Document of The World Bank

FOR OFFICIAL, USE ONLY Public Disclosure Authorized Report No: 41326-CN

PROJECT APPRAISAL DOCUMENT

ON A Public Disclosure Authorized PROPOSED LOAN

IN THE AMOUNT OF US$l00 MILLION

TO THE

PEOPLE’S REPUBLIC OF

FOR A

BENGBU INTEGRATED ENVIRONMENT IMPROVEMENT PROJECT Public Disclosure Authorized February 4,2008

Urban Development Sector Unit Sustainable Development Department East Asia and Pacific Region

This document has a restricted distribution and may be used by recipients only in the Public Disclosure Authorized performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS

(Exchange Rate Effective September 1,2007)

Currency Unit = Renminbi (RMB) RMB 1.00 = US$0.132 US$l.OO = RMB 7.576

FISCAL YEAR January 1 - December31

ABBREVIATIONS AND ACRONYMS B3WTC No. 3 Wastewater Treatment Limited Liability Company BDC Bengbu Drainage Co. Ltd. BEDZIC Bengbu Economic Development Zone Investment Co. Ltd. BHNDDC Bengbu Hebei New Development Co. Ltd. BHNTIGC Bengbu High-New Tech Investment Group Co. Ltd. BMG Bengbu Municipal Government BMPMO Bengbu Municipal Project Management Office BOD Biochemical Oxygen Demand BOQ Bill of Quantities cc Construction Commission CNAO China National Audit Office COD Chemical Oxygen Demand DA Designated Account DI Design Institute DRC Development and Reform Commission EA Environmental Assessment EDZ Economic Development Zone EIA Environmental Impact Assessment EIRR Economic Internal Rate of Return EMP Environmental Management Plan EPB Environment Protection Bureau FB Finance Bureau GDP Gross Domestic Product GUIDC Urban Investment and Development Co. Ltd. HTDZ High Tech Development Zone HRPCP Huai River Pollution Control Project HWDIC Huaiyuan County Western Developmental Investment Limited Liability Corp. HZUIC Huaiyuan County Zhengda Urban Investment Co. Ltd. IBRD International Bank for Reconstruction and Development ICB International Competitive Bidding IDA International Development Association KPI Key Performance Indicator LAB Land Administration Bureau MBD Model Bidding Document FOR OFFICIAL USE ONLY MIZ Mohekou Industrial Zone MOF Ministry of Finance NCB National Competitive Bidding NDRC National Development and Reform Commission OA Operating Account O&M Operations and Maintenance PAP Project Affected Person PDO Project Development Objective PLG Project Leading Group PMO Project Management Office PPP Public-Private Partnership RAP Resettlement Action Plan SA Social Assessment SBD Standard Bidding Document SEPA State Environmental Protection Administration WA Withdrawal Application WCIC Construction Investment Co. Ltd. WRB Water Resources Bureau WTP Willingness To Pay WWTP Wastewater Treatment Plant

Vice President: James W. Adams Country Director: David R. Dollar Sector Manager: Keshav Varma Task Team Leader: Shenhua Wang

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not be otherwise disclosed without World Bank authorization.

CHINA Bengbu Integrated Environment Improvement Project

CONTENTS

Page

A . STRATEGIC CONTEXT AND RATIONALE ...... 1 1. Country and sector issues ...... 1 2 . Rationale for Bank involvement ...... 2 3 . Higher level objectives to which the project contributes ...... 3

B. PROJECT DESCRIPTION ...... 3 1. Lending instrument ...... 3 2 . Program objective and phases ...... 3 3 . Project development objective and key indicators...... 3 4 . Project components ...... 3 5 . Lessons learned and reflected in the project design ...... 5 6 . Alternatives considered and reasons for rejection ...... 6

C . IMPLEMENTATION...... 7 1. Partnership arrangements ...... 7 2 . Institutional and implementation arrangements ...... 7 3 . Monitoring and evaluation of outcomes/results ...... 9 4 . Sustainability...... 9 5 . Critical risks and possible controversial aspects ...... 9 6 . Loadcredit conditions and covenants ...... 11

D. APPRAISAL SUMMARY ...... 12 1. Economic and financial analyses ...... 12 2 . Technical...... 13 3 . Fiduciary ...... 14 4 . Social ...... 15 5 . Environment...... 15 6 . Safeguard policies ...... 16 7 . Policy Exceptions and Readiness ...... 16 Annex 1: Country and Sector or Program Background...... 18

Annex 2: Major Related Projects Financed by the Bank and/or other Agencies ...... 23

Annex 3: Results Framework and Monitoring ...... 24

Annex 4: Detailed Project Description...... 30

Annex 5: Project Costs ...... 35

Annex 6: Implementation Arrangements ...... 37

Annex 7: Financial Management and Disbursement Arrangements...... 40

Annex 8: Procurement Arrangements ...... 48

Annex 9: Economic and Financial Analysis ...... 53

Annex 10: Safeguard Policy Issues ...... 68

Annex 11: Project Preparation and Supervision ...... 76

Annex 12: Documents in the Project File ...... 78

Annex 13: Statement of Loans and Credits ...... 79

Annex 14: Country at a Glance ...... 84

Annex 15: Maps...... 86 IBRDKHN 35665. 35666 CHINA

BENGBU INTEGRATED ENVIRONMENT IMPROVEMENT PROJECT

PROJECT APPRAISAL DOCUMENT

EAST ASIA AND PACIFIC

EASUR

Date: February 4,2008 Team Leader: Shenhua Wang Country Director: David R. Dollar Sectors: General water, sanitation and flood Sector ManagerAIirector: Keshav Varma protection sector (80%); Roads and highways (10%); Water supply (5%); Sub-national government administration (5%) Themes: Pollution management and environmental health (P); Water resource management (S); Regional integration (S) Project ID: PO96925 Environmental screening category: Full Assessment Lending Instrument: Specific Investment Loan

[XI Loan [ 3 Credit [ ]Grant [ ]Guarantee [ ]Other:

For Loandcreditdothers: Total Bank financing (US$m.): 100.00 Proposed terms: The loan will be payable in 17 years, including a five-year grace period with level reDavments of DrinciDal. on standard terms for a single currencv variable mread loan.

Source Local Foreign Total Borrower 101.02 23.61 124.63 International Bank for Reconstruction and 29.81 70.19 100.00 Development Total: 130.83 93.80 224.63

Borrower: People’s Republic of China

Responsible Agency: Bengbu Municipal Development and Reform CommissiodProject Management Office Administrative Office Center Donghai Avenue, Bengbu, Province, 233040, P.R. China Tel: 86-55-23 13-1715 Fax: 86-55-23 13-1703 Email: [email protected] :Y 09 10 11 12 13 14 15 hual 5.00 15.00 20.00 20.00 20.00 15.00 5.00 hmulative 5.00 20.00 40.00 60.00 80.00 95.00 100.00

Project description [one-sentence summary of each component] Ref: PAD B.4, Technical Annex 4 The proposed project will be implemented in Bengbu City proper, Guzhen, Huaiyuan, and Wuhe Counties and consists of four components: (a) comprehensive water resources management; (b) urban environmental infrastructure improvement; (c) sub-urban environmental infrastructure improvement; and (d) institutional development and capacity building.

Which safeguard policies are triggered, if any? Ref: PAD 0.6, TechnicalAnnex 10 Environmental Assessment (OP/BP 4.0 1); Involuntary Resettlement (OP/BP 4.12)

Significant, non-standard conditions, if any, for: Ref: PAD C.6 Board presentation: None

Loadcredit effectiveness: No project specific conditions.

Covenants applicable to project implementation:

Disbursement Covenants

(a) Submission ofsubsidiary loan agreements (for project companies) satisfactory to the Bank is a condition ofdisbursement for expenditures incurred by the respective companies; (b) US$lmillion ofthe loan allocated to Bengbu High-New Tech Investment Group Co. Ltd. (BHNTIGC) will be subject to signature of a contract to construct No. 4 WWTP (BHNTIGC will not be able to access the loan until it signs the contract); and

(c) Completion ofdetailed designs using international specialized consultants is a condition for financing infrastructure in the Mohekou Industrial Zone (MIZ) (Wuhe County Construction Investment Co. Ltd. will not be able to access the loan until the detailed designs are completed).

Dated Implementation Covenants

(a) Commencement of a study of institutional reforms necessary for water-related sector agencies, no later than February 15,201 1, and implementation ofthe recommendations by August 15,201 1;

(b) In respect of MIZ, engage a professional management company to manage infrastructure services in MIZ, including introduction of load-based charges for industrial wastewater treatment by August 15,2012; and

(c) Bengbu Municipality to develop a strategy and action plan to reduce industrial pollution discharges to the Huai River, including: (1) relocation of such industries to MIZ or other dedicated location; (2) discontinuation ofproduction by producers that are not relocating; and (3) modification ofproduction technology to reduce pollution by February 15,2009, and implementation ofthe recommendations thereon.

Financial Covenants

Financial performance criteria for wastewater services to meet the following financial performance conditions:

(a) Total revenues to be able to meet O&M costs and the greater ofdebt service or depreciation by: (1) Bengbu Drainage Co. Ltd., no later than January 1, 2010; and (2) Bengbu No. 3 Wastewater Treatment Limited Liability Company, no later than January 1,2010; and

(b) The two utility companies will incur no additional debt without the Bank’s agreement, unless a reasonable forecast shows debt service coverage ofat least 1.1.

Financial Management Covenant

Bengbu Municipality will provide the International Bank for Reconstruction and Development with audited project account statements within six months ofthe end ofeach calendar year during project implementation.

A. STRATEGIC CONTEXT AND RATIONALE

1. Country and sector issues

1. Providing high quality urban services is fundamental to sustaining China’s growth. Since 1990, China has had remarkable success in increasing the stock of water infrastructure, expanding water supply coverage, and increasing the percentage ofwastewater that is collected and treated.

2. Anhui Province, located in the mid-eastern region ofChina, is a relatively underdeveloped province in the country. Bengbu Municipality, with a population of about 3.5 million, had the second largest economic capacity in the province, after the capital city, . However, since the mid 1990s Bengbu has experienced sluggish economic growth in comparison to the other new economic centers in the Yangize Delta and coastal regions due to infrastructure bottlenecks of frequent flooding that interrupted economic activities, industrial pollution, inadequate wastewater collection and treatment, and an unreliable water supply.

3. In early 2007, the central government announced the Mid-China Revitalization Program covering Anhui, Henan, Hubei, Hunan, Jiangxi and Shanxi Provinces. The program includes preferential policies to support revitalization, including the acceleration of free flow ofresources, and the transfer ofindustries and technology between and within regions. Under this program, Bengbu will receive additional support to accelerate its investment program to address, among others, the issues discussed in the following paragraphs.

4. Frequent Flooding in Bengbu Municipality. While the dykes, designed for a 100-year flood, prevent flooding from the Huai River, the lack ofcomplementary storm drainage networks and pumping stations to discharge storm runoff to the river makes flooding a recurring feature in cities and counties along the river about every three years. Frequent flooding in Bengbu City proper and Guzhen, Huaiyuan and Wuhe Counties causes persistent disruption of economic activities, affects functioning of cities, and results in significant losses to agricultural production, leading to economic losses averaging about RMB 500 million every three to five years. Control of flooding is a high priority for Bengbu Municipality to facilitate uninterrupted growth.

5. Domestic and Industrial Wastewater Pollution. Bengbu Municipality has recently directed investments to expand municipal wastewater collection and treatment. The current coverage and treatment capacity is around 50%. The older industries, located within the urban core, have been major contributors to pollution in the Huai River. The municipality has formulated a plan to relocate the worst-polluting industries to newly-established dedicated industrial zones in Guzhen, Huaiyuan and Wuhe, and relocate less polluting industries to special zones in the municipality. The deteriorating water quality in the Huai River is a major concern for Bengbu Municipality, Anhui Province and the central government. Expanding wastewater collection and treatment from domestic and industrial users is a high priority, for Bengbu in particular, to achieve sustainable environmental management, improved water quality ofthe Huai River and competitiveness ofthe municipality.

6. Insecurity of Bengbu’s Water Supply. The water quality of Bengbu’s main water supply source, the Huai River, is unfit for use as a drinking water source during three to four

1 months in the year on average. This leads to severe drinking water shortages and interruption of economic activities, and also poses a threat to the economic survival ofBengbu, which has used Tianhe Lake, located in its western edge, as its emergency back up source. Developing a secure water source with adequate capacity and satisfactory quality is a priority for Bengbu.

7. Weak Financial Viability of Wastewater Companies. Achieving institutional autonomy and financial viability ofwastewater services are challenges faced by Bengbu Municipality. The central government has directed municipalities throughout the country to adopt minimum average wastewater tariffs, which are estimated to be adequate to meet the costs of operations and maintenance (O&M) in most cases. Bengbu Municipality is committed to long- term sustainability ofthe sector. The proposed project will help address institutional issues of wastewater companies.

8. Proposed Project Interventions. The proposed project includes a package of integrated interventions that support and address: (a) water environment issues in Bengbu City proper and counties of Guzhen, Huaiyuan and Wuhe through investments in flood control, flood prediction and control systems, storm drainage, water supply, wastewater collection, inter-district infrastructure development, and environmental management; (b) introduction ofprofessional management services and load-based charges for industrial wastewater management in one ‘model’ industrial park through public-private partnership (PPP) in infrastructure service provision; (c) enhanced cooperation between administrative units (municipality, districts and counties) of Bengbu in inter-municipal infrastructure optimization, information sharing and integrating water quality databases and enhancement of environment-related information dissemination to the public; and (d) support for management and institutional reform ofthe water sector ofBengbu Municipality.

2. Rationale for Bank involvement

9. The World Bank is currently assisting both Anhui and Shandong Provinces to reduce pollution discharges in the Huai River Basin through improved urban wastewater systems under the Huai River Pollution Control Project (HRPCP: Ln.4507-CHA). Due to its ongoing dialogue and relationship with Anhui Province and Bengbu, and based on its relevant sector work in China, the Bank is well positioned to assist Bengbu to address the priority infrastructure bottlenecks through efficient and effective project design and implementation. In addition, the Bank’s continued involvement with Bengbu will contribute to: (a) strengthen the institutional and financial viability ofutility companies commenced under HRPCP; and (b) help achieve the overall objective ofimproving the water quality ofthe Huai River in a more sustainable manner through a broad range ofinterventions proposed to improve water resources and environmental management.

10. The Bank also brings to the proposed project its extensive experience and expertise specifically in: (a) water resources management; (b) improved wastewater management, including load-based charges for industrial wastewater for sustainable protection and improvement ofthe water environment; and (c) PPP to provide efficient professional management of infrastructure services, including the preparation ofa regulatory framework.

2 1 1. In addition, the Bank’s involvement has helped bring international best practice and skills transfer to local counterparts to improve the quality ofproject preparation, through the use of bilateral trust funds to mobilize international specialists to review the analysis oftechnical, financial and economic aspects ofthe proposals.

3. Higher level objectives to which the project contributes

12. The proposed project is consistent with two ofthe five strategic pillars specified in the Bank’s Country Partnership Strategy for China: (a) managing resource scarcity and environmental challenges; and (b) improving public and market institutions.

13. It is also in line with “building a resource-efficient and environment-friendly society” articulated in China’s 11 th Five Year Plan (2006-20 10) in that it aims to address resource scarcity and environmental challenges through expansion ofurban wastewater collection and treatment facilities and control of industrial pollution. Moreover, the project would reduce the urban-rural gap by protecting agricultural production through flood control ofarable lands.

B. PROJECT DESCRIPTION

1. Lending instrument

14. The lending instrument is a Specific Investment Loan. The loan will be a single currency, variable spread loan ofUS$lOO million, with a maturity of 17 years, including a five-year grace period, and a front-end fee of 0.25%.

2. Program objective and phases

15. Not applicable.

3. Project development objective and key indicators

16. The project development objective (PDO) is to improve the effectiveness and sustainability of selected urban environmental services delivered in Bengbu Municipality through improving water supply, reducing incidents ofland submergence from flooding, and enhancing wastewater management.

17. Key performance indicators (KPIs) are: (a) the area ofBengbu that is protected from flooding caused by storm water runoff; (b) pollution discharges from Bengbu to the Huai River; (c) reliability of Bengbu’s water supply; and (d) break-even for wastewater and/or water services. Annex 3 provides a more detailed description ofthe indicators.

4. Project components

18. The project covers Bengbu City proper, including , and the satellite counties ofGuzhen, Huaiyuan, and Wuhe, all ofwhich are located along the Huai River, except Guzhen which is on a tributary ofthe Huai River. A detailed project description is provided in Annex 4.

3 Component 1: Comprehensive Water Resources Management (USS27.39 million)

(a) Tianhe Lake Water Resources Management: construction of a pumping station to manage floods and increase storage capacity of Tianhe Lake; and

(b) Lonnzi Lake Flood Management, Ecological Improvements and Restoration: construction of a flood discharge pumping station at the Longzi outfall for flood management, and lake embankment improvement for erosion control and ecological restoration.

Component 2: Urban EnvironmentalInfrastructure Improvement (USS109.09 million)

(a) Bengbu Citv ProDer (south of the Huai River): storm drainage facilities in the old city area, High Tech Development Zone (HTDZ), Economic Development Zone (EDZ), and Longzi Lake District, reconstruction of Xinchuantang and Nanshij ia storm drainage pumping stations, and rehabilitation of Zhi Huai Road storm drainage pumping station; and

(b) Huaishang District (north of the Huai River): construction of storm drainage networks, three flood discharge pumping stations, wastewater collection networks (including a pipeline to transfer wastewater from Huaiyuan County to Huaishang District for treatment), roads, and desilting of drainage canals.

Component 3: Sub-urban Environmental Infrastructure Improvement (USS66.84 million)

(a) Guzhen County: construction of storm drainage networks, wastewater networks, roads, and desilting of drainage canals;

(b) Huaivuan County: construction of storm drainage networks, two storm drainage pumping stations, roads, and desilting and rehabilitation of three flood retention basins and a drainage canal; and

(c) Wuhe County (Mohekou Industrial Zone (MIZ) and Township): construction of a water supply intake, treatment plant, transmission and distribution networks, an industrial wastewater treatment plant (WWTP) and collection networks, storm drainage networks, a flood discharge pumping station including a detention storage basin, facilities for containing first flush flows and accidental spills, desilting drainage canals, and roads.

Component 4: Institutional Development and Capacity Building (US$6.87 million)

(a) Water Oualitv Monitoring; Improvement: (1) Bengbu Environmental Protection Bureau (EPB) - (i)automatic water quality monitoring stations, online water level measurement, data collection and management, and online monitoring analyzer for Huai River outfalls, and (ii)equipment and data processing systems; and (2) County EPBs - class I1 level water quality monitoring laboratory and equipment;

4 (b) Implementation Support: (1) design review and sign-off for advance works; (2) project management, implementation monitoring, and design review; (3) detailed design of infrastructure facilities in MIZ; (4) preparation ofrules and operational procedures for management of MIZ, and bid documentation to select a professional operator for MIZ; and (5) monitoring ofsafeguard implementation; and

(c) Technical Assistance for Capacity Building: (1) institutional and financial strengthening for utility companies; (2) water sector management and institutional reform; (3) equipment and vehicles for the PMOS; and (4) training and study tours.

19. Project Cost Estimate. The total project cost is estimated at US$224.63 million, including physical and price contingencies.

20. Financing Plan. The proposed financing is illustrated below.

Source Local Foreign Total BorrowerRecipient 101.02 23.61 124.63 IBRD 29.81 70.19 100.00

* Includes interest during construction.

21. Based on the above, a Bank financing for the project is about 45%.

5. Lessons learned and reflected in the project design

22. The proposed project draws on the recent lessons fiom similar Bank projects in China, assessments by the Independent Evaluation Group, and Bank reports, including: Draft China Urban Development Program: A World Bank Portfolio Review (2007); A Partnership for Innovation: A Quarter-Century ofChina-World Bank Cooperation (2007); and Stepping Up: Improving the Performance of China’s Urban Water Utilities (2007). In particular, the following lessons were considered during preparation.

23. Comprehensive Approach to Water Environment Improvement. The management of water resources in the Huai River Basin, as in most parts ofChina, is still carried out with too much emphasis on administrative boundaries rather than using a catchment approach. Both water quality and quantity suffer as decisions are made without considering the downstream users of the water resources. More emphasis should be placed on comprehensive water resources management that takes into account all the beneficiaries and polluters within river basins. In Bengbu this applies in particular to Tianhe and Longzi Lakes that have multiple functions as sources of drinking water and irrigation water, as well as pisciculture activities. Better flood control to protect valuable lakeshore land and the control ofpoint and non-point pollution sources within the catchment will play a critical part in protecting these important water resources. The proposed project will promote comprehensive water resources management through support to institutional reforms necessary to optimize the efficiency ofwater-related sector agencies, and improved capacity ofEPBs for water quality monitoring and management.

5 24. Monitoring of Industrial Pollution Discharges. Despite the very large investments in wastewater treatment in recent years, water quality in major rivers in China has continued to deteriorate. Water quality improvements cannot be achieved by municipal wastewater management alone, without addressing industrial pollution, which contributes to a major portion ofthe pollution. Such conditions would not prevail if the installed pre-treatment facilities at industries are dutifully and efficiently operated, and a credible monitoring and enforcement program is in place. The existing situation is also not consistent with industry compliance rates reported by the EPBs. In order to reverse these conditions, environmental safety should also receive a high priority; effective means to monitor industrial wastewater treatment should be introduced; and the integrity ofthe monitoring and enforcement of environmental regulations should be improved. The project incorporates load-based charges for industrial wastewater treatment, which would serve as a model to address industrial pollution in a serious manner.

25. Realistic Estimates of Service Demand and Bid Prices. As seen in similar Bank projects in China, ambitious and/or unrealistic projections ofpopulation growth, water demand, and wastewater generation have resulted in over-sizing of facilities and excessive construction costs, making financial sustainability difficult to achieve. Moreover, bid prices have been generally 25% to 30% lower than cost estimates used at project appraisal, due in large part, to the use of standardized unit price schedules, referred to as “norm” rates. Apart from not reflecting true market prices, the “norm” rates also include various contingencies. The result is that the Borrower incurs unnecessary commitment charges on accumulated loan savings. For the proposed project, population growth, demand for water and wastewater services, and cost estimates were closely reviewed, and realistic and recent market rates were adopted. As a result, project cost estimates were reduced by about 25% compared to those at the pre-feasibility design stage.

26. Intra-municipal Cooperation in Infrastructure Development. Significant efficiencies and economies of scale are possible through construction ofregional environmental infrastructure such as water supply, wastewater and solid disposal facilities that are jointly financed and used. In addition, inter-municipal collaboration could serve to utilize excess capacity available. The project incorporates the experience from the Pearl River Delta Environment Project, where intra-municipal cooperation in infrastructure development was actively promoted.’ Wastewater from Huaiyuan County will be conveyed to the Huaishang WWTP for treatment in an innovative arrangement that will utilize spare treatment capacity and save operating costs.

6. Alternatives considered and reasons for rejection

27. Financing infrastructure for the entire new industrial parks in Guzhen and Mohekou was considered initially, but rejected because adequate demand for the sites in the parks was not certain, and the parks are still in the early stages ofdevelopment. The Guzhen park is in its early stages ofplanning, and the Mohekou park has only 22 commitments thus far. Instead, the decision was made to support infrastructure development only in functioning industrial parks. The project will provide infrastructure for about one third ofMIZ and the expanding township,

Economies of scale possible are best illustrated by the plan of local jurisdictions in the Pearl River Delta to construct over 160 WWTPs, including nearly 50 in Foshan City alone.

6 along with innovations for industrial wastewater management, load-based charges and professional management ofMIZ.

28. Financing tourism development in the area around Tuo Lake in Wuhe County was considered, as requested by the Bengbu Municipal Government (BMG). The proposal was rejected because: financing tourism development would detract from the primary development objective; the demand for tourism development had not been studied; and the proposal involved a large amount ofresettlement and displacement ofpeople.

29. Financing technical assistance for improvement ofinvestment climate, including a diagnostic study on the competitiveness ofBengbu Municipality, and capacity building of officials of BMG, was originally considered at the project concept stage. The capacity building part has been incorporated under the proposed project, while the diagnostic study on the competitiveness ofBengbu Municipality has been carried out under the International Finance Corporation’s on-going “Doing Business in China, 2008.

C. IMPLEMENTATION

1. Partnership arrangements

30. The proposed project is free standing and does not have other international co-financiers.

2. Institutional and implementation arrangements

3 1. At the municipal level, a Project Leading Group (PLG), headed by a vice mayor of Bengbu Municipality, has been established to provide overall guidance during project preparation and implementation, and necessary approvals. The PLG has representatives from the Development and Reform Commission (DRC), the Construction Commission (CC), the Finance Bureau (FB), the Water Resources Bureau (WRB), the EPB, and the Land Administration Bureau (LAB).

32. The Bengbu Municipal Project Management Office (BMPMO), under Bengbu DRC, is the main agency for coordination ofproject implementation. BMPMO will monitor implementation progress, including procurement activities, consolidate project costs and prepare consolidated semi-annual progress reports. It will also be responsible for implementation ofthe technical assistance and capacity building component, except for water quality monitoring technical assistance, which will be implemented by municipal and county EPBs.

33. The Project Management Offices (PMOS) ofHuaiyuan, Wuhe and Guzhen Counties will coordinate and monitor project implementation (including quality control in planning and construction), prepare progress reports, oversee performance ofimplementing agencies, consolidate project costs, and process disbursement applications.

34. Project implementation will be carried out by a mix of government departments or bureaus, state-owned investment companies, and utility companies. Details ofproject responsibilities and implementation arrangements are provided in Annex 6.

7 3 5. Detailed Design Preparation, and Design Reviews. Implementing agencies will engage design institutes (DIs) to prepare detailed designs, except for MIZ. Detailed design preparation for facilities in MIZ, and independent design reviews ofall components, will be carried out by internationally experienced consultants financed under the project.

36. Construction Supervision and Safeguard Monitoring. Implementing agencies will employ experienced domestic supervision companies for construction supervision ofproject components. BMPMO will engage a consultant to carry out independent monitoring of safeguard implementation, and provide semi-annual reports.

37. Project Management Support. Project-financed international and national consultants will provide project implementation support to BMPMO and other implementing agencies. Using own funds, all implementing agencies will utilize the services oftendering companies to assist in procurement, and supervision companies for construction supervision.

38. Procurement. A procurement capacity assessment has been carried out, and some capacity enhancements have been proposed. Procurement ofworks, goods and services will be carried out in accordance with Bank procurement procedures. Implementing agencies will engage tendering companies to assist in domestic and international procurement. A procurement plan and contract packages were agreed during project appraisal. BMPMO will be responsible for selecting consultants for project implementation support.

39. Retroactive Financing. Payment for the civil works, goods and services made prior to loan signing date but on or after January 1, 2008, up to a limit ofUS$l million, may be financed retroactively from the loan. This retroactive financing will allow the project implementing agencies to initiate the implementation ofwell advanced components. The retroactive financing will cover: (a) construction ofthe Longzi Lake storm drainage pumping station; (b) reconstruction ofthe storm drainage pumping station in the old city area; (c) detailed design of infrastructure facilities in MIZ; and (d) design review, contract management, and implementation monitoring, to ensure timely completion of each activity.

40. Fund Flow. The proposed loan ofUS$lOO million will be made to the People’s Republic of China. Loan proceeds will be passed to Anhui Province on the same terms and conditions as the Bank loan to China. Anhui FB will make the loan proceeds available to Bengbu FB, FBs of Longzi Lake District, Huaishang EDZ, HTDZ, and the FBs ofHuaiyuan, Wuhe and Guzhen Counties on the same terms as the loan to China. The local FBs will on-lend a portion ofthe loan proceeds to utility companies under subsidiary loan agreements on the same terms and conditions as the Bank loan to China. They will also on-lend a portion ofthe proceeds to investment companies to execute the relevant works as agents of the respective government entities, under subsidiary loan agreements satisfactory to the Bank.

41. Resettlement Compensation Fund Flow. The municipal and county FBs will allocate funds to the resettlement implementing agency according to implementation progress. The resettlement implementing agency will disburse the funds to project-affected persons (PAPS) in accordance with the Resettlement Action Plan (RAP). All resettlement will be financed from counterpart funds.

8 3. Monitoring and evaluation of outcomes/results

42. The principal tool for monitoring and evaluation will be data input to the Results Framework in Annex 3. BMPMO will make arrangements with EBPs, WRBs, and wastewater companies in Bengbu, Guzhen, Huaishang, and Wuhe (Mohekou) to collect data to assess project impacts, relying more on existing reporting systems. In addition, BMPMO will collect data from each project implementing agency to update the Results Framework. Other sources for monitoring and evaluation are: (a) the semi-annual progress report that will be prepared by BMPMO, consolidating reports from other PMOS, including reporting on outcome and output indicators; (b) semi-annual supervision missions by the Bank; and (c) the Implementation Completion and Results report prepared at the end ofthe project.

43. Mid-term Review. A mid-term review will be carried out no later than June 1,201 1.

4. Sustainability

44. Bengbu Municipality’s dedication to improvement ofurban environmental services indicates a high probability that the project and its outcomes would be sustainable. The municipality’s strategy is to provide high quality infrastructure to improve the level of such services for residents, improve quality ofliving, and install high quality infrastructure in its industrial estates so as to attract new industries, to support revitalization ofits industrial base. In addition, sustainable improvement ofthe financial performance, efficiency and effectiveness of key urban environmental services, which is critical to project success, is underpinned by the Central Government Tariff Regulation 1192 (1 999) and covenants in the Legal Agreement. Finally, the project will help address institutional issues through a study financed under the project on institutional reforms necessary to optimize the efficiency ofwater-related sector agencies to achieve long-term sustainability.

45. Sustainability offlood control investments also depends on government budgets for routine maintenance ofthe civil works and equipment. Assurances have been given by Bengbu Municipality that adequate annual recurrent funds will be budgeted for O&M costs, especially the cost ofoperating the large pumps to discharge flood waters.

5. Critical risks and possible controversial aspects

46. The overall project risk rating is moderate. As the following table shows, there are no major controversial aspects associated with the proposed project.

9 To project development objecti !S Incidence of flooding and 0 Construct adequate storm drainage Low consequent losses not reduced networks and pumping capacity to discharge all storm flows at the highest recorded flood level in the Huai River.

0 Adopt flood design criteria appropriate for financial and economic value of likely losses.

Failure to reduce pollution 0 Intercept and treat all wastewater Modest contribution to the Huai River generated in project cities. in the Bengbu section 0 Complete relocation ofall worst polluting industries from urban core of Bengbu to dedicated industrial parks.

A reliable long-term water 0 Implement water resources management Modest source for Bengbu of plan along with watershed management. acceptable water quality not 0 Institute effective enforcement achieved procedures on control ofland use, and other activities required for maintaining

Financial viability of Set the minimum tariff adequate to meet Modest wastewater utility companies all O&M expenditures. not achieved Adopt a plan to eliminate subsidies to

To component outputs/results Weak design preparation 0 Employ experienced DIs to carry out Modest capacity in some utility detailed designs. companies 0 Institute an independent review of designs.

Installed WWTP capacity not 0 Phase WWTP construction to match Modest utilized in some project cities estimated demand.

0 Expand sewer networks to collect all wastewater generated.

Weak management and 0 Engage experienced staff and operators Modest operation capacity ofsome 0 Consider management contract or other utility companies private sector participation for management and operation offacilities.

Lack ofcounterpart funding 0 Confirm evidence ofcredible sources of Modest delays project implementation counterpart funds.

0 Size investments consistent with affordabilitv.

10 To component outputshesults

Failure to implement RAPS 0 Effective information dissemination and Modest public participation in the preparation of RAPS.

0 Carry out intensive training of project staff.

0 Engage an independent external monitoring consultant to monitor safeguard implementation. 0 Conduct rigorous supervision by the Bank team. I Overall Risk Rating I Modest Probability that an outcome will not be achieved: High >75%; Substantial >50%; Modest >25%; Low <25%

6. Loadcredit conditions and covenants

Loan Effectiveness

47. No project specific conditions.

Disbursement Covenants

48. Submission of subsidiary loan agreements (for project companies) satisfactory to the Bank is a condition of disbursement for expenditures incurred by the respective companies;

49. US$l million of the loan allocated to Bengbu High-New Tech Investment Group Co. Ltd. (BHNTIGC) will be subject to signature of a contract to construct No. 4 WWTP (BHNTIGC will not be able to access the loan until it signs the contract); and

50. Completion of detailed designs using international specialized consultants is a condition for financing infrastructure in MIZ (Wuhe County Construction Investment Co. Ltd. will not be able to access the loan until the detailed designs are completed).

Dated Implementation Covenants

5 1. Commencement of a study of institutional reforms necessary for water-related sector agencies, no later than February 15, 201 1, and implementation of the recommendations by August 15,201 1;

52. In respect of MIZ, engage a professional management company to manage infrastructure services in MIZ, including introduction of load-based charges for industrial wastewater treatment by August 15,2012; and

11 53. Bengbu Municipality to develop a strategy and action plan to reduce industrial pollution discharges to the Huai River, including: (a) relocation ofsuch industries to MIZ or other dedicated location; (b) discontinuation ofproduction by producers that are not relocating; and (c) modification ofproduction technology to reduce pollution by February 15,2009, and implementation ofthe recommendations thereon.

Financial Covenants

54. Financial performance criteria for wastewater services to meet the following financial performance conditions:

(a) Total revenues to be able to meet O&M costs and the greater of debt service or depreciation by: (1) Bengbu Drainage Co. Ltd. (BDC), no later than January 1,2010; and (2) Bengbu No. 3 Wastewater Treatment Limited Liability Company (B3 WTC), no later than January 1, 20 10; and

(b) The two utility companies will incur no additional debt without the Bank’s agreement, unless a reasonable forecast shows debt service coverage ofat least 1.1,

Financial Management Covenant

55. Bengbu Municipality will provide the International Bank for Reconstruction and Development (IBRD) with audited project account statements within six months ofthe end of each calendar year during project implementation.

D. APPRAISAL SUMMARY

1. Economic and financial analyses

Economic Analysis

56. A cost-benefit analysis was performed for most ofthe project components to examine their economic viability. For some sub-components such as wastewater treatment and sewage networks, the environmental benefits are difficult to quantify. The cost effectiveness approach was thus adopted to find a least-cost solution among several alternatives. In addition, a willingness-to-pay (WTP) survey for environmental improvement was done to measure public support for the project as a whole and the amount they are willing to pay for improved services. The survey shows that the public is supportive ofBengbu’s environmental improvement programs as specified in its 1 1th Five Year Economic and Social Development Plans and is willing to pay for the proposed project.

57. The economic benefits and costs ofthe project were identified and quantified as much as possible. The economic benefits are comprised ofincreased or improved water supply and sanitation services, ecological upgrading, associated water quality and health improvement, agricultural production increase from irrigation water supply and flood control, amenities and

12 land value increase, and increased production ofnew industrial zones (MIZ, HTDZ, and EDZ), measured directly by tax revenue increase.

58. The cost-benefit analysis shows an aggregate economic internal rate ofreturn (EIRR) of 18.4%. The EIRR ofindividual components varies from 14.4% (Wuhe) to 21.6% (Huaishang). The variation is due primarily to the different nature of investments. All ofthese components have the EIRR above the threshold level acceptable to the Government ofChina, i.e., the 10% discount rate for investment projects recommended by the National Development and Reform Commission (NDRC) in 2002. Sensitivity analysis (increase in capital costs and decrease in claimed economic benefits) further shows that the economic returns are robust. Therefore, the investment is economically justified.

59. The impact oftariff increases on the poor is insignificant due to the small, if any, net increase in existing water tariffs as a result ofthe new investments. Taking into account the saving to the public to obtain water from other (either expensive or low quality) sources of water supplies, as well as amenities and health improvement, the project would benefit the poor.

Financial Analysis

60. The evaluation of availability of counterpart funds and debt service capacity indicates that government fiscal revenues are sufficient to contribute to the counterpart funds and service debt incurred for the project. The proposed counterpart funds constitute only a small fraction of total disposable fiscal revenues (less than 2% for Bengbu and less than 4% for Wuhe County, respectively). The above demonstrates that the counterpart funds and debt are affordable to Bengbu.

6 1. Financial analyses and projections were conducted on two revenue earning companies: BDC and B3WTC. The projections are based on the following financial objectives of BMG:

(a) Total revenues to be able to meet O&M costs and the greater of debt service or depreciation by: (1) BDC, no later than January 1, 2010; and (2) B3WTC, no later than January 1,20 10; and

(b) The two utility companies will incur no additional debt without the Bank’s agreement, unless a reasonable forecast shows debt service coverage ofat least 1.1.

62. Evaluation of financial viability and sustainability ofthe utility companies is also supported by sensitivity and risk analysis. Several potential risks were used to test the responsiveness of cost recovery and debt service ratios to the adverse case scenarios throughout the projection period. The results show that the utility companies can withstand the highest risk scenario if the suggested tariffs are implemented and government subsidies are provided.

2. Technical

63. Design criteria, design principles, and technical feasibility ofthe proposed components were confirmed by the Bank at project appraisal. Working closely with DIs during preparation,

13 the Design Review Advisory consultant reviewed the respective feasibility studies and provided detailed advice. With respect to discharge of flood flows, designs incorporate detention storage so as to reduce pump capacity, peaks and inflows to the river system - a feature currently not provided in Chinese design guidelines. All selected components represent least-cost and affordable solutions, and avoid creating excess capacity. Realistic population, water demand and wastewater generation projections were adopted to promote conservation ofwater, avoid over- design and reduce capital and operating costs. Project costs were estimated using unit rates from recent contracts and market rates. It is anticipated that bid prices will be close to cost estimates, and likely loan savings will be minimized.

64. As part ofproject preparation, hydraulic simulation techniques have been used to verify the preliminary design provided by the Chinese DI. These techniques have enabled the initial sizing ofthe designs to be validated and the performance ofthe designed systems to be determined in terms offlooding criteria. The techniques have enabled modification and optimization ofthe designs to be tested, particularly in the case ofthe storm drainage facilities serving the different development zones. In particular, innovative peak flow limitation approaches such as detention storage and infiltration ofroof runoff have been analyzed as alternatives and incorporated into the designs. These approaches will therefore limit downstream impacts such as flooding, through the reduction ofpeak runoff, thereby reducing the need for excessive pumping capacity to the Huai River.

65. Departing from standard practice, criteria appropriate for industrial common effluent treatment plant operations were adopted for Mohekou, where more than 80% ofthe wastewater generated would be from industry. The WWTP design will adopt the load-based charges for wastewater treatment from industries within MIZ, based on the degree ofpre-treatment at each industry within MIZ. Sulphate-resistant sewer pipe material is proposed in order to accommodate wastewater with higher pollutants. The internal arrangements notwithstanding, the treated effluent from the WWTP will comply with the Class 1A discharge standard.

3. Fiduciary

Financial Management

66. The adequacy ofthe project financial management system was assessed based on guidelines issued by the Financial Management Sector Board on November 3,2005. The assessment concluded that the project meets minimum Bank financial management requirements as stipulated in BO/OP 10.02. It found that the project will have in place an adequate project financial management system that can provide, with reasonable assurance, accurate and timely information on the status ofthe project in the reporting format agreed with the Bank (see Annex 7).

Procurement

67. The procurement capacity assessment concluded that the procurement risk is average. There will, however, be a need to further enhance the procurement capacity ofBMPMO and the PMOS, through training, advisory support from the Bank and guidance from supervision

14 missions. For further details on procurement, see Annex 8. The Procurement Capacity Assessment is available in the Project File (Annex 12).

4. Social

68. The Social Assessment (SA) identified some positive and negative social impacts. The project will have significant positive social benefits. It will improve the quality ofurban environment, infrastructure and flood control facilities and thereby enhance the livability of the project areas. Meanwhile, some social risks will be associated with implementation ofthe project, for instance, the low affordability ofvulnerable groups to the improved environmental services. Based on the findings of SA, local governments will establish some low-income assistance programs which provide income transfers to help cover municipal service fees. These transfers will be adjusted to reflect the higher cost ofimproved services.

69. The proposed project has major adverse impacts related to the need for land acquisition and involuntary resettlement. Efforts were made to minimize the resettlement impacts during project planning and design, and the resettlement impacts were significantly reduced through optimizing the project design and implementation arrangements. It is estimated that the project will affect 1 1, 128 people in total. Permanent land acquisition is 2,754.9 mu (1 83.7 ha), demolished urban housing area is 4933.2 m2, and demolished rural housing area is 98,226.3 m2. The RAPSwere prepared in compliance with OP 4.12 Involuntary Resettlement, and describe in detail the impacts, affected populations, consultation process, rehabilitation measures, budget, and implementation and monitoring arrangements.

5. Environment

70. The project is classified as Category A under OP 4.01 Environmental Assessment, due to the complexity of environmental issues associated with flood management, pollution control, and water resources management. An Environmental Impact Assessment (EIA) was carried out for each project component, and an associated EMP has also been developed. In addition, BMPMO, with assistance from international consultants, prepared a consolidated Environmental Assessment (EA), consolidating the key issues of sub-project EIAs and EMPs. The documents have been prepared on the basis of China’s legal and policy framework for pollution control and environmental protection, master plans and environmental plans ofthe project cities as well as applicable World Bank safeguard policies. Major findings ofthe EIAs and key points on the EMPs are presented in Annex 10.

71. Environmental Benefit. The proposed project will bring the following positive benefits: (a) construction ofstorm drainage pumping stations will effectively upgrade the flood management standard ofdefined service area to prevent frequent floods, guarantee the safety of people’s lives and properties, and promote the industrial and agricultural development ofthe project areas; (b) completion ofthe urban drainage system (south ofthe Huai River) could increase about 50,000 m3/day wastewater for No. 1 WWTP (near Xijiagou), changing the loading rate of the WWTP from the current 68% to about 93%, so as to significantly reduce the total pollutant discharge into the Huai River; and (c) dredging ofthe lake, rivers, canals and storm drainage ditches will improve flood management and drainage capacity, surface water quality, ecological environment and local landscape.

15 72. Key Impacts and Mitigation Measures during Construction and Operations. The adverse impacts during the construction ofthe wastewater collection system, pumping stations, and roads include airborne dust, noise, traffic disruption and disposal of spoiled materials. Contractors will water construction sites during dry and windy seasons, develop careful plans to mitigate noisy construction activities and avoid night-time construction, maintain equipment in good operating condition, and develop temporary traffic plans to detour traffic around construction sites. Details of mitigation measures are in Annex 10.

73. Public Consultation and Information Disclosure. Two rounds ofpublic consultation were carried out during the EA process through surveys using public opinion questionnaires, focused group discussions, public meetings with key stakeholders, and interviews. Issues raised during these consultations have been incorporated in the EIAs and EMPs. Furthermore, feedback on the concerns collected in the public consultations has been provided to the concerned groups and documented in the EIAs. In addition, there have been many rounds of consultation with government agencies, local governments and other stakeholders ofthe project to discuss project locations, scope, environmental and socioeconomic concerns and environmental management and mitigation plans. The EIA/EMP documents have been disclosed locally through various means (e.g., websites and newspapers) as required by national and World Bank policies.

6. Safeguard policies

Safeguard Policies Triggered by the Project Yes No Environmental Assessment (OPBP 4.0 1) [JI [I Natural Habitats (OPBP 4.04) [I [JI Pest Management (Op 4.09) [I [JI Physical Cultural Resources (OPBP 4.1 1) [I [JI Involuntary Resettlement (OPBP 4.12) [JI [I Indigenous Peoples (OPBP 4.10) [I [JI Forests (OPBP 4.36) [I 141 Safety of Dams (OPBP 4.37) [I [JI Projects in Disputed Areas (OPBP 7.60)" [I 141 Projects on International Waterways (OPBP 7.50) [I [J]

7. Policy Exceptions and Readiness

74. OP 4.12 Involuntary Resettlement and OP 4.01 Environmental Assessment require the Borrower to prepare RAPs and EA reports in a form, manner, and language understandable to the displaced persons and local NGOs. The Chinese language RAPs and EA reports for the sub- projects, which meet the requirements ofboth OP 4.12 Involuntary Resettlement and OP 4.01 Environmental Assessment, have been reviewed by the Bank and publicly disclosed. An English language comprehensive summary ofthe RAPs and an English language comprehensive summary ofthe EA reports have also been prepared, reviewed, and disclosed through the Bank's Infoshop, respectively.

* By supporting theproposedproject, the Bank does not intend to prejudice thefinal determination of the parties' claims on the disputed areas

16 75. Bank experience over the years has established the general practice ofrequesting the Borrower to provide the Bank with the entire RAP and EA reports in English. In April 2007, Bank management endorsed “Guidelines for the Use of English Translations of Summaries of Environmental Assessment Reports and Resettlement Action Plans in China Projects” which allowed the creation of English language comprehensive summaries ofRAPs and EA reports for projects that meet certain criteria. The Regional Safeguards Secretariat has confirmed that the proposed project meets the criteria. Accordingly, English language comprehensive summaries of the RAPs and EA reports covering all relevant parts of the Chinese language RAPs and EA reports were prepared. Chinese-speaking team members have reviewed both the English language comprehensive summaries ofthe RAPs and EA reports and the Chinese language full- length safeguard documentation approved and adopted by the project implementing agencies, and has confirmed consistency between the English and Chinese documentation and compliance of the full set of safeguard documents with Bank policy.

76. The project meets all key readiness criteria.

17 Annex 1: Country and Sector or Program Background CHINA: Bengbu Integrated Environment Improvement Project

Environmental Issues Facing the Huai River Basin and Bengbu Municipality

1. The Huai River Basin is the third largest river basin of China covering 270,000 km2 within four provinces (Anhui, Henan, and Shandong). The population density ofthe basin is 611 persons/km2, which is almost five times the national average level. With a predominantly agricultural economy, the basin is also strategically important for the whole country from an economic perspective. It produces one-sixth ofthe nation’s food and one-fourth ofthe national cash crops with only one-twelfth ofthe national arable land area. However, the gross industrial output value, GDP and per-capita GDP of the basin are still lower than the national levels. In other words, the basin still belongs to the economically undeveloped area in China.

2. Bengbu Municipality lies in the northeast ofAnhui Province with four districts (Longzi Lake, Bangshan, Yuhui and Huaishang), three counties (Guzhen, Huaiyuan and Wuhe) and two development zones (HTDZ and EDZ) under its administration. It covers an area of 5,952 km2 (4.27% ofthe provincial area) with a population of3.49 million (5.36% ofthe provincial figure). Due to its central location, Bengbu is also one ofthe most important traffic hubs in east China and the biggest port city along the Huai River. As an old industrial city, Bengbu is the processing technology and commerce center in northern Anhui. With the approval ofthe State Council, it is also one ofthe pilot cities in middle China which benefit fiom the same national policies as applied to the revitalization ofOld Industrial Base in northeast China. With its rapid economic development and urbanization, the current per capita GDP ofBengbu has reached RMB 10,000 /year. During the “1 0th Five-Year” period, Bengbu Municipality has attracted US$43 million foreign investment and RMB 13.5 billion domestic inward investment, mainly for the secondary and tertiary industries. However, due to the insufficient industrial investment and irrational industrial structure, the gross industrial output ofthe city is RMB 9.65 billion, ranked only 9th in the province behind such municipalities as Hefei, , Ma’anshan and .

3. Located in the middle and lower reaches ofthe Huai River Basin, Bengbu suffers from frequent floods, ecosystem deterioration and water pollution in response to its rapid economic and industrial development. The water supply system is particularly at risk from only a partial coverage ofthe urban sewage network and associated wastewater treatment facilities.

4. In response to the deteriorating environmental conditions, BMG has placed a high priority on improving local flood management capabilities and on developing environmental infrastructure. In this context, Bengbu Municipality has participated and benefited from HRPCP supported by the Bank. The proposed project aims at building upon previous projects, upgrading offlood management facilities and improving the coverage of environmental infrastructure both for its urban area and the three suburban counties.

18 Regional Context: Water and Environmental Strategic Planning in the Huai River Basin

5. In spite of implementation of significant environmental strategic and action plans in the Huai River Basin, pollution levels have continued to increase. For example, in 2003, COD discharged into the river was up to 1.23 million tons, 30% beyond the 2000 level. The water quality compliance rate at the provincial boundary showed a gradually decreasing trend, from 29.1% in 2000 to 25.8% in 2001 and 24.6% in 2002, respectively.

6. In view of the above, the State Environmental Protection Administration (SEPA) issued new water pollution control targets for the Huai River Basin in October 2005, with a focus on the control and treatment of industrial and domestic wastewater from urban areas. The targets are divided into three phases: (a) by the end of 2005, the completion and operation rate of key pollution control projects should be no lower than 60%; (b) by the end of 2007,90% of the key pollution control projects should be put into operation, and the treatment rate of domestic wastewater from the municipalities in Shandong, Jiangsu Provinces, etc. should at least reach 70%; and (c) by the end of 2010, the water quality of main stream of the Huai River should reach the Class I11 target, and the water quality of major tributaries of the Huai River should meet the Class IV or Class V requirements.

Local Context: Integrated Approach to Planning

7. At the local level, Bengbu Municipality has issued recently a number of strategic and sector plans relevant to the proposed project.

8. In the Bengbu Municipal Urban Short-term Construction Plan, a series of general urban infrastructure targets have been proposed. However, of more relevance to the project is the proposal to gradually move existing polluting industries from the old urban area and the suburban area into new industrial zones. In the Environmental Protection Plan, a series of objectives for water have been defined, notably that by 2010, the water quality of the main Huai River should be compliant with the standard requirements above Class 111, and that of the tributaries should be compliant with the standard requirements above Class IV. The treatment rate of industrial wastewater should be 100% and the treatment rate of domestic wastewater should reach 73%.

9. Bengbu has additionally a series of sector master plans covering the Bengbu Municipal Wastewater and Storm Drainage Master Plan and the Bengbu Municipality 11 th Five-Year Plan for Water Resource Development. Both plans emphasize the need to complete existing storm water and drainage systems to provide improved protection against flooding and to extend the wastewater systems.

10. As outlined in these documents, Bengbu has adopted an integrated approach to improve the environment while accelerating its economic development through: control of flooding of low lands; relocation of polluting industries to industrial estates; improvement of environmental conditions; improvement of the reliability of water resources; and creation of open space and amenities. Elements of the environmental improvement strategy include:

19 (a) Management ofwater resources to increase the reliability of drinking water resources as an alternative standby source to the Huai River, for use during periods of seasonal water quality deterioration, and as a contingency against environmental accidents;

(b) Flood control in the basin rivers through construction and strengthening of flood control structures, and storm drainage to protect built-up areas and low-lying land and also to support agricultural activities (within the framework ofthe Huai River Basin Flood Management Plan);

(c) Improved environmental management and improved river water quality through collection and treatment ofdomestic and industrial wastewater;

(d) Environmental and ecological improvements to Longzi Lake within the boundary of Bengbu City proper to provide a large public open space and amenities;

(e) Relocation ofpolluting industries from the urban core to designated industrial estates (chemical, mechanical, etc.) in neighboring satellite counties (Guzhen, Huaiyuan and Wuhe), and setting up dedicated industrial estates for low polluting industries in dedicated estates (HTDZ, EDZ, and glass industry park) in the city;

(f) Development of space north ofthe Huai River (Le., Huaishang District) to accommodate the city’s expansion requirements including economic activities; and

(8) Completion ofurban environmental infrastructure in three satellite counties of Guzhen, Wuhe and Huaiyuan, and in the industrial estates to accommodate designated industries (i.e., chemical, mechanical, etc.).

Flood Management Under the Proposed Project

11. Much ofthe urban and agricultural land of Bengbu and Guzhen, Huaiyuan and Wuhe Counties lie within the flood plain ofthe Huai River and its tributaries. The Huai River has caused severe economic losses due to flooding in the past, but this has been largely controlled by the construction ofdykes on either side ofthe river, designed to withstand the 1 in 100-year flood. These dykes and associated gates protect large areas of land from flooding, but they also prevent the tributaries from draining to the Huai River by gravity when the river level is high during the flood season.

12. Pumping stations are required to discharge the accumulated storm water to the Huai River, since considerable economic losses can occur every three to five years due to flooding by the tributaries. Bengbu Municipality is strategically important for its agriculture and food grain production and flood events can result in significant crop losses.

13. Within Bengbu’s urban areas, under-dimensioned storm water drainage networks and pumping stations exacerbate the flood risk. In addition to property damage, floods cause considerable inconvenience to residents and the interruption ofbusiness and other economic activities, including the shut down of industries.

20 14. Improvement of storm drainage, desilting existing channels and construction offlood control structures and pumping stations are high priorities for Bengbu and the three counties. The proposed project will improve flood control in Bengbu through investments in key large capacity flood control pumping stations at Longzi Lake, Tianhe Lake, Wuxiaojie, Sanpu (Mohekou) and a number of smaller urban storm water pumping stations. It will also improve storm water runoff by the construction ofnew networks and the desilting and enlargement of drainage canals leading to an increased retention capacity.

Pollution Control Under the Proposed Project

15. The Huai River is China’s third largest river and affects the lives ofone sixth ofthe nation’s population. Rapid economic development and a dense population have put a heavy burden on the river’s water quality despite over a decade ofinvestments including the Bank- financed HRPCP. The Huai River remains one ofthe most polluted rivers in China, and in Bengbu it has not met the Class I11 water quality target during the last seven years. This is especially true during the dry season from January to March, when the flow rate ofthe river is insufficient to dilute the incoming pollution. As Bengbu’s main water supply source, concerns over the Huai River’s water quality cause a crisis every year during the dry season and occasionally Bengbu has to resort to emergency supplies from Tianhe Lake.

16. The long term pollution of local water bodies has left behind contaminated deposits of silt that need to be removed in order to rehabilitate the environment. Zhanggongshan Pond on the Xijiagou canal has already been desilted during 2007, and the project will desilt the southern half ofLongzi Lake where the key pollutants are chromium, nickel and lead.

17. The project will contribute to improve the water quality ofthe Huai River and its tributaries by supporting improved sewage collection systems in Bengbu Municipality, Guzhen and Mohekou (Wuhe), and a new WWTP in Mohekou.

18. Since the 10th Five-Year Plan period, Bengbu has planned to relocate the polluting industries from the urban core to dedicated industrial estates outside Bengbu (in Guzhen, Huaiyuan, and Wuhe), and other industries to economic development zones and light industry zones (Le., HTDZ, EDZ, glass industry park). Industries slated for relocation are mainly state- owned enterprises, which contribute to serious environmental conditions and poor water quality ofthe Huai River.

19. Bengbu’s industrial pollution control program comprises: (a) continuation ofrelocation of industries from the urban built up area; a new list ofindustries to be relocated under the 1 1th Five-Year plan is being compiled; (b) location of new industry is permitted only in dedicated industrial parks or economic development zones; (c) approval ofnew industries is subject to satisfactory EIAs, among other requirements; (d) pollution discharge standards are prescribed, and compliance is required to continue operations, with annually renewable pollution permits; (e) chemical industries, wine making plants, dyeing and textiles, electroplating and paper making industries are subject to regular inspection and random sampling of discharge during holidays and evenings; and (f) specified industries are required to install online monitoring equipment.

21 20. The project will support Bengbu’s strategy ofreducing industrial pollution by supporting the implementing of MIZ which will serve as a model park for the municipality with water supply, storm water drainage and wastewater collection and treatment services that will meet international best practise. The project’s support to the capacity building of Bengbu and county EPBs, including the installation ofnew laboratories and monitoring equipment, will further improve Bengbu’s ability to monitor and police existing and future industrial polluters.

22 Annex 2: Major Related Projects Financed by the Bank and/or other Agencies CHINA: Bengbu Integrated Environment Improvement Project

Sector Issue

Irrigation, water resource management China Water Conservation (Ln 45890) HS HS - and farmer incomes China Huai Basin IntegratedWater and Water resource management and - S S Environment management (GEF) oollution control

~ ~ ~~~ China Hebei Urban Environment (Ln Environmental degradation of water - S S 45690) and land resources, safe water supply Safe water supply, sanitation and health China - Rural Water IV (Ln 44850) S S behaviors in poor rural areas China Tai Basin Urban Environment (Ln Water resources degradation and urban - S S 47480) environment improvement China GuangdongPRD Urban - S S Environment (Ln 47420) Rationalization of environmental China GEF GuangdongPRD Urban service delivery in the regional plan - MS S Environment (CTF53359) China Second GuangdongPRD Urban Wastewater treatment and sludge - S S Environment (Ln 48560) management China Hunan Urban Development (Ln Flood protection, wastewater and air - S MS 47510) pollution China Ningbo Water and Environment Quality of water and wastewater - S S Management (Ln 47700) services, public health protection Irrigation; water resource and land China - Tarim Basin I1 (Ln 30930) HS HS management Agricultural production and rural China - Tarim Basin (Ln 22940) incomes, environmentally sustainable

23 Annex 3: Results Framework and Monitoring CHINA: Bengbu Integrated Environment Improvement Project

Results Framework

Use of Project Outco PD Project rs Information Improve the effectiveness and KPI 0.1: Area ofBengbu that is Track progress in achieving sustainability of selected urban protected from flooding by PDO and recommend environmental services delivered storm water runoff adjustment in water resources in Bengbu Municipality through and utility management and improving water supply, KPI 0.2: Pollution discharges from regulations to improve service reducing incidents of land Bengbu to the Huai River quality, efficiency, and submergence from flooding, and sustainability enhancing wastewater KPI 0.3: Reliability of management Bengbu’s water supply

KPI 0.4: Break-even for wastewater and/or water services Use of Intermediate Intermediate Outcomes Outcome Monitoring 0 1: Reduction in flooded land KPI 1.1: Number of flood control Track progress and make area pumping stations completed (at changes in the project if Tianhe, Longzi, Wuxiaojie, necessary during implementation Wanxiaogou, Xiaobengbu and Sanpu)

KPI 1.2: Percentage of storm water networks builtlupgraded

KPI 1.3: Percentage of sediments desilted from drainage canals 0 2: Contribution to reduction in KPI 2.1: Percentage of coverage of Track progress and make pollution discharges to the Huai wastewater networks changes in the project if River necessary during implementation KPI 2.2: Proportion of wastewater collected and treated 0 3: Improved reliability of KPI 3.1 : Increase in the water level Track the increase in emergency Tianhe Lake as the emergency of Tianhe Lake water storage available to water source Bengbu’s water supply 0 4: Break-even for wastewater KPI 4.1 : Proportion of total Provide information of regulatory and/or water services revenue to total expenditures for and managerial capabilities, track wastewater and/or water services progress, and make changes in the project if necessary during implementation

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9 0 0 2 Definition and Computation of Key Performance Indicators KPI Project 0 KPI 0.1 Area of Bengbu that is protected from The urban area is determined from flooding by storm water runoff maps/geographic information system, and should be taken as the urban area that has been The area that is protected from flooding is constructed to date, not the future planned area the area ofthe urbanized land that has an according to the master plan. This means that the existing and functional system to evacuate area will have to be re-calculated every year so storm water, which meets current design that this indicator is measured. criteria. Note that an urban area can only be included in Functional means that the system works as an the area that is protected from flooding if it meets integrated hydraulic unit, from which the storm all the criteria cited in the definition. water is collected until the discharge point which is ultimately the Huai River. Where The area of Bengbu that is protected from necessary, a flood control pumping station may flooding by storm water runoff should be be required. expressed as a percentage according to the formula: The current design criterion are: - Storm water drains: the 1 in 1 year or Flood protected urban area in special cases the 1 in 3 year x 100 precipitation event Total urban area - Storm water pumping stations: 1 in 10 year, three-day precipitation event for urban areas, 1 in 20 year, seven-day precipitation event for sub-catchments (e.g., Longzi Lake, Xijiagou, Baligou).

KPI 0.2 Pollution discharges from Bengbu The pollution discharges are measured in terms of Municipality to the Huai River total annual COD loads, expressed in metric tons.

Pollution discharges are defined as the total of domestic and industrial waste water discharges to the environment.

KPI 0.3 Reliability of Bengbu’s water supply The reliability of Bengbu’s water supply should be expressed as the number of days for which the Reliability is the ability to provide a service in city could be supplied from its emergency source a consistent manner. - Tianhe Lake - according to the following formula: The current source ofBengbu’s water supply is fiom an intake on the Huai River upstream of Bengbu Gate. When the water quality Total emergency storage volume deteriorates due to lack of dilution in the dry Average daily water demand season or pollution events, the water source is switched to the emergency source at Tianhe Lake.

27 Definition and Computation of Key Performance Indicators (continued) KPI Computation Method and/or Formula Project 4 KPI 0.4 Break-even for wastewater andlor water The proportion oftotal revenue to total services expenditures should be calculated for wastewater and/or water services.

KPI 4.2 Proportion of tariff revenue to total The proportion of tariff revenue to total revenue revenue should be expressed as a ratio according to the formula: Tariff revenue is the revenue collected via the wastewater or water tariff. Tariff revenue Total revenue is the total income ofthe Total reveue company, which includes both tariff revenue and any subsidies. KPI 1.1 Number of flood control pumping stations Verify that the pumping stations have been built completed (at Tianhe, Longzi, Wuxiaojie, and are operational. Wanxiaogou, Xiaobenegbu and Sanpu) means that the pumping stations have been built and commissioned, Le., they are operational.

KPI 1.2 Percentage of storm water network Calculated from the contractors approved bill of builthpgraded quantities (BOQ). The result should be expressed as a percentage completion relative to the total quantity.

KPI 1.3 Percentage of sediments desilted from Calculated from the contractors approved BOQ. drainage canals The quantity removed can only be counted if the sediment has also been disposed ofin an De-silted means the removal of accumulated environmentally acceptable manner. sediments. The sediments should be disposed of in an environmentally acceptable The result should be expressed as a percentage manner, as they may contain toxic elements. completion relative to the total quantity.

KPI 2.1 Percentage of coverage of wastewater The total urban area is determined from networks maps/geographic information system, and should be taken as the urban area that has been Coverage is the area of the urbanized land constructed to date, not the hture planned area that has an existing and functional system to according to the master plan. This means that evacuate domestic and industrial sewage, the area will have to be re-calculated every year which meets current design criteria. so that this indicator is measured.

Functional means that the system works as Note that an urban area can only be included in an integrated hydraulic unit, from which the sewerage service area coverage if it meets the sewage is collected to the disposal point. all the criteria cited in the definition.

28 Definition and Computation of Key Performance Indicators (continued) KPI Project 0 KPI 2.2 Proportion of wastewater collected and Proportion should be expressed as a percentage treated according to the formula:

The wastewater that has been treated is defined as the wastewater whose treated Total wasteater treated x 100 effluent meets current design criteria. Total wastewater collected

The current design criterion is: Class 1A effluent standard for all newly constructed WWTPs (e.g., MIZ WWTP) that discharge to the Huai River.

Note that the sludge from the WWTPs should be disposed of in an environmentally acceptable manner.

KPI 3.1 Increase in the water level of Tianhe Lake The operational water level of the lake should be obtained from the official records of Bengbu Water level is defined as the normal water level WRB. of the lake, not the flood control water level. The normal water level is currently 17.5 m and will be increased to 18.5 m once the flood control pumping station has been built and is operational.

KPI 4.1 Proportion of total revenue to total The financial data should be provided by the expenditures for wastewater and/or water utility companies in the form of annual audited services accounts. The total revenue collected fiom the customers is the money obtained from the The proportion of total revenue to total wastewater or water tariff, Any additional revenue expenditures means the ratio between the total from subsidies should be added to this to give the income generated from customers and total income. The proportion of total revenue to government subsidies and the total cost of total expenditures should be expressed as a providing the service including O&M and the ratio according to the formula: capital investment.

Utility companies collect and treat wastewater, Total income or supply water. Total 0 & A4 and investment costs

A single ratio should be calculated for Bengbu Municipality based on the combined data from all utility companies.

29 Annex 4: Detailed Project Description CHINA: Bengbu Integrated Environment Improvement Project

1. The proposed project aims to improve the effectiveness and sustainability of selected urban environmental services delivered in Bengbu Municipality through the following components.

Component 1: Comprehensive Water Resources Management (US$27.39 million)

2. Tianhe Lake Water Resources Management: (a) increasing the storage capacity of the Tianhe reservoir by about 24.55 million m3 by raising the water level by 1 m from 17.5 m to 18.5 m; and (b) construction of a flood discharge pumping station of about 55 m3/sec capacity (installed capacity 4,000 kW), to protect against flooding.

3. Lonpzi Lake Flood Management, Ecological Improvements and Restoration: (a) construction of a flood discharge pumping station with capacity of about 40 m3/sec; (b) lake embankment improvements for stability and erosion control in the south lake area, the eastern embankment from East Shengli Road to Donghai Avenue in the north, comprising about 326.6 km of natural slope stabilization, about 2.65 km of ecological restoration and about 2.1 km of retaining walls; and (c) lake desilting to a depth of 0.12 m-0.58 m in about a third ofthe lake area totaling about 2.203 million m3.

Component 2: Urban EnvironmentalInfrastructure Improvement (US$109.09 million)

Bengbu City Proper

4. Storm Drainage: (a) construction of about 78 km of storm drainage networks, comprising 9 km, 20 km, 36 km and 13 km in the old city area, HTDZ, EDZ and Longzi Lake District, respectively; and (b) reconstruction of Xinchuantang (1 5.45 m3/sec) and Nanshijia (10.02 m3/sec) storm drainage pumping stations and rehabilitation of Zhi Huai Road (16 m3/sec) storm drainage pump station based on a 1 in 1 year flood.

5. Flood Management: improvements to the main flood storage canals of Baligou and Xijiagou to manage storm flood flows through: (a) de-silting (about 33,300 m3),widening and strengthening about 5.6 km of both embankments ofthe XijiagodYing River (for a 20-year flood) including realigning and regulating the river bed; and (b) widening of the nearby 3.7 km long Baligou open ditch to 50 m to accommodate increased runoffs from HTDZ, including vehicular access on both embankments and one bridge (65 m long).

6. Wastewater Collection: construction of about 63 km of wastewater collection networks and reconstruction of one sewage pumping station, comprising about 19 km, 3 1 km, 12 km and 1 km of collection networks in HTDZ, EDZ, Longzi Lake District, and Old Town, and reconstruction of Yinghu Road sewage lifting pumping station (1,600 l/sec) to convey wastewater to the proposed Yantaizi WWTP (No. 2 WWTP).

30 7. Roads: construction of about 20 km secondary and tertiary roads in EDZ, and about 1.7 km urban distributor roads in Longzi Lake District.

Huaishang District

8. Flood Management: (a) construction of the Wuxiaojie flood discharge pumping station with capacity of 80 m3/sec including a flood flow ditch, to discharge flood flows from a catchment of about 505 km2; (b) expansion ofthe Xiaobengbu storm drainage pumping station from the current 17.1 m3/sec capacity to 3 5-12 m3/sec, to handle storm runoff from a catchment of about 29.2 km2; and (c) expansion of the Wanxiaogou flood discharge pumping station to protect about 200 km2 of agricultural land, to handle 16.3 m3/secflow, including about 3.6 km long drainage ditch, and widening and desilting the existing west ditch in a length of about 5.5 km.

9. Wastewater Management: construction of a pipeline of about 7 km to transfer wastewater from the Guobei new district of Huaiyuan to be treated at the Huaishang WWTP (No. 3 WWTP).

10. Roads: construction of about 12.0 km of roads, including the long southern access road (Binghe Road of about 10 km) and four other roads to serve the new development area, about 1.3 km of sewers, including one overpass and two underpasses, ducts for telecommunications (about 8.4 km), electricity (about 1.9 km), and street lighting.

Component 3: Sub-urban Environmental Infrastructure Improvement (US$66.84 million)

Guzhen County Flood Management, Storm Drainage, Wastewater Management

11. Storm Drainage and Flood Management: (a) desilting of flood channels to retain and increase capacit to discharge flood flows: Daoban ditch (about 112,000 m3), Wangsi Dyke area (about 45,000m Y), Sanba ditch (about 144,800m3), drainage ditches in Dalou area (about 25,600m3) and Xiaolou area (about 8,200m3); (b) regulating gate at Yinzhuang on the Sanba River, and the Sanba River connection culvert; and (c) construction of five storm drainage pumping stations of capacity 5.24 m3/sec, 2.71 m3/sec, 5.19 m3/sec, 8.74 m3/sec and 1.95 m3/sec at Guxi, Xixu, Dalou, Xialou, and Zhennan, respectively.

12. Wastewater Collection: construction of about 9.2 km of interceptors and secondary sewer networks, to convey wastewater to the newly constructed WWTP.

13. Roads: (a) construction oftwo bridges and about 9.5 km of roads on flood embankments comprising about 8.7 km road on the left dyke ofthe Hui River and about 0.8 km on the right dike of the Sanba River; and (b) three bridges of spans 15 my12 m and 20 m at Lingu, Shiliwan and Wugu, respectively.

Huaiyuan County Flood Management, Storm Drainage, and Roads

14. Flood Management: (a) rehabilitation oftwo flood retention basins through removal of about 13,200 m3 of silt, protection of slopes, increasing of the height of the overflow weirs by 1

31 myand landscaping; and (b) rehabilitation of about 1.7 km length of flood discharge drains from the retention basins.

15. Storm Drainage Networks: (a) construction of about 14,339 m of storm drainage networks to serve the old city area and the new extension area (about 6.2 km) and the food grain processing park (about 8.2 km); and (b) construction of the Lizuizi (3.76 m3/sec) and Lananqiao storm drainage pumping stations, and rehabilitation ofXinshuangzi pumping station (13 -57 m3/sec).

16. Roads: construction of 7.9 km of roads in the food processing park,

Wuhe County (MIZ) Flood Management and Urban Infrastructure

17. Water SuDPlY: construction of an intake at the Yuanji Huaihongxin River, 30,000 m3/day (first phase) WWTP, 17 km of 2 x 800 mm treated water transmission pipeline, booster pumping station north edge of township, and 20 km of distribution mains in Mohekou Township and MIZ in Wuhe.

18. Wastewater Management: construction of about 2 1 km oftrunk and secondary sewers, including corrosion-resistant sewers in MIZ, and a 20,000 m3/day (first phase) industrial WWTP capable oftreating higher biochemical oxygen demand (BOD) and chemical oxygen demand (COD), up to 500 mg/l and 1,500 mg/l, respectively, to serve Mohekou Township and the developed part of MIZ. Within MIZ, agreements will be made with individual industries to the level of pretreatment and the BOD/COD loading in the effluent so that load-based charges may be applied. The treated effluent discharged to the Huai River will meet Class 1A standard.

19. Storm Drainage: construction of about 17 km of storm drainage network in Mohekou Township and MIZ, including provision for containment and treatment of first flush flows and accidental industrial spills.

20. Flood Management: (a) desilting of two large heavily silted canals, and raising of embankments by about 1.2 myadequate for a 1 in 3 year flood; and (b) construction ofthe Sanpu flood discharge pumping station (of capacity 50 m3/sec, designed for 1 in 10 year, three-day maximum rainfall), including flood storage basin south of the site of the WWTP.

21. Roads: construction of 5.526 km of secondary trunk roads, and about 4.363 km of branch roads in Mohekou Township and MIZ.

Component 4: Institutional Development and Capacity Building (US$6.87 million)

Water Quality Monitoring Improvement (US$Z.OO million)

22. Bengbu EPB: (a) automatic water quality monitoring stations, online water level measurement, data collection and management, and online monitoring analyzer for Huai River outfalls; and (b) equipment and data processing systems (including four person months).

32 23. Countv EPBs: Class I1level water quality monitoring laboratory and equipment.

Implementation Support (US$3.09 million)

24. Design review and sign-off: independent review ofdetailed designs for advance works.

25. Proiect management, implementation monitoring, and design review: (a) independent review of all detailed designs prior to invitation ofbids, to develop least costs, adopt best practice, and prevent errors and contract variations; (b) preparation oftask reports, including project progress reports, project implementation schedules/plans, annual resettlement reports, environmental monitoring reports during project implementation, and any task reports on specific issues during implementation as required by the Bank; (c) review oftender documents and specifications to ensure that the bidding documents are in accordance with World Bank procurement guidelines, and assistance in preparing bid evaluation reports, in equipment procurement and acceptance, in supervision, and in resolving claims and contract variations; and (d) assistance in implementation management, including quality control, contract management, and periodic site supervision.

26. Detailed design of infrastructure facilities in MIZ: review of: (a) feasibility studies to confirm least cost options for infrastructure; (b) detailed designs for water supply source development and distribution networks; (c) storm water drainage, and containment offirst flush; (d) flood control facilities, including detention storage, and design ofa Sanpu pumping station to provide about 1 in 50 year protection in MIZ; (e) design of a WWTP to treat COD in the range of 500 mg/l to 1500 mg/l, BOD of 500mg/l, and heavy metals present in wastewater from chemical industries, including the use of corrosion-resistant pipes, and treated effluent to Class 1A standard; (f) design provisions to accommodate accidental industrial spills; and (g) design of roads.

27. Management of MIZ (17 person months): (a) development ofrules and operations procedures for management ofMIZ; and (b) preparation ofbid documentation to select a professional manger for MIZ, including recommended terms for the manager.

28. Monitoring ofsafeguard implementation: (a) field reviews, every six months, on implementation ofsafeguard plans; and (b) preparation of semi-annual reports on safeguard implementation.

Technical Assistance for Capacity Building (US$1.78 million)

29. Institutional and financial strengthening for utility companies (about 25 person months): (a) development ofcomputer-based accounting and financial management systems, including a chart of accounts; financial monitoring reports and financial/accounting statements; internal audit system; and project accounting and reporting to ensure proper internal financial control and accounting supervision, including system of fund withdrawals and reimbursements; (b) development oforganizational systems to strengthen institutions and improve management autonomy; and (c) improvement ofthe efficiency ofoperation ofwater supply and wastewater facilities.

33 30. Water sector management and institutional reform (six Derson months): (a) review of existing institutional arrangements, operations procedures and responsibilities; (b) identification of overlapping responsibilities that lead to ineffective functioning and service delivery; and (c) recommendations for clear responsibilities to operating entities, management responsibilities, financial and management decision-making and human resources development.

3 1. Equipment and vehicles for the PMOS:office equipment and vehicles for project management support.

32. Training and study tours: domestic and international training and study tours for implementing agency staff,

34 Annex 5: Project Costs CHINA: Bengbu Integrated Environment Improvement Project

1. Cost Estimate of the Project. The cost estimates prepared by the local consultants have been reviewed. The total estimated project cost amounts to US$224.63 million including physical and price contingencies and the details are given below.

Local Foreign Total Baseline Cost By Component and/or Activity US $million US $million US $million

1. Comprehensive Water Resources Management- 14.15 9.80 23.95 Longzi Lake 9.77 6.99 16.76 Tianhe Lake 4.38 2.81 7.19 2. Urban Environmental Infiastructure Improvement 61.06 35.03 96.09 Urban Drainage and Sewer System 32.94 18.12 5 1.06 Storm Drainage and Access io Dyke in 20.42 13.37 33.79 Huaishang District Environmental Improvement of Y ing River and Bali 7.70 3.54 11.24 Canal 3. Sub-urban Environmental Infiastructure Improvement 35.59 23.22 58.81 Guzhen County 6.40 4.08 10.48 Huaiyuan County 10.37 5.30 15.67 Wuhe County 18.82 13.84 32.66 4. Capacity Building and Institutional Development 1.57 4.42 5.99 Upgrading of Water Quality Monitoring 0.84 1.03 1.87 Implementation Support (Package A) 0.39 2.23 2.62 Capacity Building (Package B) 0.34 1.16 1.50

Total Baseline Cost 112.37 72.47 184.84 Physical Contingencies 7.47 5.10 12.57 Price Contingencies 10.99 1.79 12.78 Total Project Costs 130.83 79.36 210.19 Interest during construction 14.19 14.19 Front-end Fee 0.25 0.25 Total Financing Required 130.83 93.80 224.63

35 Local Foreign Total Total Project Cost By Component andor Activity US $million US $million US $million Comprehensive Water Resources Management 16.58 10.81 27.39 Longzi Lake 11.54 7.71 19.25 Tianhe Lake 5.04 3.10 8.14 Urban Environmental Infiastructure Improvement 70.57 38.52 109.09 Urban Drainage and Sewer System 37.85 19.91 57.76 Storm Drainage and Access to Huaibei Dyke in 23.98 14.74 38.72 Huaishang District Environmental Improvement of Ying River and Bali 8.74 3.87 12.61 Canal Sub-urban Environmental Infiastructure Improvement 41.34 25.50 66.84 Guzhen County 7.43 4.49 11.92 Huaiyuan County 11.87 5.80 17.67 Wuhe County 22.04 15.21 37.25 Capacity Building and Institutional Development 2.34 4.53 6.87 Upgrading of Water Quality Monitoring 0.94 1.06 2.00 Implementation Support (Package A) 0.81 2.28 3.09 Capacity Building (Package B) 0.59 1.19 1.78

Total Project Costs 130.83 79.36 210.19 Interest during construction 14.19 14.19 Front-end Fee 0.25 0.25 Total Financing Required 130.83 93.80 224.63

36 Annex 6: ImplementationArrangements CHINA: Bengbu Integrated Environment Improvement Project

Project Leading Group

1. The Anhui Provincial Government has overall responsibility for the project as the signatory ofthe Project Agreement. On behalf ofthe government, Anhui FB will manage the designated account (DA), and disbursements to the implementing agencies. At the municipal level, a PLG has been established to provide overall guidance during project preparation and implementation, and necessary approvals. The PLG is headed by a vice mayor of Bengbu Municipality and has representatives from DRC, CC, FB, WRB, EPB, and LAB. Similar PLGs have been established at the county level.

Project Coordination and Management

2. BMPMO, under Bengbu DRC, is the main agency for coordination ofproject implementation. BMPMO will monitor implementation progress, including procurement activities, consolidate project costs and prepare consolidated semi-annual progress reports. It will also be responsible for implementation ofthe technical assistance and capacity building component, except for the water quality monitoring technical assistance, which will be implemented by the municipal and county EPBs. BMPMO will be the focal point ofcontact with the Bank.

3. The PMOSof Huaiyuan, Wuhe and Guzhen Counties will coordinate and monitor project implementation including quality control in planning and construction, prepare progress reports, oversee performance of implementing agencies, consolidate project costs, and process disbursement applications. They will provide periodic progress reports to BMPMO.

Implementation Support

4. Project-financed international and national consultants will provide project implementation support to BMPMO and other implementing agencies for: (a) project management and implementation monitoring; (b) independent design review (including a short- term assignment for advance works); (c) detailed design offacilities in MIZ; and (d) independent monitoring of safeguard implementation. In addition, all implementing agencies, using own funds, will utilize the services oftendering companies to assist in procurement, and supervision companies to assist in construction supervision.

Implementing Agencies

5. Project components will be implemented by a mix ofgovernment departments or bureaus, state-owned investment companies, and utility companies. The following table indicates responsibilities and functions of each implementing agency.

37 6. Investment Companies. A number of state-owned investment companies function as developer agents of various government departments. They assume the obligation to pay for all installed infrastructure whose ownership will lie with the responsible sector agencies. The following investment companies will be involved in the project: (a) Bengbu Economic Development Zone Investment Co. Ltd. (BEDZIC); (b) Bengbu High-New Tech Investment Group Co. Ltd. (BHNTIGC); (c) Bengbu Hebei New District Development Co. Ltd. (BHNDDC); (d) Guzhen County Urban Investment and Development Co. Ltd. (GUIDC); (e) Huaiyuan County Zhengda Urban Investment Co. Ltd. (HZUIC); (f) Huaiyuan County Western Developmental Investment Limited Liability Corp. (HWDIC); and (g) Wuhe County Construction Investment Co. Ltd. (WCIC).

7. The investment companies will use loan proceeds, undertake procurement, sign contracts, make payments, and be responsible for debt repayment. They will operate under subsidiary loan agreements which specify the on-lending terms (at least the same terms as the loan to China) and obligations to follow all Bank requirements and procedures. They will be required to maintain a separate project account, record all activities associated with the project, and have the project account audited annually as satisfactory to the Bank.

8. Utility Companies. Two utility companies - Bengbu Drainage Co. Ltd. (BDC) and Bengbu No. 3 Wastewater Treatment Limited Liability Company (B3 WTC) - have been established under company law, and have business licenses and company charters. BDC has received Bank support under HRPCP, and B3 WTC has also conducted additional works through BDC under the project.

9. Loan proceeds will be on-lent by the respective local FBs to the utility companies on the same terms as the Bank loan. The on-lending will be done on the basis of subsidiary loan agreements satisfactory to the Bank. In addition, the utility companies will be required to comply with financial performance criteria of the loan covenants. The key financial requirements will be set with cost recovery and debt service coverage ratios. The utility companies are also required to maintain a separate project account to record all project activities. The financial statements of the project and the entire company should be audited annually as satisfactory to the Bank. As the investments for Guzhen sewer networks are relatively small, compliance with financial performance criteria for utility companies will not be a requirement.

38 T

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I Annex 7: Financial Management and Disbursement Arrangements CHINA: Bengbu Integrated Environment Improvement Project

Introduction

1. The adequacy ofthe financial management system ofthe proposed project was assessed, based on guidelines issued by the Financial Management Sector Board on November 3,2005. The assessment concluded that the project meets the minimum Bank financial management requirements as stipulated in BP/OP 10.02. It also noted that the project will maintain adequate financial management arrangements acceptable to the Bank and, as part ofthe overall arrangements that the Borrower has in place for implementing the operation, provide reasonable assurance that the proceeds ofthe loan will be used for the purposes for which the loan is granted. Financial management risk is the risk that World Bank loan is not used for the purposes intended and is a combination ofcountry, sector and project specific risk factors. Taking into account the risk mitigation measures proposed under the project, the financial management risk rating proposed for the project during the appraisal stage is modest.

2. Funding sources for the project include Bank loan and counterpart funds. The Bank loan proceeds will directly flow to a project DA to be set up at and managed by Anhui FB. Further advance will be made from the DA to an operating account (OA) to be set up and managed by Bengbu FB. The Bank loan agreement will be signed between the Bank and the Ministry of Finance (MOF), and on-lending agreements for the Bank loan will be signed between MOF and Anhui FB, in turn between Anhui FB and Bengbu FB, Bengbu FB and district FBs or county FBs, and finally between district FBs or county FBs and various implementing agencies. The counterpart fund will be government appropriation and commercial bank loans.

3. No outstanding audits or audit issues exist with any of the implementing agencies involved in the proposed project. However, the Bank will continue to be attentive to financial management matters during project supervision.

Audit Arrangements

4. The Bank requires that project financial statements be audited in accordance with standards acceptable to the Bank. In line with other Bank-financed projects in China, the project will be audited in accordance with International Auditing Standards and the Government Auditing Standards ofthe People's Republic of China. Anhui Provincial Audit Office ofthe China National Audit Office (CNAO) has been identified as auditor for the project. Annual audit reports will be issued by the above audit office. The Bank currently accepts audit reports issued by CNAO or provincial/regional audit bureaudoffices for which CNAO is ultimately responsible.

5. The annual audit report ofproject financial statements will be due to the Bank within six months after the end of each calendar year. This requirement is stipulated in the Loan Agreement. The responsible agency and timing are summarized as follows:

40 Audit Report Submitted By Due Date Project consolidated financial Anhui FB and June 30 of statements BMPMO each calendar year

Disbursement Arrangements

6. Three disbursement methods - advance, direct payment and special commitment - are available for the project.

7. One segregated DA in US dollars will be opened at a commercial bank acceptable to the Bank and managed by Anhui FB. The ceiling ofDA was determined and documented in the Disbursement Letter before the project negotiations. Applications for requesting advances into DA can be submitted to the Bank at any time, and no supporting documents are required as long as the outstanding advances do not exceed the established ceiling in the Disbursement Letter. The applications for requesting advances and for reporting uses ofprevious advances can be submitted together to the Bank. The supporting documentation for disbursement from the Bank will be either copies ofthe original documents evidencing eligible expenditures like contracts and invoices or a statement ofexpenditure (SOE), or other documents specified in the Disbursement Letter. The use of SOE has been set up in line with the procurement post review threshold as follows:

Expenditure Category Contracts Equivalent or Less than US$ Equivalent Civil Works 5.000.000 Goods 500,000 Consulting Firm 200,000 J---l fl,onsultant 50,000 d Workshops All

41 8. The Bank loan would be disbursed against eligible expenditures inclusive taxes as in the following table:

Amount of the Loan Percentage of Cateporv Allocated Expenditures to be (expressed in Dollars) financed (inclusive of Taxes) (1) Civil works 93,770,000 Ofwhich: a. BHNTIGC for construction of the initial 2,570,000 portion of the sewer network in HTDZ b. BHNTIGC for construction of the subsequent 1,000,000 portion of the sewer network in HTDZ ~ c. BHNTIGC for other construction 1 4.190.000,, d. WCIC 15,820,000 71% e. BEDZIC 20,570,000 10.419.000 f. BHNDDC 2, g. GUIDC 5,710,000 h. HZUIC 3,160,000 i.HWDIC 3.540.000

(2) Goods 2,250,000 100% (3) Consultants’ services, training and study tours 3,730,000 100% Amount payable pursuant to Section 2.03 ofthe Loan Agreement in 250,000 accordance with Section 2.07 (b) of the General Conditions TOTAL AMOUNT I 100,000,000 ,I

9. After the advance is received by Anhui FB, further advance will be made from DA into a segregated OA established at a commercial bank acceptable to the Bank and managed by Bengbu FB. As agreed by Anhui FB, the entire advance will be transferred into OA from DA and no advance will be retained at Anhui FB. OA will be maintained in US dollars. When the fund in OA is used up, Bengbu FB can apply to the Bank for the replenishment into OA through DA after it is approved by Anhui FB.

10. Anhui FB will be directly responsible for the management, maintenance and reconciliation of DA activities of the project. Bengbu FB will be directly responsible for the management, maintenance and reconciliation of OA activities ofthe project. Supporting documents required for Bank disbursements will be prepared and submitted by respective implementing agencies through each county FB or district FB to BMPMO for review and approval, then to Bengbu FB and finally to Anhui FB for final verification before sending to the

42 Bank for further disbursement processing. The flow offunds and withdrawal applications (WAS) are as follows:

I World Bank I

Approvedby 1 DA at Anhui FB r------I

I I A I I I Fund Flow Implementing Agencies

11. Retroactive financing amounting to US$l million will be provided for civil works, goods, consultant services, training, and study tours. Procurement will be carried out in conformity with Bank procurement procedures.

Financial Management and Reporting Arrangements

Risk Assessment and Mitigation

12. The following risks with corresponding mitigating measures were identified during the assessment:

43 Conditions of Board Risk Risk Rating Incorporated Risk Mitigating Measures or Effectiveness Inherent Risk , Legal and institutional framework is acceptable and current project financial Country Level Modest management systems are functioning reasonably well. See the following mitigating measures utilized in the project. Most of the implementingagencies have no experience with Bank financed projects. Guidance and supervision from BMPMO, Entity Level High Anhui FB and Bengbu FB can, to some extent, mitigate this weakness. A training workshop will be provided during launch workshop. The project activities are all in one municipality (Bengbu) and three counties under Bengbu. 10 implementingagencies are involved in project implementation. Therefore, proper financial control Project Level Modest procedures have been designed and will be documented in the financial management manual to align the financial management arrangement among the implementing

I agencies. Control Risk The Bank will work with each Budgeting Modest implementing agency to improve their budgeting, execution and monitoring. Accounting policies and regulations for the Bank loan are already in place and detailed accounting procedures will be documented in the financial management manual. This should be followed up by regular supervision missions. , Proper segregation of duties and internal ' approval procedures will be set up in each implementing agency. A project financial management manual will be prepared before project negotiationto specify the reporting procedures and detailed financial management guidance and supervision policies. Further advance from the DA mechanism will be used for this project. The flow of fund has to go through multiple-level review of FBs including county or district, Funds Flow High municipal FBs. Necessary controls should be in place and documented in the financial management manual to avoid the bottlenecks in fund flow and contribute to smooth project implementation.

44 Conditions of Board Risk Risk Rating Incorporated Risk Mitigating Measures or Effectiveness The format and contents of financial statements have been stipulated by MOF. Financial Modest The project financial management manual Reporting will specify the format, content and timing requirements for such financial reporting. The external auditor, Anhui Provincial t- Auditing Modest Audit Officer of CNAO, has extensive experience with previous Bank projects.

13. Therefore, the overall financial management risk rating ofthe project at the appraisal stage is modest. The Bank will monitor the project financial management risk during project implementation.

14. Strengths. Anhui FB has experience with managing DAs and is familiar with the disbursement requirements and procedures for Bank financed projects. Since Bengbu is a project city for the current HRPCP, Bengbu FB is experienced with the Bank’s policies and procedures.

15. Weaknesses and Action Plan. Since BMPMO and the implementing agencies are new to Bank financed projects, a well designed training course will be provided by the Bank on project disbursement and financial management during the project launch workshop. In addition, under proposed disbursement arrangements, the financial management internal controls need to be enhanced to make sure that the project fund can be used for the intended purpose. Thus a financial management manual was prepared by BMPMO and reviewed by the Bank. It was finalized before the negotiations.

Implementing Agencies

16. The PLG comprising representatives from all government bureaus, and chaired by a vice mayor ofBengbu, will provide policy guidance and oversight.

17. BMPMO has been established under Bengbu DRC and will be responsible for overall project coordination, monitoring and reporting as well as policy advice, and providing fiduciary support to municipal and county or district levels on procurement and financial management. BMPMO is comprised ofdirectors, a procurement officer, a financial officer, an engineer officer and a safeguard officer.

18. The implementing agencies will be in charge ofday-to-day project implementation. They are normally comprised of a director, project officers, a procurement officer and a financial officer.

Budgeting

19. Although the cost table has been prepared for the project and the project will prepare its annual implementing plan, the budgeting system within the project is usually not well maintained or monitored in China. The Bank will work with the related entities to improve their budgeting system during project implemenation.

45 Accounting

20. The administration, accounting and reporting of the project will be set up in accordance with the Circular #13: “Accounting Regulations for World Bank Financed Projects” issued in January 2000 by MOF. The circular provides in-depth instructions of accounting treatment of project activities and covers the following:

Chart of account Detailed accounting instructions for each project account Standard set of project financial statements Instructions on the preparation of project financial statements

21. The standard set ofproject financial statements mentioned above has been agreed between the Bank and MOF and applies to all Bank projects appraised after July 1, 1998 and includes the following:

0 Balance sheet ofthe project

0 Statement of sources and uses of find by project components

0 Statement of implementation of loan agreement Statement of DA

0 Notes to the financial statements

22. BMPMO and each implementing agency will be managing, monitoring and maintaining their respective project accounting records for the components they execute. Original supporting documents for project activities will be retained by BMPMO and implementing agencies. In addition, BMPMO and implementing agencies will prepare their own financial statements, which will then be reviewed and consolidated by BMPMO before submission to the Bank for review and comment on a regular basis.

23. Recruiting adequate accounting staff members with educational background and work experience commensurate with the work they are expected to perform is one of the factors critical to successful implementation of project financial management. Based on discussions, observation and review of educational background and work experience of the staff identified for financial and accounting positions in implementing entities, the Bank notes that the financial staff members are qualified and appropriate to the work they are expected to assume.

24. To strengthen financial management capacity and achieve consistent quality of accounting work, the Bank has suggested that a project financial management manual be prepared as a part of operation manual. This manual provides detailed guidelines on financial management including internal controls, accounting procedures, fund and asset management, WA procedures, financial reporting and auditing arrangement and so on. As agreed with BMPMO, the financial management manual was finalized before project negotiations and distributed to all the relevant financial staff.

25. Each implementing agency will individually decide whether it would utilize computerized financial management information software or manually record and maintain the

46 project accounting books depending on its actual situation. The Bank will monitor the accounting process especially during the initial stage to ensure that complete and accurate financial information will be provided in a timely manner.

Internal Control and Internal Auditing

26. The related accounting policy, procedures and regulations were issued by MOF and a financial management manual was prepared and issued to uniformly align the financial management and disbursement requirements among implementing agencies.

27. There is no formal independent internal audit department for the project. However, this will not impact the project’s financial management as the management and monitoring by FBs and BMPMO, and annual external audit will serve as mechanisms to ensure appropriate functioning offinancial management controls.

Financial Reporting

28. The format and content ofproject financial reports have been agreed between the Bank, BMPMO and Anhui FB. As agreed, the interim financial reports are prepared and submitted to the Bank for review on semi-annual basis.

29. Each implementing agency and BMPMO will prepare the project financial statements on their implemented components, which will then be used by BMPMO for preparing consolidated project financial statements and submitted to Anhui FB for review and finally to the Bank for review and comment on a regular basis. The interim unaudited consolidated project financial statements should be prepared and furnished to the Bank by BMPMO at the end of each calendar semester, covering the semester, in form and substance satisfactory to the Bank.

Financial Covenants

30. No specific financial covenants are applicable to the project except for those standard financial covenants like project audit and interim financial reports.

Supervision Plan

3 1. The supervision strategy for the project is based on its financial management risk rating, which will be evaluated on a regular basis by the Bank.

47 Annex 8: Procurement Arrangements CHINA: Bengbu Integrated Environment Improvement Project

A. General

1. Procurement for the proposed project would be carried out in accordance with the World Bank's "Guidelines: Procurement Under IBRD Loans and IDA Credits" dated May 2004; "Guidelines: Selection and Employment of Consultants by World Bank Borrowers" dated May 2004, and the provisions stipulated in the Legal Agreement. The various items under different expenditure categories are described below. For each contract to be financed by the Loan, the different procurement methods or consultant selection methods, the need for pre-qualification, estimated costs, prior review requirements, and time frame are agreed between the Borrower and the Bank in the Procurement Plan. The Procurement Plan will be updated at least annually or as required to reflect the actual project implementation needs and improvements in institutional capacity.

2. Procurement of Works: Works procured under this project would include: pumping stations for storm drainage and wastewater; lake dredging; embankment; sewer and drainage pipelines; road construction; river rehabilitation; WWTPs; water treatment plants; water supply pipelines; and buildings for environment monitoring. The procurement will be done using the Chinese Model Bidding Documents (MBDs) for National Competitive Bidding (NCB). Although International Competitive Bidding (ICB) is not expected, the Bank's Standard Bidding Documents (SBDs) will be used for all ICB in case any contract is above the ICB threshold.

3. Procurement of Goods: Goods procured under the project would include: supply and installation of plants; equipment ofpumping stations; vehicles; environment monitoring equipment; office equipment, etc. The procurement will be done using SBDs for all ICB and MBDs for NCB.

4. Selection of Consultants: Consulting services under the project would be for: (a) design review, project management and implementation monitoring; (b) detailed design ofinfrastructure facilities in MIZ, and design review for advance works; (c) monitoring ofsafeguard implementation; (d) preparation ofrules and operational procedures for management of MIZ, and bidding documentation to select a professional operator for MIZ; (e) institutional and financial strengthening ofutility companies; and (f) training for PMO and agency officials. Short lists ofconsultants for services estimated to cost less than US$300,000 equivalent per contract may be composed entirely ofnational consultants in accordance with the provisions ofparagraph 2.7 ofthe Consultant Guidelines. Universities andor research institutes may be employed for the consulting services in Items (c) and (d) above.

5. The procurement procedures and SBDsiMBDs to be used for each procurement method, as well as model contracts for works and goods procured, have been specified in the procurement manual prepared by BMPMO. The manual will be issued before the start ofprocurement.

48 B. Assessment of the agency's capacity to implement procurement

6. Procurement activities will be carried out by the following implementing agencies:

2.2 Drainage and Sewer System in HTDZ; and Environmental Improvement of Ying River and Environmental Infrastructure ......

3.2 Huaiyuan County: Construction and Upgrading of I HZUIC ...... County Town Storm D ...... 3.3 Huaiyuan County: Drainage and Sewer System in HWDIC 3. Sub-urban Urban Expanded Area Environmental ...... "...... K ...... 3.4 Wuhe County: Water Intake, Transmission Line Infrastructure ...... and Treatment Plant; and Improvement 3.5 Wuhe County: Mohekou Roads and Associated

...... •Drainage Pipelines "...... 1 3.6 Wuhe County: Sanpu Pumping Station and Wuhe County WRB Approaching Canal 4. Capacity Building ...... Š4.1 Upgrading of Water Quality Monitoring Municipal and County EPBs and Institutional 4.2 Implementation Support; Capacity Building BMPMO Development

7. Each implementing agency has two staff members designated for procurement: one for leadership and another for actual procurement activities. At the municipal level, BMPMO will be coordinating procurement activities. BMPMO has appointed an experienced staff for day-to-day procurement coordination and will recruit more staff for procurement. Anhui FB, a window for all projects financed by international financial institutions in Anhui Province, will also review or monitor major procurement documents and activities on a no-objection basis.

8. With the counterpart fund and following the domestic procedures, a qualified international tendering company, China Instrimpex International Tendering Co., has been employed as procurement agent for all procurement ofthe project.

9. An assessment ofthe capacity ofthe Implementing Agency to implement procurement actions for the project has been carried out by the Project Team. The assessment reviewed the organizational structure and working procedures for implementing the project.

49 10. The key issues and risks concerning procurement for implementation ofthe project have been identified and include: (a) most implementing agencies are new to the World Bank project; and (b) different DIs will be employed to provide engineering design services including preparation oftechnical sections ofbidding documents, and thus there are risks in ensuring quality ofthe design and bidding documents. The following corrective measures have been agreed and/or implemented: (a) BMPMO has recruited one procurement staff experienced in Bank-financed procurement and technically competent to provide guidance to the implementing agencies and coordinate procurement activities; (b) BMPMO has employed an experienced tendering company, China Instrimpex International Tendering Co., as procurement agent for the project (This tendering company is among the top ones in China); (c) as a part ofthe project, the loan will finance consulting service contracts to employ international consultants to provide project management support, including procurement management, detailed design review, and contract management throughout the life ofthe project; (d) BMPMO has prepared a procurement management manual to guide procurement activities ofthe implementing agencies; and (e) the Bank will provide further training workshops to the project staff, during project launch.

1 1. The overall project risk for procurement is average.

C. Procurement Plan

12. With guidance from BMPMO and the procurement agent, the implementing agencies developed a Procurement Plan for project implementation during project preparation. This plan has been agreed between the Borrower and the Project Team during project appraisal. It is available in BMPMO, the project’s database and the Bank’s external website. The Procurement Plan will be updated in agreement with the Project Team annually or as required to reflect actual project implementation needs and improvements in institutional capacity.

D. Frequency of Procurement Supervision

13. In addition to the prior review supervision to be carried out from Bank offices, the capacity assessment ofthe Implementing Agency has recommended six-monthly supervision missions to visit the field to supervise procurement activities for the first 18 months. The prior review thresholds and frequency ofprocurement supervision (including special procurement supervision for post-review/audits) will be further defined when the Procurement Plan is updated and reviewed following the first 18 months.

50 E. Details of the Procurement Arrangements Involving International Competition

1. Goods, Works, and Non Consulting Services

(a) List of contract packages to be procured following ICB:

11 2 3 4 5 6 7 8 9

Contract Estimated Procurement P-Q Domestic Review Expected Comments 1 % 1 (Description) 1 Cost Method Preference by Bank Bid-Opening (yeslno) (Prior I Post) Date Monitoring- Equipment; CB,S Online 9,G1 Monitoring US$1.076 ICB No Yes Prior October 2008 Equipment; mi11 ion A\B, n and L Office Equipment

(b) Contracts estimated to cost above US$500,000 per contract for goods and US$5,000,000 per contract for civil works will be subject to prior review by the Bank.

2. Consulting Services

(a) List of consulting assignments with short-list of international firms.

1 2 3

Ref. No. Description of Estimated Selection Review Expected Comments Assignment cost Method by Bank Proposals (Prior / Submission Post) Date Implementation 1 1 1 1 Support Design Review, 1 Contract A Management, 1.69 QCBS 1 prior I 2008-5-31 I Implementation Monitoring Detailed Design B of Infrastructure 0.40 QCBS prior 2008-2-1 Facilities in MIZ Preparation of Rules and Operational Procedures for Management of C MIZ, and Bidding 0.30 QCBS prior 2009- 1- 1 Document to Select A Professional Operator for MIZ (17 man months)

51 1 2 3 4 5 6 7

Ref. No. Description of Estimated Selection Review Expected Comments Assignment cost Method by Bank Proposals (Prior / Submission Post) Date Safeguard Implementation D 0.15 CQS post 2008-6-1 Monitoring (six man months) Capacity 2 Building Institutional & Financial E Strengthening of 0.41 QBS prior 2009-6-1 Utility Companies Strategy and Selection for F Bengbu Water 0.31 QCBS prior 2009-6-1 Sector Development Training for G PMO and 0.40 2008-6- 1 Agency Officials

(b) Consultancy services estimated to cost above US$200,000 per contract and single source selection of consultants (firms) for assignments will be subject to prior review by the Bank.

(c) Short lists composed entirely ofnational consultants: Short lists of consultants for services estimated to cost less than US$300,000 equivalent per contract may be composed entirely of national consultants in accordance with the provisions of paragraph 2.7 ofthe Consultant Guidelines.

52 Annex 9: Economic and Financial Analysis CHINA: Bengbu Integrated Environment Improvement Project

Economic Analysis

1. To achieve the overall project objective ofimproving the effectiveness of selected urban environmental services delivered by agencies of Bengbu Municipality, the project invests in water resources management, environmental and urban infrastructure improvement, and institutional development and capacity building. A brief description ofthe project components for which economic analysis was done separately is presented below.

Component Name Brief Description

Lake ecosystem restoration and environmental improvement, 1.1 Longzi Lake including storm water drainage systems and wastewater collection networks expansion. Increasing reliability ofBengbu’s long-term drinking water resources, 1.2 Tianhe Lake and increasing local revenue by reducing crop losses from flood.

2.1 Urban Drainage and Bengbu City networks expansion and improvements, and ancillary Storm Discharge including roads in HTDZ and EDZ. Desilting and embankment improvement of Xijiagou and Baligou Xijiagou and Baligou canals. Rehabilitation I 2.2 Huaishang District I Storm water pumping stations for property losses reduction.

Storm water drainage systems and ancillary roads, and wastewater 3.1 Guzhen County collection networks of Guzhen Town. Storm water drainage systems, and wastewater collection of Huaiyuan 3.2 Huaiyuan County Town and its industrial zone. Storm water drainage systems, water supply intake and treatment and 3.3 Wuhe County distribution networks, wastewater collection networks and treatment, and roads for MIZ and Mohekou Township. Transport improvement care of road construction in Huaishang 3.4 Roads District; and road construction in Chengguan Town (Huaiyuan Countv).

Approach and Method of Economic Analysis

2. A number ofmethods were employed for economic analysis to evaluate the economic viability ofthe investments. First, a WTP survey was carried out to help understand public support to the government agenda ofenvironmental improvement and the proposed project. Then, economic benefits and costs ofeach component were identified and quantified as much as

53 possible. For the components whose main benefits and costs can be quantified, cost-benefit analysis was used to examine the economic feasibility ofthe investments. When environmental improvement objectives are clearly defined but environmental benefits are difficult to measure, a cost-effectiveness approach was used to determine if the investment is the least-cost solution for project components or sub-components. Sensitivity analysis was also conducted, so was the social affordability for the components or sub-components where income impact oftariff increase on the poor is a concern.

Government Development Plan and Public Support: Results fiom a FTP Survey

3. BMG attaches great attention to Bengbu’s physical environmental improvement and economic competitiveness enhancement and has listed environmental improvement as one of the development goals in the 11 th Five Year Economic and Social Development Plan.

4. To better understand the degree ofpublic support to urban environmental improvement in Bengbu Municipality and the value oftheir WTP for the investment, a survey was carried out in June 2007 by a team ofprofessors and students from Nanjing University and Anhui University of Finance and Economics. A total of 600 residents in five project districts within Bengbu Municipality were interviewed. Ofthe 474 valid questionnaires, 266 were from male respondents and 208 from female respondents, and 39% from middle-school graduates and only 3.6% from college graduates. Most interviewees were self-employed (28.38%), workers (24.58%) and farmers (16.53%). The annual family income is between RMB 12,000 and RMB 25,000. The composition ofthe interviewees reflects a fair representation of Bengbu residents.

5. Environmental improvement is ranked number four (after education, social protection and transportation) on the list that the public believes the government should take action about. 76% ofthe respondents are willing to pay for the environmental improvement proposed by BMG. Some ofthose who are not willing to pay feel that BMG should be responsible for this sort of improvement, instead of local residents.

6. The average value of WTP/person/month is RMB 9.35 (about US$1.25). There is some variation from district to district; RMB 11.25 in HTDZ, RMB 10.26 in Longzi Lake District, RMB 8.96 in Shizhong District, RMB 8.02 in Huaishang District, and RMB 5.83 in Mohekou Township, respectively. Because the survey mainly targets the head or main breadwinner of each household, the WTP value likely represents that ofthe entire household. Therefore, the analysis takes a conservative approach, and assumes that the average monthly WTP per household is RMB 9.35 citywide.

7. The lower-end value ofthe total WTP in Bengbu is estimated at RMB 98 million (about US$13 million) a year. The WTP value by component is, however, hard to calculate due to the difficulty of estimating the population that directly benefits from each individual component. Nevertheless, the survey helps to validate the government plan ofenvironmental improvement and shows that the public is willing to pay for the investments proposed in the project.

54 Economic BeneJits and Costs Identijied

8. Economic Benefits. The feasibility study shows that the project will generate a variety of economic benefits to Bengbu. The benefits include increased or improved water supply and sanitation services, ecological upgrading, better water quality and associated health improvement, agricultural production increases from better flood control and irrigation water supply systems, amenities improvement, and productivity increase in new industrial zones. The economic benefits by component are presented in the table below.

Environmental

Saved Travel Time I I+

9. Economic Costs. The main economic costs for each component are identified as capital investment, O&M costs, replacement costs of capital investment (mechanical or electrical equipments and other items exceeding their useful lifespan), costs oflake and canal cleanup, and incremental social and environmental costs ofthe investments as specified in safeguard analysis such as resettlement costs and global environmental costs due to greenhouse gas emissions from pumping stations.

General Assumptions, Key Data, and Valuation Techniques Used

10. The economic analysis assumes that market prices for the main elements ofcosts and benefits are not greatly at variance with their economic values; therefore, shadow prices and conversion factors were not applied. The discount rate normally accepted for World Bank projects in China is 10% for investment projects recommended by NDRC in 2002. The economic benefits and costs are valued at the base year 2007 price level. All ofthem are net ofinflation, duties, and taxes. To be conservative, no real price or tariff increase is assumed while economic benefits are estimated. The duration ofthe project is assumed to be 35 years from 2008 to 2043. Replacement costs ofthe equipments are included during the period.

11. In the case of valuing water supply and sanitation services, the current tariff structures assume no change in the future as indicated in the following table. Given the fact that the tariffs

55 are well below their marginal opportunity costs including environmental costs, the estimated benefits are certainly lower bound.

I Domestic I 0.70 0.90 1.10

* It includes an average water resource fee of RMB 0. 06/m3 to RMB 0. 07/m3.

12. Valuation. Many direct monetary benefits (to the project entity) are small and indirect, while external benefits (such as flood control and environmental and amenity improvement) can be significant but difficult to quantify. The following approaches were used to quantify many of these benefits. Incremental revenue from water tariff collection was used to approximately represent the economic value ofimproved water supply services. The benefits offlood control were valued by avoided agricultural production loss and related land value increase. Ecological upgrading and amenities improvement were measured mainly by land value increase. Productivity increases ofnew industrial zones (Le., Mohekou, HTDZ, and EDZ) were represented by tax revenue increase.

13. It is not easy to value the benefits from water quality and associated health improvement through the project due to the lack ofwater quality data and clear causal links between water quality and public health. Some reports indicate that diseases due to lack ofwastewater collection and treatment facilities affected 4.7% ofthe population in Bengbu Municipality during the 2002-2006 period. In the analysis, therefore, it is assumed that the health benefit is a reduction ofwater-related diseases for 4.7% ofthe population living in the area, valued by human capital approach and avoided medical costs.

14. Although Bengbu, as a second-tier city, ranked 182nd in overall economic strength in the country last year, it appears as number five on the national list of soaring property prices with a 10.2% growth rate in May 2007. Its land sale price in HTZD increased from an average of RMB 619/m2 in 2005 to RMB 1,075/m2 in 2006 and RMB 1,704/m2 in 2007, respectively. The increase in market value ofland could be a main benefit quantified in a number ofurban environmental improvement components ofthe project. The unit value ofland for urban development (residential, commercial, and industrial land) is estimated as the average value of urbanised land minus basic costs ofdevelopment according to the recent data of land being sold as shown in the following table. For instance, the average price ofresidential land in Bengbu is RMB 1,499/m2 and the basic cost of development is RMB 180/m2.

56 1 Land Value I Bengbu I Bengbu I Bengbu I Huaiyuan I Guzhen Mohekou Increase (Urban): HTDZ EDZ Huaishang 3rdClass MIZ RMB/m2 I 1 1 I I 1 I 1 I I I Residential I 720 I 1,320 I 790 150 I 690 1,330 Commercial 1,819 280 Industrial 270 270 120

15. To value the increase in agricultural land value, the opportunity costs of agricultural land have been assumed from the compensation standards for collective land (23 times the average annual production value). For example, in Bengbu the compensation for permanent acquisition is equal to RMB 27,6OO/mu (or RMB 41.4/m2).

16. Taking into account the land for streets and other public services, the area of developed land is reduced by 15%. The remaining land is further valued with a reduced percentage (column (e) in the table below) given the fact that the proposed project only represents a portion (6% to 30% depending on districts) ofthe total investment in the project districts and the contribution of the investment in land value increase varies. The percentages used in the analysis are conservative.

17. The flood protection benefits are calculated based on a protection level against a flood event that happens on average every 20 years (flood frequency of 0.05lyear). Such an event is represented by the flood in 2003. The 2003 flood return period is expected to be every 20 years. The flood control benefits include: the reduction in destruction costs and the reduction in GDP losses due to the halt of activities during the floods. The total amount of funds allocated from upper level government for infrastructure reconstruction and compensation related to the 2003 flooding in Bengbu Municipality was RMB 95.5 million for a flooded surface of 10.4 km2 and an impacted population of 80,000. The loss ratio can be assumed to be RMB 9.2/m2 equivalent to RMB 0.46/m2 a year in floodable area; or RMB 1,20O/capita. The average number of days with a loss ofGDP due to storm water submersion has been estimated to be two per year.

18. Even though tax is a transfer payment rather than a benefit, it has been used as an indicator ofthe value added by new industries attracted to industrial zones in the components like Mohekou. All the benefits from production increase cannot be given to the investments made for infrastructures in these industrial parks, but the land tax is taken as a good indicator of benefits related to the project.

57 Overall Evaluation and Sensitivity Analysis

19. The EIRR by component and the aggregate EIRR are shown in the table below. The aggregate EIRR is 18.4%. The EIRR of each individual component varies from 14.4% (Wuhe) to 21-6% (Huangshang). The variation is due primarily to the different nature ofinvestments. All of these components have the EIRR above the threshold level acceptable to the Government of China, i.e., the 10% discount rate for investment projects recommended by NDRC in 2002. The analysis using sample components is provided in the section below.

20. To further test the robustness ofthe analysis, sensitivity analysis was conducted with the assumption of a 10% increase in capital costs, a 10% decrease in claimed economic benefits, and a combined scenario. The results, shown in the table below, suggest that the EIRR is robust. For instance, in the case ofa 10% increase in capital investment, the aggregate EIRR is reduced from 18.4% to 16.1%. The combined scenario also yielded an aggregate EIRR of 13.6%. All components have the EIRR above 10%. Therefore, the project is sound despite the possible variation in capital investment and estimated benefits.

Huaishang District 21.6% 19.6% 19.1% 17.2% Guzhen County 19.0% 17.3% 17.1% 15.5% Huaivuan Countv 15.9% 12.8% 12.3% 9.9%

Impact of Tarifflncrease on the Poor

2 1. The income impact oftariff increase due to the project is very limited, in the sense that there is no increase of water tariffs and that there is a limited impact of wastewater tariff increase, from RMB 0.6/m3to RMB 0.7/m3 or RMB 0.8/m3 as highlighted in social analysis. An affordability analysis has been undertaken and two representative household groups were considered: (a) the average income group; and (b) the low-income group, which is defined as the household earning the average ofthe lowest 5th percentile ofincome distribution in Bengbu urban area, with an income ofRMB 210 per capitdmonth.

22. The average city watedwastewater bill is RMB 77.2 per capitdyear, which accounts for 0.45% ofthe average annual wage ofemployed people, and 3.1% ofthe average annual income

58 ofthe poor (less than 6.6% ofthe total population) who receive the minimum living guarantee from the government, respectively. The average city sewage fee is RMB 33.5 per capitdyear, which accounts for 0.19% ofthe average annual wage ofemployed people, and 1.33% ofthe average annual income ofthe poor, respectively. The proposed wastewater tariff increase from RMB 0.6/m3 to 0.8/m3 will represent only 0.44% ofthe average annual income of those who live on the minimum living guarantee from the government. Therefore, the proposed tariff increases are affordable for both groups.

23. BMG extends low income protection for the very poorest households, Le., those under a minimum income ofRMB 192 per capitdmonth. With increases in water tariff in 2006 and wastewater tariff in 2004, a direct subsidy (RMB 6.5 per household/month, ofwhich RMB 5 for water and RMB 1.5 for waste water) has been provided to all households qualifying for the social assistance.

Economic Analysis of Sample Components

24. To provide some details ofthe economic analysis, a few sample components are illustrated below.

Longzi Lake

25. The main objective ofthe component is to reduce the risk of flooding in this area, protect the lakeshore, and improve amenities ofthe area surrounding the lake. The minimal goal is a flood protection level of 19 m against 1 in 20 year storm water events. The component includes: a storm water pumping station, water and wastewater collection systems, lake restoration and rehabilitation, and a recreation park.

26. Alternatives. The “without-project scenario” would be to leave the situation as it is, Le., to leave a 17.1 km2surrounding area (above 19 m) of Longzi Lake as a floodable area, which has low value for urban or even tourist development. The proposed project will ensure flood control safety for any event with a return period below 20 years for the surrounding area above 19 m high. The alternative options considered include a lower or higher capacity pumping station and three possible sites for the pumping station. The analysis has completed some modelling of lake levels under different pumping scenarios and the proposed 40 m3/sec is found optimal to control the lake level under the proposed design criteria.

27. Results of Cost-Benefit Analysis. Total investment costs (construction costs, resettlement and environmental costs, desilting costs, and recreational park development costs) are RMB 202 million. The main benefits quantified are associated with land value increase. As described earlier, the project will protect additional land from up to a 1 in 20 (even 1 in 50) year flood and make the lake suitable for urban or agricultural use. The new flood protection area is composed of 4.63 km2for urban development and 12.06 km2for non-urban use (agriculture and parks) according to the urban master plan. The adjustment factor, which reflects the share ofthe contribution ofthe proposed project, is 26%. Using the parameters given in the earlier section, the land value increase through the proposed project is estimated to be around RMB 240 million.

59 28. The table below is the summary ofthe results ofthe cost-benefit analysis. Due to limited space, the years where the costs or benefits do not change from the previous year are not presented. The project component will have an EIRR of 19.1% and the net present value ofRMB 7 1.6 million.

Slope improvement and recreation park development 12.4 12.4 Replacement cost (pumping station) 3.4 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 21.1 0.0 0.0 Operational cost (pumping station) 7.3 0.69 0.69 0.69 0.69 0.69 0.69 0.69 0.69 0.69 0.69 0.69 Environmental cost (pumping station) 1.6 0.15 0.15 0.15 0.15 0.15 0.15 0.15 0.15 0.15 0.15 0.15 RAP 1.2 1.21 Benefit (net) 71.6 -185.1 34.2 34.2 69.1 69.7 70.3 54.1 3.3 -15.7 5.4 5.4 u1nn P/.b io i

Bengbu Urban Drainape and Storm Discharge Component Including Xiiiagou and Baligou Rehabilitation

29. This component would help improve storm drainage and flood control by enhancing pumping capacity and the capacity to store flood water (desilting and widening ofthe Baligou and Xijiagou ditches) and discharge to the Huai River. It will also build wastewater collection and treatment capacity. The least-cost solutions have been adopted to optimize the design of each construction item.

30. The main benefits ofthis component include: additional revenue from wastewater tariffs for improved wastewater collection and treatment services; land value increase (1 0% ofthe total value increased attributable to the proposed project); productivity increase due to environmental improvements; and avoided production losses from flood control. The health benefits due to improved wastewater collection and treatment services are valued by the avoided GDP loss and medical costs ofthe 4.7% ofthe population who may otherwise be affected by waterborne diseases. This is a conservative estimate.

3 1. The results ofthe cost-benefit analysis are shown in the following table. The project has an expected net present value ofRMB 124 million and an EIRR of 20.7%. The EIRR is above the requested 10% discount rate; therefore the project is of interest.

60 Guzhen County Component

32. The objective ofthis component is to improve storm drainage, flood management, and expand wastewater collection. Proposed works include desilting of flood channels, construction of five storm drainage pumping stations, construction of about 19.2 km ofinterceptors and secondary wastewater collection networks. The design ofeach construction item was selected from alternative options based on the least-cost solutions.

33. The results of the economic analysis are shown below. The main economic benefits are both improved water supply and sewerage services, measured by water tariff revenue and land value increases. The project has an expected net present value of RMB 89.5 million and an EIRR of 19%.

.._I.. -...", Environmental cost (pumping station) 0.9 0.08 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 Benefit (net) 89.5 -98.4 12.5 15.7 16.6 17.5 18.4 19.2 20.1 31.4 8.6 17.9 FIRR P/.\ 19 n

Mohekou - Wuhe County Component

34. Mohekou Township in Wuhe County, has two main flood discharge canals and is surrounded by rivers. The town is developing MIZ, and water supply, wastewater treatment,

61 storm drainage, and flood management would be needed there. This component includes investments in those areas of infrastructure.

35. Alternatives. The “no project scenario” would make MIZ development impossible and leave the situation ofMohekou as is. Without the proposed sewerage collection and transfer to the planned WWTP, surface water courses and the nearby section ofthe Huai River would continue to be polluted. Alternative options were considered for water supply and wastewater treatment. There are three options for the new water supply source in Mohekou: the Huai River, the Befei River, and groundwater. Alternative analysis proposed to bring in surface water from a river 18 km to the north. Two different technologies to treat sludge of wastewater were also examined. The activated sludge system in sequencing-batch-reactors was recommended.

36. The results ofthe economic analysis are shown below. The main benefits are those from increased water supply and sewerage services, land value increase and productivity increase in MIZ. The EIRR is 14.4%, which is above the requested 10%; therefore the project is of interest.

networks) Environmental cost 1.9 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 Benefit (net) 87.3 -280.7 122.6 51.9 14.3 23.2 23.2 23.2 23.2 35.9 16.0 35.9 35.9 PTPP lA A

Financial Analysis

Objective

37. Financial analysis was conducted to evaluate the availability ofcounterpart funds and debt service capacity in Huaiyuan, Guzhen and Wuhe County Governments and BMG with all participating districts, HTDZ, and EDZ under the project. For the two revenue earning utility companies, financial analysis was conducted to assess the financial viability ofthe proposed investment with suggested tariffs and government subsidies, financial sustainability with gradually eliminated government subsidies to achieve cost recovery and debt service ratios

62 specified in the loan covenants. Sensibility analysis was also done to explore possible adverse scenarios in order to help the utility companies to become financially independent.

Municipal Financial Analysis

3 8. The municipal financial capacity analysis covers Bengbu City proper including Longzi Lake District, Huaishang District, HTDZ and EDZ, and three counties ofGuzhen, Huaiyuan, and Wuhe. Investments for water resources management components and most ofurbadsuburban environment infrastructure improvement components are supported by government public capital expenditures. The table below summarizes the actual and projected receipts and expenditures data from 2003 to 2012 for Bengbu Municipality. It shows that project expenditures and counterpart funding requirements represent less than 2% ofBengbu Municipality’s total receipts. In the past five years, Bengbu has achieved a surplus balance in the fiscal budget. The counterpart funds proposed only constitute a small percentage oftotal disposable fiscal revenues. Should participating county governments not be able to raise all their counterpart funding requirements, or provide funds for O&M and debt services, Bengbu Municipality would have no difficulty providing the needed support.

Project Exp. as % of Total Disposable 3.98 3.61 3.41 3.05 2.79 Revenues Counterpart Funds as % of Total 2.07 1.88 1.77 1.58 1.45 Disposable Revenues

39. Counterpart Fund and Debt Service Capacity. The counterpart fund and debt service capacity were also evaluated. It is based on the historical fiscal disposable revenues and expenditures provided by the respective local FBs. The data analyzed refer to what is referred to in Chinese government accounting as on-budget and extra-budget funds. On-budget funds include revenues from statutory taxes and levies, such as the urban construction maintenance fund. Their allocations are subject to approval by higher levels ofgovernment. Extra-budgetary funds are derived from non-tax off-budget revenues such as some types ofuser charges collected by administrative departments. There is less control by higher levels ofgovernment on these revenue sources. One ofthe most important off-budget sources of funds for the project counterpart fund is the proceeds from long-term leases of government land, which are also designated to finance the urban public infrastructure construction. The projections are based on more conservative assumptions regarding the growth ofboth the government disposable revenues and total fiscal expenditures for all participating FBs. The analysis indicates that all

63 government fiscal revenues are sufficient to contribute to the counterpart funds and service the debt incurred under the project. The counterpart funds proposed only constitute a small fraction of total disposable fiscal revenues. The table below indicates project counterpart funds and debt service as a percentage offiscal disposable revenues. It is revealed that the debt is affordable to Bengbu Municipality.

Description 2008 2009 2010 2011 2012 2013 2014 2015

Counterpart Fund as a percentage of disposable 1.60 1.82 1.60 1.40 1.73 revenues (%) Debt Service as a percentage of disposable 0.04 0.13 0.18 0.23 0.36 0.83 0.73 0.64 revenues (YO)

Counterpart Fund as a percentage of disposable 2.98 4.21 3.66 3.19 3.84 revenues (%) Debt Service as a percentageofdisposable 0.12 0.32 0.47 0.57 0.63 1.51 1.27 1.07 revenues e?)

Counterpart Fund as a percentage of disposable 2.50 2.08 1.75 1.52 1.32 revenues (%) Debt Service as a percentage of disposable 0.05 0.12 0.17 0.21 0.24 0.56 0.48 0.39 revenues (%)

Counterpart Fund as a percentage of disposable 1.69 1.51 1.34 1.20 1.07 revenues (%) Debt Service as a percentage of disposable 0.02 0.06 0.10 0.12 0.14 0.34 0.29 0.25 revenues (%)

40. It is also worth to explore the fiscal impact ofincremental O&M budget and subsidy requirements when the project components enter into operation. According to the feasibility study report and the institutional development plan, all the government public service components (such as water resources and flood control management, urbdsuburban roads, bridge and environment infrastructure facilities) will be covered fully by government budgetary expenditures. Both BMG and the county governments have identified the cost requirements and will include them in their budget plan in succeeding years.

Financial Analysis for Revenue Earning Companies

4 1. BDC and B3WTC are revenue earning utility companies under the project.

42. Financial Covenants. The cost recovery program for wastewater services: (a) adjust current tariffs to generate adequate revenues to meet full O&M costs, but not less than RMB

64 0.80/m3 mandated by the central government; (b) set tariffs at the suggested levels together with government subsidies, that are adequate to meet full costs (O&M and debt services or depreciation, whichever is greater) and a debt service coverage ratio in the initial years of operation; and (c) eliminate the subsidies entirely by 20 13.

Bengbu Drainage Co. Ltd. (BDC)

43. Background, Current Issues and Constrains. BDC, a state-owned enterprise, was established in 2000, and its sole shareholder is Bengbu CC. Its business covers wastewater collection, transmission, treatment and discharge in the urban planning area. It is also in charge ofO&M ofthe trunk storm drainage networks and pumping stations in the city. BDC has currently 60 staff including 20 management staff.

44. Water Supply and wastewater tariffs were adjusted and implemented in July 2006 as follows:

Water Supply* Wastewater Combined Tariffs RMB/m3 From July 1,2006 I From July 1,2006 I From July 1,2006 Residential 1.10 0.60 1.70 Industrial 1.50 0.70 2.20 Commercial 1.80 1.oo 2.80 * Includes a water resource fee ofY0.35/m3.

45. The wastewater tariff is billed and collected together with the water tariff. Apparently, existing tariff levels do not represent true costs of services. Without timely implementing a new tariff, the situation will be more severe as new WWTPs and wastewater treatment networks are added. Tariff reform in China has been driven by the central government which has mandated the minimum wastewater tariff of RMB 0.80/m3 for municipalities.

46. In line with the Bank’s sector development objectives, BDC is required to have planning and management ofwastewater services as its core lines ofbusiness and to own all assets including the WWTPs. However, O&M and/or management may be contracted out to other parties under transparent contractual arrangements. This arrangement would support BDC’s institutional development and financial autonomy.

47. Financial Projection and Financial Analysis. The financial projection assumes that BDC will follow the Bank’s institutional development strategy. Under the project, BDC will implement the wastewater and storm water networks and pump stations components in the old urban areas, EDZ, HTDZ and Longzi Lake District (counterpart funds will be provided by EDZ, HTDZ and Longzi Lake District accordingly). It will own the assets created, and be responsible for design, implementation, O&M, and for borrowing and repaying the Bank loan proceeds. BDC will receive the loan proceeds under a subsidiary loan agreement.

48. With the above background and assumptions, the following tariffs are suggested. The respective cost recovery and debt service ratios are also presented below.

65 Current 2008 2012 Tariffs (RMB/rn3) Domestic 0.60 0.72 0.94 Industrial 0.70 0.84 1.09 Commercial 1.oo 1.20 1.56 Tariff Increase 20% 3 0% Debt Service Ratio 0.96 1.37 1.79

49. During the projection period, BDC will comply with the loan covenants of cost recovery and debt service ratios if BMG implements the suggested tariffs in a timely fashion. BMG will not need to provide any subsidies for the operation and debt service. However, due to implementation oflarge scale infrastructure in the projection period, the tariff revenues will not be sufficient to sustain all counterpart funds. BMG has to provide most ofthe counterpart funds for project implementation. The total counterpart funds from BMG are estimated to be RMB 190 million during the years 2008 to 2012.

50. Financial Sustainability. Evaluation offinancial viability and sustainability ofthe project is also supported with sensitivity and risk analysis. In performing sensitivity analysis, several potential risks were used to test the responsiveness ofthe cost recovery and debt service ratios to adverse case scenarios throughout the projection period, such as increases in the investment cost and operating cost, delay in project implementation, and tariff increase. The results show that BDC can withstand the highest risk scenario if the suggested tariffs are implemented. The financial performance is most sensitive to the deterioration ofcollection efficiency and the delay in tariff increase. Therefore, BDC should carefully monitor collection performance in addition to timely introduction ofthe suggested tariffs.

Bengbu No. 3 Wastewater Treatment Limited Liability Company (B3 WTC)

5 1. Background, Current Issues and Constrains. Bengbu Municipal Jianghuai Wastewater Treatment Co. Ltd. was established in May, 2004 as a state-owned enterprise with a registered capital of RMB 10 million. It is a subsidiary ofBHNDDC. Bengbu Municipal Jianghuai Wastewater Treatment Co. Ltd. changed its name to B3WTC in September, 2006. Its business scope was also amended to cover wastewater collection and treatment for domestic and industrial customers. B3WTC was the implementing agency for the Bank-financed HRPCP and additional works in Huaishang. Under the proposed project, it will be responsible for collecting wastewater from Huaiyuan County. Loan proceeds will be used by B3WTC under a subsidiary loan agreement. B3WTC will own and maintain the assets and be responsible for debt repayment.

52. Financial Projection and Financial Analysis. The financial projection assumes that B3 WTC will continue to implement additional works under HRPCP and collect wastewater from Huaiyuan under the proposed project. The following tariffs are suggested. The respective cost recovery and debt service ratios are also presented below.

66 Current 2008 2013

Domestic 0.60 0.78 0.94 Industrial 0.70 0.9 1 1.09 Commercial 1.oo 1.30 1.56 Tariff Increase 3 0% 20% Debt Service Ratio NIA 1.45 1.27

53. During the projection period, B3WTC will comply with the loan covenants of cost recovery and debt service ratios if Huaishang District implements the suggested tariffs in a timely manner. Meantime, due to a very small volume ofwastewater in the initial stage, uncertainty oftariff collection from self-supplied customers, and debt service requirement for HRPCP, Huaishang District should consider providing a subsidy ofRMB 3 million to B3 WTC in the first three years ofoperation. Without the tariff increase and the subsidy in the initial operating period, B3WTC could only achieve a debt service coverage ratio of 0.37-0.55. Huaishang District will not need to provide any subsidies for the operation and debt service in the succeeding years if the tariffs increase additionally by 20% in 20 13. In order to alleviate investment risk and share financial responsibility, it is suggested that B3 WTC and Huaishang County should come to an agreement specifying their responsibility to share the capital cost, wastewater service charge, adjustment mechanism, and payment schedule.

54. Financial Sustainability. Evaluation of financial viability and sustainability of the project is also supported with sensitivity and risk analysis. In performing sensitivity analysis, several potential risks were used to test the responsiveness ofthe cost recovery and debt service ratios to adverse case scenarios throughout the projection period, such as increases in the investment and operating costs, delay in project implementation, and tariff increase. The results show that B3 WTC can withstand the highest risk scenario if the suggested tariffs are implemented and the government subsidy is provided. The financial performance is most sensitive to the deterioration of collection efficiency and the delay in tariff increase. Therefore, B3WTC should carefully monitor collection performance and timely implement the suggested tariffs.

67 Annex 10: Safeguard Policy Issues CHINA: Bengbu Integrated Environment Improvement Project

Overview

1. The project is classified as a Category A project, due to the complexity ofenvironmental issues associated with flood management, pollution control, and water resources management. Two Bank safeguard policies are triggered: (a) OP 4.01 Environmental Assessment; and (b) OP 4.12 Involuntary Resettlement.

2. The project components have been designed in line with a series ofurban infrastructure master plans and environmental laws and regulations in Bengbu, as well as Chinese standards on air, water, and noise pollution control and environmental protection. The project is expected to help bring about environmental, economic, and social benefits to the project areas, including reduction ofraw wastewater discharge, flood damage reduction, improved water bodies in the urban area, and industrial and agricultural development.

OP 4.01 EnvironmentalAssessment

3. Feasibility study reports were prepared by Chinese DIs and reviewed by international consultants. The specialized institute independent ofthe DIs preparing the feasibility study reports produced sub-project EIAs and EMPs. The consolidated EA was prepared based on the individual EIAs and EMPs with the assistance of international consultants. The EIA reports and EMPs identify potential environmental benefits and consequences ofthe project, analyze the alternatives considered during project design, propose measures to avoid, mitigate or otherwise compensate for negative environmental impacts during construction and operation, and allow incorporation of appropriate measures in the design to mitigate negative impacts to a minimum and acceptable level. The documents have been prepared on the basis ofthe country’s legal and policy framework for pollution control and environmental protection, master plans and environmental plans of Bengbu, and applicable World Bank safeguard policies. The EIA reports apply methodologies set out in various technical guidelines issued by SEPA and World Bank safeguard policieshechnical sourcebooks. The scope ofthe project covered by the EIA reports is based on the feasibility study reports for each ofthe project components.

4. Policy Framework and Institution: The Environmental Impact Assessment Law, issued in October 2002 and effective on 1 September 2003, is applicable to all construction projects that may cause negative impacts on the environment. According to the Management Regulation on Environmental Protection for Construction Projects, issued on November 29, 1998 by the State Council, an EIA must be prepared during the project feasibility study stage. EIA approval is a necessary prerequisite for securing a construction and operating permit.

5. The provincial EPB is responsible for environmental planning, monitoring and regulation. Specifically, it frames local laws, regulations and guidelines, administers industrial pollution control, sets effluent tariffs, conducts regular monitoring ofpollution, and develops plans for pollution control and environmental management. On the other hand, the municipal EPB

68 primarily: implements national and provincial environmental protection laws, regulations, and standards; prepares municipal plans for environmental protection; supervises the treatment and disposal ofpollutants; manages the protection ofthe ecological environment and biodiversity; and carries out educational and training programs to disseminate knowledge about environmental protection. Under the project, Bengbu EPB has played a central role in coordinating with the district and county EPBs. The individual EIAs were reviewed and approved by Anhui EPB.

6. Baseline Environmental Conditions: Bengbu is one ofthe municipalities in Anhui Province located in the central eastern part of China. Topographically, 86% ofthe municipality is plains with relatively centralized hills, and 8% ofthe total surface area is water due to interlaced inland rivers, canals and lakes. Bengbu is located in the northern edge ofthe north subtropical zone and in the humid subtropical monsoon climate region. The annual average precipitation is 905.4 mm.

7. In Bengbu, there lie many rivers and lakes which belong to the Huai and Huaihongxin river systems. Bengbu is in the lower section ofthe middle reaches ofthe Huai River, which has resulted in frequent flooding due to large amounts of flood discharge from upstream during the flood season every year.

8. The Huai River is one ofthe most polluted rivers in China. Despite considerable government efforts including the Bank-financed HRPCP, it remains one ofthe most difficult rivers to clean up. According to the historical monitoring results, its water quality for the Bengbu section has not met the Class I11 target in the last seven years, especially during the dry season from January to March when the flow rate ofthe Huai River is low and insufficient to dilute the incoming pollution.

9. Analvsis ofAlternatives: An extensive analysis oftechnical alternatives, including the ‘no project scenario’ was conducted for each component during feasibility study preparation, with the objective ofminimizing environmental impacts and costs. The ‘no project scenario’ has supported that the proposed project will help not only address such environmental issues as recurring floods and discharge ofuntreated wastewater but also improve people’s living environment and promote sustainable economic development in Bengbu.

10. For the Longzi Lake component, two kinds of desilting equipment, hydraulic dredging machine and cutter-suction dredger, were compared in terms ofapplicable conditions, energy consumption, working efficiency, required preparatory work, discharge distance, precision, and environmental and ecological impacts. The hydraulic dredging machine is found more suitable for the project since it is expected to have less environmental and ecological impacts and higher evacuation precision.

11. For the water supply component in MIZ, comprehensive analysis ofalternatives for the water source and location ofa water treatment plant, the water intake process, and the water distribution system was conducted. In each instance, taking into account both advantages and disadvantages, the option with less operation costs and environmental risks in the long term was selected.

69 12. In addition, for the wastewater treatment component in MIZ, various alternatives were considered for the location and discharge outfall of a WWTP, and the wastewater treatment process to select the option with less resettlement and environmental risks. Details are found in the feasibility study reports and the consolidated EA, which are available in the Project File.

13. Impact Assessment and Mitigation Measures: The proposed project would contribute to a significant improvement ofthe environment in and around the project areas by improving urban environmental infrastructure for water supply, wastewater treatment, flood control, and storm drainage. Among other things, the project would lead to a projected reduction of CODcr 3650 tfy and NH3-N 730 tfy discharged into the Huai River by increasing a treatment capacity of about 50,000 m3/day wastewater for No.1 WWTP upon completion. Through dredging ofthe lake, rivers, canals and storm drainage ditches, the project would also improve flood management and drainage capacity, surface water quality, and ecological environment and local landscape in and around the project areas. Taking an example of Longzi Lake, its storage capacity would increase by 1.15 million m3,nonpoint pollution due to its contaminated sediment would be eliminated, and the aquatic environment would be improved by reducing toxic and hazardous substances in the sediment. Moreover, the project would effectively upgrade the flood management standard of defined service area to prevent frequent floods, guarantee the safety ofpeople’s lives and properties, and promote industrial and agricultural development through the construction of storm drainage pumping stations.

14. Adverse impacts during the construction phase mainly include air pollution, noise, solid waste, traffic disruption, and ecological impacts. The following mitigation measures will be taken to address these adverse impacts.

(a) Air pollution: To prevent airborne dust during transportation, driving routes and timing will be carefully planned, the wheels will be cleaned on a regular basis, and loading and construction materials will be carefully loaded or unloaded. In addition, against airborne dust at the construction site, several measures such as frequent water sprinkling and cleaning, disposal ofconstruction materials in a timely manner, and vegetation rehabilitation will be adopted. Odors from disilting and possible improper disposal of solid waste will be prevented by using a hermitically-sealed tank car for transportation, and transporting the sediment and garbage from disilting immediately or appropriately handling for storage;

(b) Noise impacts: Possible noise impacts will be alleviated by avoiding night-time construction, keeping the entry and exit points for vehicles far away from the residential area, and using low-noise equipment;

(c) Solid waste: Solid waste such as desilted and sewage sludge, spoiled soil, and construction materials will be dealt with properly, i.e., timely disposal at pre-approved sites, reclamation, and regular cleaning ofvehicles and construction sites;

(d) TrafJic disruption: Traffic disruption will be prevented by avoiding rush-hour or night-time transportation ofbuilding and waste materials and carefully planning and communicating driving routes for residents; and

70 (e) Ecological impacts: In order to have minimal impact on the ecological environment during construction, various measures such as education to raise contractors' awareness about environmental protection, afforestation for soil erosion prevention, and shields for prevention oflandscape pollution will be introduced.

15. Key adverse impacts during the operation phase include odors, noise, solid waste, and wastewater. Mitigation measures against the adverse impacts are as follows:

(a) Odorsfiom the F":To ensure that the surrounding residential areas do not suffer from odor impacts, several measures will be taken including setting up ofthe sanitary buffer zone in accordance with national requirements and regulations, and green isolation belts, strengthened storage management, timely and proper transportation and disposal of sludge, and establishment ofthe accidents emergency response system;

(b) Noise impacts: Main noise sources will include storm drainage pump stations, traffic, the WWTP, and the water treatment plant. As measures against these noise impacts, low- noise mechanical equipment will be used and carefully maintained in good operating condition. In addition, afforestation around the noise sources will be strengthened for noise reduction and sound isolation. The monitoring system and program will be also established to regularly track the noise level;

(c) Solid waste: Solid waste will include mainly sewage from storm drainage pump stations, and sludge from the WWTP and the water treatment plant. The solid waste will be properly and safely collected, stored, or disposed of at designated areas to avoid a possible risk ofreleasing contaminants. Regular monitoring of sludge quality and treatment will be also conducted to prevent possible secondary pollution problems; and

(d) Wastewater: Monitoring of influent and effluent water quality from the WWTP and the water treatment plant, discharge outlets, the groundwater environment in treatment and disposal areas, etc. will be conducted on a regular basis. In addition, sewage and industrial water wastewater will be handled and discharged appropriately not to unfavorably affect the water environment. For the WWTP, the emergency response system will be established to prevent accidents from occurring.

16. Details of impacts and mitigation measures during both the construction and operation phases are found in the EMP and the consolidated EA.

17. Public Consultation and Information Disclosure: Two rounds ofpublic consultation were carried out through questionnaire surveys, public meetings, focused group discussions, and interviews in January and July 2007. The first round aimed to learn ofpublic concerns about the project, while the second round to communicate EIA findings and proposed mitigation measures and to confirm public acceptance and satisfaction. Both rounds focused on the PAPSand beneficiaries of different ages, genders, educational backgrounds and occupations. There also have been many rounds of consultation with government agencies, local governments, non- governmental organizations and other stakeholders ofthe project to discuss project locations, scope, environmental and socio-economic concerns, and environmental management and

71 mitigation plans. In addition, information on the project and potential environmental impacts has been publicly disclosed through such means as the local newspaper, libraries, the Internet, and government bulletin boards. The detailed information on public consultations and information disclosure activities is available in the Project File.

18. Environment Management Plan: An EMP has been developed as a separate and stand- alone document for each component. The EMP includes policies and applicable environmental standards, environmental management system, mitigation measures, monitoring plans, institutional arrangements, capacity building and estimated costs for the mitigation measures and monitoring programs for both the construction and operation phases. To ensure that applicable national, provincial and municipal environmental laws, regulations and standards, as well as Bank environmental requirements are respected during project preparation and implementation, environmental management units would be established both at the PMO and implementing agency levels. In addition, all project cities will engage specialists for environmental supervision.

19. The EMP includes environmental monitoring programs for both the construction and operation phases. The parameters to be monitored include noise, dust, water quality, and solid waste disposal. To ensure the strict and efficient implementation ofthe proposed mitigation measures, including environmental obligations during construction, a program ofmonitoring activities will be required. There are mainly two types ofmonitoring: (a) environmental supervision, Le., the general environmental monitoring of construction sites and activities; and (b) compliance monitoring, i.e., the specific monitoring of water quality, air quality and noise level (details are found in the EMP). The project progress reports furnished by BMPMO will include environmental monitoring reports. A summary annual report ofEMP implementation progress will be furnished to the Bank every year to report the activities conducted in the previous calendar year.

OP 4.12 Involuntary Resettlement

20. The project involves eight sub-projects in three categories: (a) two sub-projects in comprehensive water resources management for Longzi and Tianhe Lakes; (b) three sub-projects ofurban environment and infrastructure improvement, including Bengbu municipal urban infrastructure improvement, Huaishang District flood control and infrastructure improvement, and Xijiagou sub-proj ect; and (c) three sub-projects of environment and infrastructure improvement in Guzhen, Wuhe and Huaiyuan.

21. Individual RAPs for each sub-project were prepared in Chinese by DIs with the assistance of the respective PMOS, house demolition offices, LABS,affected villages and communities, and potential displaced persons. The RAPs were prepared in compliance with OP 4.12 Involuntary Resettlement and describe in detail project impacts, affected populations, consultation process, rehabilitation measures, budget, and implementation and monitoring arrangements. On the basis ofthe individual RAPs, a summary RAP was also produced in both Chinese and English. Six ofthe eight sub-projects involve land acquisition and resettlement. On the other hand, there are no resettlement impacts identified for the remaining two sub-projects, Le., Longzi and Tianhe Lake sub-projects, based on their current design. A brief note has been prepared explaining why there are no resettlement impacts.

72 22. During project design, project owners and the DIs assessed possible linkages with ongoing or previous activities, and found that the linkage issue exists in MIZ. To address the issue, a resettlement retroactive review and a resettlement policy framework were prepared, respectively.

23. Efforts were made to minimize resettlement impacts during project planning and design. The resettlement impacts were significantly reduced through optimizing the project design and implementation arrangements. For example, the total area or number ofhouses to be demolished has been minimized when demolition is inevitable. Details are found in Section 1.4 ofsummary RAP and each sub-project RAP.

24. Resettlement Impacts: The resettlement impacts will be seen in 11 townships with 46 villages. The project will affect 1 1, 128 people in total, ofwhich: (a) 9,127 people (2,422 households) will be affected by permanent acquisition ofthe collective land; (b) 267 people (77 households) affected by demolition of urban residential houses; (c) 1,7 10 people (405 households) affected by demolition of rural residential houses; and (d) 24 people affected by demolition of four small grocery stores. Among PAPs, 11 persons from seven households are identified as vulnerable according to the criteria described in the RAP. The detailed resettlement impacts are provided in the following table:

25. Policy Principles and Legal Framework: The RAP was prepared in line with relevant Chinese laws and regulations at both the national and local levels and OP 4.12 Involuntary Resettlement. The following basic principles were adopted for resettlement planning:

(a) Acquisition of land and other assets, and relocation ofpeople, will be minimized as much as possible;

(b) All PAPs residing, working, doing business or cultivating land required for the project as ofthe date ofthe baseline surveys are entitled to rehabilitation measures sufficient to assist them to improve or at least maintain their pre-project living standards, income- earning capacity and production levels. Lack of legal rights to the assets lost will not bar them from entitlement to such rehabilitation measures;

73 (c) The rehabilitation measures due to land acquisition include: (1) agricultural land for land of equal productive capacity; (2) compensation for land acquisition and resettlement subsidy for the farmers affected by land acquisition; and (3) other forms of assistance;

(d) Replacement ofagricultural land will be, as much as possible, similar to the land that was lost;

(e) Plans for acquisition ofland and other assets and provision ofrehabilitation measures will be carried out in consultation with PAPS;

(0 Financial and physical resources for resettlement and rehabilitation will be made available as and when required;

(g) Institutional arrangements will ensure effective and timely design, planning, consultation and RAP implementation; and

(h) Effective and timely supervision, monitoring and evaluation ofthe implementation will be carried out.

26. Compensation Standards: The compensation for land acquisition includes land compensation, resettlement subsidy, and young crop compensation. The land acquisition compensation is calculated based on annual production value according to the Law of Land Administration. The compensation rates ofstructures are determined based on their replacement costs. The detailed compensation rates are included in the RAPS.

27. Institutional Arrangements: A multi-level organization has been established for RAP implementation. An independent monitor will be selected through the bidding process for resettlement implementation. Details of staffing and their responsibilities are provided in the RAPS.

28. Public Consultation and Participation: The affected residents, business people and district governments participated in the census, inventory and formulation ofthe livelihood rehabilitation strategy, measures and relocation sites. Their feedbacks have been reflected in the compensation rates and livelihood rehabilitation measures. The RAP contains a list ofmajor consultation sessions.

29. Complains and Grievance: Issues that arise with respect to resettlement, such as compensation payment and rehabilitation measures, can be handled by the following established procedures:

Step I : Displaced persons can appeal verbally or in writing to an implementing agency if they are not satisfied with the RAP. For verbal appeal, the implementing agency should record in written form and solve the problems within two weeks;

Step 2: Ifthe displaced persons are still not satisfied with the decision ofStep I,they can appeal to BMPMO after receiving a decision notice, and BMPMO should resolve the case within two weeks;

74 Step 3: Ifthe displaced persons are still not satisfied with the decision of BMPMO, they can appeal to a local CC after receiving a decision notice. The latter should handle the case within two weeks; and

Step 4: Ifthe displaced persons are still not satisfied with the decision ofthe local CC, they can bring a lawsuit to a civil law court in case ofobjection to any aspect ofthe RAP after receiving a decision notice.

30. Monitoring Arrangements: Both internal and external monitoring mechanisms will be carried out. The project resettlement offices will conduct internal monitoring of resettlement implementation. An independent monitor will be selected for external monitoring. The contents and frequency ofboth internal and external monitoring are described in the RAP.

3 1. Resettlement cost and Funding Arrangements: Each sub-project RAP contains a detailed resettlement cost estimation that covers all the basic costs for resettlement, management, contingencies, surveys, design and monitoring. The basic resettlement cost includes compensation for land, houses, other structures, standing crops and trees, business losses, reconstruction of affected infrastructure, and relocation subsidies. The total resettlement budget is estimated at RMB 177 million. The resettlement cost will be covered through counterpart funds. Project owners will allocate the resettlement fund to resettlement implementation agencies, such as local LABSor housing demolishing agencies at the municipal level. The resettlement implementation agency will disburse the fund to PAPSor affected entities.

Indigenous People and Gender Issues

32. Demographic information on minorities in the project area was collected through SA. There are 36 ethnic minorities in Bengbu with a total of 35,267 people including Hui, Menggu, Man, Yi, Zhuang, Miao, Hani and Korean. But no minority group will be affected by the project. Therefore, OP 4.10 Indigenous Peoples is not triggered. SA was also carried out with a gender- sensitive approach. Women accounted for about 50% ofthe total population investigated during the socio-economic survey, focus group discussions and individual interviews. There are no gender issues which need to be addressed in project design and implementation.

75 Annex 11: Project Preparation and Supervision CHINA: Bengbu Integrated Environment Improvement Project

Planned Actual PCN review 12/12/2006 12/12/2006 Initial PID to PIC 12/20/2006 12/20/2006 Initial ISDS to PIC 02/16/2007 02/16/2007 Appraisal 09/17/2007 09/17/2007 Negotiations 01/16/2008 0 1/23/200 8 Board/RVP approval 03/20/2008 Planned date of effectiveness 06/20/2008 Planned date of mid-term review 12/3 1/20 10 Planned closing date 06/30/2014

Key institutions responsible for preparation of the project:

1. Bengbu Municipal Project Management Office 2. Bengbu Development Reform and Commission 3. Bengbu Construction Commission 4. Bengbu Finance Bureau 5. Bengbu Water Resources Bureau 6. Bengbu Environmental Protection Bureau 7. Bengbu Land Administration Bureau

Bank staff and consultants who worked on the project included:

Name Title Unit Shenhua Wang Task Team Leader EASUR Chandra Godavitarne Municipal Engineering Consultant Senior Water Resources Shunong Hu EASCS Specialist Water and Sanitation Mingyuan Fan EASCS Specialist Senior Environmental Chongwu Sun EASCS Specialist Chaogang Wang Senior Social Scientist EASCS Jian Xie Senior Economist EASRE Christoph Hugi Economist Consultant Yijing Ye Financial/Institutional Analyst Consultant Zhentu Liu Senior Procurement Specialist EAPCO Junxue Chu Senior Finance Officer LOAFC Financial Management Haixia Li EAPCO Specialist Margaret Png Sknior Counsel LEGES Miki Endo Operations Officer EASUR

76 Li Sheng Training Specialist WBI Project Management Shaojun Li EASCS Specialist Industrial Pollution Control Consultant Roger Heath Specialist Qihong Zhao Management Specialist Consultant Investment Promotion Carl Aaron Consultant Specialist Hirotaka Izumi Operations Analyst Consultant Vellet Fernandes Program Assistant EASUR Xuemei Guo Team Assistant EACCF

Peer Reviewers: Karin Kemper Sector Manager SASDN Martin Gambrill Senior Water Engineer LCSUW Gary Fine Senior PSD Specialist ECAVP Hao Sun Investment Officer IFC

77 Annex 12: Documents in the Project File CHINA: Bengbu Integrated Environment Improvement Project

A. Government and Consultant Reports

1. Bengbu 11 th Social and Economic Development Five-Year Plan, January 2006 2. Bengbu City Master Plan 2003-2020: Executive Summery Report, December 2004 3. Circular on Establishing Leading Group for Bengbu Integrated Environment Improvement Project, May 2006 4. Proposal of Bengbu Flood Control and Ecological and Environmental Rehabilitation Project, March 2006 5. Report on Using World Bank Loan for Bengbu Integrated Environment Improvement Project, September 2006 6. Inception Report, prepared by BURGEAP, April 2007 7. Social Assessment, prepared by the National Research Center for Resettlement of Hohai University, August 2007 8. Consolidated Feasibility Study Reports, prepared by BURGEAP and SOGREAH China, September 2007 9. Project Proposals, prepared by BURGEAP 10. Consolidated Resettlement Action Plan, prepared by the Bengbu Municipal Project Management Office and the Hefei Municipal Engineering Design Institute Co. Ltd., August 2007 11. Environmental Impact Assessment, October 2007 12. Environmental Management Plan, October 2007

B. Bank Staff Assessment

1. Identification Mission Aide Memoire (# 1), September 2006 2. Preparation Mission 1 Aide Memoire (#2), February 2007 3. Preparation Mission 2 Aide Memoire (#3), April 2007 4. Preparation Mission 3 Aide Memoire (#4), June 2007 5. Pre-Appraisal Mission Aide Memoire (#5), July 2007 6. Appraisal Mission Aide Memoire (#6), September 2007 7. Procurement Capacity Assessment Report, September 2007 8. Financial Management System Assessment Report, August 2007

78 Annex 13: Statement of Loans and Credits CHINA: Bengbu Integrated Environment Improvement Project

Difference between expected and actual Original Amount in US$ Millions disbursements ProjectID FY Purpose IBRD IDA SF GEF Cancel. Undisb. Orig. Frm. Rev’d PO83322 2007 CN-SICHUAN URBAN DEV 180.00 0.00 0.00 0.00 0.00 175.00 -5.00 0.00 PO87318 2007 CN--GEF-Guangxi Integrated Forestry 0.00 0.00 0.00 5.25 0.00 5.25 0.08 0.00 Dev. PO81776 2007 CN-GUANGDONGPRD2 96.00 0.00 0.00 0.00 0.00 96.00 3.00 0.00 PO88964 2007 CN-Guangxi Integrated Forestry Dev 100.00 0.00 0.00 0.00 0.00 92.00 -7.17 0.00 PO86515 2007 CN-3rd National Railway 200.00 0.00 0.00 0.00 0.00 200.00 0.00 0.00 PO91020 2007 CN-Fujian Highway Sector Investment 320.00 0.00 0.00 0.00 0.00 320.00 21.00 0.00 PO92618 2007 CN-LIAONMG MED CITIES INFRAS 2 173.00 0.00 0.00 0.00 0.00 173.00 0.00 0.00 PO77752 2007 CN-SHANDONG ENVMT 2 147.00 0.00 0.00 0.00 0.00 147.00 0.00 0.00 PO95315 2007 CN-W. REGION RURAL WATER & 25.00 0.00 0.00 0.00 0.00 25.00 0.00 0.00 SAN. PO75613 2007 CN-Shaanxi Ankang Road Development 300.00 0.00 0.00 0.00 0.00 300.00 2.41 0.00 PO96285 2007 CN-MSE Finance 100.00 0.00 0.00 0.00 0.00 100.00 0.00 0.00 PO85124 2006 CN-Ecnomic Reform Implementation 20.00 0.00 0.00 0.00 0.00 18.44 1.44 0.00 PO84742 2006 CN-IAIL I11 200.00 0.00 0.00 0.00 0.00 142.88 23.27 0.00 PO82993 2006 CN-GEF-PCB Mgnt & Disposal 0.00 0.00 0.00 18.34 0.00 17.57 7.56 0.00 PO82992 2006 CN-GEF-Termite Control Demonstration 0.00 0.00 0.00 14.36 0.00 14.36 0.57 0.00 PO81348 2006 CN-HENAN TOWNS WATER 150.00 0.00 0.00 0.00 0.00 149.63 12.13 0.00 PO70519 2006 CN-Fuzhou Nantai Island Peri-Urban Dev 100.00 0.00 0.00 0.00 0.00 99.75 17.25 0.00 PO81255 2006 CN-ChangjiangPearl River Watershed 100.00 0.00 0.00 0.00 0.00 97.75 12.42 0.00 Reha PO75732 2006 CN-SHANGHAI URBAN APL2 180.00 0.00 0.00 0.00 0.00 149.79 6.45 0.00 PO85333 2006 CN-5th Inland Waterways 100.00 0.00 0.00 0.00 0.00 74.99 19.16 0.00 PO99992 2006 CN-Liaoning Medium Cities 218.00 0.00 0.00 0.00 0.00 190.41 -13.43 0.00 Infrastructure PO96158 2006 CN-Renewable Energy I1 (CRESP 11) 86.33 0.00 0.00 0.00 0.00 72.67 -13.66 0.00 PO94388 2006 CN-HFC-23 Emissions Reduction 0.00 0.00 0.00 0.00 0.00 1,011.89 0.00 0.00 PO93906 2006 CN-3rd Jiangxi Hwy 200.00 0.00 0.00 0.00 0.00 181.82 -18.18 0.00 PO90336 2006 CN-GEF-NMGBO WATER & ENVMT 0.00 0.00 0.00 5.00 0.00 4.50 0.83 0.00 PO86629 2006 CN-Heilongjiang Dairy 100.00 0.00 0.00 0.00 0.00 94.64 6.81 0.00 PO75730 2005 CN-HUNAN URBAN DEV 172.00 0.00 0.00 0.00 0.00 160.06 46.73 0.00 PO86505 2005 CN-NINGBO WATER & ENVMT 130.00 0.00 0.00 0.00 0.00 101.25 -1.75 0.00 PO72721 2005 CN-GEF-Heat Reform & Bldg Egy Eff, 0.00 0.00 0.00 18.00 0.00 14.95 6.78 0.00 PO81161 2005 CN-CHONGQMG SMALL CITIES 180.00 0.00 0.00 0.00 0.00 162.73 40.40 0.00 PO71094 2005 CN - Poor Rural Communities 100.00 0.00 0.00 0.00 0.00 82.03 42.33 0.00 Development PO67625 2005 CN-GEF-Renewable Energy Scale-up 0.00 0.00 0.00 40.22 0.00 37.67 -0.35 0.00 Program PO81346 2005 CN-LIUZHOU ENVIRONMENT MGMT 100.00 0.00 0.00 0.00 0.00 76.38 4.18 0.00 PO67828 2005 CN-Renewable Energy Scale-up Program 87.00 0.00 0.00 0.00 10.00 9.38 13.38 0.00 PO69862 2005 CN - Agricultural Technology Transfer 100.00 0.00 0.00 0.00 0.00 78.24 26.00 0.00 PO87291 2005 CN-PCF Jincheng Coal Bed Methane 0.00 0.00 0.00 0.00 0.00 18.13 0.00 0.00 Project

79 PO68752 2005 CN-Inner Mongolia Highway & Trade 100.00 0.00 0.00 0.00 0.00 51.55 -9.28 0.00 Conid PO57933 2005 CN-TAI BASIN URBAN ENVMT 61.00 0.00 0.00 0.00 0.00 34.18 15.36 0.00 PO81749 2004 CN-Hubei Shiman Highway 200.00 0.00 0.00 0.00 1.oo 19.95 -12.39 0.00 PO84003 2004 CN-GEF GUANGDONG PRD URB 0.00 0.00 0.00 10.00 0.00 9.70 5.12 0.00 ENV PO776 15 2004 CN-GEF-Gansu & Xinjiang Pastoral 0.00 0.00 0.00 10.50 0.00 5.91 8.12 0.00 Develop PO77137 2004 CN-4th Inland Waterways 91.00 0.00 0.00 0.00 0.46 57.55 22.67 22.17 PO75728 2004 CN-GUANGDONGPRD UR ENVMT 128.00 0.00 0.00 0.00 0.64 74.58 7.12 0.00 PO65035 2004 CN-Gansu & Xinjiang Pastoral 66.27 0.00 0.00 0.00 0.00 26.15 12.13 0.00 Development PO75602 2004 CN-2nd National Railways (Zhe-Gan 200.00 0.00 0.00 0.00 1.00 2.63 -29.70 -30.70 Line) PO75035 2004 CN - GEF-Hai Basin Integr. Wat. 0.00 0.00 0.00 17.00 0.00 11.07 10.32 0.00 Env.Man. PO73002 2004 CN-Basic Education in Western Areas 100.00 0.00 0.00 0.00 0.00 38.37 35.07 0.00 PO65463 2004 CN-Jiangxi Integrated Agric. Modern. 100.00 0.00 0.00 0.00 0.00 61.14 30.59 0.00 PO66955 2004 CN-ZHEJIANG URBAN ENVMT 133.00 0.00 0.00 0.00 0.00 90.34 30.85 0.00 PO69852 2004 CN-Wuhan Urban Transport 200.00 0.00 0.00 0.00 1.oo 82.38 78.64 0.00 PO67337 2003 CN-2nd GEF Energy Conservation 0.00 0.00 0.00 26.00 0.00 7.17 25.82 0.00 PO40599 2003 CN-TIANJM URB DEV I1 150.00 0.00 0.00 0.00 0.00 128.76 69.85 1.67 PO68058 2003 CN-Yixing Pumped Storage Project 145.00 0.00 0.00 0.00 0.00 52.72 37.99 0.00 PO70191 2003 CN-SHANGHAI URB ENVMT APLl 200.00 0.00 0.00 0.00 0.00 88.67 45.12 0.00 PO70441 2003 CN-Hubei Xiaogan Xiangfan Hwy 250.00 0.00 0.00 0.00 0.00 19.25 19.25 0.00 PO58847 2003 CN-3rd Xinjiang Hwy Project 150.00 0.00 0.00 0.00 0.00 19.16 16.49 0.00 PO76714 2003 CN-2nd Anhui Hwy 250.00 0.00 0.00 0.00 0.00 58.62 16.95 0.00 PO60029 2002 CN-GEF-Sustain. Forestry Dev 0.00 0.00 0.00 16.00 0.00 5.91 14.30 0.00 PO58846 2002 CN-Natl Railway Project 160.00 0.00 0.00 0.00 5.00 1.56 6.56 0.00 PO64729 2002 CN-Sustainable Forestry Development 93.90 0.00 0.00 0.00 0.00 20.14 12.25 0.00 PO68049 2002 CN-Hubei Hydropower Dev in Poor Areas 105.00 0.00 0.00 0.00 0.00 17.64 10.10 0.00 PO70459 2002 CN-Inner Mongolia Hwy Project 100.00 0.00 0.00 0.00 0.00 20.33 10.99 0.00 PO71 147 2002 CN-Tuberculosis Control Project 104.00 0.00 0.00 0.00 0.00 43.58 26.04 0.00 PO45915 2001 CN-Urumqi Urban Transport 100.00 0.00 0.00 0.00 0.00 32.17 32.17 0.00 PO47345 2001 CN-HUAI RIVER POLLUTION 105.50 0.00 0.00 0.00 0.00 14.80 14.80 -2.98 CONTROL PO5 1859 2001 CN-LIAO RIVER BASIN 100.00 0.00 0.00 0.00 0.00 14.47 13.51 0.00 PO56 199 2001 CN3rd Inland Waterways 100.00 0.00 0.00 0.00 0.00 7.67 5.67 0.00 PO56596 2001 CN-Shijiazhuang Urban Transport 100.00 0.00 0.00 0.00 0.00 46.04 46.04 0.00 PO42109 2000 CN-BEIJMG ENVIRONMENT I1 349.00 0.00 0.00 25.00 26.51 168.22 194.73 8.62 PO45910 2000 CN-HEBEI URBAN ENVIRONMENT 150.00 0.00 0.00 0.00 0.00 33.78 33.78 4.53 PO64730 2000 CN-Yangtze Dike Strengthening 210.00 0.00 0.00 0.00 0.00 68.20 68.20 29.86 PO64924 2000 CN-GEF-BEIJING ENVMT I1 0.00 0.00 0.00 25.00 0.00 19.12 25.00 8.48 PO49436 2000 CN-CHONGQING URBAN ENVMT 200.00 0.00 0.00 0.00 29.50 57.42 86.92 7.92 PO56424 2000 CN-Tongbai Pumped Storage 320.00 0.00 0.00 0.00 100.00 28.49 133.69 3.91 PO51856 1999 CN-Accounting Reform & Development 27.40 5.60 0.00 0.00 0.00 6.18 6.03 4.07 PO38121 1999 CN-GEF-RenewableEnergy 0.00 0.00 0.00 35.00 0.00 5.97 34.77 28.90 Development P0 4 2 2 9 9 1999 CN-Tec Coop Credit IV 10.00 35.00 0.00 0.00 5.84 11.49 14.97 0.00 PO36953 1999 CN-Health IX 10.00 50.00 0.00 0.00 0.40 13.01 11.59 11.59 PO36414 1998 CN-GUANGXI URBAN ENVMT 72.00 20.00 0.00 0.00 13.48 12.39 25.23 2.56

80 PO03614 1998 CN-Guangzhou City Transport 200.00 0.00 0.00 0.00 20.00 45.79 65.79 45.79 PO03539 1998 CN-Sustainable Coastal Resources Dev. 100.00 0.00 0.00 0.00 2.06 11.14 13.20 11.14 Total: 9,205.40 110.60 0.00 265.67 216.89 6,340.52 1,597.06 157.53

CHINA STATEMENT OF IFC’s Held and Disbursed Portfolio In Millions of US Dollars

Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic. 2002 ASIMCO 0.00 10.00 0.00 0.00 0.00 10.00 0.00 0.00 2006 ASIMCO 0.00 0.00 4.12 0.00 0.00 0.00 3.61 0.00 2005 BCCB 0.00 59.21 0.00 0.00 0.00 59.03 0.00 0.00 2003 BCIB 0.00 0.00 12.04 0.00 0.00 0.00 0.00 0.00 2006 BUFH 8.14 0.00 0.00 0.00 8.14 0.00 0.00 0.00 2005 Babei 0.00 5.00 0.00 0.00 0.00 5.00 0.00 0.00 Babei Necktie 1 1.oo 0.00 0.00 6.00 8.94 0.00 0.00 4.88 1999 Bank of Shanghai 0.00 21.76 0.00 0.00 0.00 21.76 0.00 0.00 2000 Bank of Shanghai 0.00 3.84 0.00 0.00 0.00 3.84 0.00 0.00 2002 Bank of Shanghai 0.00 24.67 0.00 0.00 0.00 24.67 0.00 0.00 2005 BioChina 0.00 3.70 0.00 0.00 0.00 3.13 0.00 0.00 2002 CDH China Fund 0.00 2.02 0.00 0.00 0.00 0.00 0.00 0.00 2005 CDH China I1 0.00 17.99 0.00 0.00 0.00 11.38 0.00 0.00 2006 CDH Venture 0.00 20.00 0.00 0.00 0.00 0.51 0.00 0.00 2005 CT Holdings 0.00 0.00 40.00 0.00 0.00 0.00 0.00 0.00 2004 CUNA Mutual 0.00 10.53 0.00 0.00 0.00 0.00 0.00 0.00 2006 Capital Today 0.00 25.00 0.00 0.00 0.00 0.32 0.00 0.00 2005 Changyu Group 0.00 18.07 0.00 0.00 0.00 18.07 0.00 0.00 1998 Chengdu Huarong 3.36 3.20 0.00 3.13 3.36 3.20 0.00 3.13 2004 China Green Ener 20.00 0.00 0.00 0.00 15.00 0.00 0.00 0.00 2004 China Re Life 0.00 0.27 0.00 0.00 0.00 0.27 0.00 0.00 1994 China Walden Mgt 0.00 0.01 0.00 0.00 0.00 0.01 0.00 0.00 2006 Chinasoft 0.00 0.00 15.00 0.00 0.00 0.00 10.00 0.00 2004 Colony China 0.00 15.31 0.00 0.00 0.00 9.29 0.00 0.00 2004 Colony China GP 0.00 0.84 0.00 0.00 0.00 0.49 0.00 0.00 2006 Conch 81.50 40.93 0.00 0.00 81.50 0.00 0.00 0.00 2006 Dagang Newspring 25.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2002 Darong 10.00 0.24 0.00 8.00 6.67 0.24 0.00 5.33 2006 Deqingyuan 0.00 2.85 0.00 0.00 0.00 2.85 0.00 0.00 1994 Dynamic Fund 0.00 2.21 0.00 0.00 0.00 2.01 0.00 0.00 2007 Epure 0.00 10.00 0.00 0.00 0.00 0.00 0.00 0.00 2004 Fenglin 17.64 0.00 6.00 13.47 13.64 0.00 6.00 12.53 2006 Fenglin HJ MDF 0.23 0.00 0.00 3.27 0.00 0.00 0.00 0.00 2005 Five Star 0.00 0.00 7.00 0.00 0.00 0.00 0.00 0.00

81 2006 GDIH 50.85 0.00 0.00 0.00 50.85 0.00 0.00 0.00 2003 Great Infotech 0.00 1.73 0.00 0.00 0.00 1.03 0.00 0.00 2006 Hangzhou RCB 0.00 10.85 0.00 0.00 0.00 0.00 0.00 0.00 2005 HiSoft Tech 0.00 4.00 0.00 0.00 0.00 3.00 0.00 0.00 2006 HiSoft Tech 0.00 4.34 0.00 0.00 0.00 1.74 0.00 0.00 2004 IB 0.00 52.18 0.00 0.00 0.00 52.18 0.00 0.00 2004 Jiangxi Chenming 40.00 12.90 0.00 18.76 40.00 12.90 0.00 18.76 2006 Launch Tech 0.00 8.35 0.00 0.00 0.00 8.33 0.00 0.00 2001 Maanshan Carbon 5.25 2.00 0.00 0.00 5.25 2.00 0.00 0.00 2005 Maanshan Carbon 11.00 1.oo 0.00 0.00 5.00 1 .oo 0.00 0.00 2005 Minsheng 15.75 0.00 0.00 0.00 7.00 0.00 0.00 0.00 2006 Minsheng & IB 25.09 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2001 Minsheng Bank 0.00 23.50 0.00 0.00 0.00 23.50 0.00 0.00 2005 Minsheng Bank 0.00 2.80 0.00 0.00 0.00 2.79 0.00 0.00 2001 NCCB 0.00 8.94 0.00 0.00 0.00 8.82 0.00 0.00 1996 Nanjing Kumho 0.00 3.81 0.00 0.00 0.00 3.81 0.00 0.00 2004 Nanjing Kumho 31.38 2.23 0.00 0.00 31.38 2.23 0.00 0.00 2006 Neophotonics 0.00 0.00 10.00 0.00 0.00 0.00 10.00 0.00 2001 New China Life 0.00 5.83 0.00 0.00 0.00 5.83 0.00 0.00 2005 New Hope 0.00 0.00 45.00 0.00 0.00 0.00 0.00 0.00 1995 Newbridge Inv. 0.00 0.22 0.00 0.00 0.00 0.22 0.00 0.00 2005 North Andre 8.00 6.74 0.00 0.00 0.00 4.25 0.00 0.00 2003 PSAM 0.00 2.01 0.00 0.00 0.00 0.00 0.00 0.00 RAK China 13.00 0.00 0.00 0.00 13.00 0.00 0.00 0.00 2006 Renaissance Sec 0.00 0.00 20.04 0.00 0.00 0.00 0.00 0.00 2006 Rongde 0.00 35.00 0.00 0.00 0.00 3 1.38 0.00 0.00 SAC HK Holding 0.00 1.60 0.00 0.00 0.00 1.00 0.00 0.00 2003 SAIC 12.00 0.00 0.00 0.00 12.00 0.00 0.00 0.00 2006 SBCVC 0.00 20.00 0.00 0.00 0.00 2.00 0.00 0.00 2000 SEAF SSIF 0.00 3.74 0.00 0.00 0.00 3.37 0.00 0.00 SH Keji IT 3.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2004 SHCT 38.18 0.00 0.00 28.64 29.04 0.00 0.00 21.78 2004 SIBFI 0.14 0.07 0.00 0.00 0.00 0.07 0.00 0.00 1998 Shanghai Krupp 19.25 0.00 0.00 36.75 19.25 0.00 0.00 36.75 2006 Shanshui Group 50.00 5.50 2.20 0.00 50.00 5.50 0.00 0.00 1999 Shanxi 12.61 0.00 0.00 0.00 12.61 0.00 0.00 0.00 SinoSpring 0.00 0.00 20.00 0.00 0.00 0.00 0.00 0.00 Stora Enso 20.83 0.00 0.00 4.17 11.00 0.00 0.00 0.00 2005 Stora Enso 29.17 0.00 0.00 20.83 0.00 0.00 0.00 0.00 2006 Stora Enso 50.00 0.00 0.00 175.00 0.00 0.00 0.00 0.00 2006 TBK 4.00 0.00 0.00 0.00 2.00 0.00 0.00 0.00 2006 VeriSilicon 0.00 1.oo 0.00 0.00 0.00 1.oo 0.00 0.00 Wanjie High-Tech 9.89 0.00 0.00 0.00 9.89 0.00 0.00 0.00 2004 Wumart 0.00 1.62 0.00 0.00 0.00 1.62 0.00 0.00 2003 XACB 0.00 17.95 0.00 0.00 0.00 0.64 0.00 0.00 2004 Xinao Gas 25.00 10.00 0.00 0.00 25.00 10.00 0.00 0.00 2006 Zhejiang Glass 50.00 24.96 0.00 18.00 0.00 0.00 0.00 0.00 2003 Zhengye-ALX 10.43 0.00 0.00 4.87 10.43 0.00 0.00 4.87 2002 Zhong Chen 0.00 4.78 0.00 0.00 0.00 4.78 0.00 0.00

82 2006 Zhongda-Yanjin 21.89 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Total portfolio: 733.58 577.30 181.40 340.89 470.95 371.06 29.61 108.03

______~ ~_____ Approvals Pending Commitment FY Approval Company Loan Equity Quasi Partic. 2002 SML 0.00 0.00 0.00 0.00 2004 NCFL 0.00 0.00 0.02 0.00 2007 Xinao CTC 0.04 0.01 0.00 0.14 2004 China Green 0.00 0.00 0.01 0.00 2006 Launch Tech 0.01 0.00 0.00 0.00 2005 MS Shipping 0.00 0.01 0.00 0.00 2003 Peak Pacific 2 0.00 0.01 0.00 0.00 Total pending commitment: 0.05 0.03 0.03 0.14

83 Annex 14: Country at a Glance CHINA: China Bengbu Integrated Environment Improvement Project

East Lower. POVERTY and SOCIAL /Development dlamond. Chlna ::&: E!':: 2006 Population, midyear (millions) 1304.5 1885 2,475 Life expectancy GNi percapita (Atlas method, US$) 1740 1827 19s GNI (Atlas method, US$ billions) 2269.8 3,067 4,147 Average annual growth, 1sss.06 T Population (Sy 0.7 0.9 GNi Laborforce (Sy 10 13 :: I per Most recent estimate (latest year avallable, lS99.06) capita Poverty (%of population belo wnationelpo veriyiine) Urban population (%oftotalpopulation) 40 41 Life expectancyat birth ()ears) 71 70 70 50 Y Infant mortality (per 1OOOIive birlhs) 28 29 33 Chiidmainutrition (%ofchildrenunder5) 8 15 t? Access to improvedwatersource Access to an improvedwatersource (%ofpopulation) 77 79 82 Literecy (%ofpopulation age By 91 91 89 Gross primary enrollment (%of school-agepopulation) 1s m M -China M aie 18 lm r6 Lowr-middle-income group Female In M m KEY ECONOMIC RATIOS and LONQ-TERM TRENDS

1986 1996 2004 2006 Economic ratios. GDP (US$ billions) 304.9 728.0 19317 2,228.9 Gross capital formationJGDP 37.8 39.3 38.7 Trade Exports of goods and ServiceslGDP 0.0 23.1 34.0 Gross domestic SavingsiGDP 33.8 415 412 Gross national savingsiGDP 34.0 40.1 42.2 Current account balanceiGDP -3.8 0.8 3.6 5.0 Domestic Capital interest paymentsiGDP 0.2 0.8 02 savings formation Total debtiGDP 5.5 6.2 P.9 Total debt serviceleqxvts 7.7 8.6 3.5 Present value of debtiGDP 12.5 Present value of debtieports 35.7 indebtedness 1986-96 1996.06 2004 2006 2005.09 I (average annual gmu4h) GDP 9.7 8.8 0.1 9.9 8.0 -China GDP percapita 8.2 8.0 9.4 9.2 7.3 Lo wr-middle-income group Exports of goods and services 9.4 8.7 28.4 23.8 0.3

STRUCTURE of the ECONOMY

(%ofGDP) Agriculture 28.4 8.8 0.1 industry 43.1 47.2 46.2 Manufacturing 34.9 Services 28.5 33.1 40.7

Household final consumption expenditure 53.2 47.5 48.5 00 01 02 03 04 05 General gov't final consumption expenditure 0.2 110 0.2 -GCF -GDP Imports of goods and services 14.1 20.9 314

1g96.06 Growth of exports and Imports (%) (average annualgrouth) Agriculture 4.2 3.3 8.3 5.0 4o T industry 128 99 ni Manufacturing 00 Services 95 97 I Household final consumption expenditure 0.2 5.7 11 General gov't final consumption expenditure 9.4 8.9 8.8 :: lo-5 I Gross capital formation 9.4 0.1 0.0 0.5 -Expoiill -Imports imports of goods and services 0.3 U.4 22.5 8.3

Note:2005 data are preiiminalyestimates. This tablewas producedfrom theDevelopment Economics LDB database. 'Thediamonds showfourkeyindicators in thecountry(in bo1d)comparedvithits income-groupaverage. Ifdataaremissing,thediamondvili be incomplete.

84 BALANCE of PAYMENTS 1985 1995 2004 2005 Current account balance to GDP (Oh) (US$ millions) Evorts of goods and services 30,489 67,974 655,827 843,537 Imports of goods and services 43,092 151882 606,543 746,150 Resource balance -Q,602 15,092 49,284 97,386 Net income 841 -11,774 -3,523 4,668 Net current transfers 243 1,434 22,898 13,000 Current account balance -11,518 5,752 68,659 1P,055 Financing items (net) 6,096 8,711 137,705 98,000 Changes in net reserves 5,422 -22,463 -206.364 -213,055 1 09 00 01 02 03 04 05 Memo: Reserves including gold (US$ millions) 80,277 622,945 826,303 Conversion rate (DEC, local/US$) 29 8.4 8.3 6.2

EXTERNAL DEBT and RESOURCE FLOWS 1985 1995 2004 2005 (US$ millions) Total debt outstanding and disbursed 6.696 118,090 248,934 IBRD 498 7,209 11035 12240 A: 11,035 IDA 43 1 7,038 13,670 9,741 8: '0.670 Total debt service 2,478 15,066 23,657 IBRD 26 813 1,054 1139 IDA 4 63 264 296 G Iff 592 Composition of net resource flows Official grants Iff 330 381 Official creditors Ill7 7,902 6 Privata creditors 2,867 5,013 7,970 Foreign direct investment (net inflows) 1,659 35,849 54,936 Portfolio equity(net inflows) 0 0 13,923 World Bank program Commitments 1,092 3,248 1,285 A. IBRD E- Bilawd Disbursements 565 2,269 1188 1,131 B-IDA D-Otherrmltilateid F-Private Principal repayments 0 364 999 1004 G - Short-ten Net flows 565 1,905 80 a7 Interest payments 29 509 38 430 Net transfers 536 1,396 -130 -303

Note This tablewas producedfrom the Development Economics LDB database. 8/P/06

China

PRICES andGOVERNMENT FINANCE 1985 1995 2004 2005 Domestic prices (%change) Consumer prices .. 6.9 4.0 18 Implicit GDP deflator 13.1 13.7 69 3.8 Governmeni finance (%of GDP, includes current grants) Current revenue 28.0 lI.8 6.6 ff.5 Current budget balance 7.3 0.6 17 2.0 -GDPdefiator -ww-CPI Overall surplus/deficit 0.0 -t5 -15 -13

TRADE 1985 1995 2004 2005 (US$ miilions) Totalexports (fob) 27,350 148,780 593,369 771,511 Food 3,803 9,954 18,870 Mineralfuels. lubncants, and related material! 7,132 5,332 %,476 Manufactures 13,522 t27,295 552.818 727,191 Total imports (cif) 42,252 132.084 561,423 674,331 Food 1,553 6,132 9,156 Fuel and energy ff2 5,t?7 48,003 Capital goods 6,239 52,642 252,624 230,369 Export price index (2000-00) 52 118 132 136 Import pnce index(2000=00) 74 137 la 18 Terms of trade (2000=X)O) 70 113 91 88

85

MAP SECTION

IBRD 35665

117°E 117°6'E 117°12'E 117°18'E 117°24'E 117°30'E 117°36'E 117°42'E 117°48'E CHINA 33°24'N 33°24'N BENGBU INTEGRATED ENVIRONMENT IMPROVEMENT PROJECT

PS PS Water Supply & Drainage System Construction PS PS Guzhen County WTP WTP 1)The 2nd WTP Extention & Water supply Networks 2)WWTP of Industiral Park & Sewage Networks WWTP WWTP PS PS 3)WTP of Industiral Park & Water supply Networks Guzhen County 33°18'N 33°18'N PS WATER SUPPLY PIPES PS 1) Urban Flood control 2) Ecological Environmental CANAL DESILTING Improvement ROADS DIKE CONSTRUCTION DIKE REINFORCEMENT SEWAGE NETWORKS STORMWATER NETWORKS 33°12'N 33°12'N LAKE DESILTING Water Environmental Treatment Project Wuhe County PREVIOUS WB PROJECT AREA 1) Water Supply Networks 2) Wastewater Networks JAPANESE FUNDED PROJECTS

WTP DISTRICT BOUNDARY COUNTY BOUNDARY

MUNICIPAL BOUNDARY

Water Environmental Treatment Project Data Source: Zhongnan DI; BURGÉAP; BIEIP. 33°6'N 33°6'N Urban Area of Guobei, Huaiyuan County Wuhe County Satellite Images: Spot April, 2007 on top of Landsat TM, 2000. 1) WWTP & Wastewater Networks Huaishang District 2) Stormwater Networks 1) Sanpu Pump station & Canal Desilting 3) WTP & Water Supply Networks (Bengbu Urban Area) 2) Water Source Intake,WTP & Networks 1) Wuxiaojie Pump Station 3) WWTP,Storm Water & Waste Water Networks 2) Acess Road to Huaibei Dike 4) Mohekou Roads Construction 031.5 6912 Huaiyuan County 3) Xiaobengbu Pump Station Drainage System Construction KILOMETERS 1) Desilting & Retention Bengbu City (North of Huai River) 4) Wangxiaogou Pump Station Pond Improvement Bengbu City (North of Huai River) 2) Storm Water Drainage 2)Drainage Ditch Treatment This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information Networks & Pump Stations The Huai River Pollution shown on this map do not imply, on the part of The World Bank 3) West City Roads Control Project (WB 2000) 33°N Group, any judgment on the legal status of any territory, or any 33°N endorsement or acceptance of such boundaries.

PS WWTP RUSSIAN PS Tianhe Lake PS FEDERATION PS PS PS Tianhe Lake Storm Water PS PS Drainage Pump Station PS HEILONGJIANG

Yangtaizi WWTP Construction MONGOLIA PS Bengbu City (200,000m3/d) JILIN PS Sea of XINJIANG 32°54'N LIAONING Japan JAPAN 32°54'N D.P.R. OF NEI MONGOLBEIJING KOREA BEIJING Xijiagou & Baligou TIANJIN HEBEI REP. OF KOREA (Bengbu Urban Area) SHANXI SHANDONG Yellow Sea 1) Improvement of Ying River System Longzi Lake QINGHAI NINGXIA GANSU 2) Imprvement of Baligou JIANGSU (Bengbu Urban Area) SHAANXI HENAN Drainage System Construction BengbuBengbu East Bengbu City(South of Huai River) China 1) Longzi Lake Stormwater Drainage ANHUI SHANGHAI 1) Nanhuan Road Stormwater pipes XIZANG HUBEI Sea SICHUAN 2) Nanhuan Road Sewage pipes Pump Station ZHEJIANG 3) Two Sewage Pump Stations Urban Drainage & Storm Discharge 2) Longzi Lake Desilting & Reforestion CHONGQING JIANGXI 32°48'N HUNAN 32°48'N (Bengbu Urban Area) GUIZHOU FUJIAN National Capital 1) Urban Sewerage & Stormwater Discharge system PACIFIC Province YUNNAN TAIWAN 2) 50Km Networks in the High Tech Zone Boundaries GUANGXI GUANGDONG OCEAN 3) Networks,Pump Station & Roads, Longzi Lake District International HONG KONG MYANMAR MACAO Boundaries LAO VIETNAM P.D.R. 117°E 117°6'E 117°12'E 117°18'E 117°24'E 117°30'E 117°36'E 117°42'E 117°48'E HAINAN PHILIPPINES SEPTEMBER 2007 IBRD 35666

CHINA BENGBU INTEGRATED ENVIRONMENT IMPROVEMENT Wangxiaogou Canal Desilting PROJECT

PS PS

WWTP WWTP DRAINAGE PIPES Pump Station Replacement CANAL DESILTING Southern Access Road HUAIYUAN-HUAISHANG SEWER Huangshang Sewers ROADS PS WuxiaojieWuuxiaojixiaojie SEWAGE NETWORKS

New Flood Control STORMWATER NETWORKS Pump Station PS WWangxiaogouanngxiaogogxiaogou Existing WWTP New Flood Control ZhihuaiZhihuaihuai RoadRRoaoad Pump Station DISTRICT BOUNDARY PS COUNTY BOUNDARY HHuaishangHuaiuaishanang WWTP PS LongziLongziongzi LakeLake XiaobengbuXiiaaobobengbngbu PS Pump Station Extention YangtaiziYangngtataizi Pump Station Rehabilitation WWTP Pump Station Replacement Proposed WWTP Data Source: Zhongnan DI; BURGÉAP; BIEIP. PS XinchuantangXinnchuantanchuantang Satellite Images: Spot April, 2007. Exsisting WWTP WWTP XXijiagouijiagogou

Sewage & Stormwater Pipes Sewage & Stormwater Networks, Amelioration in Urban Area Roads in Longzi Lake District

01.5 23 Improvement of Baligou NNanshijiaNanshijianshijia KILOMETERS Sewage & Stormwater Networks, Roads PS in Economic Development Zone This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information Pump Station Replacement shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries.

RUSSIAN FEDERATION

HEILONGJIANG

SSouthoouthuth CCityity MONGOLIA WWTP JILIN Proposed WWTP Sea of XINJIANG LIAONING Japan JAPAN Sewage & Stormwater Networks D.P.R. OF NEI MONGOLBEIJING KOREA in High-tech Zone BEIJING TIANJIN HEBEI REP. OF KOREA Improvement of Xijiagou SHANXI SHANDONG Yellow Sea QINGHAI NINGXIA GANSU JIANGSU SHAANXI HENAN BengbuBengbu East China ANHUI SHANGHAI XIZANG HUBEI Sea SICHUAN ZHEJIANG

CHONGQING JIANGXI HUNAN

GUIZHOU FUJIAN National Capital PACIFIC Province YUNNAN TAIWAN Boundaries GUANGXI GUANGDONG OCEAN International HONG KONG MYANMAR MACAO Boundaries LAO VIETNAM P.D.R. HAINAN PHILIPPINES SEPTEMBER 2007