Guangxi Wuzhou Urban Development Project

Report and Recommendation of the President to the Board of Directors

Sri Lanka Project Number: 40642 November 2008

Proposed Loan People’s Republic of China: Guangxi Wuzhou Urban Development Project

CURRENCY EQUIVALENTS (as of 18 November 2008)

Currency Unit – yuan (CNY) CNY1.00 = $0.1465 $1.00 = CNY6.83

ABBREVIATIONS

ADB – Asian Development Bank CCB – China Construction Bank EIA – environmental impact assessment EIRR economic internal rate of return EMP – environmental management plan FYP – five-year plan FYP-PCG – five-year program for prevention and control of geohazard GDP – gross domestic product GIS – geographic information system GZARG – Guangxi Zhuang Autonomous Region government IA – implementing agency ICB – international competitive bidding LIBOR – London interbank offered rate MLG – minimum living guarantee NCB – national competitive bidding NPV – net present value NSDW – National Strategy for Development of the West PMO – project management office PPMS – project performance monitoring system PRC – People’s Republic of China RP – resettlement plan SEIA – summary environmental impact assessment WLRB – Wuzhou Land Resources Bureau WMG – Wuzhou municipal government

WEIGHTS AND MEASURES km2 – square kilometer m2 – square meter

NOTES

(i) The fiscal year (FY) of the Government ends on 31 December.

(ii) In this report, “$” refers to US dollars.

Vice-President C. Lawrence Greenwood, Jr., Operations 2 Director General K. Gerhaeusser, East Asia Department (EARD) Director A. Leung, Social Sectors Division, EARD

Team leader Y. Fei, Principal Urban Development Specialist, EARD Team members C. Chu, Project Management Officer, EARD M. Gupta, Social Development Specialist, EARD S. Noda, Transport Specialist, EARD X. Peng, Principal Counsel, Office of the General Counsel S. Popov, Senior Environmental Specialist, EARD W. Walker, Social Development Specialist, EARD

CONTENTS Page

LOAN AND PROJECT SUMMARY i MAPS

I. THE PROPOSAL 1 II. RATIONALE: SECTOR PERFORMANCE, PROBLEMS, AND OPPORTUNITIES 1 A. Performance Indicators and Analysis 1 B. Analysis of Key Problems and Opportunities 3 III. THE PROPOSED PROJECT 6 A. Impact and Outcome 6 B. Outputs 6 C. Special Features 7 D. Project Investment Plan 8 E. Financing Plan 8 F. Implementation Arrangements 9 IV. PROJECT BENEFITS, IMPACTS, ASSUMPTIONS, AND RISKS 13 A. Benefits and Impacts 13 B. Social Dimensions 13 C. Environmental Aspects 16 D. Financial Aspects 17 E. Economic Aspects 17 F. Project Risks and Mitigation Measures 18 V. ASSURANCES 19 VI. RECOMMENDATION 20

APPENDIXES

1. Design and Monitoring Framework 21 2. Wuzhou Urban Development Analysis 24 3. Geohazard Management in Wuzhou 28 4. External Assistance 33 5. Cost Estimates and Financing Plan 35 6. Flow of Funds and Relending Arrangements 37 7. Project Implementation Arrangements 38 8. Implementation Schedule 39 9. Procurement Plan 40 10. Outline Terms of Reference for Consulting Services 43 11. Summary Resettlement Plan 47 12. Summary Poverty Reduction and Social Strategy 52 13. Financial Analysis 56 14. Economic Analysis 61

SUPPLEMENTARY APPENDIXES

A. Land Market for Urban Development in Wuzhou B. Resettlement Plans C. Poverty and Social Assessment D. Summary Environmental Impact Assessment E. Environmental Management Plan F. Detailed Financial Management Assessment G. Detailed Economic Analysis

LOAN AND PROJECT SUMMARY

Borrower People’s Republic of China (PRC)

Classification Targeting classification: General intervention Sector: Multisector (water supply, sanitation and waste management, transport and communications, agriculture and natural resources) Subsectors: Water supply and sanitation, roads and highways, irrigation and drainage Themes: Sustainable economic growth, inclusive social development, capacity development Subthemes: Developing urban areas, human development, institutional development

Environment Category A. An environmental impact assessment (EIA) was Assessment undertaken for each of the investment components under the Project. The summary EIA was circulated to the Board of Directors and uploaded on the website of the Asian Development Bank (ADB) on 14 August 2008.

Project Description Wuzhou city is a medium-sized city in the Guangxi Zhuang Autonomous Region. Over centuries, Wuzhou has served as a gateway city and regional transportation center to connect Guangxi with national and international markets, particularly through river transportation. In line with the Government’s development program, Wuzhou will be developed into a multimode regional transportation hub through domestically funded ongoing transportation projects.

However, geological and geographic conditions constrain urban development in Wuzhou. The city is in a mountainous region divided into three parts by two big rivers. Because flat urban land is lacking, the residents tended to build their houses in the marginal lands, which were gradually expanding up the mountains along slopes of major valleys. The mountains in Wuzhou are mainly formed by loose earth, eroded granite, and clastic rocks. As such, they are vulnerable to rain-triggered geological disasters (known as geohazards) in the form of landslides, slope collapse, and mud and debris flows. Many of these valleys, though densely populated, have been classified as geohazard-prone zones.

With support from the central Government, the Wuzhou municipal government (WMG) has made enormous investments to strengthen the control of geological disasters, mainly by building and rehabilitating of the slope protections and retaining walls. However, such traditional control measures have not always been economical and optimal solutions. Under severe weather conditions, these slope protections and retaining walls can be washed away together with houses and other buildings.

The Guangxi Wuzhou Urban Development Project will adopt a new approach to address the geohazard concern of the city. The basic principle of this new approach to geohazard management is a shift from disaster rehabilitation to prevention. Under the Project, geological disasters are to be prevented through holistic urban planning and integrated public investment. The combination of these efforts will result in (i) carefully designed urban planning for long-term urban expansion, (ii) relocation of the people living in the geohazard-prone valley to the newly developed geohazard- free urban area, (iii) engineering measures for geohazard control to convert the evacuated geohazard-prone valley into geohazard- free land for urban redevelopment, and (iv) stronger geohazard forecasting and early warning capability to improve the effectiveness of the city’s geohazard management system.

Rationale Wuzhou is a less developed, medium-sized city in western PRC. The Project will help the city deal with geohazards–a major development constraint–and help free thousands of people from the threat of geological disasters. The Project will introduce an innovative approach to address the geohazards in urban development. The Project is expected to play a demonstration role for many other cities facing similar geological conditions in the PRC.

Impact and Outcome The impact of the Project is sustained urban development and better living standards for the people in Wuzhou. The outcome of the Project is a reduction in the geohazard threat to the life and property of the Wuzhou people and in the geohazard constraints to urban development.

Project Investment Plan The investment cost of the Project is estimated at $263.3 million, including taxes and duties of $4.9 million.

Financing Plan Source Amount % of Total ($ million equivalent) Asian Development Bank 100.0 38.0 Wuzhou Municipal Government 82.5 31.3 China Construction Bank 80.9 30.7 a Total 263.3 100.0 a Numbers may not add up due to rounding. Source: Asian Development Bank estimates.

A loan of $100 million from ADB’s ordinary capital resources will be provided under its London interbank offered rate (LIBOR)- based lending facility. The loan will have a 25-year term including a grace period of 5 years, an interest rate determined in accordance with ADB’s LIBOR-based lending facility for US dollar loans, a commitment charge, and such other terms and conditions set forth in the draft Loan and Project Agreements.

iii

The ADB loan will finance 38% of the project cost. WMG will cofinance 31.3% of the Project cost, while China Construction Bank will cofinance 30.7%.

Allocation and Relending The Government will relend loan proceeds to the Guangxi Zhuang Terms Autonomous Region government, which will then onlend the proceeds to WMG. The loan will be relent to WMG on the same terms and conditions as those of the ADB loan, with WMG bearing the foreign exchange and interest rate variation risks of the ADB loan.

Period of Utilization Until 31 December 2014

Estimated Project 30 June 2014 Completion Date

Executing Agency Wuzhou municipal government

Implementation WMG has established a project leading group, chaired by the Arrangements executive vice mayor, to direct the Project and provide policy guidance during project implementation. Under the project leading group, WMG has set up a project management office (PMO) to undertake and coordinate the day-to-day activities in connection with the Project. By entering into an undertaking agreement, WMG will designate Dongtai State Assets Operations Corporation—a company wholly owned by the WMG that specializes in urban construction—to be the implementing agency. It will carry out the day-to-day implementation of the Project, including procuring goods and works under the Project.

Procurement All procurement of goods and works shall be carried out in accordance with ADB’s Procurement Guidelines (2007, as amended from time to time). International competitive bidding, national competitive bidding, or shopping procedures will be used, depending on the circumstances of each contract package.

Consulting Services About 18 person-months of international consulting services and 108 person-months of national consulting services will be provided under the Project to support the capacity development for WMG in (i) geohazard management, and (ii) institutional strengthening for project implementation and management. Consultants will be recruited in accordance with ADB’s Guidelines on the Use of Consultants (2007, as amended from time to time).

Project Benefits and The Project will directly benefit more than 486,000 urban residents Beneficiaries of Wuzhou by reducing their vulnerability to the threat of geohazards, and by addressing the geohazard constraint to sustainable urban development of the city. The Project has two investment components and one capacity development and institutional strengthening component. Under the investment component for Pingminchong valley geohazard resettlement and

prevention, about 6,823 people or 1,816 households—about 52% of whom are low-income families—will be evacuated from the geohazard-prone valley and relocated in a well-equipped resettlement community newly constructed under the Project in a geohazard-free urban area. This component will significantly improve the quality of life of these residents by eliminating a lasting threat to their lives and property.

The investment component for Hongling road network and related infrastructure will help Wuzhou meet its short- to medium-term urban expansion needs, which are induced by the construction and operation of domestically funded ongoing transportation projects for railway, expressways, and river transportation. The road network and related infrastructure, once completed, will provide the foundation for expanding the city into Hongling, a new urban area away from the geohazard-prone valleys. As envisaged, the urbanization of Hongling will (i) help the city meet its urban expansion requirement up to 2020; (ii) accommodate 100,000 residents settling down in the geohazard-free communities; and (iii) create thousands of new jobs, mainly in the service sector.

The geohazard forecasting and early warning system to be introduced and established under the capacity development and institutional strengthening component will provide Wuzhou with a stronger geohazard management system. This will significantly enhance the city’s capability to avoid geological disasters.

Risks and Assumptions The Project does not have any unusual technical risks. Conventional engineering designs with proven records of reliable performance will be adopted for construction of the resettlement community and road network, and for installation of the related municipal infrastructure along the roads.

The challenge of relocating a large quantity of households may pose a risk to the Project. To mitigate this risk, detailed resettlement plans have been prepared for the two investment components under the Project, strictly following ADB resettlement safeguards policy and participatory consultation procedures. Substantial consulting inputs have been included in the capacity development and institutional strengthening component to provide guidance and technical support for WMG. This will help ensure appropriate implementation of the resettlement plans following the ADB resettlement safeguards policy requirements.

Another risk might arise from inappropriate engineering design and/or irresponsible engineering treatment for the geohazard prevention measures to be undertaken by the Project. WMG has assured that all the engineering design and treatment for geohazard prevention measures will strictly follow the national design and engineering standards for geohazard control and

v prevention works. The capacity development and institutional strengthening component also includes the provision of expertise in geohazard engineering safety to provide guidance and stronger quality control.

Compared with the threat of geohazards to the life and property of people in Wuzhou, and their constraint on the development opportunities of the city, the integrated benefits and impacts of the Project are expected to outweigh the costs. The identified risks are manageable, given the mitigation measures provided.

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GUANGXI WUZHOU URBAN DEVELOPMENT PROJECT IN THE PEOPLE'S REPUBLIC OF CHINA H U N A N

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Project City Pingxiang Provincial Capital Ningming Qinzhou Fangcheng City/Town o Dongxing o 22 00'N National Road 22 00'N Provincial Road VIET NAM Beihai Railway River Provincial Boundary S o u t h C h i n a S e a International Boundary Boundaries are not necessarily authoritative.

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H 2 R

I. THE PROPOSAL

1. I submit for your approval the following report and recommendation on a proposed loan to the People’s Republic of China (PRC) for the Guangxi Wuzhou Urban Development Project.

2. The Government requested the Asian Development Bank (ADB) to help promote the urban development of Wuzhou city in the Guangxi Zhuang Autonomous Region by addressing one major development constraint—geohazards in the form of landslide, slope collapse, and mud and debris flow.1 This report is based on the results of the loan processing missions, as well as discussions with the central and local governments, relevant agencies, and community organizations.2 The design and monitoring framework of the Project is in Appendix 1.

II. RATIONALE: SECTOR PERFORMANCE, PROBLEMS, AND OPPORTUNITIES

A. Performance Indicators and Analysis

3. Since the PRC initiated economic reforms in 1978, sustained economic growth has been accompanied by rapid urbanization. The urban population increased from about 190 million or 19.6% of total population in 1980 to more than 560 million or 42.9%, in 2005. Through the implementation of the Five Year Plan (FYP) for 2006–2010, the PRC envisages a continuation of this urbanization process in a cautious yet steady manner.3 The aim is to establish a more balanced economic structure under an integrated market system comprising metropolitans, city clusters, and small and medium-sized cities to serve as the national or regional growth centers to promote sustained development across the country. The World Bank estimated that urbanization in the PRC could pass the 60% mark by 2020, with 200 million or more rural people joining the urban population. 4 The rapid urbanization requires continued public investment to support urban expansion, as well as to address the development constraints faced by the cities in the PRC. ADB’s country partnership strategy for the PRC 2008–2010 identifies direct support for sound and sustainable urban development as one major operational focus. 5 It emphasizes resolving constraints to sustained urban development or urban environmental improvement in the smaller cities, particularly those in the less developed interior provinces and autonomous regions.

4. As a continental country with mountains and mountainous lands accounting for 65% of its total land area, the PRC is one of the most vulnerable countries in the world to geological disasters. During 1995–2005, geological disasters, on average, killed 1,108 people and caused direct economic losses of CNY5.9 billion each year. All the provinces and autonomous regions are affected by recurrent geological disasters, most commonly landslides, slope collapse, and mud and debris flow. Given the high concentration of human settlements and economic assets

1 Geohazard is a term commonly used to describe many different geological phenomena, including earthquakes, slope collapse, landslide, and mud and debris flow. In the PRC, public interventions for the prevention and rehabilitation of earthquake-induced disasters are subject to a set of specialized laws and regulations. In this report, the term geohazard covers only the geological phenomena of slope collapse, landslides, and mud and debris flow, which are the most common geohazards in Wuzhou and many other cities under similar geological conditions in the PRC. 2 The Project was prepared with support of technical assistance approved in August 2007: ADB. 2007. Technical Assistance to the People’s Republic of China for Preparing the Guangxi Wuzhou Urban Development Project. Manila. 3 The People’s Congress of the PRC. 2006. 11th Five Year Program for National Economy and Social Development in the People’s Republic of China. Beijing. 4 World Bank. 2008. China Urbanizes. Washington. 5 ADB. 2008. Country Partnership Strategy (2008–2010): People’s Republic of China. Manila.

2 in the cities, prevention and control of geohazards is a special concern for sustainable urban development in the PRC, particularly for those cities in the mountainous areas of the less developed western part of the country.

5. The Government has formulated the 11th five-year program for prevention and control of geohazard (FYP-PCG) for 2006–2010, which establishes the goals and principles for combating geohazards across the country.6 Following a review of the experiences and lessons from past public interventions, the FYP-PCG highlights the principle of the “prevention first” and the importance of incorporating the geohazard prevention into the overall development process. Like many other cities in less-developed mountainous areas of the PRC, Wuzhou suffers from permanent exposure to frequent geohazards. By working with ADB on the Project, the Government is seeking knowledge input and financial support to address one common constraint to sustained urban development. The Project, which is designed in line with the FYP- PCG, is expected to play a demonstration role for other cities under similar geological conditions in the PRC.

6. Wuzhou is a medium-sized city in the eastern part of Guangxi, one of the 12 less- developed western provinces and autonomous regions that the Government is supporting under the National Strategy for Development of the West (NSDW). The Wuzhou municipal government (WMG) has three urban districts, three rural counties, and one county and/or city under its jurisdiction, covering a total of 12,588 square kilometers (km2) and with a population of 3.11 million. For this Project, Wuzhou refers to the city proper, comprising the three urban districts only. Wuzhou has an urban population of 486,000 and a developed urban area of 50 km2. The city is at the intersection of two major rivers—Xunjiang River and Guijiang River, which are then merged into Xijiang River—the upstream section of Zhujiang River (i.e., Pearl River) for the Pearl River Delta—one major growth engine of the PRC. Wuzhou has existed for more than 2,000 years. Over centuries, Wuzhou has served as a gateway city and a regional transportation hub connecting Guangxi with the national and international markets, particularly through river transportation.

7. With support from the Government under the NSDW, Wuzhou has developed rapidly, mainly by strengthening its economic integration with the Pearl River Delta. From 2000 to 2005, Wuzhou’s gross domestic product (GDP) grew on average 11.3% per year, compared with the national average of 9.5%. The urban population of Wuzhou increased from 373,700 to 486,000, in that period, accompanied by an average increase in urban per capita disposable income of 10.9% per year, compared with the national average of 10.6%.

8. The 11th FYP for 2006–2010 envisages Wuzhou developing further into a regional multimode transportation center to connect Guangxi with the Pearl River Delta through six ongoing domestically funded major transport projects: three expressway projects, two railway projects, and one river transport strengthening project. A significant urban expansion is required to accommodate these new infrastructure facilities, as well as to support their operations. The Wuzhou City Development Master Plan (2000–2020), approved by the Wuzhou People’s Congress, envisages the city to have a developed urban area of 80 km2 and an urban population of 800,000 by 2020. A strategic analysis of the challenges and opportunities for urban development in Wuzhou is in Appendix 2.

6 Ministry of Land and Resources. 2007. 11th Five Year Program for Prevention and Control of Geohazard. Beijing.

B. Analysis of Key Problems and Opportunities

9. Background. Geological and geographic conditions severely constrain urban development in Wuzhou. The city is in a mountainous region divided into three parts by two big rivers. The city proper is on the north bank of the Xunjiang River, which is further divided by Guijiang River into the old urban center on the east side and a fast-growing new urban center on the west side. The south bank of Xunjiang and/or Xijiang River7 has not been developed. Before the development of the new urban area on the west side of the Guijiang River in the 1980s, flat land available around the old urban center was limited. As a result, the residents tended to build their houses in the marginal lands, which were gradually expanding up the mountains along slopes of major valleys. The mountains in Wuzhou are mainly formed by loose earth, eroded granite, and clastic rocks. As such, they are vulnerable to rain-triggered geological disasters in the form of landslides, slope collapse, and mud and debris flows. Many of these valleys, though densely populated, have been classified as geohazard-prone zones.

10. With support from the central Government and autonomous region government, the WMG has made enormous investments to strengthen the control of geological disasters over the past 50 years. Numerous engineering control projects have been implemented to stabilize the mountain slopes by building and rehabilitating the slope protections and retaining walls. These measures have played an important role in combating geohazards. However, such traditional control and prevention measures, particularly the repeated building of the slope protections and retaining walls, have not always been economical and optimal solutions. Despite the existence of concrete retaining walls, people living in the geohazard-prone valleys remain vulnerable to landslides. Under severe weather conditions, these slope protections and retaining walls can be washed away together with houses and other buildings. On 8 June 2006, a strong rainstorm hit Wuzhou, which triggered 181 landslides, 48 slope collapses, and 64 mud and debris flows. The geological disaster killed 12 people, wounded 26, and affected 21,673. It also caused extensive damage to the city, including destroying 825 residential buildings with an estimated direct economic loss of CNY30 million. To strengthen urban sustainability and to provide the people with safe and more secure living conditions, Wuzhou needs to adopt a new approach to combat geohazards more effectively.

11. Based on the experience and lessons from the past, and taking into account international best practice, the WMG will adopt a new approach under the Project to combating the geohazard concerns of the city. The basic principle of the new approach to geohazard management is a shift from disaster rehabilitation to prevention. Under the Project, geological disasters are to be prevented through holistic urban planning and integrated public interventions. The combination of these efforts will result in (i) carefully designed urban planning for long-term urban expansion, (ii) relocation of the people living in the geohazard-prone zone to the newly developed geohazard-free urban area, (iii) engineering measures for geohazard control to convert the evacuated geohazard-prone valley into a geohazard-free land for urban redevelopment, and (iv) stronger geohazard forecasting and early warning capability to improve the effectiveness of the city’s geohazard management system.

12. Rationale. Wuzhou is a less-developed, medium-sized city in western PRC. The city has reached a critical stage of urban development as it grows into a multimodal transportation center to further strengthen the economic integration of Guangxi and its neighboring western provinces with the Pearl River Delta. The Project will help WMG address geohazards—one

7 The upper stream of the Xijiang River is called the Xunjiang before it meets the Guijiang River at the intersection in Wuzhou.

4 major development constraint—and help free thousands of people from the threat of geological disasters. The Project is consistent with the ADB’s country partnership strategy for PRC, which specifies that ADB will directly support sound and sustainable urban development with a focus on relatively underdeveloped areas in western and northeastern PRC (footnote 5). Furthermore, the Project will introduce an innovative approach to addressing geohazards. It is expected to play a demonstration role for many other cities facing similar geological conditions in the less- developed western part of the PRC.

13. Policy Dialogue. One increasingly challenging task related to the rapid urbanization in the PRC is satisfying the need for urban expansion need through properly designed land use management, and well-compensated land acquisition and resettlement arrangements. In line with the principle of achieving a harmonious society set forth for the 11th FYP, the Government has introduced many new policy initiatives to strengthen land use management and to assist local governments in improving their management of land acquisition and resettlement. As Wuzhou is a fast-growing city, the WMG has gained rich experience in handling land acquisition and resettlement for urban expansion in accordance with the relevant national laws and regulations. In Guangxi, Wuzhou is regarded as a city of best practice for land acquisition and resettlement. The Project has provided WMG with a good opportunity to learn from ADB the resettlement safeguard policies and requirements to further improve their work.

14. The Project has two investment components, both involving relocation of people. Under one component, the Project beneficiaries are to be moved out of a geohazard-prone valley and relocated in a geohazard-free new resettlement community. Under the other component, project-affected persons are to be relocated because of the construction of the road network and related infrastructure to promote the urban expansion into the geohazard-free area. The WMG, recognizing that appropriate land acquisition and resettlement is the key to project success, agreed that all land acquisition and resettlement under the Project—including the relocation of the project beneficiaries—should conform strictly to ADB’s Involuntary Resettlement Policy (1995). Furthermore, the resettlement plan prepared for the road network construction will establish the same resettlement principles, compensation standards, consultation procedures, and implementation plan for the lands and resettlements required for road network construction and the neighboring urban lands to be developed with the road network.

15. During loan processing, ADB and WMG conducted a continual and extensive dialogue on urban development strategy for Wuzhou, focusing on prioritizing and sequencing the planned urban development activities in accordance with the urban expansion needs of the city and the financing capability of WMG. Through a joint review of the urban development momentum, as well as an in-depth assessment of economic and financial viability of the Project, WMG agreed to divide the proposed urban expansion plan into two phases. The first phase will prioritize support for the city expansion into a geohazard-free area on the northern bank of Xunjiang River. Urban expansion is continuing in this area because of the construction and operation of key transport infrastructure, such as the long distance bus terminal and the railway station. Development of the southern bank of the Xunjiang River, including building a new bridge across the river and constructing the road network and related municipal infrastructure, could be started in the second phase, after adequate development of the northern bank. Instead of spreading limited financial resources across all the planned urban development activities, the Project has included only the highest priority development activities planned for the city. Through such dialogue, the WMG has managed to plan the urban development through a well-coordinated sequence of phases, and keep the capital investment, physical construction, environmental

5 impact, and land acquisition and resettlement requirement of the Project within its financing and project management capability.

16. Through decades of combating geological disasters, Wuzhou has developed an institutionalized geohazard management system comprising the leadership of the WMG, the geohazard emergency center of WMG, the meteorological station, district governments, and the communities and households in the geohazard-prone valleys. During the rainy season, almost all slopes in the geohazard-prone zone are closely monitored by designated households or individuals through a community-based geohazard monitoring and alarming system. The system has been effective in responding to emergencies. However, one shortcoming of the system is its lack of geohazard forecasting and early warning capability. Most of the geohazard events are detected through mass observations conducted by communities and households alerted by meteorological forecast and mobilized by rainfalls. On the advice of ADB, the WMG agreed to add one new component to the Project—the introduction and establishment of a geohazard forecasting and early warning system to strengthen the geohazard management of the city. A more detailed assessment of geohazard management in Wuzhou is in Appendix 3.

17. External Assistance. ADB has supported urban development in the PRC (Appendix 4). In support of the NSDW of the Government, ADB has also provided development assistance for Guangxi, particularly through lending for investment projects in transport and urban development.8 The Project will be the first urban development project prepared with support from a multilateral development bank in Wuzhou. The WMG appreciated the international knowledge and experiences that ADB brought in the fields of urban planning, geohazard management, and project design and management in addition to the financial support to be provided for the Project.

18. Lessons. ADB-financed urban development and urban environmental improvement projects in the PRC generally perform well. Urban development requires an integrated and multisector approach. In the PRC, urban development activities in a city are guided by a comprehensive city development master plan prepared for a time frame of 15–20 years, which is updated from time to time as appropriate. Guided by such a city master plan, holistic urban planning and integrated public investment may be effective instruments in strengthening urban sustainability, improving human settlement, and improving urban environment. However, within an approved city master plan, development activities still need to be carefully prioritized and sequenced in view of development momentum of the city, as well as the financing and project management capability of the city government. Policy dialogue during loan processing has allowed for a continual optimization of the urban development program for Wuzhou to maximize its development impact.

19. Land acquisition and resettlement is a challenge to many urban development projects that may affect loan processing and implementation. Lessons from urban development projects in the PRC indicate that ADB’s resettlement safeguard policy and operational requirements should be introduced as a sample of international good practice to help the concerned municipal

8 ADB. 2001. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the People’s Republic of China for the Guangxi Roads Development Project. Manila (Loan 1851); ADB. 2004. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the People’s Republic of China for the Guangxi Roads Development II Project. Manila (Loan 2094); ADB. 2006. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the People’s Republic of China for the Guangxi Nanning Urban Environmental Upgrading Project. Manila (Loan 2239); ADB. 2007. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the People’s Republic of China for the Western Guangxi Roads Development Project. Manila (Loan 2345).

6 government improve its own resettlement safeguard system, rather than as a unilaterally imposed operational requirement. This approach has facilitated a candid and constructive policy dialogue with WMG in preparing the resettlement plan for the Project in line with the “people- centered” principle advocated by the Government and in conformity with ADB Involuntary Resettlement Policy.

20. ADB evaluation studies have highlighted relevant lessons for loan processing including the need to (i) encourage broad reforms, (ii) ensure counterpart funding for operation and maintenance, (iii) consult the public and involved community in project design, (iv) address the resettlement issues at the early stage of processing, and (v) avoid start-up delays. These lessons have been considered in policy dialogue with the Government and the WMG, and are incorporated in the design of the proposed Project.

III. THE PROPOSED PROJECT

A. Impact and Outcome

21. The impact of the Project will be sustained urban development and higher living standards in Wuzhou. The impact will be measured by the achievement of sustained economic growth in the city, sustained growth of per capita income of city residents, steady urbanization, less vulnerability of the city to geohazards, and more effective geohazard management system. The outcome of the Project will be a reduction in the geohazard threat to life and property of people living in Wuzhou, and a reduction in the geohazard constraint on urban development. The outcome will be measured by fewer households living in the geohazard-prone zone, more geohazard-free lands for urban development, more urban road and municipal infrastructure facilities, and stronger geohazard forecasting and early warning capability.

B. Outputs

22. The Project will have three major components generating the following outputs:

(i) Pingminchong valley geohazard resettlement and prevention. This component will involve (a) building a resettlement community in Zaochong—a geohazard-free urban area, to be equipped with quality housing and municipal infrastructure to accommodate about 6,823 people or 1,816 households to be evacuated from the geohazard-prone Pingminchong valley; and (b) undertaking geohazard-control engineering measures to convert the evacuated Pingminchong valley into geohazard-free lands with a total area of about 20 hectares (ha) for urban redevelopment.

(ii) Hongling road network and related infrastructure. This component will entail building a comprehensive 36.2-kilometer urban road network together with the related municipal infrastructure, including drainage pipelines, sewers, public green areas, lighting, and traffic management facilities, to promote and facilitate the urban expansion into the geohazard-free Hongling—a new urban area of about 540 ha on the northern bank of Xunjiang between the newly constructed railway station and the fully developed urban area.

(iii) Capacity development and institutional building. This component will involve (a) developing and establishing a geographic forecasting and early warning system that is compatible with a geographic information system (GIS) to

strengthen the geohazard management of the city, and (b) providing technical support, including relevant training in urban planning and geohazard management for the WMG and the project implementing agency to strengthen their capacity to meet the operational requirements of the Project during implementation. In addition, the Project will provide specialized consulting services under this component to improve public awareness of geohazards and geohazard management through the existing community-based geohazard monitoring and alarming system.

C. Special Features

23. Innovative Approach to Geohazard Prevention. The traditional mechanism for geohazard management relies entirely on budget support from the central and local governments. It does not have any self-financing capability. The Government’s long lasting financial constraints have limited public interventions only to emergency response and post- disaster rehabilitation by providing assistance for disaster relief and rehabilitation of the damaged retaining walls. The budgetary resources available determined and constrained the level of rehabilitation and protection. Under the Project, a new mechanism will be introduced to shift geohazard management from disaster rehabilitation to disaster avoidance and prevention, and to introduce a self-financing element into geohazard management through integrated urban planning and well coordinated urban development.

24. Under the Pingminchong component, people living in this geohazard-prone valley will be evacuated and relocated to a newly built resettlement community in a geohazard-free urban area, freeing them from geohazard threat. In the evacuated Pingminchong valley, engineering measures will include (i) cutting the mountain slopes to a degree that is safe and free of landslidea, (ii) filling up the valley into carefully designed terraces, and (iii) installing an effective drainage system to divert the storm water and protect the treated terraces from erosion. These engineering measures will convert the geohazard-prone Pingminchong valley into a geohazard- free land. The WMG will then auction off the treated land for urban redevelopment. The WMG plans to use the revenue from the sale, after deduction of the costs for geohazard control treatment, to set up a revolving mechanism to finance future geohazard control and prevention projects of the other geohazard-prone valleys in the city. In this connection, a special study was conducted on the land market in Wuzhou, which confirmed that all the land transactions for urban development in Wuzhou since 2003 have been conducted through transparent market operations in the form of a tender, auction, or public listing. Land reforms in PRC, particularly the strengthening of the legal framework for land transactions, have provided an enabling environment for the proposed revolving financing mechanism.9 A detailed analysis of the land market for urban development in Wuzhou is in Supplementary Appendix A.

25. The revolving financing mechanism attempts to incorporate geohazard prevention into overall urban development through holistic urban planning and integrated public investments. This approach is expected to prevent disasters, improve human settlements, and redevelop urban areas. This approach would not be possible without sizeable lending support from ADB to complement the WMG investment to first build a well-serviced resettlement community to receive the relocated households from the geohazard-threatened Pingminchong valley.

9 The legal framework for land market development in the PRC has evolved over the past 20 years. It includes, among other things, the Amendment to the Constitution (1988), Enactment of the Property Rights Law (2007), and Issuance of the Decree on Transfer of Construction Land Use Rights through Tender, Auction and Listing (2007).

26. Geohazard Forecasting and Early Warning System. Based on an existing computerized GIS for land resources management in Wuzhou, and taking into account international best practice, the Project will help WMG (i) use information and communication technology to establish a centralized GIS-compatible, real-time monitoring and reporting network to supplement the existing community-based mass observation mechanism for the geohazard-prone zones of the city; (ii) develop a computer-based dynamic geohazard simulation and forecasting model, based on meteorological data and geohazard monitoring data, to provide technical support for early warning service against geohazards; and (iii) provide an integrated decision-making system for geohazard monitoring, early warning, and emergency response to enhance the efficiency and effectiveness of the geohazard management system of the city. This will be one of the first such systems to be introduced to strengthen urban geohazard management in the PRC.

D. Project Investment Plan

27. The project is estimated to cost $263.3 million, including taxes and duties of $4.9 million. Table 1 provides a summary of the project investment plan.

Table 1: Project Investment Plan ($ million) Item Amounta A. Base Costb I. Pingminchong geohazard resettlement and prevention 53.4 II. Hongling road network and related infrastructure 154.2 Capacity development, project management and implementation 2.0

III. consulting services

Subtotal 209.6

B. Contingenciesc 25.9

C. Financing Charges During Implementationd 27.9

Totale 263.3 a Includes taxes and duties of $4.95 million. b In mid 2008 prices. c Physical contingencies are computed at 5% for civil works. Price contingencies are computed for both by year and by expenditure type based on local currency costs and foreign exchange costs. Exchange rate fluctuations are estimated using a purchasing power parity adjustment model. d Includes interest and commitment charges. Interest during construction has been computed at the 5-year forward London interbank offered rate plus a spread of 0.2%. e Numbers may not add up due to rounding. Source: Asian Development Bank estimates.

E. Financing Plan

28. The Government has requested a loan of $100 million from ADB’s ordinary capital resources to help finance the Project. The loan will have a 25-year term, including a grace period of 5 years, an interest rate determined in accordance with ADB’s London interbank offered rate (LIBOR)-based lending facility for US dollar loans, a commitment charge, and such other terms and conditions set forth in the draft Loan and Project Agreements. The Government has provided ADB with (i) its decision to borrow under ADB’s LIBOR-based lending facility on the basis of these terms and conditions, and (ii) an undertaking that these choices were its own independent decision and not made in reliance on any communication or advice from ADB.

29. The ADB loan will finance 38% of the project cost, including the base cost, the financing charges during implementation, and the taxes and duties associated with the project expenditures. 10 As discussed and agreed with the Government, for the subcomponent of construct the resettlement community in Zaochong (para. 22), the ADB loan will be used to finance the construction of basic public infrastructure only, including site preparation, roads, water supply and sewage pipelines. Domestic counterpart funds will be used to finance the construction of the housing facilities. The WMG has obtained a commitment from China Construction Bank (CCB) to provide a loan of $80.9 million to finance 30.7% of the project cost. The CCB loan will have a term of 10 years, including a grace period equivalent to the implementation period of the Project; it will be provided in the national currency at an interest rate of 7.83% per year. The WMG has provided a commitment letter to confirm (i) timely provision of adequate counterpart funds totaling $82.5 million, or 31.3% of the project cost; and (ii) provision of additional counterpart funding to cover any funding shortfalls that may occur during project implementation. The financing plan is summarized in Table 2. Detailed cost estimates and financing plan are in Appendix 5.

Table 2: Financing Plan ($ million) Source Totala % Asian Development Bank 100.0 38.0 Wuzhou Municipal Government 82.5 31.3 China Construction Bank 80.9 30.7 Total 263.3 100.0 a Numbers may not add up due to rounding. Source: Asian Development Bank estimates.

30. The Borrower is the PRC. The Government will relend the loan proceeds to the Guangxi Zhuang Autonomous Region government (GZARG), which in turn will onlend the proceeds to the WMG. The loan will be onlent to the WMG on the same terms and conditions as those of the ADB loan, with the WMG bearing the foreign exchange and interest rate risks of the ADB loan. The chart for flow of funds through relending arrangements within the government system is in Appendix 6.

F. Implementation Arrangements

1. Project Management

31. The WMG will be the Executing Agency. A project leading group headed by the executive vice-mayor has been established to provide overall guidance and support for the preparation and implementation of the Project. Under the project leading group, the WMG has established a project management office (PMO) to undertake and coordinate the day-to-day activities of the Project. By entering into an undertaking agreement, the WMG will designate Dongtai State Assets Operations Corporation—a company wholly owned by the WMG that specializes in urban construction—as the implementing agency (IA) to carry out the day-to-day implementation of the Project, including procuring goods and works under the Project. The undertaking agreement will include the requirements and obligations in the Loan Agreement and Project Agreement applicable to the IA. The chart for implementation arrangements is in Appendix 7.

10 Project-associated taxes and duties are estimated at $4.95 million, or about 1.9% of the total cost, which are not excessively high yet a material part of the project costs.

2. Implementation Period

32. The Project will be implemented over about 5 years from March 2009 to June 2014. The detailed implementation schedule is in Appendix 8.

3. Procurement

33. The procurement of goods and works financed under the loan will be carried out in accordance with ADB’s Procurement Guidelines (2007, as amended from time to time). Contracts for goods estimated to exceed $1.0 million and contracts for works estimated to exceed $10.0 million will be procured using international competitive bidding (ICB) procedures. Contracts for goods and for works estimated to cost the same or less than the ICB values, but more than $100,000 will be procured using national competitive bidding (NCB) procedures, in accordance with the PRC Tendering and Bidding Law (1999), subject to modifications agreed upon with ADB. Contracts for goods and works estimated to cost $100,000 or less will be procured using shopping procedures. For contracts to be procured through ICB procedures, procurement documents including invitations for bids, invitations for prequalification, draft prequalification documents, draft bidding documents, and prequalification and bid evaluation reports, are to be submitted to ADB for prior review and approval. For contracts to be procured through NCB procedures, the first draft English language version of the procurement documents should be submitted for ADB review and approval regardless of the estimated contract amount. The ADB-approved procurement documents should then be used as a model for all NCB procurement financed by ADB for the Project, and need not be reviewed further. ADB will review the bid evaluation report and award of contract on a post-review basis. For contracts to be procured using shopping procedures, ADB will review the award of contracts on a post-review basis. The procurement plan for the Project is in Appendix 9.

34. A procurement capacity assessment of Dongtai confirmed that the IA is generally capable of conducting the procurement for the Project. However, it will need training and technical support to understand and become familiar with ADB policy and procedural requirements set out in ADB’s Procurement Guidelines. The details of the capacity assessment are provided as part of the financial analysis appendix (Appendix 13).

4. Consulting Services

35. The Project will fund 18 person-months of international consulting services and 108 person-months of national consulting services to support the capacity development of the WMG in (i) geohazard management, and (ii) institutional strengthening for project implementation and management. The consultants will be recruited through one consulting firm to be selected in accordance with ADB’s Guidelines on the Use of Consultants (2007, as amended from time to time), using the quality- and cost-based selection method at the quality-to-cost ratio of 80:20 with full technical proposal procedures. Consulting services are required for (i) designing and developing a GIS-compatible geohazard forecasting and early warning system; (ii) providing project implementation and management support for PMO and IA; and (iii) conducting training for capacity development of the WMG, particularly in urban development, project management, and geohazard management. The outline terms of reference for the consulting services is in Appendix 10.

5. Advance Contracting and Retroactive Financing

36. To expedite project implementation, the WMG has requested for advance contracting for the recruitment of consulting services, as well as for the procurement of goods and civil works. It also asked for retroactive financing to cover eligible expenditures not exceeding $20 million, which equals 20% of the loan amount, incurred before loan effectiveness, but not earlier than 12 months before the signing of the Loan Agreement. All advance contracting will be undertaken in conformity with ADB’s Procurement Guidelines or Guidelines on the Use of Consultants. ADB must approve the issuance of invitations to bid or to prequalify under advance contracting. Contracts proposed for retroactive financing will be undertaken in accordance with ADB’s Procurement Guidelines. The Government, GZARG, and WMG have been advised that approval of advance contracting and retroactive financing does not commit ADB to finance any ensuing project.

6. Governance and Anticorruption Policy

37. ADB’s Anticorruption Policy (1998, as amended to date) was explained to and discussed with the Government, GZARG, WMG, and the IA. Consistent with its commitment to good governance, accountability, and transparency, ADB reserves the right to investigate, directly or through its agents, any alleged corrupt, fraudulent, collusive, or coercive practices relating to the Project. To support these efforts, relevant provisions of ADB’s Anticorruption Policy are included in the loan covenants and the bidding documents for the Project. In particular, all contracts financed by ADB in connection with the Project shall include provisions specifying the right of ADB to audit and examine the records and accounts of the GZARG, WMG, and the IA, and all contractors, suppliers, consultants, and other service providers as they relate to the Project. For the Project, the GZARG and WMG will undertake the following anticorruption actions:

(i) to involve the agencies responsible for oversight of the IA in bidding and construction to enhance construction quality control and supervise effective work; (ii) to introduce a dual-signing system in which the civil works contract winner also signs an anticorruption contract with the employer; (iii) to periodically inspect the contractor’s activities related to fund withdrawals and settlements; (iv) to engage a project management consultant to support the PMO and the IA to ensure good governance, accountability, and transparency in project implementation; (v) to consult with the concerned central Government agencies to update the local laws and regulations on local and corporate governance and anticorruption measures; and (vi) to disclose the information on contract awards on the project website of the WMG and in the audit report on the financial statements and project accounts following the relevant laws and regulations of PRC.

7. Disbursement Arrangements

38. The loan proceeds will be disbursed in accordance with the procedures set out in ADB’s Loan Disbursement Handbook (2007, as amended from time to time). To facilitate project implementation through timely release of loan proceeds, GZARG will establish an imprest account promptly after loan effectiveness at a commercial bank acceptable to ADB. The Finance Bureau of the GZARG will administer the imprest account. The initial amount to be deposited in the imprest account will not exceed the estimated expenditures for the succeeding

6 months to be funded from the imprest account, or 10% of the loan amount, whichever is lower. To expedite flow of funds and simplify the documentation process, the ADB statement-of- expenditure procedure will be used for liquidation and replenishment of the imprest account, and for reimbursement of eligible expenditures not exceeding $200,000 per individual payment. The payments in excess of the statement-of-expenditure ceiling will be reimbursed, liquidated, or replenished based on full supporting documentation. The civil works contracts under the Project will be paid using direct payment procedures for such expenditures.

8. Accounting, Auditing, and Reporting

39. As the IA, Dongtai will keep records to allow the identification of goods and services financed from the loan proceeds, following accounting principles and practices prescribed by the PRC Accounting Law. The law requires financial statements to be prepared following internationally recognized accounting standards. Dongtai will set up and maintain separate project accounts and records. The financial statements of the project accounts and the annual corporate financial statement for Dongtai will be subject to external audit by the Wuzhou Audit Bureau, the Guangxi Audit Bureau, and the State Audit Administration. The audits will be carried out in accordance with the audit regulations of the PRC, and will meet ADB requirements. The audit reports should include a separate auditor’s opinion on the use of the imprest account and statement of expenditures. Dongati’s annual audited financial statements and audited project accounts will be submitted to ADB no later than 6 months after the end of the fiscal year throughout the implementation period.

40. The WMG and Dongtai will submit reports and information to ADB concerning the use of the loan proceeds, project implementation, and IA performance. These reports will include (i) quarterly progress reports on project implementation; (ii) annual reports; and (iii) a project completion report, which should be submitted not later than 3 months after the completion of the project facilities. Through the preparation and submission of quarterly progress reports, the PMO will report the progress made, problems encountered during the period under review, steps taken or proposed to remedy the problems, the proposed program for the planned project implementation activities, and progress expected in the following 6 months.

9. Project Performance Monitoring and Evaluation

41. The project performance monitoring system (PPMS) indicators, their relevance, and monitoring practicalities have been discussed with WMG and Dongtai during project preparation. The impact indicators, as specified in the design and monitoring framework, will include (i) GDP growth, (ii) urban population and per capita income, (iii) proportion of urban residents living in geohazard-prone areas, and (iv) availability and reliability of the geohazard forecasting and early warning services. At the start of project implementation, the PMO and Dongtai, with support from the project implementation consultant, will develop comprehensive PPMS procedures to generate data systematically on project outcome, inputs and outputs of each component, as well as the agreed-upon employment indicators, environmental monitoring indicators, and resettlement plan implementation indicators. These will be used to measure the project impact, outcome, output, and compliance with ADB safeguard policy requirements. The PMO will (i) refine the PPMS framework, (ii) establish the baseline, (iii) confirm achievable targets, (iv) finalize the monitoring and recording arrangements, and (v) establish data collection systems and reporting procedures no later than 6 months after loan effectiveness. In the design and development of the PPMS framework, special attention will be paid to the demonstration effect of the Project, which should enable systematic data collection and analysis for dissemination of the lessons and experiences to cities beyond Wuzhou.

10. Project Review

42. ADB and the Government will review project implementation jointly at least once a year. In addition, ADB and the Government will undertake a comprehensive midterm review 2 years after the start of project implementation. This midterm review will include a detailed evaluation of the scope, implementation arrangements, resettlement, achievement of scheduled targets, and progress on the agenda for policy reform and capacity development measures. Feedback from the PPMS activities will be analyzed.

IV. PROJECT BENEFITS, IMPACTS, ASSUMPTIONS, AND RISKS

A. Benefits and Impacts

43. The Project will directly benefit more than 486,000 urban residents of Wuzhou by reducing their vulnerability to geohazard, and by addressing the geohazard constraint to sustainable urban development of the city. Under the Pingminchong component, about 6,823 people or 1,816 households, about 52% of whom are low-income families, will be evacuated from the geohazard-prone valley and relocated in a well-serviced resettlement community newly constructed under the Project in a geohazard-free urban area. This component will significantly improve the quality of life of these residents by eliminating a lasting threat to their life and property.

44. The Hongling component will help Wuzhou meet its short- to medium-term urban expansion needs, which are induced by the construction and operation of transportation projects for railway, expressway, and river transportation. The road network and related infrastructure, once completed, will provide the foundation for the expansion of the city into Hongling, a new urban area away from the geohazard-prone valleys. As envisaged, the urbanization of the Hongling area will help the city meet its urban expansion requirement up to 2020, accommodating 100,000 residents in the geohazard-free communities and creating thousands of new jobs, mainly in the service sector for the city.

45. The geohazard forecasting and early warning system to be introduced and established under the Project will provide Wuzhou with a stronger geohazard management system. This will allow for an early warning service against geohazard events, thus significantly enhancing the city’s capability to prevent geological disasters.

B. Social Dimensions

1. Land Acquisition and Resettlement

46. Overall, the land acquisition and resettlement impact of the Project will be significant. Resettlement plans have been prepared for each of the investment components: (i) the Pingminchong geohazard resettlement and prevention, and (ii) the Hongling road network and related infrastructure. The implementation of the Project will affect two rural villages, two urban resident communities, one village administration office and one township, and two districts. Permanent land acquisition will affect 862 households or 3,856 persons (635 urban dwellers and 3,221 rural dwellers). The demolition of residential structures will affect 2,105 households or 7,081 persons living in private houses under the administration of the resident and village committees. Further, 15 institutions, 16 enterprises, and seven shops with 1,751 persons will be relocated because of nonresidential structure demolition. Project construction will permanently

14 affect about 2,393 mu (667 square meters) of state- and collective-owned land, of which 272 mu (11.37%) is classified as farmland; and 188,038.13 square meters (m2) of residential houses and 25,022.01 m2 of nonresidential structures of institutions, enterprises and shops (5,845 m2 used for residential purpose and 19,177.01 m2 for nonresidential purpose) will be demolished. In addition, some productive assets, ground attachments, and basic infrastructure and special facilities will also be affected. Of the total affected population, 383 households or 1,091 persons are from vulnerable groups, including 161 households with residential area of less than 12 m2 per capita, 118 households headed by women, 32 households with disabled persons, 42 households living under the minimum living guarantee (MLG), and 26 households with “five guarantees”.11 Land acquisition or resettlement will not affect any ethnic minority households.

47. Both resettlement plans have been formulated through participatory consultations following the relevant laws and regulations of the PRC, and in conformity with ADB’s Involuntary Resettlement Policy. For permanent acquisition of farmland, 30% of land compensation will be paid in cash to the affected villages and 70% of land compensation to the project-affected persons. The resettlement subsidy and compensation for standing crops will be fully paid to the affected persons. For residential houses and nonresidential buildings (i.e., institutions, enterprises, and shops) that are to be demolished, compensation will be paid to the owners, including those without house certificates. The payment will be made in cash according to the appraised value of the property. The households, institutions, enterprises, and shops that have to relocate will also receive a relocation allowance. Compensation for standing crops, auxiliaries, and other assets will also be paid directly to the affected persons. Income losses resulting from reduced production and/or sales and wages caused by the Project will be compensated in cash.

48. The resettlement strategy encompasses the replacement of housing, and the restoration of livelihoods and income. People who lose housing have two resettlement options—to receive replacement house at property rights exchange or cash compensation. The PMO, Dongtai, resettlement offices, and the concerned district governments will provide the necessary relocation assistance during resettlement implementation. The measures for economic rehabilitation include (i) provision of jobs generated by the urban development projects, and the project-related jobs during the project construction and operation; (ii) development of nonagricultural production, including self-employed secondary and tertiary businesses; (iii) provision of technical training to the affected persons to increase their skills to be employed in other institutions, enterprises, and businesses; and (iv) provision of social insurance. Relocated institutions, enterprises, and shops will be provided with the compensation and resettlement options. The same institutions, enterprises, and shops will reemploy the affected employees, and no job losses are expected. The special needs and expectations of vulnerable groups will receive attention and assistance. The PMO and Dongtai will supervise implementation to ensure these vulnerable persons receive adequate compensation, housing arrangement, special funding and MLG, and assistance to restore their living conditions and incomes.

49. The WMG envisages the Pingminchong component as a social improvement project in line with the Government’s people-centered principle to build a harmonious society. This component is designed to help the people living in the geohazard-prone valley eliminate the

11 PRC's social assistance system includes a national system of subsistence allowances through the "five guarantees" household subsistence program. Under this program, infirm and childless old people enjoy government support for food, clothing, medical care, housing and burial expenses.

15 threat of geohazards and catch up with the higher living standards in other parts of the city. Zaochong was selected as the location of the new resettlement community through comparative analysis of alternatives during the feasibility study. Apart from being geohazard-free, the Zaochong site was chosen based on the following technical and socioeconomic considerations: (i) space available to accommodate the community development for a mixed, yet harmonized, neighborhood; (ii) geological condition and stability; (iii) proximity to existing and planned urban infrastructure and social services; (iv) access to public transportation; and (v) proximity to the existing and planned commercial, cultural and educational establishments. The new resettlement community will provide quality housing with 150,000 m2 of floor space designed following the national engineering and safety standards—sufficient to accommodate all the relocated residents from Pingminchong valley. The resettlement community will be constructed in accordance with the national standards, and will be equipped with a wide range of public infrastructure and services, including ample public green space and parking lots; water supply, drainage and sanitation system; lighting; and a community center and other community service facilities. Compared with the facilities available in Pingminchong valley, the new resettlement community represents a substantial improvement in living conditions for the people. A household survey conducted for loan processing showed that the families living in the valley are eager to move out of the geohazard-prone area, and welcome the Project because it provides them with the opportunity and means to free themselves from geohazard threats.

50. The resettlement palns and the resettlement information booklets have been prepared for disclosure and distributed to the affected villages, communities, and persons. Aside from the government land available for the Project, the cost estimate for land acquisition and resettlement is estimated at CNY476.7 million including contingencies. A summary of the resettlement plans is in Appendix 11; details are in Supplementary Appendix B.

2. Poverty Reduction and Social Benefits

51. The Project will support the achievement of the NSDW by promoting economic development in the western PRC. Of the 486,000 Wuzhou residents to benefit from the Project, 20,410 (4.2%) live under the MLG. Ethnic minorities account for 2.4% of the city population. The social analysis concluded that they are socially and economically integrated with the majority population, and will not be subject to any adverse impacts of the Project. The detailed poverty and social assessment is in Supplementary Appendix C.

52. Relocation under the Pingminchong component will provide the Pingminchong valley residents with an opportunity to free themselves of geohazard threats, improve their living conditions, and gain access to some essential municipal services, which could not be provided because of the high density of the low-quality housing structures built randomly in the valley. The expansion of the urban area into the geohazard-free land, and the increase in permanent jobs through the urbanization of Hongling area, will provide better accommodation and livelihood opportunities for the existing and incoming urban residents of Wuzhou. The continued urbanization of Wuzhou will also create new jobs that will need to be filled by migrant labors, mainly coming from the surrounding impoverished areas.

53. The Project will create 2,260 person-years of direct and indirect employment, with estimated earnings totaling CNY39 million, during the construction phase. The WMG has assured ADB that vulnerable groups, including women, the poor and the ethnic minorities, will be prioritized for these short-term jobs. Under this arrangement, an estimated 40% of the short- term jobs will be filled by vulnerable groups (about 20% by women, about 20% by the poor and ethnic minorities). Those temporarily employed in construction will benefit from the training and

16 experience gained under the Project, enhancing their opportunities for employment in other infrastructure projects. The WMG has agreed that assuring vulnerable groups of employment opportunities will be included as a project performance indicator to be closely monitored under PPMS. Vulnerable groups and affected persons also will be given priority for the mid- to long- term jobs.

54. Under the Project, the contractors will be sensitized to the issue of maximizing benefits for vulnerable groups. In particular, the contractors will be contractually required to prioritize vulnerable groups for jobs and training opportunities. The poverty reduction and social strategy is summarized in Appendix 12.

C. Environmental Aspects

55. The capacity development and institutional building component of the Project involves the provision of consulting services only. These services are expected to improve environmental management of the WMG, among other things. Major environmental impacts are expected from the Pingminchong component and Hongling component. An environmental impact assessment (EIA) has been prepared for each of the two investment components. Both EIAs have been prepared in accordance with relevant laws and regulations of the PRC, and have been approved by the concerned environmental protection authorities. The two investment components were examined against the procedures and criteria specified in ADB’s Environment Policy (2002), Environmental Assessment Guidelines (2003), and Environmental Guidelines for Selected Infrastructure Development Projects. 12 Extensive public consultations involving surveys, meetings with stakeholders, and focus group discussions were undertaken during project preparation. The summary EIA (SEIA), including an associated environmental management plan (EMP), has been prepared. It was circulated to the Board of Directors and posted on the ADB website on 14 August 2008. The SEIA is in Supplementary Appendix D.

56. As highlighted in the SEIA, the Project will improve the living and working conditions for residents of Wuzhou. It will also strengthen the sustainability of urban development in Wuzhou by addressing one of the most acute development constraints—the city’s vulnerability to geohazards. Other environmental benefits include (i) less soil erosion and dust from the exposed slopes; (ii) less clogging of drainage and siltation of waterways from mud and debris flows and eroded soil; (iii) better environmental amenities for geohazard-threatened communities after resettlement or treatment and redevelopment; and (iv) an elevated road network in Hongling area, which may also serve as flood escape routes in extreme weather.

57. Major adverse impacts of the Project include air, water, and noise pollution during construction. In general, these impacts are temporary and/or localized. Mitigation measures are prescribed in the SEIA and EMP under EIAs. The adverse environmental impacts associated with the Project will be prevented, eliminated, or minimized to an acceptable level through the implementation of the EMP under the SEIA and EIAs. The mitigation measures described in the EMP will be updated during engineering design, and will be continually refined during construction. Dongtai, the contractors, and the operating agencies will implement the EMP. The implementation will be closely monitored and supervised by a professionally specialized environmental monitoring agency—Wuzhou Environmental Monitoring Center—with results reported regularly to the PMO, Wuzhou Environmental Protection Bureau, and ADB. A copy of the EMP is in Supplementary Appendix E.

12 ADB. 1993. Environmental Guidelines for Selected Infrastructure Development Projects. Manila.

D. Financial Aspects

58. The Project does not have a revenue generating component. Therefore, the financial analysis concentrated on the assessment of the financial impact and management of the WMG and Dongtai, as the IA. The fiscal impact and affordability were assessed by comparing identified financing sources with the annual funds required for capital expenditures during project implementation, and for operation and maintenance and debt service during operation. During project implementation, the counterpart fund requirement is expected to peak in 2010 and 2011. It will reach a manageable level of about 6% of the WMG’s current annual capital expenditure budget in those years. At its highest level in 2014, projected debt service is expected to account for 7.6% of operational expenditures of the WMG before gradually declining to 4.5% in 2019. This indicates an acceptable fiscal risk for the WMG, particularly in the light of the sustained increase in revenues of the WMG. Since Dongtai will play the role of an agent to implement the Project on behalf of the WMG, the Project will have little impact on the financial status of the IA. Assessment of the financial impact on the WMG and Dongtai confirmed that the Project will not affect the financial sustainability of either.

59. The potential of the proposed revolving financing mechanism has been examined by comparing geohazard resettlement and prevention costs and the revenues that could be generated from auction of the treated lands. Assuming that urban land values in Wuzhou remain at the current level, revenue from the sales of the treated and geohazard-free land would enable the WMG to fully recover the cost of geohazard resettlement and prevention with a net gain of about CNY43.7 million. This surplus could be used as seed money to establish the revolving financing mechanism for future geohazard-mitigation projects of the other geohazard-prone valleys of the city.

60. The financial management assessment concluded that the WMG and Dongtai have adequate internal financial management systems and enough financial management professionals to manage the Project. Since this will be the first time for the WMG and Dongtai to implement a project funded by a multilateral development bank, intensive training will be needed to help them understand and become familiar with ADB policy and project management requirements. Relevant training has been included in the capacity development and institutional strengthening component of the Project. More details of financial performance and management assessment are summarized in Appendix 13. The detailed financial management assessment is provided in Supplementary Appendix F.

E. Economic Aspects

61. The economic analysis of the Project covers project justification, general parameters for economic analysis, project cost and benefits, least-cost analysis, and distribution analysis. The economic internal rate of return (EIRR) was calculated for each of the investment components and for the Project as a whole. The economic rationale of the Project is solid. The Project will support the WMG in promoting urban development and combating geohazards in an integrated, well-programmed, and cost-effective manner. The primary benefits of the Project include the following: (i) avoidance of property damage and deaths caused by geohazards, improved housing conditions and the quality of life for the geohazard-threatened residents of Pingminchong valley; (ii) increases in land values because of improvements in geological condition and infrastructure; (iii) typical benefits arising from a road project such as time savings, fuel savings, vehicle operating cost savings, and accident cost reductions through provision of municipal road infrastructure for the Hongling area; and (iv) faster GDP growth from improvements in general infrastructure. The EIRR is 19.3% for Pingminchong component and

20.9% for Hongling component under the base case scenario. The EIRR for the Project as a whole is 20.7%. All EIRRs are higher than the 12% economic opportunity cost of capital under various sensitivity analyses, including an increase in costs, a decrease in benefits, and a delay in implementation. A summary economic analysis is in Appendix 14. A detailed economic analysis is in Supplementary Appendix G.

F. Project Risks and Mitigation Measures

62. The Project does not have any unusual technical risks. Conventional engineering designs with proven records of reliable performance will be adopted for construction of the resettlement community and road network, and for installation of the related municipal infrastructure along the roads. Engineering measures to prevent geohazards will adopt the conventional technology with proven track records in Wuzhou.

63. The challenge of relocating a large quantity of households may pose a risk to the Project. To mitigate this risk, detailed resettlement plans have been prepared for the two investment components under the Project, strictly following ADB resettlement safeguards policy and participatory consultation procedures. Substantial consulting inputs have been included in the capacity development and institutional strengthening component to provide guidance and technical support for WMG and Dongtai. This will help ensure appropriate implementation of the resettlement plans following the ADB resettlement safeguard policy requirements.

64. The implementation of the resettlement plans will be subject to internal monitoring by the WMG and external monitoring by an independent agency to be engaged at the start of project implementation. The WMG will closely monitor and regularly report on land acquisition and resettlement progress through its quarterly progress reports to ADB. In addition, the independent monitoring agency will visit these investment components separately to (i) review resettlement progress and the general welfare of affected persons, (ii) recommend ways to resolve any issues or problems, (iii) provide advice to Dongtai and the local officials, and (iv) evaluate the resettlement plan implementation. The independent monitoring agency will be required to pay special attention to vulnerable groups including women and the poor, to assess whether they have fully regained their standards of living. Such monitoring and evaluation reports will be prepared every 6 months during implementation, and annually for 2 years consecutively after the completion of resettlement. These reports will be submitted simultaneously to ADB, the WMG, and Dongtai, and will be uploaded to the ADB website.

65. Another risk might arise from inappropriate engineering design and/or irresponsible engineering treatment for the geohazard prevention measures to be undertaken for the evacuated Pingminchong valley. To mitigate this risk, the WMG has provided specific assurances that the engineering design and treatment of geohazard prevention measures will strictly follow the national design and engineering standards for geohazard control and prevention works. Under the capacity development and institutional strengthening component, experts in geohazard engineering safety will provide guidance and quality control to ensure the quality and safety of the geohazard prevention engineering measures undertaken by the Project.

66. Compared with the threat of geohazards to the life and property of people in Wuzhou, and their constraint on the development opportunities of the city, the integrated benefits and impacts of the Project are expected to outweigh the costs. The identified risks are manageable, given the mitigation measures provided.

V. ASSURANCES

67. In addition to the standard assurances, the Government, the GZARG, and the WMG have given the following assurances, which will be incorporated in the legal documents:

(i) Provision of counterpart fund. The Government and WMG will ensure (a) timely provision of adequate counterpart financing as required in the financing plan of the Project, and (b) provision of additional counterpart funds to cover any shortfall of funds or cost overruns that may occur during project implementation.

(ii) Approvals of project land. The Project will be given all the land use approvals from the concerned authorities of the Government in a timely manner to ensure timely implementation of the Project.

(iii) Implementation of resettlement plans. The Government and WMG will ensure (a) timely updating of the resettlement plans at the stage of engineering design taking into account the results of detailed measurement surveys, (b) submitting the updated resettlement plans for ADB concurrence prior to award of related civil works contract, and (c) disclose the updated resettlement plans to the affected persons. The Government and the WMG will further ensure that the resettlement plans will be implemented in strict conformity to ADB’s Involuntary Resettlement Policy.

(iv) Resettlement arrangement. The Government and the WMG will ensure that (a) construction of the resettlement community in Zaozhuang will have been completed with sufficient quality housing facilities and functioning municipal infrastructure before relocating the households out of Pingminchong valley and demolishing their current houses, (b) the project-affected households will be provided a replacement housing area equivalent to their current housing conditions in their original place, and (c) cash option will be provided for those families that may wish to settle in a community different from the resettlement community constructed under the Project.

(v) Employment opportunity for the vulnerable groups. The Government and the WMG will ensure that priority will be accorded to the vulnerable groups including the women, the poor, and the ethnic minorities for the employment opportunities created under the Project. The achievement in providing employment for the vulnerable groups will be closely monitored as part of the PPMS.

(vi) Implementation of environmental management plan. The Government and the WMG will ensure (a) timely elaborating and updating of the mitigation measures included in EMP during engineering design, and (b) timely implementation of the mitigation measures specified in EMP.

(vii) Technical standards for geohazard control. The Government and the WMG will ensure that the national regulations and technical standards for geohazard control and prevention works will be adopted in the design and undertaking of the engineering treatment for geohazard control and prevention measures under the Project.

(viii) Monitoring mechanism for quality control. The Government and the WMG will ensure that, with support of the project implementation consultants, a special monitoring mechanism will be established to closely observe the slope stability of Pingminchong valley throughout the project implementation period until 2 years after project completion.

(ix) Operation and maintenance of the geohazard forecasting and early warning system. The Government and the WMG will ensure that the geohazard forecasting and early warning system will be established and put in operation before the completion of Pingminchong geohazard resettlement and prevention component. The Government and the WMG will further ensure to provide sufficient full time professional staff and financial resources to support the operation and maintenance of the geohazard forecasting and early warning system to ensure its sustainable operation.

VI. RECOMMENDATION

68. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Asian Development Bank (ADB) and, acting in the absence of the President, under the provisions of Article 35.1 of the Articles of Agreement of ADB, I recommend that the Board approve the loan of $100,000,000 to the People’s Republic of China for the Guangxi Wuzhou Urban Development Project from ADB’s ordinary capital resources, with interest to be determined in accordance with ADB’s London interbank offered rate (LIBOR)-based lending facility; a term of 25 years, including a grace period of 5 years; and such other terms and conditions as are substantially in accordance with those set forth in the draft Loan and Project Agreements presented to the Board.

C. Lawrence Greenwood, Jr. Vice-President

21 November 2008

Appendix 1 21

DESIGN AND MONITORING FRAMEWORK

Design Performance Data Sources/Reporting Assumptions Summary Targets/Indicators Mechanism and Risks Impact Assumptions

Ssustained urban Wuzhou GDP growth is WMG statistics reports Support for development and sustained at an average development of the improved quality of life annual rate of more than 8% western region remains for Wuzhou city during 2006-2020 a national priority of the PRC Urban population increased WMG statistics reports from 468,000 in 2005 to The six ongoing 600,000 by 2016 domestically funded transportation projects Steady growth of Wuzhou per WMG statistics reports around Wuzhou will be capita income between 2006 completed as planned and 2020 to make the city a multimodal regional 20% of new urban area of WMG statistics reports transportation center Hongling developed for between Guangxi and commercial operation and the Pearl River Delta residential uses by 2016 Pingminchong model The proportion of urban WMG reports on geohazard for geohazard population living in management management is feasible geohazard-prone areas and practical for declined from 10% (2007) to replication 5% (2016) The geohazard A new model with significant WMG reports on geohazard forecasting and early self-financing capacity for management warning system will be geohazard prevention and continually refined and control established for updated during geohazard mitigation projects operation and after in 2 years after project project completion completion

Accuracy of the geohazard WMG reports on geohazard forecasting and early warning management service improved by 50% in 2016 from 2007 baseline

Outcome Measured at the end of Assumptions 2014 Reduced geohazard Prevention will remain threat on life and Families and people living WMG statistics reports the underlying principle property and reduced under direct geohazard threat in geohazard geohazard constraint on reduced by about 1,816 management urban development in families or 6,823 persons Wuzhou city from 2008 baseline Urbanization in Wuzhou requires continued After systematic engineering WMG announcement for urban expansion to treatment, Pingminchong public auction of the treated meet its development valley—one major geohazard Pingminchong valley needs zone of the city—ready for public auction as geohazard- free land for urban redevelopment

22 Appendix 1

Design Performance Data Sources/Reporting Assumptions Summary Targets/Indicators Mechanism and Risks Urban transportation service WMG statistics reports improved and traffic volume significantly increased in the geohazard-free Hongling area

Effectiveness of geohazard WMG report on geohazard management improved by management shortening the emergency response time by 50% from 2007 baseline

Outputs Assumptions

A well-serviced The construction of the 18.31 WMG public announcement Approvals for project resettlement community ha resettlement community Project progress reports lands are obtained from is constructed in completed and ready for Project completion report the concerned Zaochong, and is occupancy by December authorities in a timely equipped with quality 2010 manner. housing and municipal infrastructure to As assured, WMG will accommodate about implement the 7,000 people or 1,920 resettlement plans in households to be strict conformity with evacuated from ADB resettlement Pingminchong valley—a safeguards policy geohazard-prone zone. requirements to properly handle the About 1,816 families or The relocation of the people WMG public announcement land acquisition and 6,823 people have been from the geohazard-prone WMG report on geohazard resettlement under the evacuated from the Pingminchong valley management Project. geohazard-prone completed by June of 2012, Project progress reports Pingminchong valley and the relocated families Project completion report and properly relocated to satisfied with implementation Independent resettlement the newly constructed of the relevant resettlement monitoring reports resettlement community. plan during relocation

Geohazard-prone Engineering treatment of WMG report on state land Pingminchong valley is Pingminchong valley resources management systematically and completed by the end of 2013 Project progress reports thoroughly treated with Project completion report anti-geohazard engineering measures to become 19.27 ha of landslide-free land for urban redevelopment.

A 36.2 km urban road Construction of the urban WMG public announcement network is constructed in road network in Hongling Project progress reports Hongling area together completed for traffic by Project completion report with associated December 2013 municipal infrastructure, including drainage and sewage pipelines to promote and facilitate urban expansion away from the geohazard zones.

A GIS-compatible Installation of the GIS- WMG report on geohazard geohazard forecasting compatible geohazard management

Appendix 1 23

Design Performance Data Sources/Reporting Assumptions Summary Targets/Indicators Mechanism and Risks and early warning forecasting and early warning Project progress reports system is introduced and system completed at Wuzhou Project completion report put into operation to Geohazard Management strengthen the Center for geohazard geohazard management management operation by the system. end of 2012

Substantial short-term About 2,200 short-term jobs Project progress reports jobs become available, created during project Contractors employment reducing poverty. implementation, of which records under the Project about 40% taken by the vulnerable groups including women (about 20%), and the poor and the ethic minorities (about 20%)

Activities and Milestones Inputs

1. Land acquisition and resettlement (completed by December 2011) ADB: $100.0 million loan from 2. Procurement of goods and civil works (completed by December 2012) ordinary capital resources 3. Construction of Zaochong Resettlement Community (completed by December 2010) WMG: 4. Evacuation and relocation of geohazard-threatened households (completed by June $82.5 million 2012) counterpart funds

5. Engineering treatment of geohazard-prone land in Pingminchong (completed by China Construction December 2013) Bank: $80.9 million 6. Construction of Hongling road network (completed by December 2013) co-financing

7. Development of geohazard forecasting and early warning system (completed by December 2012)

8. Project account closing (completed by September 2014)

ADB = Asian Development Bank, GDP = gross domestic product, GIS = geograhic information system, ha = hectare, km = kilometer, PRC = People’s Republic of China, WMG = Wuzhou municipal government.

24 Appendix 2

WUZHOU URBAN DEVELOPMENT ANALYSIS

A. History and Current Development Status of Wuzhou

1. Wuzhou city is on the east side of Guangxi Zhuang Autonomous Region, adjacent to Guangdong province. It has existed for more than 2,100 years. Under the local government system of the People’s Republic of China (PRC), the Wuzhou municipal government (WMG) has jurisdiction over three urban districts (Wanxiu, Dieshan, and Changzhou), one county-city (Cenxi), and three rural counties (Cangwu, Mengshan, and Tengxian). The total area of Wuzhou is 12,588 square kilometres (km2), including an urban area is 1,097 km2 (8.7% of the total). By the end of 2006, the total population under WMG administration was 3.08 million, including an urban population of 489,300 (15.9%). However, in general terms and in the context of the Guangxi Wuzhou Urban Development Project, Wuzhou refers only to the city itself, comprising the three urban districts and covering a developed urban area of 50 km2 with a population of 486,000.

2. Wuzhou is at the junction of the Xijiang River and the Guijiang River. Xijiang is the upstream section of Zhujiang (i.e. the Pearl River), which links Guangxi with the Pearl River Delta—a major growth engine of the PRC. Through these rivers, Wuzhou is connected to most of the important cities of Guangxi, including Nanning, Liuzhou, Guigang, and Guilin in the upstream direction; and many cities of national and international significance, including Guangzhou, Hong Kong, and Macau, in the downstream direction. Because of its location and easy connection with the regional waterway system, Wuzhou used to have a very prominent position in Guangxi. During the water transportation era up to 1980s, Wuzhou used to be the most important gateway city of southwestern PRC, connecting Guangxi and surrounding provinces with national and international markets. As a result of the water transport system, Wuzhou became one of the earliest international port cities of Guangxi, with modern customs established in 1897.

3. As the land transportation systems in the PRC developed rapidly, Wuzhou has lagged behind other cities in Guangxi that have gained direct access to the railway system and/or the expressway network. Wuzhou is connected only by highways and an irregular local airline service, in addition to the century-old declining water transport system. Lack of direct access to railway system and the expressway network has prevented Wuzhou—once a regional transportation hub—from realizing its full potential.

4. In 2006, the gross domestic product (GDP) of Wuzhou was CNY27.1 billion, 14.2% higher than in 2005. On a per capita basis, Wuzhou’s GDP was CNY8,789 (about $1,000 at the exchange rate in 2006), less than half the national average of $2,036 for 2006. Primary sectors of the economy account for 19.7% of GDP, while secondary sectors account for 45% and tertiary sectors 35.3%. Despite the high growth rate, Wuzhou is still a less-developed city at the early stage of urbanization.

5. To ensure sustained urban development, Wuzhou first needs to improve and strengthen its connectivity to national and international markets by gaining direct access to the fast developing modern transport system of the PRC. With support from the central government and the government of Guangxi, Wuzhou will benefit from six ongoing, domestically funded national transport infrastructure projects, including (i) three expressway projects to link Wuzhou to the national expressway system in three directions (to Guilin in the north, Nanning in the west, and Guangzhou in the east); (ii) two railway projects to connect Wuzhou with the national trunk railroads both vertically (north-south) from Luoyang to Zhanjiang and horizontally (east-west)

Appendix 2 25 from Guangzhou to Nanning; and (iii) one program to upgrade the water transport system of the Xijiang-Zhujiang rivers. These important transportation projects will once again make Wuzhou an important regional transportation center under the integrated multimodal transportation system of the PRC. In particular, Wuzhou is expected to become a regional multimodal transportation hub linking Qugangxi and surrounding provinces with the Pearl River Delta.

B. Special Challenges for Urban Development in Wuzhou

6. Sustained urban development in Wuzhou faces several challenges. In addition to the weak urban planning and financing capacity commonly found in many municipal governments in the PRC, Wuzhou is constrained by its geographic location and geological conditions.

7. Wuzhou is a mountainous city divided into three parts by two big rivers. The city proper, which is on the north bank of Xunjiang River and/or Xijiang River,1 is further divided by the Guijiang River into the old urban center on the east side and a fast-growing new urban center on the west side. The south bank of Xunjiang and/or Xijiang River has not been developed.

8. Before the development of the new urban area on the west side of Guijiang River in 1980s, the old city proper was confined to a small developed parcel of urban land of about 2 km2 on the northeast corner of the intersection between Guijiang River and Xijiang River. Because of the increase in the urban population and the lack of appropriate urban planning, the residential areas expanded into marginal lands up the mountain slopes along major valleys. Most of the houses in these valleys were simple structures randomly built with little planning. Gradually, many of the major valleys became crowded with low-quality houses, many built adjacent to each other. The mountains in Wuzhou are mainly formed by loose earth formation, eroded granite, and clastic rocks, making them highly vulnerable to geological disasters such as landslides, slope collapses and mud and debris flow during the rainy season. Many of the heavily populated valleys are officially classified as geohazard-prone valley, with thousands of urban residents threatened by geological disasters.

9. The high density of low-quality housing and their vulnerability to geohazards in the major valleys around the old urban center has left Wuzhou little choice but to expand the urban boundary into the geohazard-free areas across the rivers and outside the traditional urban center. The urban expansion is now guided under the Wuzhou Urban Development Master Plan for 2002–2020, which was formulated by the WMG and approved by the Wuzhou People’s Congress and Guangxi Zhuang Autonomous Region government.

C. Wuzhou Urban Development Master Plan

10. Based on an examination of the challenges and development opportunities of Wuzhou, the master plan has proposed as the overall goal making Wuzhou an export-oriented industrial city in the east of Guangxi, and a transportation hub to connect Guangxi with the Pearl River Delta.

11. Given the geographic and geological conditions, Wuzhou needs to be developed in clusters. As envisaged in the master urban development plan, Wuzhou would comprise “one central city, one sub-city center, three county seats and five town axels.” This is intended to

1 The upstream section of the Xijiang River is called the Xunjiang River before meeting the Guijiang River at the intersection in Wuzhou. The Xijiang River is referred to either as the Xunjiang River or as Xijiang River, depending on whether the specific segment is located upstream of the intersection or downstream of the intersection.

26 Appendix 2 make use of the lands available on the west and southwest sides of the city that are close to the traditional city proper, and to deploy the urban infrastructure cost-effectively.

12. The long-term urban expansion in Wuzhou is generally moving south and west, under the established land use principle of developing the south, expanding towards the west, upgrading the east, and controlling the north. Following this principle, the priorities are the development of new geohazard-free urban areas in Hongling and Sanlong in the west and in the Cangwu County in the south, and upgrading the development of Changzhou Island of Xunjiang River in the southwest. To realize this urban development concept, the transportation connections among major clusters need to be constructed or enhanced.

13. Under the master plan, the WMG envisaged the acceleration of urbanization and steady development of the city proper, as well as other urban areas in the county seats and smaller towns. The population of Wuzhou overall was expected to reach 3.5 million by 2020, of which about 50%–55% was to reside in the urbanized areas in Wuzhou city proper and other urban centers under the jurisdiction of the WMG. Total developed urban lands was expected to grow to 67 km2 at the end of the 11th Five Year Plan in 2010, and then continue to grow up to 2020.

14. From 2003 to 2005, the WMG accumulatively invested CNY3.5 billion to develop basic urban infrastructure. These include 28 kilometers (km) of urban roads, five bridges, more than 100 lanes, and the lighting system of the city. Public investment in basic infrastructure has induced substantial public or private investment to develop the service sector, as well as a large quantity of commercial facilities in the new urban areas and the newly constructed and well- serviced residential areas in the geohazard-free areas.

D. Development Potentials Assessment

15. During loan processing, a comprehensive analysis was conducted and applied the “strength, weakness, opportunity and threat” approach to Wuzhou, which produced the following findings:

(i) Strengths. The analysis identified the following strengths: (a) relatively short distance to the major cities of the Pearl River Delta, including Guangzhou, Hong Kong, and Macau; (b) rich historical and cultural resources; (c) adequate water supply; (d) clean environment; (e) forest resources; and (f) good variety of agricultural products.

(ii) Weaknesses. The analysis identified the following weaknesses: (a) lack of developed urban land for urban expansion, (b) vulnerability to geohazards, (c) lack of direct access to the integrated multimodal modern transportation system, (d) lack of natural endowment and advantage to develop a solid and specialized manufacturing base as a backbone to support sustained industrialization, and (e) the relatively weak institutional capability urban planning and municipal financing.

(iii) Opportunities. The analysis identified the following opportunities: (a) support from the central Government under the National Strategy for Development of the West, (b) access to the multimodal transportation system provided by the ongoing national infrastructure projects, (c) shift of the manufacturing industries from the coastal cities in the Pearl River Delta towards the low-cost cities in inland provinces and autonomous regions, (d) the new initiative of Guangxi to promote the Beibu Gulf Economic Development Zone, and (e) access to financial

Appendix 2 27

support and international knowledge and experiences obtained through cooperation with the Asian Development Bank.

(iv) Threats. The analysis identified the following threats: (a) geohazards, and (b) environmental impact that may arise from rapid urbanization and industrialization.

16. This analysis has confirmed the potential for sustained urban development of Wuzhou. In view of the ongoing transportation infrastructure projects, and the location of the city at the junction of a number of important national expressways and railways, Wuzhou is expected to develop into an important multimodal regional transportation center upon completion of these projects. Wuzhou’s tertiary sector, particularly logistics services, is envisaged to grow rapidly.

17. After completion of these infrastructure projects, Wuzhou will be within a half-day travel by car or by passenger train of residents in most cities in the Peal River Delta and Beibu Gulf Economic Zone. The clean and undisturbed natural environment and historical legacy of the city can provide a good basis for development of tourism and recreation service to support sustained urban development.

18. As noted in the master plan, Wuzhou has good potential for industrial development. The manufacturing sector needs to be developed selectively by establishing well-managed industrial parks to ensure environmental protection and environmental sustainability of the city, as required in the master plan. Given the location of Wuzhou upstream of Xijiang River, these industrial parks need to enforce strict entrance criteria to avoid discharging pollutants into Xijiang River—the water source for millions of people in downstream cities.

19. In the context of environmental protection, the assessment highly commends the recent actions undertaken by the WMG to shut down polluting business in Wuzhou, including two coal- fired thermal power plants and 280 small paper mills. In addition, the WMG has installed automatic pollution emission monitoring facilities for the 11 key polluting sources identified in the city.

20. The assessment recommends prioritizing development activities envisaged under the master plan. The development of the north bank of the Xunjiang River and/or the Xijiang River, particularly the Hongling area between the existing developed urban land and the railway station that is under construction, should be the first priority. After completion of the railway station, the Hongling area is expected to serve as the logistics base for the railway station and other transport facilities in this geohazard-free urban area.

21. Geohazard concerns can be addressed as part of the urban development process by (i) promoting urban expansion into geohazard-free areas, (ii) building well-serviced housing facilities in the geohazard-free areas, (iii) moving the residents from the geohazard-prone valleys and relocating them into geohazard-free communities, and (iv) undertaking geohazard control and prevention measures to convert the evacuated valley into geohazard-free land for urban redevelopment.

28 Appendix 3

GEOHAZARD MANAGEMENT IN WUZHOU

A. Geohazards in the People’s Republic of China

1. In the People’s Republic of China (PRC), geohazards include landslides, slope collapses, mud and debris flows, earth cracks, and land depressions that are either induced by natural factors or human activities.1

2. With complex geological and geographical formations and climate conditions, the PRC is among the countries that suffer most from a wide variety of large-scale and high-frequency geohazards that are widely distributed. All provinces except for Shanghai are affected by landslides, slope collapses, and mud and debris flows. The provinces of Yunnan, Sichuan, Chongqing, Guangxi, Guizhou, Shaanxi, Hunan, Hubei, Jiangxi, Guangdong, Shanxi, and Fujian are the worst hit. Geohazards between 1995 and 2005 left 1,108 people dead or missing, and caused a direct economic loss of CNY5.9 billion on average each year. The worst year was 1998, when the PRC suffered a direct economic loss of CNY15 billion (footnote 1). Official statistics show that more than 102,800 geohazards occurred in 2006 across the country, including 2,041 in Guangxi, and caused a direct economic loss of CNY4.3 billion.2

B. Achievements

3. The Government has tangibly strengthened geohazard management. For the 10th Five-Year Plan (2001-2005), the number of deaths as a result of geohazards decreased to 4,278 from 6,621 during the 9th Five-Year Plan (1996-2000); and the direct economic loss fell to CNY21.1 billion from CNY31.8 billion. The major programs or projects of the Government are highlighted in paras. 4–7.

1. Geohazard Surveys and Monitoring

4. Between 1999 and 2005, the Ministry of Land and Resources organized geohazard surveys for the 700 most vulnerable counties and cities in the country. The surveys provided a good understanding of the causes and distribution of geohazards which laid a solid foundation for planning the geohazard prevention and control projects. Based on the surveys, geohazard monitoring networks, comprising stations at more than 60,000 monitoring locations, have been established in the 700 most vulnerable counties and cities. Demonstration monitoring programs are being carried out in the pilot areas.

2. Geohazard Forecasting and Early Warning

5. Since 2003, the Ministry of Land and Resources and China Meteorological Administration began to integrate geohazard and weather forecast and early warning at the national level. Similar work has been introduced in some provinces and cities.

3. Emergency Response System

6. After the State Council issued the national action plan for geohazard emergency responses on 14 May 2005, all the provinces and the vast majority of the geohazard-prone counties and cites have formulated their own action plans. An emergency response system,

1 Ministry of Land and Resources. 2008. The 11th National FYP for Prevention and Control of Geohazard. Beijing. 2 Ministry of Land and Resources. 2007. State of Geohazards for 2006. Beijing.

Appendix 3 29 consisting of emergency response systems at the national, provincial, and county and/or city levels, has taken shape.

4. Regulatory Strengthening

7. In 2003, the State Council promulgated the Ordinance on Geohazard Prevention and Control, which took effect on 1 March 2004. The 29 geohazard-relevant provinces have also formulated local ordinances and management guidelines, thus setting up a legal framework to govern geohazard prevention and control in the PRC.

C. Financing Support

8. The various levels of governments (central, provincial, county and city, and township) share responsibility for financing geohazard prevention and control.3 The central Government has instructed each level of government to set up a geohazard prevention and control fund within the government operating budget. The central Government will fund the cost of the geohazard survey and assessment, and the establishment of the national geohazard monitoring and early warning system. Geohazard emergency response systems at the provincial and/or lower levels of government will be funded by the respective local governments. The provincial and local governments will fund the cost for resettlement of people threatened by geohazards and geological disaster rehabilitation and mitigation, while the central Government will provide support and subsidies for mitigation of large geohazards. If research on geohazard prevention and control has demonstration value, the project may apply for funding under the relevant national science and technology development programs. Financing support by local governments and enterprises is encouraged.

D. National 11th Five-Year Program for Prevention and Control of Geohazard

9. The 11th national five-year program for prevention and control of geohazard 2006– 2010 (FYP-PCG) established a number of principles, including (i) “prevention-first” and “human- centered principles”, (ii) integrated treatment and resettlement approach, (iii) mass-based monitoring and prevention system with clearly defined roles and responsibilities, and (iv) stronger regulatory framework and introducing technological advancement. In particular, FYP- PCG calls for the resettlement of those under serious threat, and the establishment of an integrated monitoring, forecasting, early warming, and emergency response system. The overall goal is to reduce the geohazard-threatened population by 30% from the 2005 baseline by the end of the 11th FYP-PCG.

E. Geohazards in Wuzhou

10. Originating from a small plain at the intersection of two major rivers, Wuzhou is a typical mountainous city and one of the most geohazard-prone areas in the Guangxi Zhuang Autonomous Region. Rapid urban expansion has significantly increased the distribution, frequency, and scale of geohazards, causing greater damage to people’s lives and properties, to socioeconomic development, and to social stability.

3 Government policy states that if a geohazard or disaster is triggered by a project, the project owner will be held responsible for paying for the mitigation. Governments will be responsible for the prevention, control, and mitigation of geohazards and disasters caused by natural factors.

30 Appendix 3

11. Statistics show that the city is hit by several dozen landslides and slope collapses every year. Between 2000 and 2005, many urban districts of Wuzhou experienced landslides and slope collapses. On 8 June 2006, an exceptionally strong rainstorm hit Wuzhou, triggering 181 landslides, 48 slope collapses, and 64 mud and debris flows. The geological disasters threatened the lives of 21,673 people and caused extensive damages, laving 12 dead, 26 wounded, and 825 residential buildings destroyed. The direct economic loss totaled about CNY30 million.

12. A land use survey found that, because geohazard-free urban land is lacking, about 30 enterprises and organizations and 53,000 residents of Wuzhou inhabit urban districts classified as geohazard-prone zones. Private low-quality residential buildings account for 70% of the housing structures in these geohazard-prone zones. These buildings were constructed in multiple cascades on the mountain slopes. Because of the complex geographical conditions and history, most of the private residential buildings were randomly built adjacent to another on the slope of mountains without any planning or geohazard safety assessment. The living conditions of the people in these geohazard-prone areas are affected by lack of access to urban infrastructure services, overcrowded housing, narrow and poor road connections, sewage discharge into open sewers, and wanton removal of earth and vegetation.

13. The geohazards in Wuzhou are attributed to a number of factors, including topography, structure of the earth surface, vegetation, and rainfall. Wuzhou has a steep and ragged topography. The surface is a thin layer of loose, porous earth on an impermeable rock base. The trees on the slopes are large and will generate cracks on the surface of the slopes in strong winds, adding more moisture to the loose surface material. A strong and long-lasting storm, when combined these factors, can trigger landslides in the geohazard-prone areas.

F. Wuzhou Municipal Government Response

1. Planning and Regulatory Development

14. In line with national policy, the Wuzhou municipal government (WMG) has strengthened planning and regulatory development for geohazard prevention and control. Following the proclamation by the Guangxi Zhuang Autonomous Region government (GZARG) of the Circular on Strengthening Geohazard Prevention and Control,4 the WMG prepared and released the Short-Term Plan for Geohazard Prevention and Control in Urban Area of Wuzhou (2003–2005). In May 2006, the Wuzhou Land Resources Bureau (WLRB) completed the Wuzhou Urban Geohazard Prevention and Control Master Plan. In October 2006, the WMG issued the Circular on Strengthening Geohazard Prevention and Control for Construction Projects.5

15. At the same time, the WMG invested substantial human, material and financial resources in improving urban planning and management, and strengthening the mitigation measures to help the communities in the geohazard valleys to cope with the geohazard concerns.

4 Gui Zheng Fa No. (2002) 205. 5 Wu Zheng Fa No. (2006) 40.

Appendix 3 31

2. Enhanced Institutional Capacity

16. The WMG has established leading groups to strengthen the geohazard management system in municipalities and districts, with well-defined responsibilities and reporting relationships. The WMG has also established a system of geohazard review, assessment, and reporting, including (i) the requirements for geohazard risk assessment for all construction projects, (ii) an accreditation system for the engineering design institutes and civil works contractors for undertaking geohazard prevention and control projects, (iii) geohazard early warning and emergency response plan, (iv) disaster reporting system, (v) inspection and assessment system for disaster impacts, and (vi) the special geohazard monitoring program for the rainy season.

3. Improved Geohazard Surveys

17. Further to the geohazard survey that the GZARG commissioned for Wuzhou in the late 1990s, the Government in 2003 conducted a geohazard survey with mapping at a 1:100,000 scale for Wuzhou. The outputs of the survey include (i) preliminary classification of geohazards based on their causes and distribution patterns; (ii) delineation of the geohazard risks, and the geohazard prevention and control areas; and (iii) a geohazard database. The survey was strengthened by a special investigation conducted by Guangxi Geological Environment Monitoring Station in partnership with the WLRB and the concerned district governments of Wuzhou in the context of the 8 June 2006 disaster.

4. Strengthened Mitigation Measures

18. In 2004, the GZARG approved the feasibility study prepared by the WMG for a program to control the major geohazard-prone areas in the three urban districts of Wuzhou. In line with the approved feasibility study, detailed design and implementation of specific mitigation engineering projects have been redirected at rehabilitation of 125 spots that were hit hard in the 8 June 2006 disaster. The WMG has earmarked special funds for geohazard rehabilitation. Certified design institutes and contractors have been engaged to design and implement these geohazard rehabilitation projects. In cooperation with the Asian Development Bank (ADB), the WMG has also formulated a new project to prevent and control geohazards in Wuzhou, which is expected to prevent geohazards through holistic urban planning and integrated public investment with lending support from ADB.

5. Community-Based Monitoring and Alarm System

19. Like many cities in the PRC, the WMG has established a community-based geohazard monitoring and alarm system based on the experiences and actions of the local residents. The system consists of (i) the leadership of the WMG; (ii) the specialized geohazard monitoring and emergency response agencies of the WMG, such as the geohazard monitoring and emergency center at the WLRB; (iii) the meteorological monitoring station; (iv) district governments; (v) community leaders at the geohazard-prone areas; and (vi) households living in the geohazard- prone areas. The system is alerted by weather forecasts and mobilized when it rains. Every slope in the geohazard-prone areas is closely monitored under the system through mass observations to identify potential movements of slopes and buildings. Mandatory evacuation may be declared to move the people out of the immediate danger to a temporary shelter until the original sites are rehabilitated. The media, including newspapers, radio, and television, are widely used to notify the public about geohazards, and educate the public about geohazard prevention and mitigation methods. Brochures are distributed to each household in the

32 Appendix 3 geohazard-prone areas, providing detailed instructions on the evacuation route for each household, emergency reporting mechanism, emergency response and coordination responsibilities within the system, and emergency contact numbers and information dissemination mechanisms.

6. Increased Investment

20. Over the past few years, the WMG and the district governments have invested more than CNY130 million in geohazard prevention and control projects at 138 sites identified as hazardous. The projects have included cleaning and rehabilitating the drainage systems, building slope protection and retaining walls, and carrying out geohazard resettlement. In addition, about CNY110 million has been mobilized from commercial sources to construct residential housing facilities in the geohazard-free areas to accommodate 1,152 households relocated from the geohazard-stricken areas.

G. Major Challenges

21. Despite increased funding from the WMG, the geohazard management system remains underfunded. In many geohazard-prone areas in the city, thousands of urban residents live under the direct threat of geohazard. Despite the obvious long-term benefits of prioritizing and strengthening geohazard prevention first, limited budgetary resources for geohazard management have to be allocated for immediate disaster relief and rehabilitation.

22. Although traditional engineering measures to prevent and control geohazards— construction of slope protection and retaining walls—are effective in some cases, they are not always the optimal way to address geohazard concerns. Heavy rains may wash away the concrete slope protection and retaining walls together with the housing structures along the slopes, as was seen in the 8 June 2006 disaster.

23. Wuzhou has many low-quality housing structures built on the mountain slopes in the geohazard-prone areas, representing the city’s highest vulnerability to geohazards. Most of the residents in these geohazard-prone areas are from the low-income families, which are the least capable of avoiding geohazards. They need public investment to help them catch up with the geohazard-free and infrastructure-serviced living conditions available in other parts of the city.

24. Because of the lack of knowledge on international best practice and inadequate funding, a modern computer-based geohazard forecasting and early warning system, has not yet been developed. Such a system could effectively supplement the community-based geohazard management system, enhancing geohazard prevention in Wuzhou.

Appendix 4 33

EXTERNAL ASSISTANCE Date of Amount No. Name Approval ($ million) A. Loans 1205 Qingdao Environmental Improvement Project 10 Dec 92 103.00 1270 Tangshan and Chengde Environmental Improvement Project 25 Nov 93 140.00 1313 Dalian Water Supply Project 20 Sep 94 160.00 1336 Beijing Environment Improvement Project 29 Nov 94 157.00 1490 Anhui Environmental Improvement Project 26 Nov 96 28.00 1491 Anhui Environmental Improvement Project (Industrial Component) 26 Nov 96 112.00 1543 Xi’an-Xianyang-Tongchuan Environment Improvement Project 24 Sep 97 156.00 1544 Zhejiang-Shanxi Water Supply (Phase I) Project 24 Sep 97 100.00 1636 Fuzhou Water Supply and Wastewater Treatment 30 Sep 98 102.00 1692 Suzhou Creek Rehabilitation Project 29 Jun 99 300.00 1797 Tianjin Wastewater Treatment and Water Resources Protection 11 Dec 00 130.00 1985 Hebei Province Wastewater Management Project 19 Dec 02 82.36 1995 Harbin Water Supply Project 11 Mar 03 100.00 1996 Wuhan Wastewater Management Project 25 Apr 03 83.00 2175 Jilin Water Supply and Sewerage Development 18 Jul 05 100.00 2176 Fuzhou Environmental Improvement 29 Jul 05 55.80 2207 Henan Wastewater Management and Water Supply Sector 9 Dec 05 100.00 2237 Shandong Hai River Basin Pollution Control Project 21 Jun 06 80.00 2239 Guangxi Nanning Urban Environmental Upgrading Project 26 Jun 06 100.00 2240 Wuhan Wastewater and Stormwater Management Project 26 Jun 06 100.00 2297 Nanjing Qinhuai River Environmental Improvement 18 Dec 06 100.00 2328 Anhui Hefei Urban Environment Improvement 24 Apr 07 150.00 2360 Jilin Urban Environmental Improvement 29 Oct 07 100.00 2388 Kunming Qingshuihai Water Supply 12 Dec 07 80.00 2407 Gansu Baiyin Urban Development 23 Jan 08 80.00 2420 Xinjiang Municipal Infrastructure and Environmental Improvement 23 Apr 08 105.00 Subtotal (A) 2,904.16 B. Advisory Technical Assistance 987 Institutional Strengthening of National Environmental Protection Agency 10 Jun 88 0.34 1436 Environmental Impact Assessment and Training 10 Dec 90 0.60 1464 Management of Environment and Natural Resources in Hainan 11 Jan 91 0.60 1621 Beijing Region Water Resources Management 30 Mar 92 0.26 1772 Institutional Strengthening of the Qingdao Environmental Protection 30 Oct 92 0.60 Bureau 1835 Haihe Basin Environmental Management and Planning Study 31 Dec 92 1.24 1916 Institutional Strengthening of the Environmental Protection Bureau 28 Jul 93 0.45 1988 Environmental Impact Assessment and Training Phase II 18 Nov 93 0.90 2015 Urban Environmental Improvement Planning 14 Dec 93 0.48 2090 Legislative Reform for Protecting the Environment and Natural Resources 18 May 94 0.50 2210 Capacity Building of the Beijing Municipal Environmental Protection 29 Nov 94 0.60 Bureau and Affiliated Agencies 2398 Improving Environmental Monitoring and Enforcement in Henan 15 Sep 95 0.09 2456 Pilot Environmental Plans for Selected Medium-Size Cities 4 Dec 95 0.54 2504 Seminar on BOT in Water Supply Sector 22 Dec 95 0.10 2505 Strengthening the Environmental Standards and Enforcement 22 Dec 95 0.60 2693 Formulation of Integrated Environmental Management Plans for the Chao Lake Basin 26 Nov 96 0.80 2726 Water Quality Management Planning for Suzhou Creek 23 Dec 96 0.60 2726 Water Quality Management Planning for Suzhou Creek (Supplementary) 13 Feb 98 0.40 2751 Capacity Building of Wastewater Treatment Operations in Anhui 27 Jan 97 0.40 2773 Water Supply Tariff Study 24 Mar 97 0.60 2804 BOT Chengdu Water Supply Project 2 Jun 97 0.60 2817 Strategic Operations for the Water Sector (including supplementary) 26 Jun 97 1.24 2873 Improvement of Environmental Management in Shanxi Province 24 Sep 97 0.94 2906 Leadership Training on Urban Environmental Management in Key Cities 3 Nov 97 0.60 2951 Promotion of Market-Based Instruments for Environmental Management 16 Dec 97 0.70 2975 Environmental Impact Assessment Training and Curriculum Development 31 Dec 97 0.60

34 Appendix 4

Date of Amount No. Name Approval ($ million) 3079 TA Cluster to the PRC for the Promotion of Clean Technology 29 Sep 98 3.50 3095 Hai River Basin Wastewater Management and Pollution Control 10 Nov 98 0.57 3211 Improving Environmental Management in Suzhou Creek 29 Jun 99 0.84 3250 Water Tariff Study II 3 Sep 99 0.95 3377 Urban Poverty Study 27 Dec 99 0.41 3447 Strengthening Urban Solid Waste Management 25 May 00 0.60 3588 Transjurisdiction Environment Management (TA Cluster) 11 Dec 00 2.10 3749 National Guidelines for Urban Wastewater Tariffs and Management Study 25 Oct 01 0.70 4061 Songhua River Water Quality and Pollution Control 10 Jan 03 1.00 4095 Policy Reform Support 11 April 03 0.15 4215 Safe Drinking Water and Sanitation for the Rural Poor 12 Nov 03 0.40 4335 Town-Based Urbanization Strategy Study 06 May 04 0.75 4694 Urban Poverty Strategy Study II 23 Nov 05 0.30 4702 Study on Sustainable Urbanization in Metropolitan Regions 28 Nov 05 0.50 4967 Study on Market-Based Instruments for Water Pollution Control Policy 11 Sep 07 0.50 7002 Urban Wastewater and Solid Waste Management for Small Cities and Towns 10 Dec 07 1.00 7083 Urban Wastewater Reuse and Sludge Utilization Policy Study 26 May 08 1.00 Subtotal (B) 30.71 C. Project Preparatory Technical Assistance 1549 Qingdao Environmental Improvement Project 18 Jul 91 0.10 1831 Tangshan and Chengde Environmental Improvement Project 31 Dec 92 0.10 1852 Dalian Water Supply Project 10 Mar 93 0.10 1917 Beijing Environment Improvement Project 28 Jul 93 0.60 2187 Anhui Municipal Wastewater Treatment 19 Oct 94 0.28 2445 Xi’an-Xianyang-Tongchuan Environment Improvement Project 16 Nov 95 0.50 2511 Zhejiang-Shanxi Water Conservancy 26 Dec 95 1.00 2770 Fuzhou Water Supply and Wastewater Treatment 14 Mar 97 0.60 2901 Shanxi Environment Improvement Project 21 Oct 97 0.59 3049 Zhejiang-Shanxi Water Supply (Phase II) 21 Jul 98 0.54 3095 Hai River Basin Wastewater Management and Pollution Control 10 Nov 98 0.57 3215 Heilongjiang Water Supply 1 Jul 99 1.00 3216 Tianjin Wastewater Treatment and Water Resources Protection 2 Jul 99 0.80 3488 Hebei Province Wastewater Treatment 30 Aug 00 0.85 3571 Harbin Water Supply 12 Dec 00 0.72 3638 Wuhan Wastewater Treatment (including supplementary) 19 Mar 01 0.70 3863 Mudanjiang Water Supply 15 May 02 0.15 4014 Fuzhou Environmental Improvement Project 5 Dec 02 0.60 4223 Shandong Hai River Basin Pollution Control Project 21 Nov 03 0.60 4227 Jilin Water Supply and Sewerage Development 26 Nov 03 0.65 4233 Henan Wastewater Management 3 Dec 03 0.80 4385 Guangxi Nanning Urban Infrastructure Development Project 3 Sep 04 0.56 4436 Wuhan Wastewater and Stormwater Management 18 Nov 04 0.70 4617 Nanjing Qinhuai River Environmental Improvement Project 19 Jul 05 0.60 4628 Hefei Urban Environment Improvement 9 Aug 05 0.75 4804 Jilin Urban Infrastructure Project 22 Jun 06 0.50 4805 Xinjiang Municipal Infrastructure and Environmental Improvement Project 23 Jun 06 0.80 4808 Kunming Qingshuihai Water Supply Project 29 Jun 06 0.60 4818 Gansu Baiyin Urban Development Project 19 Jul 06 0.50 4930 Xinjiang UrbanTransport and Environmental Improvement Project 11 May 07 0.70 4959 Small Cities and Towns Development Demonstration Sector Projects 6 Aug 07 1.70 4960 Guangxi Wuzhou Urban Development Project 9 Aug 07 0.50 4971 Songhua River Basin Water Pollution Control and Management 28 Sep 07 1.30 7108 Chongqing Urban-Rural Infrastructure Development Demonstration Project 29 Jul 08 0.90 Subtotal (C) 21.96 Total for Technical Assistance (B+C) 52.67 BOT = build–operate–transfer, PRC = People’s Republic of China, TA = technical assistance. Source: Asian Development Bank.

COST ESTIMATES AND FINANCING PLAN Table A5.1: Expenditure Accounts by Financiers ($ million) China Wuzhou Asian Development Construction Municipal Bank Bank Government Total Item Amount % Amount % Amount % Amount

I. Investment Costs A. Land Acquisition and Resettlement 0.0 0.0 50.22 66.6 25.17 33.4 75.39 B. Civil Works 84.20 57.9 29.10 20.0 32.17 22.1 145.46 C. Equipment and Materials 4.52 74.3 1.56 25.7 0.0 0.0 6.09 D. Consulting Services 2.00 100.0 0.0 0.0 0.0 0.0 2.00 E. Other Servicesa 0.00.0 0.0 0.0 6.56 100.0 6.56 Subtotal 90.71 38.5 80.88 34.3 63.89 27.1 235.49 II. Financial Charges during Implementation Interest During Implementation 9.11 32.9 0.0 0.0 18.57 67.1 27.68 Commitment Charges 0.17 100.0 0.0 0.0 0.0 0.0 0.17 Total Cost 100.00 38.0 80.88 30.7 82.4631.3 263.34 a Include expenses for project preparation, management, survey and design, supervision, bidding, drawing review, insurance, and environmental impact assessment. Source: Asian Development Bank. Appendix 5 Appendix 35

36 Table A5.2: Project Component Cost Estimate by Financiers

($ million) 5 Appendix Asian China Wuzhou Development Construction Municipal Bank Bank Government Total Item Amount % Amount % Amount % Amount %

I. Investment Cost 1. Pingminchong Geohazard Resettlement and Prevention 12.45 22.4 29.50 53.2 13.55 24.4 55.51 21.1 Hongling Road Network and 2. Related Infrastructures 76.27 42.9 51.38 28.9 50.28 28.3 177.92 67.6 3. Capacity Development and Institutional Building 2.0 97.1 0.0 0.0 0.06 2.9 2.06 0.8 Subtotal 90.71 38.5 80.88 34.3 63.89 27.1 235.49 89.4 II. Financial Charges during Implementation Interest During Implementation 9.11 32.9 0.0 0.0 18.57 67.1 27.68 10.5 Commitment Charges 0.17 100.0 0.0 0.0 0.0 0.0 0.17 0.1 Total Disbursement 100.00 38.0 80.88 30.7 82.46 31.3 263.34 100.0 Source: Asian Development Bank.

FLOW OF FUNDS AND RELENDING ARRANGEMENT

Loan Agreement ADB PRC and/or Borrower

Relending Agreement

GZARGa

Project Agreement Relending Agreement

WMG

Flow of Loan Proceeds 6 Appendix

Repayment 37 ADB = Asian Development Bank, GZARG = Guangxi Zhuang Autonomous Region government, PRC = People’s Republic of China, WMG = Wuzhou municipal government. a Imprest account will be opened and administered by Finance Bureau of GZARG. Source: Asian Development Bank.

38 Appendix7

PROJECT IMPLEMENTATION ARRANGEMENTS

ADB GZARG Project Agreement

WMG (EA)

Service Implementation PMO Contract Consultant

Undertaking Agreement

Dongtai State Assets Operations Co. Ltd. PPMS (IA)

Suppliers Contractors

monitoring data input

ADB = Asian Development Bank, EA = executing agency, GZARG = Guangxi Zhuang Autonomous Region government, IA = implementing agency, PMO = project management office, PPMS = project performance monitoring system, WMG = Wuzhou municipal government. Source: Asian Development Bank.

IMPLEMENTATION SCHEDULE

2009 2010 2011 2012 2013 2014 Component 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 A. Pingminchong Valley Geohazard Resettlement and Prevention Resettlement community building in Zaochong

Geohazard control engineering measures in Pingminchong

B. Hongling Road Network and Related Infrastructure Construction of road #1

Construction of road #2

Construction of road #4

Construction of roads #8–13, and 17

Construction of roads #3, 5, 14, 15, 16, 18, 19, 26, 28, and 29

Construction of roads #20–25, 27, 30, and 31

Construction of extension road of #35.

Street light and signal installation for roads #1, 2, 8–13, and 17.

Street light and signal installation for roads #3, 5, 14–16, 18–31.

Street light and signal installation for road #35

Tree planting and landscape for roads #1, 2, 8–13, and 17

Tree planting and landscape for roads #3, 5, 14–16, 18–31

Tree planting and landscape for road #35.

C. Capacity Development and Institutional Building

Capacity building, management and implementation consultancy Source: Asian Development Bank.

8 Appendix 39

40 Appendix 9

PROCUREMENT PLAN

Project Name: Guangxi Wuzhou Urban Loan Number Development Project Loan Amount: $100 million Executing Agency: Wuzhou municipal government Date of first Procurement Plan: 17 November 2008

A. Process Thresholds, Review and 18-Month Procurement Plan

1. Project Procurement Thresholds

1. Except as Asian Development Bank (ADB) may otherwise agree, the following process thresholds shall apply to procurement of goods and works:

Procurement of Goods and Works Method Threshold

International Competitive Bidding (ICB)) for Works > 10.0 million National Competitive Bidding (NCB) for Works ≤ 10.0 million ICB for Goods > 1.0 million NCB for Goods ≤ 1.0 million Shopping ≤ 0.10 million

2. ADB Prior or Post Review

2. Except as ADB may otherwise agree, the following prior or post review requirements apply to the various procurement and consultant recruitment methods used for the project:

Procurement of Goods and Works Procurement Method Prior or Post Comments ICB Prior NCB Post Except the first contract for civil works Recruitment of Consulting Firms Quality- and Cost-Based Selection (QCBS) Prior

3. Goods and Works Contracts Estimated to Cost More Than $1 Million

3. The following table lists goods and works contracts for which procurement is either ongoing or expected to start within the next 18 months:

Contract ProcurementPrequalification Advertisement General Description Comments Value ($) Method Of Bidders Date Construction of roads, drainage pipe, retaining wall, slope protection, trees and grass, and earthworks in Zaochong 3,129,072 NCB No Q2/2009 Construction of water distribution pipe, supply of electricity, and hydrants in Zaochong 5,852,941 NCB No Q2/2009 Construction of road #1 in Hongling 12,655,206 ICB Yes Q2/2009 Construction of road #2 in Hongling 7,383,632 NCB No Q3/2009 Construction of roads #8, 11, 14, 15,

16, and 20 in Hongling 9,022,855 NCB No Q2/2010

Appendix 9 41

Contract ProcurementPrequalification Advertisement General Description Comments Value ($) Method Of Bidders Date Construction of roads #9,10, 12, and

13 in Hongling 9,394,489 NCB No Q2/2010

4. Consulting Services Contracts Estimated to Cost More Than $100,000

4. The following table lists consulting services contracts for which procurement is either ongoing or expected to commence within the next 18 months:

International or Contract Recruitment Advertisement General Description National Comments Value ($) Method Date Assignment Geohazard early warning and forecasting system development, capacity building, project management, and implementation consulting QCBS services 2,000,000 (80:20) Q1/2009 International

B. Project Procurement Plan

1. Indicative List of Packages Required Under the Project

5. The following table provides an indicative list of all procurement (goods, works and consulting services) over the life of the project:

Estimated Domestic Estimated Value Number of Procurement Preference General Description ($) (cumulative) Contracts Method Applicable Comments Goods Road traffic control facility and lighting (#1–#2) 4,096,037 2 ICB Road traffic control facility and lighting (#3) 777,882 1 NCB Works Pingminchong geohazard prevention 5,707,765 1 NCB Zaochong resettlement site construction 8,982,013 2 NCB Road #1, Road #35, Road construction in extension #1 Hongling 30,095,209 2 ICB and #2 Roads #3, Road construction in #5, and #8– Hongling 48,678,546 6 NCB #31 Road landscape 1,539,133 3 NCB Financed by Water supply 13,062,307 not applicable the Borrower Conduit for strong and Financed by weak electricity 4,311,618 not applicable the Borrower Consulting Services Geohazard early warning and

42 Appendix 9

Estimated Domestic Estimated Value Number of Procurement Preference General Description ($) (cumulative) Contracts Method Applicable Comments forecasting system development, capacity building, project management, and implementation QCBS/ consulting services 2,000,000 1 International Full

C. National Competitive Bidding

6. The Borrower has issued the Bidding and Tendering Law (the Law) to govern the procurement of civil works in the PRC. However, according to Article 67 of the Law, the procurement of civil works financed by ADB may apply ADB’s Procurement Guidelines. Therefore, the NCB under the proposed project shall follow ICB procedures described in ADB’s Procurement Guidelines, subject to the following modifications:

(i) Advertising. Invitations to bid may be advertised in Chinese in at least one widely circulated national daily newspaper and on a freely accessible, nationally known website. (ii) Standard bidding documents. ADB’s standard bidding documents, or other bidding documents1 acceptable to ADB, shall be used. (iii) Prequalification of bidders. There is no prequalification of bidders in order to accelerate the bidding process. Post qualification is applied to the bidder whose bid has been determined to offer the lowest evaluated cost. The evaluation of a bidder’s qualifications shall only take into account the bidder’s capacity and resources to perform the contract, in particularly its experience and past performance on similar contracts, capabilities with respect to personnel, equipment and construction or manufacturing facilities, and financial position. In carrying out the post-qualification assessment, the executing agency and/or implementing agency shall exercise reasonable judgment in requesting, in writing, from a bidder only missing factual or historical supporting information related to the bidder's qualifications, and shall provide a reasonable time for the bidder to provide his response. (iv) Bid evaluation committee. To evaluate the bids, the executing agency and/or implementing agency shall establish a bid evaluation committee. The members of the committee shall include the representatives from the executing agency and/or implementing agency, tendering company, and experts who are familiar with ADB’s procurement requirements.

1 The Borrower, with the assistance from World Bank, is preparing a set of model bidding documents for national competitive bidding under ADB- and World Bank-financed projects in the PRC. If these documents are accepted by ADB, they will be used in NCB under the proposed project.

Appendix 10 43

OUTLINE TERMS OF REFERENCE FOR CONSULTING SERVICES

A. Introduction

1. The Guangxi Wuzhou Urban Development Project aims to improve the sustainability of urban development in Wuzhou and the living standards of its urban residents. The Project is estimated to cost $263.3 million, of which Asian Development Bank (ADB) will finance $100.0 million, Wuzhou municipal government (WMG) $82.5 million, and China Construction Bank (CCB) $80.9 million. The WMG will be the Executing Agency of the Project, and Dongtai State Assets Operations Corporation—an enterprise wholly owned by the WMG specializing in urban construction—will be the implementing agency (IA). The WMG will establish a project management office (PMO) to manage and coordinate the implementation of the Project.

2. The Project will have three major components:

(i) Pingminchong valley geohazard resettlement and prevention. Under this component, the Project will (a) build a resettlement community in Zaochong, a geohazard-free urban area with quality housing and municipal infrastructure to accommodate about 6,823 people or 1,816 households to be evacuated from the geohazard-prone Pingminchong valley, and (b) undertake geohazard control engineering measures to convert the evacuated Pingminchong valley into geohazard-free land with a total area of about 20 hectare (ha) for urban redevelopment. (ii) Hongling road network and related infrastructure. Under this component, the Project will build a comprehensive 36.2-kilometer urban road network, together with the related municipal infrastructure, including water supply pipelines, drainage pipelines, and sewers to promote and facilitate the urban expansion into the geohazard-free Hongling area. (iii) Capacity development and institutional building. Under this component, the Project will (a) develop and establish a geographic information system (GIS)-compatible geohazard forecasting and early warning system to strengthen the geohazard management of the city, and (b) support capacity development of the WMG to fully meet operational requirements of the Project during implementation. In addition, specialized consulting service will be provided under this component to improve public awareness of geohazards and geohazard management through the existing community- based geohazard monitoring and alarm system.

3. About 18 person-months of international consulting services and 108 person-months of national consulting services will be provided under the Project to support the capacity development of the WMG in (i) geohazard management, and (ii) institutional strengthening for project implementation and management.

4. Consultants will be recruited through one consulting firm to be selected in accordance with ADB’s Guidelines for Use of Consultants (2007, as amended from time to time), using the quality- and cost-based selection method at the quality–cost ratio of 80:20 with full technical proposal procedures.

B. Scope of Services

5. The consulting services can be divided into two subcomponents. The first subcomponent involves provision of training, and management and capacity development support for the WMG and Dongtai to ensure smooth implementation of the Project. The second subcomponent will help the WMG develop and establish a pilot GIS-compatible geohazard forecasting system and early warning to strengthen the geohazard management in Wuzhou.

44 Appendix 10

6. Under the first subcomponent, the consultants are expected to (i) advise and assist the WMG and PMO in developing an appropriate project management practices and procedures for planning, monitoring, control and reporting of implementation of the Project; (ii) assist in reviewing the engineering design of the Project to ensure compliance with the applicable national technical standards, particularly the national geological safety standards and requirements of the People’s Republic of China (PRC); (iii) assist in reviewing the bidding documents to ensure that they are prepared in accordance with the applicable standards of PRC and ADB Procurement Guidelines; (iv) provide specialized training to the PMO and Dongtai on ADB disbursement procedures, as well as training and assistance in establishing a solid accounting, financial management, and reporting system in accordance with ADB policy and operation requirements; (v) provide training to the WMG, PMO, and Dongtai on ADB safeguards policy and operational requirements in resettlement, environmental monitoring, poverty reduction, gender and development, and ethnic minorities; (vi) provide training and assistance to the WMG, PMO, and Dongtai to establish the project performance monitoring system (PPMS) and set up the baseline data, as well as the system for monitoring data collection, analysis, and reporting in accordance with ADB policy and operational requirements; (vii) advise the PMO and Dongtai on contract management, particularly in coordination and supervision of the construction activities, to ensure that all the works are carried out in accordance with the contract documents, the contract-related issues or disputes are settled properly, and progress reported timely and accurate way;. (viii) advise and assist the PMO and Dongtai in establishing an appropriate document filing system to keep records of all the correspondences between ADB, PMO, Dongtai, the contractors, the consultant, and the other project- related parties; (ix) advise and assist the PMO and Dongtai in establishing the project reporting capability and mechanism to ensure regular reporting on project implementation status to ADB and the WMG in a timely manner that follows the required format and meets quality standards; (x) advise and assist the PMO and Dongtai in establishing the internal capability to monitor the environmental and social impacts, and financial commitments, and propose necessary mitigation measures; and (xi) assist in organizing consultation workshop, in-house training, and external training for the WMG, PMO, and Dongtai in urban planning, geohazard management, and project planning and management.

7. Under the second subcomponent, the consultants are expected to (i) provide a detailed system design, including all aspects of the geohazard early warning and forecasting system—from hardware and software, modelling, site selection, equipment selection, data collection, data transmission, and data processing; (ii) assist in reviewing and refining the cost estimates; (iii) assist the PMO and Dongtai in procuring the hardware, software and field equipment; (iv) develop, test, improve, and transfer the geohazard forecast and early warning system to the Geohazard Management Center of Wuzhou Land Resources Bureau (WLRB); (v) develop a user guide and an operations manual for the geohazard forecast and early warning system, and provide training (especially on-the-job training) for WLRB on use of the system;

Appendix 10 45 (vi) provide technical support and post-installation service for the WLRB on operation of the geohazard forecast and early warning system during the implementation period of the Project; and (vii) provide guidance and operational support for promoting public awareness of geohazard and geohazard management through the existing community- based geohazard monitoring and alarm system.

C. Reporting Requirements

8. The consultant will

(i) submit an inception report within 1 month of the start of the consulting services, which should be prepared in Chinese (for the WMG) and in English (for ADB); (ii) assist the PMO and Dongtai in preparing the quarterly progress reports, in Chinese (for WMG) and in English (for ADB); (iii) assist the PMO and Dongtai in preparing the following reports in English for ADB: (a) updated resettlement plans, (b) implementation status of the environmental management plan (EMP), (c) reporting of the PPMS, (d) audited financial report, (e) quarterly progress report, and (f) project completion report; (iv) submit a project completion report which should cover all the services provided, achievements made, and key outstanding issues identified, and further actions needed or recommended to further strengthen the impact of the Project.

9. In addition, the consultant will submit the following technical reports on the geohazard early warning and forecasting system: (i) design report, (ii) test-operation report, (iii) operational manual, (iv) user guide, and (v) system completion report.

10. Indicative positions and inputs of the consultants are listed in Table A10.1:

Table A10.1: Indicative Positions and Inputs Job Title and Area of Expertise Months I. International Specialists Team Leader and Project Performance Management System Specialist 6.0 Financial Management Specialist 2.0 Procurement and Contracts Management Specialist 2.0 Social Safeguard Specialist 2.0 Environmental Safeguard Specialist 2.0 Geohazard Management Public Policy Specialist 2.0 Institutional Strengthening Specialist 2.0 International Subtotal 18.0 II. National Specialists Deputy Team Leader and Financial Management Specialist 26.0 Deputy Team Leader and Geohazard Management Information System 18.0 Specialist Procurement and Contracts Management Specialist 10.0 Social Safeguard Specialist 6.0 Social Development Specialist 2.0 Environmental Safeguard Specialist 8.0 Geohazard Engineer 3.0 Geohazard Field Survey and On-Site Monitoring Specialist 10.0 Modelling and System Development Specialist 8.0 Geohazard Monitoring Equipment Specialist 5.0 Geohazard Engineering Safety Specialist 4.0 Institutional Strengthening/Public Awareness Specialist 8.0 National Subtotal 108.0 TOTAL 126.0 Source: Asian Development Bank.

46 Appendix 10

11. Cost estimates for the consulting service are presented in Table A10.2:

Table A10.2: Cost Estimates for Consulting Services Item Budget ($) International Consultants 380,000 National Consultants 560,000 Field Surveys and On-Site Monitoring Expenses 60,000 Modelling and System Development Costs 250,000 Computer Hardware and Field Equipment 180,000 Geohazard System Maintenance, Workshop and Training 50,000 Project Management 120,000 Two Vehicles + Operating Expenses 100,000 Workshops, Training Courses and Study Tours 200,000 Contingency 100,000

TOTAL 2,000,000 Notes: 1. Cost items for international consultants include professional fees, per diem, travel and other associated expenses. 2. Project management covers office rental, office equipment, office supplies and operating expenses, and office assistant and other hired staff. 3. Two vehicles are expected to be purchased under the contact of international consulting services. One vehicle will be provided to the team of international consultants and the other will be used by the consultants working on geohazard early warning and forecasting system. 4. Training covers international and domestic training and study tours. Source: Asian Development Bank.

D. Counterpart Facilities to Be Provided by Wuzhou Municipal Government

12. To support and facilitate the work of the consultants in the field, the WMG will provide the consultants with the following counterpart facilities:

(i) adequate office space (with basic furniture, and access to an international telephone line and internet); (ii) English-speaking counterpart personnel available in PMO and Dongtai; (iii) assistance with visas, and residential or other permits required for the international consulants to enter and work in the PRC; and, (iv) access to all data, including documents, reports, accounts, drawings, and maps, as appropriate and necessary to undertake the work.

E. Equipment for the Geohazard Forecasting and Early Warning System

13. Six monitoring sites will be selected for development of the geohazard forecasting and early warning system. The list of major equipment for the system is in Table A10.3.

Table A10.3: List of Equipment Item Category of Equipment 1 Warning systems at community-based monitoring sites 2 Server, computers 3 Mobile storage and uninterruptible power supply 4 Integrated rainfall measuring stations with wireless transmission 5 Wireless earth movement sensors 6 Wireless network communication devices 7 Wireless routers 8 Wireless transmission terminals 9 Global System for Mobile communications 10 Pressurized water level meters 11 Soil moisture contents monitoring equipment 12 Data receiving, entry software Source: Asian Development Bank.

Appendix 11 47

SUMMARY RESETTLEMENT PLAN

A. Introduction

1. The Guangxi Wuzhou Urban Development Project has three components in Wuzhou city: (i) Pingminchong geohazard resettlement and prevention, (ii) Hongling road network, and (iii) geohazard forecasting and early warning system compatible with the geographic information system (GIS). The physical construction for the first two components will involve land acquisition and resettlement, while the geohazard forecasting and early warning system only involves capacity building component with no land acquisition and resettlement impacts. Full resettlement plans were prepared for the Pingminchong component and the Hongling component. The primary objective of the resettlement plans are to ensure that the investment components improve the standards of living of affected persons, or at least do not leave them worse off.

B. Land Acquisition and Resettlement Impacts

2. In terms of resettlement impacts, the construction of the Project will affect two rural villages, two urban resident communities, and one village administration office and/or one township and two districts. Permanent land acquisition will affect 862 households or 3,856 persons (including 635 urban employees, and 3,221 rural people). The demolition of residential will affect about 2,015 households or 7,081 persons living in private houses under the administration of the resident and village committees. Meanwhile, 15 institutions, 16 enterprises, and seven shops with 1,751 persons will be relocated because of nonstructural demolishment. Project construction will permanently affect 2,393 mu (667 square meters) of state- and collective-owned lands will be affected permanently, of which 272 mu (11.37%) is cultivated farmland. In addition, 188,038.13 square meters (m2) of residential houses and 25,022.01 m2 of nonresidential structures of institutions, enterprises and shops (5,845 m2 used for residential purpose and 19,177.01 m2 for nonresidential purpose) will be demolished. In addition, some productive assets, ground attachments, and basic infrastructure and special facilities will also be affected. Table A11 summarizes the land acquisition and resettlement impacts. Of the total affected population, 383 households or 1,091 persons are vulnerable groups, including 161 households with small residential area less than 12 m2 per capita 118 households headed by women, 32 households with the disabled, 42 households living under minimum living guarantee (MLG), and 26 households with “five guarantees.” 1 No ethnic minority households will be adversely affected.

3. To avoid or minimize land acquisition and resettlement, local officials and village committees and/or resident committees were consulted closely during the preliminary and final feasibility study stages.

C. Policy and Legal Framework

4. The resettlement plans comply with the laws and regulation on resettlement of the People’s Republic of China (PRC), and with the Asian Development Bank’s (ADB) Involuntary Resettlement Policy (1995). The compensation for the permanent land loss is based on the Land Administration Law of PRC (amended 2004), the State Council Decision to deepen reform

1 PRC's social assistance system includes a national system of subsistence allowances through the "five guarantees"household subsistence program. Under this program, infirm and childless old people enjoy government support for food, clothing, medical care, housing and burial expenses.

48 Appendix 11 and strictly enforce land administration (document 28, November 2004), and the circular concerning certain issues regarding strengthening land adjustment and control (31 August 2006). The house demolishment is based on the state and Guangxi Zhuang Autonomous Region urban housing demolishment administration regulations. Based on consultations with local governments and those affected, and in line with general practice in Guangxi Zhuang Autonomous Region and Wuzhou city, a set of compensation standards was adopted by the project management office (PMO) and implementing agency (IA). The following resettlement principles have been established for the Project:

(i) Land acquisition and involuntary resettlement should be avoided or minimized where feasible by developing and comparing a series of design alternatives. (ii) All people residing, cultivating or making a living within the areas acquired for a component before a formally recognized cut-off date should be considered affected people who should receive compensation for all losses, including assets and livelihoods, regardless of land tenure and property right status, and should be entitled to rehabilitation assistance. (iii) Compensation and entitlements provided are based on replacement value, and they must be adequate to allow those affected to at least maintain their pre- project standard of living, with the prospect of improvement. (iv) A preferential policy will be established for vulnerable groups in terms of compensation, minimum living guarantee, employment, and relocation assistance. (v) All affected persons will be adequately informed on eligibility for compensation, compensation standards, livelihood and income restoration plans, and project timing. (vi) Affected persons will be paid compensation in a timely manner. (vii) No land acquisition, demolition, or dispossession of assets will take place before payment of compensation to affected persons. (viii) Resettlement costs will be included as part of project costs. (ix) Close monitoring and timely actions will be carried out to identify and resolve any problems.

D. Compensation, Income and Livelihood Restoration Scheme

5. For permanent land acquisition of farmland, 30% of land compensation will be paid in cash to the affected villages and 70% of land compensation to the affected persons. The resettlement subsidy and compensation for standing crops will be fully paid to the affected persons. For residential houses and nonresidential structures (institutions, enterprises and shops) to be demolished, compensation will be paid to the owners, including those without house certificates. The payment will be made in cash according to the appraised value of the property. The households, institutions, enterprises, and shops that have to relocate will also receive a relocation allowance. Compensation for standing crops, auxiliaries and other assets will also be paid directly to the affected persons. Income losses resulting from reduced production and/or sales, and wages caused by the Project will be compensated in cash. The resettlement strategy encompasses the replacement of housing, and the restoration of livelihoods and income. People losing housing will have two resettlement options: (i) replacement house at property rights exchange or (ii) to receive cash compensation. The PMO, IA, resettlement offices, and local governments will provide necessary relocation assistance during resettlement implementation.

Appendix 11 49

6. Economic rehabilitation measures include (i) provision of employment opportunities during project construction and operation; (ii) nonagricultural production, including development of self-employed secondary and tertiary businesses (i.e. clothing, grocery, transportation, cargo, community service, repair, hairdressing salon, beauty salon, dry cleaner, entertainment, and catering services); (iii) provision of technical training to affected persons to increase their skills to be employed in other institutions, enterprises and businesses; and (iv) provision of social insurance. Relocated institutions, enterprises, and shops will be provided with the options of compensation and resettlement. The same institutions, enterprises, and shops will reemploy the affected employees, and no job losses are expected. Attention and assistance will be given to their special needs and expectations of vulnerable groups. The PMO and the IA will supervise implementation to ensure that these vulnerable persons receive adequate compensation, housing arrangement, special funding and MLG, and assistance to restore their living conditions and incomes.

E. Information Disclosure, Participation, and Grievance Procedures

7. In accordance with the PRC’s national, provincial and municipal policies and regulations for land acquisition, house demolition, and resettlement, together with ADB policies and guidelines, the PMO and the IA have conducted public consultations, negotiation, and information disclosure sessions with the affected people, villages and district governments during the project preparation. During meetings, interviews, focus group discussions, public consultation workshops, and community consultation meetings, local representatives and affected people have participated in the planning and their concerns have been integrated into the resettlement plans. The resettlement information booklets were distributed to affected persons in August 2008. The Wuzhou municipal government (WMG) and concerned district governments have implemented ADB’s full disclosure policy for resettlement activities, including (i) distribution of the resettlement information booklets to the affected persons, and resident community and village offices; and (ii) posting of the resettlement plans in Chinese at resident community and village offices, as well as on the ADB website in English and Chinese, before appraisal and upon the approval and/or endorsement of WMG by the end of August 2008. The Project IA will establish project resettlement units for supervising implementation, continuing public consultation, monitoring resettlement progress, and responding to grievances. The grievance address procedures are well established, and explanations are included in the resettlement plans and information booklets.

F. Institutional Arrangement and Implementation Schedule

8. The PMO and IA will have around 20 full-time staff responsible for land acquisition and resettlement. The staff from each component resettlement unit will be responsible for coordinating the planning, implementation, financing, and monitoring of land acquisition and resettlement by working closely with village and resident officials, land resource bureau, house demolishment administration office, and other organizations involved in the implementation of the resettlement programs. They will also be responsible for supervising and monitoring resettlement (e.g., delivery of entitlements, relocation and selection of new housing sites, restoration of incomes, provision of economic rehabilitation measures). The resettlement monitor engaged by the PMO will organize a training program for the resettlement officers.

9. Land acquisition and resettlement will precede the component construction schedules, which will occur between December 2008 and November 2012. Detailed measurement surveys will be conducted in each village, residential community, institution, enterprise, and shop; and the compensation contracts will be negotiated and signed with resident and village committees,

50 Appendix 11 households, institutions, enterprises, and shops. Based on these surveys, the resettlement plans will be updated and submitted to ADB for review and approval before the awarding of civil contracts. All compensation and assistance will be delivered to the affected persons before civil works begin. To ensure that affected persons have been adequately compensated and rehabilitated, the WMG and IA will keep ADB informed of the progress in implementing the resettlement plans through quarterly progress reports until resettlement is completed; and will prepare resettlement completion reports. The PMO will engage an independent monitoring agency for semiannual monitoring and annual evaluation of land acquisition and resettlement until 2 years after land acquisition, resettlement implementation, and completion of resettlement.

G. Budget

10. The preliminary cost estimate for the land acquisition and resettlement program is about CNY476.7 million in 2008 prices, including contingencies. The estimated costs include compensation for permanent land acquisition, demolition of residential and nonresidential houses and auxiliaries, relocation allowance, basic infrastructure and special facilities, other costs, land-related taxes, and contingencies. The resettlement costs for the Pingminchong component accounts for about 46.4% of the total land acquisition and resettlement cost, while the Hongling component accounts for about 53.6%. The land acquisition and resettlement costs, which will be financed by the WMG, are included in the project cost estimates. The Government will provide counterpart budget for resettlement activities, including support where fund shortage occurs during resettlement implementation.

H. Monitoring and Supervision

11. Resettlement plan implementation will be monitored internally and externally. Monitoring methodologies are specified in the resettlement plans. Internal supervision and monitoring will be done by IA to ensure compliance with the provisions of the resettlement plans. The PMO and IA have agreed to a set of supervision milestones with ADB to ensure timely and effective implementation of resettlement activities. An independent monitoring agency under contract to the PMO will carry out external monitoring and evaluation. Monitoring and evaluation reports will be prepared every 6 months during implementation and annually for 2 years after the completion of resettlement. These reports will be submitted directly to ADB, the PMO, and the IAs, and will be uploaded to the ADB website.

Table A11: Summary Land Acquisition and Resettlement Impacts Structure Demolishment of Residential House Demolition Engineering Works Permanent Land Acquisition Institutions, Enterprises and of Individual Households Project Shops LAR Costs Components Township/ Total Of which Affected Households (CNY million) APs (No.)a Total Area Affected Total Area Quantity APsb District Admin. VC/RC Area Farmland (No.)a APs (No.) (m2) HHs (No.) (m2) (No.) (No.) Office (mu) (mu) Total Urban Rural Total Urban Rural Pingminchong Geohazard Pingdong Wanxiu Pingminlu 289 0 0 0 0 0 0 0 130,851 1,816 5,707 19,410c 18 1,116d 221 Resettlement and Pingxi and Prevention Hongling Road Longxin 1,725 126 534 534 635 1,793 57,187 289 1,374 5,612 20 635 Network Changzhou Xinlong 255 Longping 379 146 328 328 1,428

TOTAL 2,393 272 862 862 635 3,221 188,038.13 2,105 7,081 25,022.01 38 1,751 476 AP =affected person, HH = household, LAR = land acquisition and resettlement. a The classification of urban or rural households and population is based on their household registration and population registration. b The number of affected persons includes the employees, teachers and students. c The total area of nonstructure demolishment includes 5,845 m2 for residential use and 19,177.01 m2 for nonresidential use. d The number of affected workers for family-owned shops is included in the number of affected persons to be affected by residential structure demolishment. Source: Asian Development Bank.

11 Appendix 51

52 Appendix 12

SUMMARY OF POVERTY REDUCTION AND SOCIAL STRATEGY

Country/Project Title: People’s Republic of China (PRC): Guangxi Wuzhou Urban Development Project

Lending/Financing Department/ East Asia Department Project Loan Modality: Division: Social Sectors Division

I. POVERTY ANALYSIS AND STRATEGY A. Linkages to the National Poverty Reduction Strategy and Country Partnership Strategy

Wuzhou is a less-developed, medium-sized city of Guangxi Zhuang Autonomous Region in western PRC, which is targeted by the Government for support under the National Strategy for Development of the West (NSDW). The city is at a critical stage of urban development, with the goal of developing into a multimodal regional transportation center to strengthen the economic integration between Guangxi and its neighboring western provinces with the fast-growing Pearl River Delta—one major growth engine in PRC. The Project will help the Wuzhou municipal government (WMG) in addressing its geohazards, which are a major development constraint. The Project will help free thousands of people from the threat of geological disasters, promote sustained urban development, and improve the quality of life for 486,000 residents. The Project, which will introduce an innovative approach to geohazard management, is envisaged to play a demonstration role for many cities facing similar geological conditions in the PRC—a country that suffers losses of human life and economic property from geological disasters every year.

The Project is consistent with the Asian Development Bank (ADB) country partnership strategy (CPS) 2008–2010 for the PRC, which specifies that ADB will directly support sound and sustainable urban development with a focus on relatively underdeveloped western and northeastern regions.a It also aims to make markets work more efficiently through (i) urban infrastructure development, (ii) promotion of environmental sustainability, and (iii) pro-poor equitable and inclusive growth. The Project will provide an enabling environment in Wuzhou for poverty reduction directly and indirectly by:

(i) reducing the geohazard threat on life and property and associated economic losses; (ii) introducing and establishing a geohazard forecasting and early warning system to strengthen the existing community-based geohazard monitoring and management system; (iii) conducting geohazard prevention and control measures to convert geohazard-prone areas into geohazard-free land for urban redevelopment; (iv) providing roads and related basic infrastructure to promote and facilitate urban expansion away from geohazard-prone areas; (v) increasing mobility and access for local populations to key basic services and destinations; (vi) saving travel time, reducing vehicle operation costs, improving road safety and reducing traffic accidents; (vii) increasing employment and income-generation opportunities from temporary job creation during the construction phase and permanent job creation during the operational phase; (viii) providing basic infrastructure to support the development and operation of the city as a regional multimodal transportation center, thus creating new jobs and income generating opportunities; (ix) increasing the land and property values for local residents in the Project areas; and (x) improving the living environment and quality of life for local residents, particularly for the poor, women, and other vulnerable groups who live in the geohazard-prone areas and are isolated from urban services for historic reasons. B. Poverty Analysis Targeting Classification: General Intervention

1. Key Issues

Wuzhou is a mountainous city originating on a small plain at the intersection of two major rivers. Geographic and geological conditions severely constrain sustained development of Wuzhou. The mountains in Wuzhou are formed from loose earth that is highly vulnerable to geological disasters such as landslides, slope collapses, and mud and debris flows. Because of the lack of infrastructure to support urban expansion into geohazard-free lands, the city used to be confined to a small urban center where many low-income families built houses on marginal lands on the mountain slopes along the major valleys around the old urban center. Many of these densely populated valleys are classified as geohazard-prone areas of the city.

The Project will benefit more than 468,000 urban residents in Wuzhou, of which 4.2% (or 20,410 persons) are poor and living under the minimum living guarantee (MLG) at CNY195 per capita per month. The urban poor mostly consist of people with job laid-offs or unemployment, sickness, disabled family members, elderly, and low education levels. The social analysis showed that these poor are mainly living in the geohazard-prone valleys with poor infrastructure facilities and community services, where the population is densely concentrated. The housing and living

Appendix 12 53 environment are poor because of a serious water and soil erosion problem, environmental pollution, and fumes from wastewater and garbage in the air, which make people sick. More seriously, they often suffer from the loss of human life, and property damage and associated economic losses, because of geological disasters such as landslides, mountain collapses, and mud and debris flows. During the rainy season, they live in fear of a possible geohazards event. The insufficient road network, and the resulting limited access to community services and facilities, adds to their isolation from urban development opportunities and their overall poverty situation. The poor living in the geohazard-prone valleys are among the least capable of avoiding and coping with the geohazards. They rely on public investment to help free them from the long-lasting geohazard threats and catch up with the safe and secure living conditions that become available in the geohazard-free areas of the city.

Under the NSDW, the Government has made substantial investments in transport development around Wuzhou, including three expressways, two railways, and one updated river transportation system along the rivers flowing through the city. The aim of these investments is to strengthen the connectivity of Guangxi and the neighboring provinces, through the gateway city of Wuzhou, with national and international markets. Wuzhou is at a critical stage as it develops into a regional multimodal transportation center for Guangxi and the neighboring provinces. To achieve this development objective, Wuzhou needs to first address the geohazard constraint to ensure sustained urban development, which will benefit not only the residents of Wuzhou but the overall poverty reduction strategy for Guangxi and the neighboring western provinces supported under the NSDW.

2. Design Features

The Project will help Wuzhou address the geohazard constraint through holistic urban planning and integrated public investment. The Project will have three components: two investment components and one capacity development component. Under the Pingminchong geohazard and resettlement component, the Project will build a well-serviced resettlement community in a geohazard-free area to receive about 6,823 people (or 1,816 households) to be evacuated from the geohazard-prone Pingminchong valley. Although these are beneficiaries of the Project, the Government has agreed that relocation under this component will be arranged in accordance with the ADB Involuntary Resettlement Policy (1995). A resettlement plan has been prepared for this component.

Under the other investment component for Hongling road network and related infrastructure, the Project will build a comprehensive 36.2-kilometer urban road network together with related municipal infrastructure to promote and facilitate the urban expansion into the geohazard-free Hongling—a new urban area between the newly constructed railway station and the fully developed urban area. A separate resettlement plan has been developed in accordance with the ADB Involuntary Resettlement Policy, which will guide the resettlement under the Project not only for the people to be affected by the road construction itself but also the people living in the neighboring urban lands to be developed together with the road network.

Under the capacity development component, the Project will help the city to establish a geographic information system (GIS)-compatible geohazard forecasting and early warning system to supplement the existing mass-based geohazard monitoring and early warning system in Wuzhou. Consulting services will also be provided to strengthen the public awareness of geohazard risk and its management through appropriate education programs.

II. SOCIAL ANALYSIS AND STRATEGY A. Findings of Social Analysis

The Project will directly benefit more than 486,000 urban residents of Wuzhou. About 49% of the beneficiary population are women, 4.2% are classified as poor living under the MLG at CNY195 per month, and 2.4% are ethnic minorities scattered in the city.

Employment Benefits. The Project will create 2,260 person-years of direct short-term jobs during the project construction phase, and 570 direct long-term jobs during the operation phase. In addition, about 10,100 short- to medium-term new jobs will be created upon the completion of the road network and related infrastructure in Hongling. More jobs are also to be created in the logistics service in support of the operation of the railway station and other transport infrastructure.

The WMG has agreed that priority in filling jobs should be given to vulnerable groups including the poor, ethnic minorities, and women. Under this arrangement, an estimated 40% of short-term jobs during the construction phase will be filled by vulnerable groups—about 20% for the poor and ethnic minorities, and about 20% for women. This indicates total earnings of CNY15.6 million. The same arrangement will be adopted for the long-term jobs during the operation phase, representing a total earning of CNY7.0 million. ADB and the WMG have agreed that ensuring jobs for the vulnerable groups will be included in the project design and monitoring framework (DMF) and closely monitored under the project performance monitoring system (PPMS).

54 Appendix 12

Improvement of Living Standards. Under the Project, 1,816 households (or 6,832 persons), about 52% of which are low-income families, will be moved out of the geohazard-prone Pingminchong valley. These families will be provided with an opportunity to resettle in a safe, secure, and well-serviced resettlement community to be constructed under the Project in a geohazard-free urban area. Development of the new urban area of Hongling will provide sufficient geohazard-free urban lands to accommodate about 100,000 residents. The road network and related infrastructure built under the Project will increase their mobility and access to basic urban services for local populations, and remove one major constraint to urban development. The geohazard forecasting and early warning system to be introduced under the Project is expected to improve the accuracy of the geohazard forecasting and early warning service by 50% from the 2007 baseline, reducing significantly the risks to Wuzhou residents imposed geohazards.

Support Gender Inclusion. Social analysis showed that women are primarily responsible for cleaning up the communities and repairing the households after geohazard incidents. The Project will address these burdens. Gender inclusion is also secured and promoted through the priority accorded to women for jobs.

Ethnic Minorities. A small percentage of ethnic minorities (2.4%) are living throughout Wuzhou city. The social analysis determined that they are socially and economically integrated with the majority population and will not be subject to any adverse impacts of the Project, including land acquisition and resettlement. The Project will prioritize them for jobs.

B. Consultation and Participation

1. The Project was formulated using various participatory methods and approaches for the poverty and social impact assessment, including 500 respondents random sampling socioeconomic survey in the project areas, stakeholder consultation workshops, meetings, seminars, focus group discussions, and key informant interviews on issues related to geohazard resettlement, geohazard prevention and control, and development of urban road network and related infrastructure in Hongling. The development of the environmental impact assessment (EIA) and environmental management plan (EMP) involved two rounds of public consultation. The formulation of the two resettlement plans involved separate socioeconomic surveys, community meetings, opinion surveys, and specific impact studies. The EMP and resettlement plans have set out detailed ongoing public participation plans.

2. What level of consultation and participation is envisaged during the project implementation and monitoring? Information sharing Consultation Collaborative decision making Empowerment

3. Was a consultation and participation plan prepared? Yes No

Project documents publicly disclosed at the project management office (PMO) of the WMG and on the ADB website include the project information document, design and monitoring framework, resettlement plans, summary EIA, report and recommendation of the President, public sector legal agreement, project administration memorandum, and social and environmental monitoring reports. Information booklets outlining the resettlement plans will be distributed to each affected household, and disclosure meetings will be held. Copies of the booklets will be made available at the PMO and each affected village office. To enhance the geohazard preparedness and environmental benefits of the Project, specialized consulting services will be provided under the Project to strengthen the geohazard and environmental awareness in communities through the existing mass-based geohazard monitoring and early warning system in Wuzhou.

C. Gender and Development 1. Key Issues:

Results from the household survey and focus group discussion indicate that women are primarily responsible for cleaning up the community and the affected houses after geological disasters, as well as for taking care of the sick, wounded, and elders, and for household-related traveling and socializing activities.

The Project will help reduce the energy, time, and efforts spent by women on these activities, allowing them to engage more actively in income-generating activities, family entertainment, or leisure. The poverty and social assessment indicates that women strongly support the Project across all of the components. Women have perceived that the Project will improve their quality of life and create jobs and income opportunities for them. 2. Key Actions.

Gender plan Other actions/measures No action/measure

Appendix 12 55

A Government assurance has obtained that women will be prioritized for jobs and skills trainings to be provided under the Project. Under this arrangement, about 20% of the jobs will be filled by women during the project construction and operation phases. At the beginning of employment, job training will be provided to vulnerable groups, including women. Core labor standards and HIV/AIDS awareness training are included for all contracts under the Project, as provided in the loan assurances. III. SOCIAL SAFEGUARD ISSUES AND OTHER SOCIAL RISKS Significant/Limited/ Strategy to Address Issue Plan or Other Measures Issue No Impact Included in Design Involuntary Resettlement Significant A resettlement plan for each Full Plan investment component has been Short Plan prepared in accordance with the Resettlement PRC laws and regulations, and Framework the ADB Involuntary No Action Resettlement Policy. Indigenous Peoples No Impact Ethnic minorities account for is Plan small proportion (2.4%) of Other Action Wuzhou city. The social analysis Indigenous Peoples determined they are fully Framework integrated into the majority No Action population, with similar customs and socioeconomic activities. Labor Significant The Project will provide 2,260 Plan Employment full-time jobs during the Other Action Opportunities construction phase and 570 full- No Action Labor retrenchment time jobs during the operation Core labor standards phase. About 10,100 short- to medium-term new jobs will be created upon the completion of the road network and related infrastructure in Hongling. Project assurances will ensure that all employment and core labor standards, as provided in the applicable laws and regulations, are complied with. Affordability Limited There are no affordability issues. Plan Relocated households under the Other Action Pingminchong geohazard No Action resettlement component will be provided with replacement housing of equivalent area as they had before the Project in a well-serviced community in a geohazard-free area. Other Risks and/or No Impact The majority of the Project Plan Vulnerabilities construction workers will be Other Action HIV/AIDS engaged locally. HIV/AIDS No Action Human trafficking training and sensitization will be Others (conflict, political provided to the contractors, as instability, etc), please ensured in the loan assurances, specify and will be monitored as part of the PPMS. IV. MONITORING AND EVALUATION Are social indicators included in the design and monitoring framework to facilitate monitoring of social development activities and/or social impacts during project implementation? Yes No Indicators include but not limited to (i) per capita income of urban residents, (ii) total households and persons relieved from geohazard threats, (iii) better geohazard forecasting and early warning services, (iv) jobs created and filled by vulnerable groups, including women, poor, and ethnic minorities. a ADB. 2008. Country Partnership Strategy (2008-2010): People’s Republic of China. Manila.

56 Appendix 13

FINANCIAL ANALYSIS

A. Introduction

1. The Guangxi Wuzhou Urban Development Project does not have a revenue-generating component. The implementing agency for the Project will be Wuzhou Dongtai State Assets Operations Corporation on behalf of the Wuzhou municipal government (WMG). However, the WMG, as the Executing Agency of the Project, will be responsible for providing counterpart funds through equity contributions and borrowing from China Construction Bank (CCB). The WMG will be the owner and operator of the facilities constructed under the Project and will be responsible for debt servicing. Dongtai will manage the construction of the Project, including procuring goods and works, and contracting consulting services.

2. This appendix (i) reviews the past financial performance of the WMG together with the projections for future revenue inflow to assess the impact of the Project on the finances of the WMG and its ability to provide counterpart funds and to meet debt servicing obligations; (ii) assesses the financial management system and procurement capability of Dongtai to implement and manage the Project; and (iii) analyzes the potential and feasibility of the Project to establish a revolving financing mechanism for additional geohazard mitigation projects in Wuzhou.

B. Wuzhou Municipal Government

1. Financial Performance

3. The WMG has several sources of revenue, including (i) taxes and charges, and (ii) transfers from the central Government and the Guangxi Zhuang Autonomous Region government (GZARG) in the form of budgetary support and/or project financing. Taxation represents the largest form of overall revenue generated by the municipality, but much of this is collected for the central Government. In line with the sustained economic growth, the local tax revenues retained by the WMG have grown from about CNY232.2 million in 2002 to CNY474.0 million in 2007—an average annual rate of 15.3% over 6 years.

4. Apart from the local share of taxation, the WMG has revenues from the state-owned enterprises and from the fees collected for municipal services, including education levies. Land sales, another important source of income, have increased rapidly from CNY21.3 million in 2002 to CNY708.5 million in the first half of 2008. In addition, transfers the form of budgetary support from the central Government and GZARG has increased significantly from CNY169.3 million to CNY321.2 million in that same period.

5. At the same time, the central Government and/or GZARG have invested in programs and projects for implementation by the WMG. Funded directly by the central Government or GZARG, they are not regarded as discretionary, but nevertheless reflect financial inflows into the municipality. These total inflows from the central Government and GZARG, which are nearly as large as the WMG’s retained revenue, are an important source of finance, especially for development projects.

Appendix 13 57

Table A13.1: Wuzhou Municipal Government Summary of Main Revenue and Expenditure Items (CNY million) Itema 2002 2003 2004 2005 2006 2007 Average Annual Growth Revenues % Total WMG 554.2 744.9 979.1 983.5 1,028.3 1,227.9 17.2 Total Central Government and GZARG 515.6 525.7 511.3 721.6 837.5 1,239.5 19.2 Expenditures Operational Expenses 828.1 999.3 1,207.6 939.1 1,453.3 1,467.4 12.1 Total Capital Works 183.0 522.4 547.5 653.4 871.6 1,252.6 46.9 Total Expenditure 883.3 1,101.1 1,288.7 1,611.8 1,761.0 2,720.0 25.2 Annual Surplus 48.8 59.3 110.5 112.6 104.8 120.0 19.7 GZARG = Guangxi Zhuang Autonomous Region government, WMG = Wuzhou municipal government. a The revenue and expenditure items listed represent the largest flows. In addition to the income shown, retentions for emergency works, such as flood rehabilitation, are not shown, but will form part of annual capital expenditure. Source: Wuzhou Finance Bureau.

6. The total expenditure of the WMG grew at 25.2% per year from 2002 to 2007, compared with the growth in construction and development projects at 46.9% over the same period. This has led to an increase in the share of capital works in the total expenditure, from 20.7% in 2002 to 46.2% in 2007. Despite the higher expenditure for capital works, the WMG has maintained a modest surplus at about 5% of revenues over expenditures each year.

2. Financial Projections

7. The financial projections for the WMG assumed that the revenues and expenditures will grow at 15%1 per year over the next 3 years (covering real and inflationary increases), generally in line with its past performance, before gradually slowing to 8% from 2015 onwards. Operational expenses are expected to grow at the historical high rate of 12% per year, while the continued rapid growth in capital works is expected to moderate by 2012.

Table A13.2: Projections of Wuzhou Municipal Government Revenues and Expenditures (CNY million) Item 2007 2008 2009 2010 2011 2012 2015 2020 Growth (%) 15.0 15.0 15.0 12.0 12.0 8.0 8.0 Revenues/Sources Total WMG 1,227.9 1,410.6 1,621.1 1,863.7 1,973.0 2,096.5 2,521.7 3,498.4 Budget Transfer 321.2 369.4 424.8 488.5 547.1 612.8 800.8 1,176.6 Subtotal 1,549.1 1,780.02,045.9 2,352.2 2,520.1 2,709.3 3,322.5 4,675.0 Reserves used for projects 807.9 904.8 1,013.4 1,135.0 1,237.2 1,348.5 1,621.1 2,069.0 Central Government and GZARG for projects 483.0 670.0 746.4 830.8 914.7 1,031.0 1,123.7 1,042.0 Less : WMG Surplus 120.0 174.0 199.9 229.9 246.3 264.8 324.7 456.9 Total 2,720.0 3,083.93,497.2 3,966.6 4,323.6 4,712.7 5,665.4 7,230.6 Expenditures Operational 1,467.4 1,643.4 1,840.7 2,061.5 2,247.1 2,449.3 2,944.4 3,757.9 Capital Works 1,252.6 1,440.5 1,656.6 1,905.1 2,076.5 2,263.4 2,720.9 3,472.7 Total Expenditure 2,720.0 3,083.9 3,497.2 3,966.6 4,323.6 4,712.7 5,665.4 7,230.6 GZARG = Guangxi Zhuang Autonomous Region government, WMG = Wuzhou municipal government. a The revenue and expenditure items listed represent the largest flows. In addition to the income shown, retentions for emergency works, such as flood rehabilitation, are not shown, but will form part of annual capital expenditure. Source: Wuzhou Municipal Government and Asian Development Bank estimates.

1 This is considered a conservative assumption, compared with the projection by the WMG for growth in revenues at 18% per year over the next 3–5 years.

58 Appendix 13

3. Impact of Equity Contribution and Loan Repayments

8. Based on the estimated cost of the Project and the proposed financing plan, the WMG is expected to make an equity contribution of CNY111.3 million per year from 2009 to 2013. This represents about 5.4% of the WMG’s discretionary revenue in 2009, with a declining trend to about 3.8% in 2013 in line with the continued growth in the WMG’s retained revenues. In terms of the proportion in the capital expenditures of the WMG (Table A13.3), the equity contribution for the Project will account for about 3.7% of the overall capital expenditures at the peak in 2009. The WMG should be able to meet the counterpart funding requirements.

Table A13.3: Wuzhou Municipal Government—Impact of Equity Contributions (CNY million) Item 2009 2010 2011 2012 2013 Equity Contributions 111.3 111.3 111.3 111.3 111.3 Wuzhou Municipal Government Income 2,045.9 2,352.2 2,520.1 2,709.3 2,901.3 Equity/Income (%) 5.4 4.7 4.4 4.1 3.8 Capital Expenditure 1,656.6 1,905.1 2,076.5 2,263.4 2,421.8 Equity/Capital Expenditures (%) 6.7 5.8 5.4 4.9 3.8 Annual Surplus 199.9 229.9 246.3 264.8 283.5 Equity/Surplus (%) 55.7 48.4 45.2 42.0 39.3 Source: Wuzhou Municipal Government and Asian Development Bank estimates.

9. Based on the provided lending terms of the loans from the Asian Development Bank (ADB) and CCB, the WMG will need to make payments for both principal and interests on the loans from 2014 onwards. The debt servicing will start at the highest level of CNY211.6 million in 2014, and will gradually decline to CNY161.1 million by 2019. The debt service will represent 6.8% of the WMG revenue in 2014, and will gradually decline to 3.7% in 2019. As a share of the total operational expenses of the WMG, which include its debt servicing obligations for all the outstanding loans and debt servicing requirement for the loans from ADB and CCB under the Project, the debt servicing obligations from the Project will represent 7.6% in 2014, declining to 4.5% in 2019. These payments will represent about 69.5% of the surplus of the WMG in 2014. Based on these analyses, the WMG is considered capable of meeting the debt service requirements of the Project, without placing undue pressure on its other expenditures.

Table A13.4: Wuzhou Municipal Government Impact of Interest and Principal Repayments (CNY million) Item 2014 2015 2016 2017 2018 2019 Total Interest and Principal (Debt Service) 211.6 201.5 191.4 181.3 171.2 161.1 Wuzhou municipal government income 3114.1 3,322.5 3,549.4 3,796.3 4,065.0 4,357.2 Debt Service/Income (%) 6.8 6.1 5.4 4.8 4.2 3.7 Operational Expenses 2,804.2 2,944.4 3,091.6 3,246.2 3,408.5 3,579.0 Debt Service/Expenses (%) 7.6 6.8 6.2 5.6 5.0 4.5 Annual Surplus 304.3 324.7 346.9 371.0 397.3 425.8 Debt Service/Surplus (%) 69.5 61.1 55.2 48.9 43.1 37.8 Source: Wuzhou Municipal Government and Asian Development Bank estimates.

10. The counterpart funding requirements and debt servicing obligations under the Project are considered reasonable as a percentage of the income and overall operational expenditures of the WMG, and are not likely to crowd out other programs.

Appendix 13 59

C. Dongtai State Assets Operations Corporation

1. Business Activities

11. Dongtai is a state-owned enterprise, wholly owned by the WMG. Dongtai’s major businesses include (i) undertaking municipal development projects for the WMG; (ii) supervising and managing development projects; (iii) collecting rent for shops, markets, and offices on properties that it owns; and (iv) conducting procurement for other government agencies. Dongtai is designated by the WMG as the implementing agency, which will be responsible for carrying out day-to-day implementation of the Project, including procuring goods and works, and contracting consulting services.

2. Assessment of Financial Management and Procurement Capability

12. Following ADB guidelines for financial management assessment,2 an assessment was conducted for Dongtai, which showed that Dongtai has an adequate computerized financial accounting system and established financial management procedures to document, monitor, manage, and report the flow of funds, operation transactions, and project physical progress.

13. A similar assessment was conducted to assess the procurement capacity of Dongtai. The assessment noted that Dongtai has a procurement department, which serves as a government procurement center mainly for goods and equipment. The procurement department is equipped with proper office and equipment, including a computerized system for a staff of five professionals with experience to undertake public procurement following the Procurement Law of the People’s Republic of China.

14. However, Dongtai has no experience in implementing foreign-funded projects. As such, Dongtai will need specialized training and technical support, particularly in policies and operational and procedural requirements of ADB, to implement the Project. Given the capacity development component included in the Project, Dongtai will receive technical support for capacity development and institutional strengthening, which is considered sufficient to ensure a smooth project implementation.

D. Establishment of a Revolving Financing Mechanism for Geohazard Management

15. As a special benefit, the Project will use the surplus from the sale of the reengineered land, after deducting the redevelopment costs, to establish a revolving funding mechanism for future geohazard management projects in Wuzhou. Under the Pingminchong valley geohazard resettlement and prevention component, 19.27 hectares (ha) of geohazard-free urban land will be developed. After deducting the allowance for public infrastructure, such as roads, footpaths, and reserves, a total area of 13.49 ha (or 202.3 mu), plus 50 mu of land on top of the Pingminchong ridge, will become available for sale. At the estimated cost of CNY367 million for redevelopment and resettlement, the Project is expected to generate a surplus of CNY43.7 million if the land sale is at the current price of CNY1.6 million per mu for similar urban land in Wuzhou.

16. Table A13.5 indicates that the amount of surplus is sensitive to the land sale price achieved. A land sale of at least CNY1.43 million per mu will ensure that the WMG will achieve a surplus that could be applied towards establishment of the revolving funding mechanism for

2 ADB. 2005. Financial Management and Analysis of Projects. Manila.

60 Appendix 13 geohazard management. This would appear to be an achievable target, given the current market price of the urban land and the continued urban expansion under the restricted land availability of Wuzhou.

Table A13.5: Estimate of Size of Geohazard Revolving Fund Average Land Sale Price Net Surplus (CNY million/mu) (CNY million) 1.2 (57.2) 1.4 (6.8) 1.6 43.7 1.8 94.1 2.0 144.6 2.2 195.1 ( ) = negative. Notes: 1. One mu equals 1/15 ha. 2. 19.27 ha (289.1 mu) with 70% assumed saleable after allowance for roads, reserves, etc., plus 50 mu of land on top of the Pingminchong ridge, totaling 252.3 mu. Source: Asian Development Bank.

Appendix 14 61

ECONOMIC ANALYSIS

A. Introduction

1. The economic analysis of the proposed Guangxi Wuzhou Urban Development Project covers project justification, general parameters for economic analysis, project costs and benefits, least-cost analysis, and calculations of the economic internal rate of return (EIRR). The EIRR is calculated separately for each of the two investment components under the Project— Pingminchong geohazard resettlement and prevention component and the Hongling road network and related infrastructure component—and for the Project as a whole.

B. Project Benefits

2. Pingminchong Component. The economic benefits of the Pingminchong component are derived from a comparison between “with project” and “without project” scenarios. The benefits of the “with project” scenario include (i) the avoidance of property damage and loss of life loss because people were relocated out of the geohazard-prone valley, and the savings in the maintenance cost for slope protection and retaining walls; and (ii) an increase in land values in Pingminchong because of the engineering treatment to be conducted under the Project for geohazard prevention. The economic benefits for the Pingminchong component are estimated at CNY263 million, measured in net present value (NPV).

3. The Pingminchong component is proposed and designed as a social development project with an emphasis on improving the living conditions of the people who live in this poorly serviced and geohazard-prone valley. This will be achieved by moving the geohazard- threatened community out of the valley and relocating them in a well-serviced resettlement community to be constructed at the geohazard-free urban area of Zaochong. Although the benefits from better living conditions are not included in the calculation of EIRR, such benefits are estimated to facilitate a better understanding of the other benefits to be generated by the Project. Using the difference in rental prices between the housing in the geohazard-prone Pingminchong valley and those in a resettlement community under similar socioeconomic, geographic, and geological conditions such as Zaochong as a surrogate indicator, the benefits from better living standards are estimated at CNY275 million.

4. Hongling Component. The economic benefits of the Hongling component include (i) time savings, fuel savings, vehicle operating cost savings, and accident cost reductions through the provision of a systematic road network for the Hongling area; (ii) increases in land values because of the municipal infrastructure to be provided under the Project; and (iii) faster gross domestic product (GDP) growth because of the improvement in infrastructure. Since land value increases are conceptually included in the GDP spillover, they are not included in the calculation of EIRR for this component.

5. Using a rate of return at 26.7% established in the recent literature on economic analysis for investments in road infrastructure in the People’s Republic of China (PRC), the net benefits to nonagricultural GDP from the Hongling component are estimated at CNY2.17 billion, measured in NPV.

6. Apart from the general economic benefits related to infrastructure development (para. 5), the Hongling component will also bring in some itemized benefits, particularly by providing (i) badly needed geohazard-free urban lands to accommodate continued urban expansion away

62 Appendix 14 from the geohazard-prone areas; and (ii) counterpart infrastructure in support of the operation of the newly constructed railway station, which would not be able to start normal operation without a properly developed surrounding urban area in Hongling. Although not included in the EIRR calculation, these benefits are estimated to facilitate a better understanding of the other benefits to be generated by the Project. The impact of the railway station and related investment on local GDP, which is calculated separately using an empirically identified relationship, is conservatively estimated at CNY2.63 billion.

C. General Parameters

7. The economic evaluation is based on 2008 prices. As cost estimates are provided at 2008 prices, they do not require an adjustment for inflation. A shadow exchange rate factor of 1.013 has been used to convert border prices to domestic economic prices. Similarly a shadow exchange rate of $1 = CNY7.01 is adopted to calculate the economic cost of the principal tradable items.

8. All the cost items are valued at domestic prices after deduction of taxes and duties, except for (i) unskilled labor, (ii) fuel, and (iii) the capital cost of vehicles. Unskilled labor is valued at a shadow wage rate of 0.80 (i.e., 80% of the estimated wage rate on the Project). The economic opportunity cost of capital at 12% per year is adopted as the social discount rate for the economic evaluation.

D. Economic Costs

9. The economic costs for the Pingminchong component include (i) the cost to build a well- serviced resettlement community at the geohazard-free urban area at Zaochong, (ii) the cost to relocate the current households living in Pingminchong valley into the resettlement community at Zaochong, and (iii) the engineering treatment cost at the evacuated Pingminchong valley for geohazard prevention. The economic costs for the Hongling component include (i) construction costs, including land acquisition and resettlement; and (ii) operation and maintenance costs.

E. Least-Cost Analysis

10. Pingminchong Component. To help the people living in the geohazard-prone Pingminchong valley get rid of the long-lasting geohazard threat, an alternative analysis has been carried out between two general options of geohazard management: (i) strengthening the traditional approach by building stronger retaining walls against geohazard incidents, or (ii) moving the geohazard-threatened community out of the geohazard-prone valley and relocating them to a well-serviced geohazard-free urban area. Experience has shown that the traditional approach could not provide adequate protection for the residents in geohazard-prone valleys against geological disasters. Despite continually building and rehabilitating slope protections and retaining walls over the past 50 years, Wuzhou experiences more than a dozen landslides and slope collapses every year. In extreme weather, rainstorms wash away the concrete retaining walls together with housing structures built on the mountains slopes. Residents living in the geohazard-prone valleys experience several emergency evacuations with severe interruption to their daily life and livelihood during the raining season from June to August each year.

11. Compared with the low level of protection and high recurrent costs for maintenance and rehabilitation of slope protection and retaining walls under the traditional approach, relocation of people out of the geohazard-prone valley is a more cost-effective approach to freeing people

Appendix 14 63 from the geohazard threat for good—although it involves a larger one-time capital investment. Furthermore, under the Project, the evacuated Pingminchong valley will be converted into geohazard-free land for urban redevelopment. The investment for Pingminchong component will not only help people cope with geohazard incidents, it will also help Wuzhou to achieve the combined goals of disaster avoidance and prevention, human settlement improvement, and urban redevelopment.

12. Hongling Component. Given the geographic and geological conditions of Wuzhou, the city has only two directions for a relatively large scale of urban expansion: (i) to the south across the Xunjiang and/or Xijiang River, and (ii) to the west on the north bank of Xunjiang and/or Xijiang River. Expansion first into the west along the northern bank is the least-cost approach because of (i) its proximity to the existing urban infrastructure facilities and urban service networks available, and (ii) the additional costs of building bridges to facilitate urban expansion across the Xunjiang and/or Xijiang River.

F. Calculation of Economic Internal Rate of Return

13. The EIRR calculation takes into account only the main benefits from the two investment components, but includes all the project-related costs. The EIRR for Pingminchong component is 19.3%, while the EIRR for the Hongling component is 20.9%.

14. The EIRR for the Project as a whole is 20.7%. Sensitivity analysis was conducted for the EIRR of the Project as a whole. The analysis showed that the EIRR will decrease to (i) 19.1% in the case of 10% cost overrun; (ii) 18.8% in the case of 10% decrease in the benefits; (iii) 18.1% if project implementation is delayed by 1 year; or (iv) 15.2% if all the adverse impacts of (i), (ii), and (iii) take place together. Table 14.1 shows the summary of the EIRR; Table 14.2 provides the analysis under different scenarios.

Table A14.1: Summary of Economic Internal Rate of Return Component NPV (CNY million) EIRR (%) Hongling road networks 634 20.9 Pingminchong hazard resettlement and prevention 69 19.3 Whole project 697 20.7 EIRR = economic internal rate of return, NPV = net present value. Source: Asian Development Bank.

Table A14.2: Sensitivity Analysis of Economic Internal Rate of Return for the Whole Project Change in Variables Change in Values NPV (CNY million) EIRR (%) Base Case 0 697 20.7 (i) Capital Cost Overrun 10% 600 19.1 (ii) Benefit Reduction (10%) 521 18.8 (iii) Implementation Delay 1 year 530 18.1 (iv) Combination of i, ii, and iii 278 15.2 ( ) = negative. EIRR = economic internal rate of return, NPV = net present value. Source: Asian Development Bank.

64 Appendix 14

G. Distribution Analysis and Poverty Reduction Impact

15. A distribution analysis was conducted to assess the distribution of the benefits of the Project among the major stakeholders: (i) the Government and/or economy, (ii) laborers, and (iii) local households and/or consumers.

16. At the social discount rate of 12%, the net gain of the Project is calculated as CNY1,242.4 million, which is distributed among the major stakeholders in the following pattern:

(i) The Government: CNY355.6 million (28.6%). (ii) Laborers: CNY6.3 million (0.5%). (iii) Local households and/or consumers: CNY880.4 million (70.9%). Given the dominance of civil works in the Project, a significant part of the net gain for laborers will accrue to the unskilled laborers.

17. The distribution analysis found that 13.4% of the net economic benefits from the Project will accrue to the poor, who account for 4.2% of the urban population in Wuzhou. The analysis concludes that the Project will play a significant role in promoting pro-poor economic growth.