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Document of The World Bank Public Disclosure Authorized Report No: 21860 Public Disclosure Authorized PROJECT APPRAISAL DOCUMENT ON A PROPOSED LOAN IN THE AMOUNT OF USS100 MILLION TO THE PEOPLE'S REPUBLIC OF CHINA Public Disclosure Authorized FORA LIAO RIVER BASIN PROJECT May 21, 2001 Urban Development Sector Unit East Asia and Pacific Region Public Disclosure Authorized CURRENCY EQUIVALENTS (Exchange R.ate Effective May 1, 2001) Currency Unit = Yuan (Y) Y 1.00 = US$0.12 USSLOO = Y8.3 FISCAL YEAR January 1 -- Decernber 31 ABBREVIATIONS AND ACRONYMS AIC Average IncrementalCost LFD LiaoningProvincial Finance Department CAS Country AssistanceStrategy LIEP Liaoning IntegratedEnvironment Program CITC China InternationalTendering I.P LiaoningProvince Company LPG LiaoningProvincial Government CNAO China National Audit Office LRB Liao River Basin COD ChemicalOxygen Demand LRBP Liao River Basin Project DRA DesignReview & Advisory LUCRPOLiaoning Urban Construction& Renewal Project (Consultancy) Office EA EnvironmentalAssessment MOC Ministryof Construction EMP EnvironmentalManagement Plan MOF Ministry of Finance EPB EnvironmentalProtection Bureau i NCB National CompetitiveBidding ERSF Environment Revolving Subloan NGO NongovernmentalOrganization Facility OED Operations EvaluationDepartment ES EnvironmentSubloans PAP Project-AffectedPersons EU EuropeanUnion PDMC Panjin MunicipalDrainage ManagementCompany FMS Financial ManagementSystem PMO Project ManagementOffice GPN GeneralProcurement Notice PRC People's Republicof China ICB InternationalCompetitive Bidding RAP ResettlementAction Plan IPCAP IndustrialPollution Control Action SDPC State Developmentand PlanningCommission Plan SEPA State EnvironmentalProtection Agency IST InstitutionalStrengthening & Training SOE Statementof Expenditures JDMC JinzhouDrainage Management TOR Terms of Reference Company UMIS Urban ManagementInformation System JPMC Jincheng Paper Making Company WTP Willingnessto Pay LCC Liaoning ProvincialConstruction YDC Yingkou Drainage Company Commission YPMC Yingkou Paper Making Company LCHB Liaoning Cultural HeritageBureau LEP LiaoningEnvironment Project LEPB Liaoning EnvironmentalProtection Bureau Vice President: Mr. Jemal-ud-din Kassurn, EAPVP Country Director: Mr. Yukon Huang, EACCF Sector Director: Mr. Keshav Varma, EASUR Task Team Leader: Mr. Geoffrey Read, EASUR CHINA LIAO RIVER BASIN PROJECT CONTENTS A. Project Development Objective Page 1. Project development objective 2 2. Key performance indicators 2 B. Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project 2 2. Main sector issues and Government strategy 3 3. Sector issues to be addressed by the project and strategic choices 3 C. Project Description Summary 1. Project components 6 2. Key policy and institutional reforms supported by the project 7 3. Benefits and target population 7 4. Institutional and implementation arrangements 8 D. Project Rationale 1. Project alternatives considered and reasons for rejection 9 2. Major related projects financed by the Bank and other development agencies 10 3. Lessons learned and reflected in proposed project design 12 4. Indications of borrower commitment and ownership 13 5. Value added of Bank support in this project 13 E. Summary Project Analysis 1. Economic 13 2. Financial 14 3. Technical 15 4. Institutional 15 5. Environmental 16 6. Social 18 7. Safeguard Policies 20 F. Sustainability and Risks 1. Sustainability 20 2. Critical risks 20 3. Possible controversial aspects 21 G. Main Loan Conditions 1. Effectiveness Condition 21 2. OtherDisbursement condition; Implelentation & Financial covenants 21 H. Readiness for Implementation 23 I. Compliance with Bank Policies 23 Annexes Annex 1: Project Design Summary 24 Annex 2: Detailed Project Description 26 Annex 3: Estimated Project Costs 32 Annex 4: Cost-Effectiveness Analysis Summary 38 Annex 5: Financial Summary 52 Annex 6: Procurement and Disbursement Arrangements 57 Annex 7: Project Processing Schedule 72 Annex 8: Documents in the Project File 73 Annex 9: Statement of Loans and Credits 75 Annex 10: Country at a Glance 79 Annex 11: Project Implementation Schedule 80 Annex 12: Environmental Assessment and Mitigation Measures Summary 84 Annex 13: Resettlement 96 Annex 14: Project Financial Management Review 99 MAP(S) IBRD 31284 CHINA Liao River Basin Project Project Appraisal Document East Asia and Pacific Region EASUR Date: May 21, 2001 Team Leader: Geoffrey Read Country Manager/Director: Yukon Huang Sector Manager/Director: Keshav Varma Project ID: P051859 Sector(s): US - Urban Environment Lending Instrument: Specific Investment Loan (SIL) Theme(s): Urban Poverty Targeted Intervention: N ProgramFinancing Data [X] Loan [ ] Credit [ ] Grant I ] Guarantee [ ] Other: For LoanslCredits/Others: Amount(US$m): 100.0 ProposedTerms (IBRD): Variable Spread& Rate Single CurrencyLoan (VSCL) Grace period(years): 5 Years to maturity:20 Commitmentfee: 0.75% Front end fee on Bank loan: 1.00% FinancingPlan (US$m): Source Local Foreign Total BORROWER 0.00 0.00 0.00 IBRD 34.00 66.00 100.00 LOCAL GOVTS. (PROV., DISTRICT, CITY) OF BORROWING 84.80 18.80 103.60 COUNTRY Total: 118.80 84.80 203.60 Borrower: PEOPLE'S REPUBLIC OF CHINA Responsibleagency: LIAONING PROVINCE, AND THE RESPECTIVE 3 PROJECT CITIES Liaoning Provincial Govemment Address: Liaoning Urban Construction and Renewal Project Office (LUCRPO) 19 Caita Street, Shenyang, China 110015 Contact Person: Mr. Zhao Xin Liang, Vice Govemor, Liaoning Provincial Govemrnent Tel: (024) 2384-2898 Fax: (024) 2392-2290 Email: [email protected],cn Estimateddisbursements ( Bank FY/US$m): FY 2002 2003 2004 2005 2006 2007 2008 Annual 7.60 31.30 27.60 20.90 9.60 1.70 1.30 Cumulative 7.60 38.90 66.50 87.40 97.00 98.70 100.00 Project implementationperiod: December 2001 - December 2006 Expectedeffectiveness date: 11/01/2001 Expectedclosing date: 12/31/2007 ,CS PAn F . 2Ow A. ProjectDevelopment Objective 1. Projectdevelopment objective: (see Annex 1) The developmentobjective of the proposedLiao River BasinProject (LRBP) is to assist the environmental recovery of the Liao River Basin (LRB) in Liaoning Province (LP) and to enhance water quality managementdecision-making on the basis of an integratedriver basin managementapproach. The objective would be pursued through (a) provision of facilities for collection and treatment of wastewater; (b) establishmentof competent municipal utilities capable of managing these facilities; (c) upgrading basin-wide water quality managementand monitoring capabilities;and (d) technical assistance and training. The projectrepresents the first stage of LP's effortstoward meetingits objectivewith WorldBank support. The main investmentswould be in (a) two cities and one paper-makingcompany in the lower reaches of LRB; and (b) one city and one paper-makingcompany in an adjacent river basin close to the Bohai Sea. The second stage is expectedto commencein about a year's time and would focus on ShenyangCity, situatedon the Hun River,a tributaryof the Liao River.Shenyang would use the interveningtime to refine its wastewatertreatment processes and designs, to develop further its urban upgrading proposals, and arrangefinancing. The project water quality objective,taken from the Liao River Basin Plan adopted by the Provincial Government,is to reducepollution in the LRB in order to bring qualityup to at leasta minimumof Class V (agriculturalwater supply or general amenity use) water quality throughoutthe basin by 2010. The parameterused for tracking water quality is COD (chemicaloxygen demand), a standardmeasure that synthesizesthe scale and impacts of the major industrial and domestic pollutants.The water quality objectivewould be achievedthrough a combinationof measures,including: (a) regulationand reductionof pollution from industries; (b) priority wastewater treatment works in all cities in the river basin; (c) improvedcollection and disposalof sludgefrom wastewatertreatment plants; (d) protectionof water used for agricultureand aquaculture;(e) measures to improve water quality in the Bohai Sea; and (f) other initiatives that may include reduction of overall per capita water demand, the adoption of water conservationmeasures and public outreachprograms. This project supportsmany of these measuresand is one of a numberof activitiesin the Basin aimedat achievingwater qualityimprovement, in the contextof overallimproved water resourcemanagement. 2. Key performanceindicators: (see Annex 1) The developmentobjectives of the project wouldbe monitoredthrough key perfomianceindicators in terms of: (a) improvementsin water qualityin the LRB; and (b) efficiencyof the new urban utilitiesin providing wastewatertreatrnent and disposalservices. B. StrategicContext 1. Sector-related Country AssistanceStrategy (CAS)goal supportedby the project: (see Annex 1) Documentnumber: R98-107 Dateof latestCAS discussion: 05128/98 CAS Memorandumof April 22, 1999 and CountryProgram Matrix(FY99-0 1) Improvingthe environment,and in particularwater quality in the major river basins,is one of the major focal points of the Bank's strategy in China.Within this overall strategy,the project would contributeto upgrading water quality in the LRB and help reduce the incidence of red tides in the Bohai Sea. - 2 - Specifically, the project would assist in the development of an integrated river basin management approach to water quality planning and decision-making and provision of wastewater treatment facilities, and in meeting urban environmental infrastructure needs. It