PROJECT INFORMATION DOCUMENT (PID) APPRAISAL STAGE Report No.: 37213 Urban Development Project Project Name Public Disclosure Authorized Region EAST ASIA AND PACIFIC Sector Roads and highways (79.8 %), Sewer (10.5%), General Water, Sanitation, and Flood Protection Sector (8.1%), Sub-national Government Administration (1.6%) Project ID P083322 Borrower(s) People’s Republic of China Implementing Agency Provincial Project Management Office (PPMO) 10th floor, Nongzi Building, No.10 East Jinli Rd. , Sichuan Province China Public Disclosure Authorized Tel: 86-28-8612-8880 Fax: 86-28-8612-9043 Environment Category [X] A [ ] B [ ] C [ ] FI [ ] TBD (to be determined) Date PID Prepared August 31, 2006 Date of Appraisal November 16, 2005 Authorization Date of Board Approval September 7, 2006

1. Country and Sector Background

Overview Urbanization has been strong driver of economic growth and poverty reduction in China. Over

Public Disclosure Authorized the past quarter of a century, China maintained a high annual economic growth rate exceeding 8%. China’s cities and towns generate more than 60 percent of its GDP – an economic impact that will become even more important as urbanization rises, as projected by the National Development Plan, from 42 to 65 percent over the next 20 years. But while rapid urbanization has been a significant driver of this economic development, it also produced myriad economic, environmental, regional and social challenges due to its unprecedented speed and scale. China’s 11th five year plan (2006-2011) therefore aims to achieve more balanced economic and social development and to address regional and rural-urban imbalances.

Urban development challenges Rapid urban development requires well-coordinated and efficient spatial development planning and professional management. These challenges, raised by decentralized market-driven growth, have highlighted the gap between old central planning approaches and modern urban planning

Public Disclosure Authorized methods. In addition, urban transport needs must be factored into spatial development plans to ensure convenient in-city and city-to-suburban mobility. However, municipalities currently spend too much on road construction at the expense of road maintenance, traffic management, and public transport, marginalizing pedestrian and non-motorized transport, reducing travel safety and neglecting scenic and environmental conditions, particularly on urban riverbanks. This situation is compounded by car ownership growing faster than anticipated, worsening urban congestion, air pollution, and road accident rates. In the context of these challenges, capacity building in urban planning, management, and service delivery is a high priority.

Because of high demand for housing, services, and manufacturing sites, resulting from China’s rapid urban economic growth and the sizeable migration from rural to urban areas, developed land prices in urban areas have risen steeply and such land is becoming increasingly scarce. Chinese cities are enlarging their boundaries by converting peri-urban rural land into urban areas. All rural land is owned by the State, while rights to rural land are held by agricultural collectives. Although urban and rural land use rights were strengthened in recent years, China’s Land Administration Law (LAL) authorizes only governments to acquire land from agricultural collectives and to sell land-use rights to the private sector. This government monopoly over land use rights and the non-competitive land market has distorted incentives governing urban land use decisions. It has led to some municipalities developing new urban areas without proper planning and without long-term economic rationales. Moreover, the gap between real land values and what governments pay is a potential source of social conflict between governments and farmers. Because demand for limited urban land is growing, not to mention the possible future relaxation of the hukou policy (household registration system), which may increase demand further, governments have a strong interest in ensuring that rural to urban land conversion processes are more economically rational and socially equitable in the future. In this context, the economic and social integration of thousands of farmers displaced in peri-urban areas into the growing urban economy is being accorded high priority. This process involves resettlement of thousands of farmers displaced from rural activities in peri-urban areas and their effective economic and social integration into urban communities.

Sichuan Urban Development Strategy and Project Regional disparities afflict China’s urbanization. China’s Western Region, which consists of 12 inland provinces, including the Sichuan Province, produces only 20 percent of the national GDP. GNP per capita in the Western Region is only half of the national average. Due to Sichuan’s strategic location, size, resources and growth potential, the province is a driver of development for China’s Western Region. Accounting for a third of the Western Region’s population and GDP, Sichuan is one of the most important inland provinces in China, and a destination for both national and international investment. In Sichuan, urbanization in 2005 was only 28%, significantly less than the national average of about 42%. However, the Sichuan government expects the percent of urbanization to climb by 12% and reach 40% by 2010. A one percent gain in Sichuan’s urbanization represents 900,000 non-urban residents becoming urban residents. Sichuan’s cities will thus need to assimilate over 10 million new inhabitants by 2010, suggesting a significant need for properly planned new urban land, and higher levels of infrastructure investment to meet the economic needs and social and environmental challenges of its rapidly expanding cities.

The Bank is already supporting Sichuan’s development through the ongoing Sichuan Urban Environment Project (SUEP), which has financed water and wastewater treatment facilities in the provincial capital, Chengdu, and in three other second-tier cities: , , and Dayang. Complementing this project, the proposed Sichuan Urban Development Project (SUDP) will support an important element of Sichuan’s growth strategy, which is to accelerate infrastructure investment in strategic “second tier cities” and to attract international and national investments to stimulate development and growth. Sichuan’s second-tier cities, like other secondary cities in China, must adapt to new sources of growth and changing industrial structures. Labor- and land-intensive industries are leaving city centers for suburban locations, and being replaced by high technology industries and information-based service industries.

Four “second-tier” cities are targeted for Bank assistance under SUDP: , Suining, and . These cities are among the fastest growing urban centers in the province, and have considerable growth potential. However, they face serious bottlenecks that, if not addressed, threaten their future sustainability. Common challenges faced by these cities are: (i) high population densities with scarcity of developed urban land and problems surrounding conversion of land from rural to urban uses; (ii) inefficient, linear development along rivers and inter-city main roads, contrary to city master plans; (iii) underdeveloped peripheral areas, including agricultural enclaves, adjacent to city centers; (iv) congestion, poor overall mobility, and inefficient urban transportation systems; (v) environmental deterioration; and (vi) inadequate municipal human resource capacity in urban service delivery and urban planning.

SUDP will address these cities’ challenges by supporting increased infrastructure investments in the context of upgraded spatial planning efforts and strengthened urban management to develop and consolidate new and existing urban areas, improve urban transport networks and sewerage systems and enhance scenic public areas. Though not designed to directly address China’s pervasive distorted land pricing system, the project will significantly improve processes for conversion of land from rural to urban use through improved approaches that include:

• Preparing local urban area development and infrastructure investments as an integral part of city-wide comprehensive master plans. Common features of these plans include: (i) redevelopment of older areas, particularly in city cores; (ii) improvements to and consolidation of underused areas and agricultural enclaves within existing urban areas; (iii) enhancement of inter-city urban transport networks; and (iv) improvement of city environmental conditions; • Conducting a rigorous demand analysis to ensure that the proposed urban area development reflects real urban growth requirements, and that least cost options of various development alternatives are chosen; • Developing an innovative framework for resettlement and land compensation. For example, the project will adopt a comprehensive compensation program which is designed to fully restore the livelihoods of project affected people through lifetime compensation allowances, provision, within the project area, of improved housing areas with saleable land use rights (a significant advance for rural people who had previously occupied land and housing under collective ownership), and access to the urban hukou system, which provides better social and welfare services. Further, by supporting a more concentrated and integrated development pattern of enclave land, rather than the linear pattern now prevalent, the project will help to minimize land acquisition and resettlement in the long-term development of the urban areas; • Providing technical assistance (TA) to project municipalities to develop their institutional capacities in: (i) urban planning and land management; (ii) infrastructure services provision; (iii) optimization of current and future infrastructure assets; and (iv) information technology in city planning and management.

2. Objectives

The project development objective (PDO) is to improve core urban functions in an equitable and resource efficient manner by removing identified infrastructure bottlenecks hampering land development, transport, and environmental conditions in four second-tier cities in Sichuan Province.

3. Rationale for Bank Involvement

SUDP addresses one of China’s most pressing development problems, viz. promoting equitable and resource-efficient development in four of China’s rapidly growing second-tier cities through innovative strategies – particularly with respect to social impacts on project affected people - that lend themselves for replication elsewhere in China. The Bank is well placed to support the Sichuan government in this project. The Bank has considerable experience in infrastructure planning and in peri-urban development planning. The Bank has also been a pioneer among development agencies in formulating resettlement guidelines and compensation systems for project affected people. The Bank has also done relevant sector work in China, including: (i) Land Policy Reform for Sustainable Economic and Social Development; (ii) Building Institutions for Sustainable Urban Transport; and (iii) Development Issues and Strategy for Towns.

The World Bank thus brings to this project a long history of engagement with major urban clusters in China and other countries, and partnerships with clients in central and local governments that facilitate creativity and innovation in policy development and project design.

4. Description

Urban Infrastructure Investment Component (US$365.56 million) This component will support spatial planning priorities in the four cities as shown under:

Mianyang US$98.70 million The proposed project will fund the construction of trunk and secondary infrastructure, including drainage and environmental improvements, in two new major urban development areas adjacent to Mianyang’s city: (a) Pioneer Park: US$49.96 million This subcomponent will fund the construction of: • 23.6 km of local access roads and associated bridges, sewers, and drainage, as well as landscaping activities, to expand the park area (483 ha); and • 2.6 km section of the Second Ring Road (2RR) within Pioneer Park (including an interchange with Yingbin Avenue), as part of the 2RR. (b) Southern Economic Development Zone (SEDZ): US$48.73 million The subcomponent will support construction of 24.5 km of local access roads within areas A & C of the SEDZ (560 ha), together with associated drainage infrastructure and landscaping. Suining US$64.98 million The proposed project components in Suining are secondary infrastructure, sewerage and roads in the newly developed Xining District Area to the west of the city, including an associated link road to the city railway station area. (a) Xining District Area: US$58.23 million The Xining District Area component will support secondary infrastructure construction to develop an area of 351 ha for mixed residential, administrative and commercial uses. The proposed works include 25 km of access and distributor roads, bridges, river embankments, sewers, and landscaping. (b) Xining Road: US$6.75 million The Xining Road is proposed as a link northwards from the Xining District Area to the North railway station to improve access and connectivity to the new development area.

Yibin US$76.35 million The proposed project will fund two river bank roads designed to improve access within the city and enhance the degraded riverbank environment. (a) Route A: US$40.44 million Route A (6.7 km) is a distributor road along the north bank of the Min Jiang and Chang Jiang rivers connecting the old city and existing urban areas with the Tianyuan District and the proposed new industrial development zone. (b) Route B: US$35.91 million Route B comprises a 3.5 km extension of the existing riverbank wall and two-lane local road westwards from the Cultural Square in the center of Nan An District.

Panzhihua US$125.53 million The proposed project will support four components designed to accommodate growth of the city by improving access and traffic circulation (two urban roads), and upgrading the city’s sewerage systems, riverbanks, and landscape conditions. (a) Bing-Ren Road: US$80.22 million The proposed Bing-Ren Road is a link between the existing central business district (CBD) and the expanding residential district of Renhe. It would comprise a 6.7 km section of a four-lane road linking the recently completed Airport Access Road to Duren Road (West) in Renhe. (b) Bin Jiang Road: US$9.32 million The proposed road improvement (2.7 km) will relieve congestion in the downtown area and will provide additional capacity for longer distance cross-town traffic. (c) Sewerage: US$10.41 million The sewerage component will help develop comprehensive wastewater collection systems (39 km of pipeline) in the Bingcaogang, Geliping, and Qingxiangping catchments, which will be connected to the existing Bingcaogang Wastewater Treatment Plant (WWTP) and new Qingxiangping WWTP, to be constructed under a build-operate-transfer (BOT) arrangement. (d) River Embankment and Landscape Improvement: US$25.6 million The proposed project will support a series of measures along the Jinsha River: cleaning up debris; constructing an embankment to prevent slope and soil erosion; and improving landscapes at four scenic spots, including planting trees and bushes along the 15 km of river from Xinzhuang Bridge to Jinsha railway station. Institutional Development and Capacity Building (IDCB) Component (US$7.00 million) This component consists of: (i) TA for Institutional Development and Capacity Building for the project municipalities (US$3.30 million) and (ii) TA for Project Implementation and Management, including EMP/RAP implementation monitoring (US$3.70 million). The goal of the TA is to help municipalities improve urban planning and management capacities related to spatial planning, land management, transport planning, and utility and asset management. A management information system (MIS) and geographical information system (GIS) will be used as major instruments for municipal institutional development and capacity building. TA will include trainings and workshops linking, via satellite, SUDP cities with other Asian cities and cities worldwide to share information and best practices, with possible advisory and technical support from the Tokyo Development Learning Center. This global linkage will also help the project cities induce foreign direct investment in the project areas, especially in the Economic Development Zones.

5. Financing Source: ($m.) BORROWER 219.87 INTERNATIONAL BANK FOR RECONSTRUCTION AND 180 DEVELOPMENT Total 399.86

Retroactive financing is under consideration by project cities up to 20 % of the loan amount.

6. Implementation

Partnership arrangements

The Bank is coordinating with MIGA and IFC to provide synergies and comprehensive support to the project cities to enhance their competitiveness. While the Bank will finance priority infrastructure and municipal institutional development, MIGA and IFC will provide municipalities with technical assistance to improve their investment climates for private sector development and investment.

Institutional and implementation arrangements

A Leading Group headed by a Vice-Governor designated the Sichuan Construction Commission (SCC) as the agency responsible for project management. The SCC subsequently appointed the Provincial Project Management Office (PPMO) of the ongoing SUEP to prepare and execute SUDP. The roles of PPMO include: (a) overall project coordination, management and monitoring, (b) annual budget preparation, (c) project-wide quality assurance, (d) progress reporting to the Bank and Sichuan Provincial Government, (e) interagency coordination and procurement support; and (f) training facilitation.

Municipal Project Management Offices (MPMOs) were established in Mianyang, Panzhihua, Suining, and Yibin. Implementing agencies vary according to each project component, and include government departments, investment companies, and a water affairs company. Although the PPMO already has sufficient experience in implementing Bank projects, each city’s Bank experience is limited. The four MPMOs will thus be supported by a project management consultant. Resettlement Offices of each Economic Development Zone have adequate experience in undertaking resettlement activities. They will provide legal and administrative support to project affected people related to land acquisition, resettlement, and livelihood restoration.

7. Sustainability

The project will enhance urban functions of four second-tier cities and contribute to economic development by enhancing economic development zones and providing infrastructure. In addition, the project will support urban renewal and construction of sewerages and river embankments to improve environmental conditions essential to urban sustainability. The project will help ensure financial and operational sustainability of targeted institutions in terms of cost recovery and operation and maintenance. The project will provide TA to develop institutional capacity within the four municipalities to plan, manage, and implement complex urban development programs. Finally, the project will address problems faced by displaced rural users of urban land, to ensure not only fair compensation, but also social and economic sustainability through assistance to help them fully integrate into the urban community.

8. Lessons Learned from Past Operations in the Country/Sector

The following are “lessons learned” from other Bank-financed urban and transport projects, including from the ongoing SUEP, as well as relevant sector work:

Urban infrastructure or land development projects should not be developed solely from a narrowly focused sub-sector perspective. Under SUDP, each infrastructure and urban area development component was developed as an integral part of a comprehensive city development strategy and an urban and spatial plan, considering demographic evolution and development of economic activities in each city.

Adequate project preparation is critical to avoid project implementation delays and under- utilization of a loan. The project’s investment components are fully prepared and realistically scheduled. Their cost estimate is in line with market prices. In addition, implementation arrangements, procurement processes, and fund flows have been reviewed to minimize the possibility of disbursement delays, building on experience from the ongoing SUEP.

Quality of a RAP highly depends on the accuracy of the data and information on Project Affected People (PAP) and their assets and properties. Inadequate information creates major challenges in the implementation of RAPs. In the preparation of the RAP, a very detailed socio-economic survey was conducted on PAP’s socio-economic conditions and their properties. This survey also addressed impacts on owners and employees of shops and enterprises in project areas.

Preparation of a high quality RAP is important, but its successful implementation cannot be guaranteed without systematic and intensive supervision mechanisms and capacity to adjust flexibly to unexpected situations. The project team will strengthen RAP supervision by: (i) extending the originally proposed project closing date from December 31, 2011 to December 31, 2013 to fully cover the implementation period of the land development “linked” to the project beyond the Bank-funded construction period; and (ii) establishing a multi-disciplinary supervision team.

9. Safeguard Policies (including public consultation)

Safeguard Policies Triggered by the Project Yes No Environmental Assessment (OP/BP/GP 4.01) [X] [ ] Natural Habitats (OP/BP 4.04) [ ] [ ] Pest Management (OP 4.09) [ ] [ ] Cultural Property (OPN 11.03, being revised as OP 4.11) [ ] [ ] Involuntary Resettlement (OP/BP 4.12) [X] [ ] Indigenous Peoples (OD 4.20, being revised as OP 4.10) [ ] [ ] Forests (OP/BP 4.36) [ ] [ ] Safety of Dams (OP/BP 4.37) [ ] [ ] Projects in Disputed Areas (OP/BP/GP 7.60)* [ ] [ ] Projects on International Waterways (OP/BP/GP 7.50) [ ] [ ]

10. List of Factual Technical Documents Panzhihua Urban Waste Water Plan

11. Contact point Contact: Hiroaki Suzuki Title: Lead Operations Officer Tel: (202) 458-0329 Fax: Email: [email protected]

12. For more information contact: The InfoShop The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 458-5454 Fax: (202) 522-1500 Web: http://www.worldbank.org/infoshop

* By supporting the proposed project, the Bank does not intend to prejudice the final determination of the parties’ claims on the disputed areas