90 percentilelow river flow and increases the backflushingof pollution discharged downstream. The effect of the relocation and abstraction has been investigatedby mathematicalmodeling of ammoniaconcentrations. Abstractionat Da Qiao is predicted to increase ammoniaconcentrations at Da Qiao by about 20 percent under both normal and low river flow conditions, but the resulting water quality is still considerably superior to that at Linjiang under the same conditions.

32. The increase at low flows is more than offset by the diluting effect of the discharge of water into the upper Huangpu from Taihu, as shown below.

Ammonia Concentration (mIl1) at Da Oiao Flow Condition Intake at Linjiang Intake at Da Qiao

Average 0.61 0.72

90 percentile low flaw 0.93 1.13

90 percentile low flow with n/a 0.86 300 m;3/ from Taihu

Spoil Disposal

33. Excavationfor the constructionof the conveyor from Da Qiao to Linjiang will generate about 1 Mm3 of spoil for disposal. A spoil disposal plan will be prepared and its impact assessed. A spoil disposal plan has been prepared based on beneficial use of spoil, wherever possible, in construction, for landscapingand developmentof public open space areas, and for land-raisingin low-lyingareas at risk of flood damage. Landfill would be only a last-resort option and is not expected to be necessary.

Enforced Land Use Changes

34. The construction of the conveyor corridor will involve the enforced temporary change in land use of an area of 295 ha, with a permanent land take of 6.2 ha and demolitionof 87 residences. A program for restoration of the land to beneficial use is being prepared. During the excavationprocess, topsoil will be stored on-site for use in restoration of the land for agriculture. -99 - 9

Impacts on Transportation 35. The route of the conveyorcrosses 8 highways,63 minor roads and and 60 rivers canals. Constructionof the conveyorwill involve closure for periods and of some months, diversions will be provided to maintain access to agricultural land throughout. and property

Aquatic and Terrestrial Environment

36. Tunneling and pipe-jackingwill be used in the constructionof the conveyor across major rivers and bunding and draining in the case of smaller rivers Where and canals. there will be disruptions to flows in a river or canal being bunded importance that is of as a drainage channel or irrigation source, water flow will be maintained diversion or overpumping. by Land crossed by the conveyoris intensivelyfarmed and there are no natural or even seminatural habitats. Ecological impact of the conveyor constructionwill be slight.

Cultur and Historical Sites 37. No known cultural or historical site in the upper Huangpu catchment be crossed will by the route of the conveyor or the related works proposed in However, the project. in the event that during excavationarcheological remains are discovered, proposed it is to halt work temporarily while appropriate specialistsassess the significance the findings. of

Upper Huangpu Catchment Pollution Control 38. The Huangpu River will remain the primary water resource serving the Shanghai Municipality area and it is of the utmost importance that water quality in upper Huangpu the catchmentbe afforded the required degree of protection. This component is therefore based on the control of the key point-source pollution discharges in terms of their significance in relation to water quality at Da Qiao. The proposals compnse provision the of wastewater treatment facilities for Songjiang County, and a program industrial of wastewatercollection and treatmentdealing with the most significantdischarges located mainly in Wujingand Minhang, between Da Qiao and Linjiang. 39. The proposalsfor Songjiangwill provide treatmentfor industrialwastewaters currently discharged untreatedand will result in a substantialreduction in the volumes nightsoil of generated. The treated wastewater from Songjiang will contribute approximately only an additional0.02 mg/l (less than 5 percent) of ammonia to the Huangpu River at average flow. The treatment proposals involve the extension of an existing treatment plant and therefore the minimum impact in terms of land take and disruption. Sludge from the extended treatment plant will be disposed of by agricultural use as a ferdlizer/soil conditioner. -100 - ANNEX 9

40. The provisionof industrialwastewater collection and treatment facilitieswill naturally have a positive environmentalimpact in terms of water quality at the future Da Qiao intake. In addition the constructionof the Minhang/Wujingarea trunk sewer in tunnel will result in minimal land take, building demolition and disturbance during construction. However, diversion of the wastewater into the Shanghai sewerage system will increase wastewater flows for discharge to the Changjiang estuary by about 10 percent. The impact of this additionalflow at the disposal location and the associated treatment requirements, if any, will require detailed evaluation.

41. The impactsand their associatedmitigation measures are listed in Tables 2 and 3.

Solid Waste and Nightsoll Management

42. The focus of the proposals is to improve the service both in environmental terms and in respect of operationalefficiency. The Laoganglandfill site will be upgraded with the provision of leachate treatmentand an existinglandfill located on the bank of the Huangpu near Linjiangwill be convertedto provide a major refuse transfer station facility. There will also be associated improvements to the other refuse transfer stations and primary collection facilities, with the objective of improving sanitary and aesthetic conditions,and to maintenanceworkshops. A HazardousWaste ManagementStrategy and Master Plan is also under preparation with the objective of progressive control of the collection, transport and disposal of hazardous wastes.

43. The focus of the nightsoilmanagement proposals is based upon the enhanced use of sewerage capacity by a program of connectionsof existing septic tasks along the alignmentsof existing sewers. This will have the effect of reducing nightsoil arisings by up to 30 percent. The remaining systems will be upgraded to improve environmental conditionsby a program of upgradingof storagefacilities, transfer docks, sludge emptying vehicles and sludge dewateringplants.

44. The environmentalbenefits of the solid waste and nightsoil management proposals include improvementsin water quality in the upper Huangpu system as a result of diversionof nightsoil to sewer systems;aesthetic and air quality improvementsresulting from improved handling of both solid waste and nightsoil, in particular prevention of spillages into the Huangpu; and health benefits from improved nightsoil management. Improved standards of operation at the Laogang landfill site, including landfill gas extraction, will result in a substantialreduction in the emissionsof methane(an important greenhousegas); it is expected that use of the landfill gas to generate electricity (potential long-term yield in the order of tens of megawatts) will prove economic and contribute significantlyto local electricity supplies. - 101 - ANNEX 9

Table 1: HUANGPURvER WATR QUALTY PRoTEc1oN- SJMMARY OF ENVIRoNMENrAL IPAC AN MInGAnON MEASURES

It_ potential ngative iwect litigatin _namre ndiitoring Rosidh ee loesttlmut of Ie fr_ convyer Reeettieut Schedul route (87 bkum.. invlved) rrm u.uO ChiMe. regulati_s for resettlamnt cteTwabiip require M.Go,,rot (a) e*enaetie (b) e oef equivalet or etter Induetri e1 wr_~ S_eric~ ~ oeft camors*al ~ ~ ~ ~~~~q 1trie wll 1 avvt to *_eep mm pren±eee protedctie

Agrianlteral LOW Taerary iees of no. Lead Acquisition Schedule drawn up SMDO/. Chimes. regulatione provid, for MC/Towfship cemgp*uAtLan Owovrneemt Loee of sell fertility Topseoi fr_ whole wor" width to be MC staged seperately

Sit, to be cleared bwfoe resteratie mm Loss of irriSetim water TSerary vaterenreas to be emetrutedl Water p_*. my be used if necessary am Lose of ac t_erary acee to be *_truated Elnwhip Goverment River. and een" Pledin irmiem ofr _orpmpin of key am drainag watereonreo Lobes and p1nd Log Reestabliebeet nearb if detred by MC/Temabp Dwterift oemetic wells d_atred Potable water to be prove by MC treamtnt or ta*korig when, requird Piuatem ad river. and easale Water not to be diecargod Sae iTo..fehip fiaherieo watercoursees tlrent bode TMoreIy alesore Diversion to b provided elOCCesty Traffic Deparne Trake T*_rary *leeure Alterntive *cceme provided whre Sr/Timahip neeassary Gowe,ieu Ualmys Dieturibeae i jacking to be dSC Rivere end cana" Teoperay eloenre, Accsee via etber reatee Varnnl-g wig= to be provided (lt at night) _IC iffu -water Pollatem drawn upetrom = ,.-Y P_ 3_0 w?Ie of water free lka n isoc ~~~~~~~~~~~~~during902 low flow oveema Voedl.d Lose Replant trees withi workinr wdth, C esept ever aemugyor Azchaoo Disturbne of undiscovered mitae Contructi wor t be blited if a mm diecoery to ned Kceleg iseturbena. of rivers s eanle Rivers eNd *anl vi be fully suC restored water pollutieo Water nay Mt b dircharged Snte aRCITwa/Sip sanls ned for fiehre Seoveret Pollutio reduction neamaree in ether *_eoente af to Miliary T _rary re_eal of neo eIhrmicatie Woring width to be retrieted is Ilto order to owoi renea tl Dndargremd Severence cables Comiclaticne authority to be S eomeulted beore aeaaation S.ciee~omm Parnenent le ofd agritural land lamnre to be offered jobs at pimpi etatim SC D*lecatio of mleya required at am ba Qie. pumping station wll prvie" traneport daly aC Larp SMStrwctiole ODerorf Centractor to provide accumedatiem M-alte _C USC to provide mrvis. am spoil diopeal "lup naterl to be dispoed aterial to be used beneficially i BC eantructi, iendeaping or land- ratlnge Not"e DietuzAnce during construction Cintruction not aSaeda iamht within R000 of reei tilproperty - 102 - AX 9

Table 2: SONGJiANG CoUNrY WASThWATER PROPOSALS- SummARY OF ENVIRoNMENrAL IMPACS AN PROPOsED MAIGATKoN MEASURES

It_ Potential Nesative Impct Mitigating Measures tatie Monltorin

Zefluet diacharge Ri4agctlo in ater quanty Dincharge to 3aafpu which a -k- euLffILciant a.. Lltive capcity

lesidenos S@ettla t of "lo fr_ No davoliti.n rerird - site AgricAlture slad Pernmnt aquicitie of *.3 Lend Acqulaitie SobsAil UUTv ha drina up

CilWO* regulAtion PrWids OWJIvTOWn.b XM for copeneWstion p overnment STees Lee. Replat esql or larger usmber 01W SM of tre. Odor U ffect - reeiemcee Sludge to be digested WA1V IM Deig and Oeratio to he 51nr Sm eptinised Unise fDiaturbase Contructios oly snowed Cotractor 5111 Asring day Operetional machiry to be sV Sm sen"tatan la machiss

Traffu Cetwwtim Vehicles Seed, hoSe uffictit Apacity *ludge diSpe.a Tr boprty barp "sw as reed Imerepe iagptim of traffic County Trafic Department to S1111 Sm bea esneuted dima. impect hpeeras of Laniscoi2i with trees en SWW@ other p ats m Sludg dispseal Esey _etal. _ farmlan Moitor copesiti Nd Mao of MATVI S0Jita eludge in eccordance With Q

Pathogens m crops thog reP cre~974peDigest tosludge which enedontrolIt iacapplied the s5111 Smej i-a DI by guidace to farmers Industrisl effluets Ucedmee oSf di charge Moitor end eforce staard WA V diCharged to works stanard. - 103 - ANNEX 9

Table 3: WUJING/MINHANG SEiWAGE-SuMMARY OF ENVIRONmeTAL IMPACTS AN PROPOSEDMTGATION MEASUES

Itm Potetil Negative IW&ct Kitlating g eamr.u It-ti. Ieiteriy Tmll.g Spel pIell dip.eal Breficial use In ceatructin so= (for m (.EU qaatitiLe involved) IC) *_mrage Traffic diesrtia. MtIAa41 if my. ir ct eomatrltia met". dsimolitina *elm 581CC (for EDo ly *exectiem to tu_al OKC). iolvd C_utr;cter Dineharge of Imoread polItim load to Cb.wia,ha wetevat_r to Cbeagi tan c astential 5SP1C (for 8DB Uba.ghai eiuneree Ia eapdciqt? sis e _ry treatment SWC). sn _eccs ry Poe lbel Ia&astril effl_er Diceblrg. of tgice Pretrestmet dieharged to *ve.re provided at key gm 3DB industri.s monitor end out rce standard.

SQ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~9

-g~~~~~~~~~~~~~~~~~~

a~~~~~~~~~~~~~~C I - 105 - ANNEX 1-1

ENVIRONSMENTIMPROVEMENT MONITORING INDICATORS

1. These environmentalimprovement monitors are based on the objectives of the ShanghaiEnvironment Project in respect of the implementationof the componentsfor HuangpuRiver Water QualityProtection, Upper HuangpuCatchment Pollution Controland Municipal Solid Waste and Nightsoil Management. They assume the completion of the Taihu Basin project, also supported by the Bank, in particular the facility to discharge flows of up to 300 m3/s from Taihu to the Taipu River and thence to the Huangpu River, together with the completionof implementationof the ongoing ShanghaiSewerage Project (Credit 1779-CHA)supported by PC2 (the northern sewer system through Minhang and Minhang) to permit diversion of wastewater discharges from the Upper Huangpu Catchment.

ComZoent EnvironmentalImproement Huangpu River 1. Water abstracted for potable supply to Water QualityProtection meet Class El[ standards for all normal flow conditionsand Class II for critical water supply parameters (eg phenol). Due Dates: 90% of time January 1998 95% of time January 1999 onwards 100% of time January 2000 onwards

2. Chemicalscausing taste and health problems absent from water abstracted except under exceptional flow conditions. Due Dates: 90% of time January 1999 100% of time January 2000 onwards

3. Water quality in SMWC supply to comply with Chinese Drinldng Water Standards. Due Dates: 90% of time January 1999 100% of time January 2000 onwards -O10- ANNEX Ill

4. Concentration (median and 90 percentile) of ammonia in water abstracted for supply to reduce by 50%. Due Dates: 90% of time January 1998 95% of time January 1999 onwards 100% of time January 2005 onwards

Upper Huangpu Catchment 5. Pollution control at key point sources Pollution Control in upper catchment. Due Dater: 90% interceptions January 1998 95% interceptions January 1999 onwards 100% interceptions January 2005 onwards

6. Average concentrationof ammonia at Da Qiao reduced by up to one-third. Due Dates: 90% of time January 1998 95% of time January 1999 onwards 100% of time January 2000 onwards

7. Industry derived organic chemicals such as chlorinated hydrocarbons removed from water abstracted for supply. Due Dates: 90% of time January 1999 100% of time January 2000 onwards -107- ANNX

MunicipalSolid Waste and Nightsoil 8. Efficient and hygienic collection and Management transport and sanitary landfill introduced for all city's refuse. Due Dates: 90% of time January 1998 95% of time January 1999 onwards 100% of time January 2000 onwards

9. Landfill gas collected from major landfill sites. Due Dates: 50% of sites January 1998 80% of sites January 1999 onwards 100% of sites January 2000 onwards

10. 40% reduction in overall nightsoil quantities and 80% reduction in quantities collected for use in agriculture. Due Dates: 50% achievement January 1998 75% achievement January 1999 onwards 100% achievement January 2004 onwards

ORGANIZATION OF SHANGHAI MUNICIPAL GOVERNMENT showingin detail the Shanghai MunicipalConstruction Commission Institutional Rc nsibililes

Coale-setting, policy formulation, [. * Shanghai regulation Municipal Covernment (8OM)

Multisectoral, Pln ning integrated Construction Science I Tech- Cossionas Comaishion strategic planning (SCC) nology Commission

00 Sectoral strategic Municipal Land- Ev. Land planning, Engineering Planning Real Estate Env. Public 1-. scaping Protection Admn. Bureau L Housing progrmming Bureau Bureau Sanltation Utilities Bureau Bureau Bureau Adm.n (SEPB * SEPO) Bur. Bureau _ (SESAB)

Buangpu R. Academy of Operations Env.. Urban Plan- urvey municipal and - Research Enviromental Monitoring Utility maintenance Department ning L Des. Happing WWaterworks Companies Sciences Center Res. Inst. Istute I______(AK S) Company (SSC, (5 1) | | (SMWC) SSPCC)

DistrictGoverments, County Cavernments (Songjiang,SWWTP)

-109- ANNEX 17

ECONOMIC ANALYSIS

1. The recentlycompleted Environmental Strategy Paper for China (ReportNo. 9669-CHA) concluded that decades of economic growth, while ignoring environmental protection, has created a serious threat to the sustainabilityof that growth. The threat manifestsitsdf in most areas of China, but is particularly acute in large urban areas where the concentration of population and economic activity has led more rapidly to an overloading of the absorptive capacity of the environment. In response, the Bank has formulatedan urban environmentallending strategy that assists Chinese reforms aimed at restructuring economic incentives to internalize more fully the economic costs of production and consumption,while also assisting in the long-neglectedtask of providing a physical infrastructurethat can provide services and manage pollution in the most cost- effective manner.

2. The decisionto supportShanghai follows directly from the Bank's strategy. As the largest and most developedurban area of China, Shanghai has long served as a model for China's urban and industrialdevelopment. Shanghai has the oldest industial base of all Chinese cities, but the pressure to remit a high percentage of profits to the ational governmenthas, until recently, seriously constrained Shanghai's ability to invest in social infrastructure. By the early 1980s, that underinvestmenthad resulted in rapidly incrasing transportation costs over an antiquated road network; in industrial effluent discharges far exceedingnational standards,often dischargeddirectly into waterways used for industrialand drinking water supply; in uncontrolledhazardous waste disposal; and in solid waste disposal into landfills with no provision for leachate control. Little attention had been given to systematic evaluation of these problems either singly or, most importantly, in their cumulative impact.

3. Since 1984, the Bank has been working with Shanghaito address this range of problems. Transportation constraints are being eased through the first Shanghai Metropolitan Transport (SMTP I) project and the follow-on SMTP II, which finance transportationplanning, improved traffic management,and investmentin key urban roads. As a first step in a long-term program to end the direct discharge of effluents into municipalwaters, the ShanghaiSewerage Project would capture the waste- and stormwater discharges in downtownShanghai for primary treatmentand disposalthrough an outfall on the ChangJiang,relieving pressure on the most highly polluted waters in the urban core of the municipality. Those IDA credits have speededthe infrastructureconstruction program, but much more remains to be done.

4. Drinking water for Shanghaiis abstracted directly from the Huangpu River, which flows for much of its length through the municipalityand bisects its urban core. Effluent discharge to the Huangpu and its tributares left raw water untreatble to national - 110 - ANNEX17

and World Health Organization(WHO) drinking water standards by the early 1980s. an interim As remedy, the Shanghai Municipal Waterworks Company (SMWC) constructed a new intake at Linjiang, upstream of existing intakes. That intake became operational 1987 and began supplying in 57 percent of Shanghai's raw water, water of much higher qualit than that extracted lower in the system. But even at commissioningLinjiang drew raw water that usually exceeded at least some WHO and Chinese guidelines at all times and far exceeded them in the two summer low-flow months. The water treatment plants in the system can ensure that coliform bacteria counts are held well under WHO standards, but is unable to cope with oil, phenols, and ammonia that seasonallycontinue above safe levels. As a result, Shanghai consumers have continued to suffer from drinking water virtually unpalatable out of the tap for up to two monthseach year. Domestic users further treat the water by boiling (which can reduce the more volatile pollutants), and higher- income families can avoid the problem through use of activated carbon filters purchase or the of bottled water. The latter remedies are not accessible to the poorer of members the population, althoughthe basic supply of piped water remains extremely by intemational inexpensive standards(see the affordabilitydiscussion). Industrial and commercial face treatmentcosts user additionalto those expectedwhen tap water meets internationalnorms. 5. Linjiang was, from the start, conceivedas the first stage would move of a program that the intake even furtier upstream to Da Qiao where a larger intake abstract could water of a quality consistently meeting or exceeding the WHO guidelines. and Chinese Recognizingthat relocation of the intake would be only a temporary solution to the water quality problem in the absence of other measures to control water the Shanghai pollution, MunicipalGovernment (SMG) has embarkedon a program of comprehensive reduction of water pollution from the various industrialand household sources. However, funding constraints and the demands of other programs have to date not permitted extension of the conveyor and constructionof the new intake nor have they allowed rapid implementationof other program elements.

Proposed Project

6. SMG requested Bank assistance in a multifaceted program designed provide at the to least cost a supply of water that can be safely and sustainably consumed from the tap. The program (see Annex 3 for a detaileddescription) involves relocation of the main raw water supply intake and measures to reduce current and future pollution discharges into the surrounding waterways. The reductionof discharges would protect the water quality at the new intake, would improve the quality of water abstracted for other purposes, and, in conjunctionwith the ShanghaiSewerage Project, would lower pollutants to a level that would allow the return of fish to the river. The solid waste component would reduce direct dumping into waterways and cut leachate infiltrtion into ground surface water. and Investments in management information systems would improve efficiency of urban the service deliveryand give planners the ability to understandand control interactions between elements of the environmentalmanagement system. -111A- 17

Economic Evaluation

7. The proposed Bank-supportedinvestment program has few benefits for which the approximate magnitudes of economic returns can be meaningfullyquantified. The main investment, in a new raw water intake, provides a clean substitute source of water rather than augmentingtotal water availability. The primary benefits of pollution abatementand the guarantee of a water supply for Shanghairesidents that meets WHO and Chinese health guidelines do not yield easily to calculation of economic benefits. Therefore, for the new intake and conveyor, the sewerage works, and improved solid waste management that form the core of the project, the mission has opted for identificationof the least-coststrategy to sustainablymeet internationallyaccepted health standardsin water supply.

Water Supply

8. The no-projectaltemative has already been shown to result in unacceptable levels of pollutantsin the drinking water supply of Shanghai. The broadestpossible array of interventionshas been consideredfor remedyingthat problemand four alternatives,each with several variations, were judged the most feasible and subjectedto full financial and economic costing. The alternatives thus valued were:

(a) Relocation of the intake to Da Qiao. This includes a new intake and pumping station at Da Qiao; a 21.4 km long multiple-barreledconveyor system; a 4.96 km long pipeline through the urban area to connect the existing treatment works at Changqiao and the new proposed treatment works at Longxi; inlet booster stations at Changqiao treatment works; a tunnel under the Huangpu; and a balancing tank at Linjiang. Feasibility studies showed that to maintainDa Qiao intake water quality at the required level in low-flow periods, the works would have to be complementedby a 3 300 m /sec pumping station on Taihu Lake that would supply water via the Taipu River. The option of boosting net water output through wash-water recovery at the treatment works was also considered;

(b) Improvedwater treatmentat the current Linjiangintake. Two basic process streams were considered, including:

(i) biological treatment for ammonia removal coupled with the treatment sequence of coagulation; sedimentation, and filtration; followedby activated carbon for organics removal; and chlorination for disinfection;

(ii) biologicaltreatment for ammoniaremoval coupledwith the tetment sequence in (i) above; followed by ozonation for breakdown of organics; activated carbon for adsorption of organics; and chlorination for disinfection; - 112 - ANNEX 12

(c) Constructionof a new intake on the Changjiang. This intake would require a storage reservoir holding approximately35 Mm3 on the banks of the river to supply water during periods of high salinity and the construction of a conveyor of between 39 Ikmand 67 km in length, depending on routing. Three alternative reservoir/conveyorrouting options were costed. Aside from avoidablesalinity problems during certain tides, the Changjiang water quality is substantiallyhigher than that at Da Qiao, although the latter also meets raw water standards when additional water is pumped from Taihu Lake during low flows; and

(d) Water pollutionabatement sufficient to maintainwater quality at acceptable levels at the present intake. This option would require the completion of two sewerage systems, the Phase II sewerage system for the Pudong and Puxi areas and the Wujingand Minhang Districts sewerage system. These seweragesystems are necessaryin the long run for maintenanceof Huangpu River water quality, regardless of the water supply option now chosen, so the issue is one of investment timing. As shown below, the investments needed for these schemes are so massive that they cannot be completed before the year 2000 and were therefore not preferred. The proposed project does, however, include funds for continued design work and partial constructionof the Wujing/Minhangsystem in order to minimizelong-run risk to Da Qiao sustainability. Without intake relocation, this alternative would also require substantial additional plant-level pollution control measuresin industries outside the seweragedistricts. 9. Construction and operation and maintenance (O&M) costs of altemnatives the four cited above were reestimated using June, 1992 economicprices (the financial estimates for the alternatives can be found in project files-AnneJ1C). The results are shown in Table 1.

Table 1: ECONOMICCosT SummARY FOR PROjEcr ALTERNATIve (Y million)

Annual Present value operating of capital and Capital costs at full Option operatint costs cost development 10% 12Z 15%

Do Qiao Intake 2,273 133.0 2,890 2,693 Advanced 2,450 Water Treatment 3,867 457.4 6,701 6,131 Yangtze Convoyor 5,442 9,189 401.6 10,698 10,316 9,201 Improv-d Pollution Control 6,604 814.3 11,586 10,606 9,425 - 113 - ANNEX 17

10. The Da Qiao Schemeis clearly the superior option. Indeed, the Da Qiao intake option costs so much less than the other options that no reasonable alternative assumptionsabout constructionor O&M costs would alter the outcome. In addition, the benefit stream would commenceearlier (in 1997)with the Da Qiao option than either the Changiang conveyor or improvedpollution control. The option of advanced treatment at Linjiangis not only much more expensive,but would also not treat the problem of polluted water from other intakes that the larger-capacity Da Qiao would replace. Given the magnitudeof the investmentand remainingdesign work, neither of those alternativescould be completed until after the year 2000. Advancedwater treatmentcould probably go on stream at about the same time as the Da Qiao intake. The four options also have different risk profiles not captured in the economic prices and these are discussed below in paras. 20, 26 and 27.

Upper Huanpu Pollution Control

11. The proposed Loan would also finance three interventions designed to improve water quality in the Upper Huangpu River. These components would have two purposes: firstly to protect the quality of water extracted at Da Qiao supporting the formally created Upper Huangpu CatchmentProtection Zone; and secondlyto improve the quality of water for all uses along the river. Without focused long-term programs to control pollution in the Upper Huangpucatchment, pollution and toxicity levels at Da Qiao could, in the medium term, approach those now experiencedat Linjiang, threatening the viability of the proposed Da Qiao investment, and the sustained economic growth of Shanghai. The three componentsinclude (a) a water quality monitoringprogram for the Upper Huangpu; (b) investments in improved wastewater management and extended sewerage systemswithin SongjiangTown; and (c) detaileddesign and constructionof the Wujing/Minhangsewerage scheme. These subprojectswould be discussed in turn. Water Quality Monitoring

12. This project componentwould strengthenand extend the capacity to monitor Huangpu River water quality. The ShanghaiMunicipal Environmental Monitoring Center (SEMC) currently monitors a small number of quality indicators at Da Qiao and has a monitoring station at Linjiang, which has yet to be commissioneddue to lack of funding. Bank assistance would permit SEMC to commission the Linjiang station, improve the equipment at both stations, and extend regular monitoring to major tributaries of the Huangpu. Review of SEMC work shows that they also would benefit from technical assistance in analysis of the data collected. This monitoringwork would help SMG track the impact of continued industrial development and pollution abatement programs throughout the Huangpu watershed. It would provide early warning of possible threats to existing and future intakes and assist in the managementof the watershed. Analysisof this information in conjunctionwith that from Taihu Lake monitoring work to be undertaken by the Taihu Basin Authority with Bank support would provide a much more complete understanding of how the river basin functions and where the most effective pollution abatement investmentscan be made. - 114 - ANNEX 17-

13. During appraisal, SEMC monitoringplans and capabilitYwere reviewed; was concluded that it the proposed program to be an efficient means of accomplishingthe goals listed above. Recurrent budgetallocations would be sufficientto sustain the type and level of monitoringproposed. Songiang WastewaterTreatment

14. The proposedDa Qiaointake is locatedwithin Songjiang County, experienced whichhas rapid industrialdevelopment in recentyears. Currentdy,the Songjiang sewerage Town treatmentworks can treat less than 50 percentof the maximumaverage daily total wastewaterdischarge from the town and untreatedwastewater surrounding is dischargedto watercourses,which themselves discharge to theHuangpu near Da Qiao. This sourceof domesticand industrial effluents is the mostimmediately threatening and effectivetreatment to Da Qiao of thispollution load wouldremove that threat. SongjiangCounty wouldbe expectedto revisetheir current sewerage tariff systemto recover the investmeat. the full costof The tariff increases would further shift pollution costs environmentto from the individualpolluters, providing an incentiveto reducepollution through effectivewithin-plant treatment. 15. Design work continueson the Songjiangscheme. The existenceof a treatmentplant with available adjacent land makestreatment plant expansion option. the least-cost However,as part of the designoptimization, the least-ost technologycompatible with the expansionis beingdetermined. Upper Huangpu Catchment Pollution Control Component: Wujin/Minh WastewaterSystem 16. The Wujingand Minhangneighborhoods of Shanghai,on the west bankof the HuangpuRiver belowDa Qiao, containa concentrationof industryresponsible much for of the pollution discharge to the Huangpu. That pollution affects Da seasons Qiao in all due to tidalflows, but the problemis partcularlyserious during low flows, flow when reversalsin the Huangpuhave beennoted to last for extendedperiods. An extensive study conductedin 1986 showedthat even secondarytreatment of the industrial predominantly wastewaters produced in those disticts would not achieve the required quality water objectives at Linjiang or lower in the Huangpu. Therefore, among abatementoptions the many evaluated,those requiringdischarge to either HangzhouBay or the ChangjiangRiver wereconsidered in full. 17. In view of the importanceover the long term of (a) minimizing controlling and pollutionin the Huangpufrom Wujingand Minhang,and (b) the need protect the to ecologically sensitive Hangzhou Bay from wastewaters generated outside natural catchment, the the project would support the constructionof a Northern Sewer System that would intercept Wujing and Minhang wastewaterflows including both domestic and preteated industrialflows. The systemwould discharge into the Changiiang proposed throughthe east-flowingconveyor at Baolongang,ensuring the long-termprotection HangzhouBay of the from these pollutingflows. The engineeringwork identifiedleast-cost -115 - ANNE 17

options; the related financial and economicwork would support the tariffs being implementedfor the existingShanghai wastewater services as agreedwith the Bankunder the ongoingShanghai Sewerage Project (Credit 1779-CHA), such the ShanghaiSewerage Companywill producerevenues in eachyear equivalentto not less thanthe sum of its (i) totaloperating expenses and (ii) theamount by whichdebt service requirements exceed the provisionfor depreciation.

MunicipalSolid Waste Management

18. The ShanghaiEnvironmental Sanitation Administration Bureau (SESAB) is responsiblefor the disposalof some 6,000 tons of municipalsolid waste and some 2,000 tonsof constuctionwaste daily, as wellas 6,000 tons of nightsoil. Industriesare responsiblefor collection,treatment and disposal of theirown solid waste and mostof that waste (includinghazardous) is eitherrecycled or disposedof in an uncontrolledmanner. The buildingand constructionindustry generates another 3,000 tons a day, which is recycled, used as fill material,or disposedof in so-calledtemporary dumps. Current landfillsinclude sites along the Huangpu and adjacent to otherwatercourses. They provide no protectionagainst leachate flow to surfaceor groundwaterand constitutean important sourceof waterpollution. The projectcomponent includes support for conversionof bad weatherdumping facilities to a properlyprepared site away from surfacewater, use of containersto minimizespillage, and investmentin technicalassistance and new plant and equipmentto raise the very low productivityof the collectionsystem. Least-costoptions wouldbe supportedby the project. Pilotingof alternativeorganizational forms for waste collection,such as contractingfor the servicesthrough local competitivebidding would also be supported.

EnvironmentalPlannin and InformationSystems

19. The above comprehensiveprogram to improve the Shanghaienvironment is basedon least-costinvestments. The technicalassistance component is designedto provide a frameworkfor futureinvestment planning and managementof the current system,but is not amenableto quantifiableeconomic returns. The technicalassistance include developmentof geographicalinformation systems, a hazardouswaste strategystudy, the ShanghaiEnvironmental Master Plan and other technicalassistance and training. Not all of this work wouldbe financedunder the loan and credit, but theseinputs are crucialto the comprehensiveapproach taken by this project to analyzing and addressing environmentalproblems. The fullvalue of thephysical investments would be realizedonly if theyare well managed;the variousstudies, technical assistance and trainingcontribute to that goal.

Risks

20. The proposedoptions have embeddedin themrisks that vary in natureand degree. Thoserisks potentially affect the finalchoice of projectand here are groupedinto three types: implementationrisks (of constructionand operation);catastrophic accident risk; and risks to long-termsustainability. Each qpe of risk was reviewed. - 116 - ANNEX 17

Implementation Risks

21. Theswrisks includea variety of physical, institutional,and economic factors that could interfere with the timely construction or implementationof any of the project elements. Consideration of these types of risks largely reinforces the selection of the Qiao option for Da meeting water quality standards. The Da Qiao option requires the least capital and the least foreign exchange,protecting against difficultyon the part of SMG on obtaining sufficient quantities of either. Constructionand operation conditions are the same as those for the Linjiangintake and conveyor, which were constructedin recent years and have been operated successfully. The Changjiangoption has similar characteristicsand a substantially similar profile in this regard. The advanced treatment option, however, would require the operation of a treatment plant much more sophisticated than that currently used, with high recurrent costs and maintenanceneeds. The pollution control option depends on sewerage technologies successfully constructed and operated in Shanghai. These risks primarily concem operationalproblems in the event that industries fail to meet their effluent etment standards. 22. Proper operation of any alternative solution to the water supply require a dependable would source of income and that, in tum, depends partally on the wilingness of SMG to endorse timely water tariff increases or to make the necessary payments from the municipalbudget. Here, Da Qiao also ranks as the least risky simply because it has the lowest recurrent costs and would therefore require the smallest tariff increases or government funding allocations. An undertakingto approve and sustain the required tariff increases would be obtained from SMG. The projected revenue collection rate and expected unaccounted-forwater may prove optimistic, giving a small risk to the project; taiff adjustmentswould need to increase to address this risk. 23. The construction of the WujingfMinhangNorthern Sewer presents no significant risk; it is technically and institutionally straightforward. A minor but not significantrisk is the possible reluctanceof the local enterprises and bureau to connect up to the completed sewer; this has been dealt with through obtainingassurances from SMG. 24. The Songjiangsewerage componentfaces the same funding risks as Qiao the Da projectcomponent. These have been minimizedthrough design optimization, of the financial analysis capabilities of Songjiang County, and county government agreement institute sewerage to tariffs sufficient to cover O&M costs and debt service. The proposed technologies are well known i the area and within the operational capabilities of the current wastewatertreatment works managementand staff. 25. The solid waste project would work primarily to improve efficiency current of operations without requiring substantial changes in the basic technology operation. Nonetheless, of that implementationwould depend on altering managementhabits may not that easily yield even to the possibilityof substantialcost savings. In addition commitment to the of the leaders of solid waste management operations, the project overcome seeks to this risk through a carefully designed program of technical assistance training. and - 117 - ANNE 17

26. The remainingproject elementsdepend on strengtheningcurrent operations while adding innovative managementor planning advances from experience elsewhere. The techniques to be introduced have been successfully used in many settings, and therefore the implementationrisks are that they would not be successfully adapted to the particular institutional circumstancesof Shanghai. Project design minimizesthese risks through thorough prior review of the proposed project elements by the institution that expects to implementthem. Implementationwould be monitoredcarefully to identify and address problems as they arise, a process aided by the provision of adequate funds for technical assistance.

Catarophic Risk

27. This type of risk applies to the water supply component of the project and arises if an accidentor willful act prevents operationof the proposed supply scheme. This could occur if, for example, a major pollution spill took place that reached the intake if or the works itself had to shut down for mechanicalor other reasons. The Shanghaiwater supply system contains little storage capacity-approximately two hours of operation- increasng the damage from any such event. The Linjiang intake currently supplies most of the operating capacityand risk in that operationis lowered through design of the intake and pumping plant as well as the fact that most treatmentplants continue to have standby facilities to extract water directly from the Huangpu. Of the four project altematives, the Changiang option would reduce this risk the most by extracting water from a completely different source and delivering it over a separate conveyor system. The Da Qiao option would face risks similar to those faced by Linjiang, although the Linjiang intake would continue to remain operational, as would direct extraction by the treatment plants, providing somewhatincreased redundancy in the system. The advancedtreatment option wouldlower the current Linjiangrisks by increasingthe ability to cope with pollution spills and the pollution control option would lower the probability of such a spill.

28. Modeling of the Huangpu shows that moving the intake to Da Qiao from Linjiang would substantiallylower the risk of a catastrophicpollution spill by moving the intake upstream of the most dense shippingand industrialactivity (see Annex 9, Figure 1). Because of the hydrology of the Huangpu, even a downstream event can affect Da Qiao, but the concentration of pollutants from any given spill near Da Qiao would be significantlylower than they would be at Linjiang. Despite the attractiveness of the Changjiangoption in this regard, at this time the very high additionalcost is judged not to warrant the choice of that option. In addition, the upper Huangpu monitoring componentof the project would provide early warning of a major pollution threat, giving more reaction time than currently available.

Risks to Long-TermSustainabilty

29. One class of risks to long-term sustinability, that of financing and managementin project implementation, was discussed in paras. 20-23. The appraisal mission also consideredanother fundamentalrisk to the chosen water supply option. If the Da Qiao intake is built but the various abatement measures are ignored, increasing - 118 - ANNEX 17

pollution in the Huangpu could, within a decade, leave Da Qiao in the untenable position currently occupied by Linjiang. This threat is increased by the rapid industrial growth the in region. For this reason, the project componentsto control effluent discharge around to waters Shanghaiand to abate the pollution from solid wastes are considered integral long-term sustainability to the of the water supply system. If those goals can be met, the Da Qiao intake should be able to meet Shanghaiwater needs for not only the next decade, but with expansionof the pumping station and conveyor, for the decade thereafter. 30. SMG and the relevant sector agencies fully recognize the importance increased of control and managementof pollution throughoutthe municipality. The Phase Sewerage II Project and the proposed Songjiangsewerage schemes were developed over by SMG the past decade and the timing of implementation is mainly dependant availability of the of funding. The Phase I SewerageProject (supported by Credit 1779-CHA), which is to begin operationin December 1993, would reduce the urban district pollutant load on the Huangpu by 30 percent, and provide some protection to Da Qiao during extreme low-flow conditions. As mentionedearlier, the major polluting industies have been successfully required to reduce their total effluent load by about half and investments continue using the pollution levy fund. The missionconsiders that SMG has demonstrated its commitment to pollution control and that the project assists SMG in meeting its for further goals control and continuallylowered risk of sustainableextraction of Huangpu River water for drinking.

Other Economic Benefits

31. An improvedwater supplysystem offers benefits and returns beyond meeting nationally and internationallyaccepted standardsfor drinking water. The most important of these returns include the relaxation of qualityand quantityconstraints on industrial supplies. water Preliminary analysis by the ShanghaiEnvironment Project Office (SEPO) the Design, and Review and Advisory (DRA)consultants suggests that the return to increased supplies are substantial.

Water Tariffs

32. Water and sewerage tariffs under this project would be increasedto reflect the full financialcost of the water supply. Demand managementoptions and future pricing strategy would be investigatedduring the preparationof the ShanghaiWater Supply Master Plan, which would be supported under the project. Pollution Levy System

33. SEPO and their DRA consultantshave studied the impact of the system enterprise on choices of pollution levels. The levy appears to be decreasing in real terms, while abatement costs keep pace with or exceedthe inflationrate, inducingless rather than greater pollution control efforts. This would be further investigatedduring preparation of the project-supportedShanghai Water Supply Master Plan. -119- ANNEX 17

Water Demand

34. A separate note in the project files (Annex 18) discusses the estimates of water demandagainst which Da Qiao was designed. That note shows that under the high demandscenario, Da Qiao would meet demand until the year 2004, and under the medium demand scenario, until 2008. The mission has affirmed that the proposed Da Qiao intake, as well as the Changdiangintake, could be expandedto satisfy all probable demand levels to the year 2010. The Bank conducteda sensitivityanalysis on the economiccosts of those two options under alternativedemand assumptions and finds that up to a further 35 percent increase in demandabove the current high demandscenario by the year 2005, an expanded Da Qiao intake remains less costly than a Changjiang intake. This finding affirms the choice of Da Qiao and associated works as the least-costoption for a satisfactory supply of water to Shanghai.

Social Impact and Affordability

35. Almostall housingin urban Shanghaiis served by 24-hourpiped water, with only 1 permcntof the population now relying on standpipes for water supply. The proposed project would therefore have no effect on domestic water quantity. It would, however, significantly improve water quality. Currently, households can somewhat improve the paatability of the water through boiling, which is a common practice at all income levels. Households wishing additional quality improvements must resort to activated carbon filters or the purchase of bottled water. Both options are expensive and resorted to by few households. The project would make water of acceptable quality available to all households. The associateddoubling of the real water tariff would for the poorest householdsdouble the water bill from approximately1 to 2 percent of household income (conservatively assuming no increases in real incomes for the poor and no reduction in the already low quantities of water used). The 2 percent level is low by international standards and there are no plans to institute a 'lifeline' tariff. However, SMG has studied the possibility of such tariffs for various public utilities and would considerimplementation if the tariff burden wasjudged too great. Unfortunately,the tariff increase does prevent unambiguousconclusions about the welfare impact of water quality improvementin the absenceof high-qualityconsumer water demand surveys. This would be further investigatedduring preparationof the project-supportedShanghai Water Supply Master Plan. I - 120 - ANNEXJl

SELECTED DOCUMENTS AND DATA AVAILABLE IN THE PROJECT FILE

1. ShanghaiEnvironmental Project Predesign Review Report Volume 1 - Main Report Volume 2 - Appendices Mott MacDonald, ConsultingEngineers, December 1992

2. ShanghaiEnvironmental Project Huangpu River Water Quality ProtectionPC1 Draft PrefeasibilityStudy Volume 1 - Main Report Volume 2-4 - Appendices A to K Mott MacDonald, ConsultingEngineers, December 1992

3. ShanghaiEnvironmental Project Preliminary Resettement Plan Mott MacDonald, ConsultingEngineers, February 1993

4. ShanghaiEnvironmental Project Preliminary EnvironmentalAssessment Report Mott MacDonald, February 1993

5. ShanghaiEnvironment Project ConstructionUnit Cost Data and Rates Study SEPO with Ausino Engineering Consultants with Kinhill Engineers, December 1992

6. ShanghaiSolid Waste and Nightsoil ManagementStudy: Terms of Reference

7. ShanghaiEnvironmental Master Plan (SEMP): Terms of Reference

8. ShanghaiHazardous Waste Management Study: Terms of Reference

9. Shanghai EnvironmentProject Technical Assistanceand Training Activities Report: Terms of Reference for Technical AssistanceItems TAl-T14, and T01-T04. Mott Macdonald & Partners, September 1993 Chreod Consultants, September 1993

10. Shanghai Municipal Waterworks Company. Upper Huangpu Da Qiao Water Supply Scheme. BackgroundPapers. 1990 through 1992. - 121 - ,EX 18

11. ConstructionManagement and Supervisionof PCI: Terms of Reference

12. ShanghaiMunicipal Finance Data Analysis, July 1993

13. Urban ConstructionInformation System, City of Shanghai. Preparation Study. ConsultantsChreod Ltd., May 1993 14. Water Demand in Shanghai. Project Working Paper. Lee Travers, August 12, 1993 Version.

15. ShanghaiEnvironment Project Project Preparation Studies and Peasiblity Reports Mott MacDonald/KPMGand Partners PCI through 6, dated June 1993, September 1993 and December 1993 16. The ComprehensivePlan of Shanghai,2 maps. 17. Shanghai Municipal Solid Waste and Nightsoil Management, Five-Year ImprovementPlan.

18. Taihu Basin HydrologicalDynamic MathematicalModel and Typical Year Water Supply Calculations;Hehai University, October 1992

19. Pollution Sources and Water QualityMonitoring Project PrefeasibilityStudy Report, Appendices1-10 Subproject Office of Pollution Sources and Water Quality Monitoring System, October 1992

20. Shanghai MunicipalWaterworks Co. Enterprise Standards Q/SS-GL-02-14406-89 Outlines of Elementary AccountingWork (trial) Issued February 1989 Trial circulated March 1989 21. ShanghaiMunicipal Waterworls Co. Enterprise Standards Q/SS-GZ-01-05-89 Worling Standardsfor Financial Section (trial circulation) Issued February 1989 Trial circulated March 1989 22. Shanghai Municipal Waterworks Co. Enterprise Standards Q/SS-GL-02-14-01-89 Accounting System (trial) Issued February 1989 Trial circulated March 1989 - 122 - ANNEX 18

23. ShanghaiMunicipal WaterworksCo. Enterprise Standards Q/SS-GL-02-14-02-89 Cash ManagementSystem (trial) Issued February 1989 Trial circulated March 1989 24. Shanghai MunicipalWaterworks Co. Enterprise Standards Q/SS-GL-02-14-08-89 Fixed Asset ManagementSystem (trial) Issued February 1989 Trial circulated March 1989

25. Annex A: SMWC Fixed Asset ClassificationStandards and Terms of Depreciation

26. ShanghaiMunicipal WaterworksCo. Enterprise Standards Q/SS-GL-02-14-05-89 Flow Currency ManagementSystem (trial) Issued February 1989 Trial circulated March 1989 27. ShanghaiMunicipal Waterworks Co. Enterprise Standards Q/SS-GL-01-14-07-89 Cost ManagementSystem (trial) Issued February 1989 Trial circulated April 1989 28. ShanghaiMunicipal WaterworksCo. Enterprise Standards Q/SS-GL-02-14-03-89 Regulationfor Preparing FinancialBudget Program (trial) Issued February 1989 Trial circulated March 1989

29. Notice regarding revision of SMWC ManagementSystem of low-costconsumables ShanghaiMunicipal Waterworks Co., February 16, 1989

30. Shanghai State-ownedIndustrial Enterprise Annual Accounting Statement (1992) prepared by ShanghaiMunicipal Waterworks Co., administeredby Public Utilities Bureau, January 20, 1993

31. Shanghai State-ownedIndustrial Enterprise Annual Accounting Statement(1991) Shanghai Municipal Waterworks Co. administered by Public Utilities Bureau, January 18, 1992

32. Charging for WastewaterDischarge Songjiang WastewaterTreatment Plant, February 1993

33. Statementof Funds Activity by SongjiangWastewater Treatment Plant, 1990, 1991 & 1992