Document of The World Bank Public Disclosure Authorized Report No. 15079-CHA

STAFF APPRAISAL REPORT

CHINA Public Disclosure Authorized

SHANXI POVERTY ALLEVIATION PROJECT

FEBRUARY 21, 1996 Public Disclosure Authorized

Rural and Social Development Operations Division

Public Disclosure Authorized China and Mongolia Department East Asia and Pacific Regional Office CURRENCY EQUIVALENTS (As of October 1995)

Currency Unit = Yuan (Y) $1.00 = Y 8.4 Y 1.00 = $0.119

FISCAL YEAR

January I to December 31

WEIGHTS AND MEASURES

I meter (m) = 3.28 feet (ft) I kilometer (km) = 0.62 miles I square kilometer (km2) = 100 ha I hectare (ha) = 2.47 acres = lSmu I ton (t) = 1,000 kg = 2,205 pounds I kilogram (kg) = 2.2 pounds

PRINCIPAL ABBREVIATIONS AND ACRONYMS USED

ACWF - All China Women'sFederation CAAS - Chinese Academy of Agricultural Sciences CPMO - Central Project Management Office cms - cubic meter per second EIA - Environmental Impact Assessment FAO - Food and Agriculture Organization GIS - Geographical Information System IBRD - International Bank for Reconstruction and Development IDA - International Development Association IPM - Integrated Pest Management ITC - International Tendering Company mcm - million cubic meters MOF - Ministry of Finance MWR - Ministry of Water Resources NEPA - National Environmental Protection Agency PLG - Project Leading Group PMO - Project Management Office PRC - People's Republic of China SPC - State Planning Commission TVE - Township-Village Enterprise WFP - World Food Program WHO - World Health Organization YIS - Yuncheng Irrigation System YRCC - Yellow River Conservancy Commission CHINA SHANXI POVERTY ALLEVIATION PROJECT

CREDIT AND PROJECT SUMMARY

Borrower: People's Republic of China

Beneficiary: Shanxi Province

Poverty: Program of Targeted Interventions

Amount: SDR 67.3 million ($100 million equivalent)

Terms: Standard, with 35 years' maturity

Commitment Fee: 0.50 percent on undisbursed credit balances, beginning 60 days after signing, less any waiver.

Financing Plan: See para. 3.28.

Economic Rate of Return: 28 percent

Maps: IBRD 27654; IBRD 27655; IBRD 27656

Project Identification Number: CN-PE-3649 CONTENTS

1. BACKGROUND ...... 1 A. Introduction ...... 1 B. Rural Poverty in China ...... lI C. Project Rationale ...... 4 D. Lessons from Previous Bank 3roup Operations ...... 5 E. Rationale for Bank Group Involvement ...... 6

2. THE PROJECT AREAS ...... 7 A. Location ...... 7 B. Yuncheng Prefecture...... 7 C. Luliang Prefecture...... 11

3. THE PROJECT ...... 15 A. Project Objectives ...... 15 B. Project Description ...... 15 C. Project Components ...... 16 D. Status of Designs ...... 23 E. ImplementationSchedule ...... 23 F. Cost Estimatesand FinancingPlan ...... 24 G. Procurement...... 25 H. Disbursements...... 29 i. Accountsand Audits...... 30 J. Environmentaland Social Impacts...... 30 K. Resettlement...... 31 L. Consultation,Participation and Targeting...... 33

4. MANAGEMENT AND ORGANIZATION ...... 36 A. Project Organization...... 36 B. Financial Management...... 37 C. Operation and Maintenance...... 39 D. Land Contracts...... 40 E. Monitoring,Evaluation, and Reporting...... 40

This report is based on findings of an appraisal mission in July 1995. Membersof the appraisal team included J.M. Voegele (Mission Leader, IDA), G. Morgan (IDA), W.T. Smith, Liang Heng and R. Wallace (Consultants). Substantial inputs were provided earlier by R. Zweig and E. Chobanian(IDA), John Weatherhogg,F. Cossio, J. Kirk, J. Ernstbergerand S. Sugimura(FAO/CP), H. Ochs, S. Ferguson, L. Stafford, M. Lamb and B. Wakelin(Consultants). Peer reviewers comprisedMessrs. N. Jones, W. Ochs, B. Trembath, W. Magrath (IDA) and R. Grimshaw (Consultant). The Division Chief is Joseph Goldbergand the DepartmentDirector is NicholasHope. - 11-

5. BENEFITS AND JUSTIFICATION ...... 44 A. Benefits ...... 44 B. Markets and Prices ...... 44 C. Economic and Financial Analyses ...... 46 D. Project Risks ...... 52

6. AGREEMENTS AND RECOMMENDATION ...... 54

ANNEXES Annex 1: Financial And Economic Prices...... 57 Annex 2: Cost Summary. Procurement And Expenditure Schedule ...... 59 Annex 3: Yuncheng Irrigation System ...... 65 Annex 4: River Beach Land...... 79 Annex 5: Land Development And Erosion Control ...... 89 Annex 6: Rural Roads ...... 107 Annex 7: Rural Water Supply...... 120 Annex 8: Livestock ...... 131 Annex 9: Horticulture ...... 140 Annex 10: All China Women's Federation ...... 161 Annex 11: Agricultural Processing ...... 165 Annex 12: Social Assessment ...... 176 Annex 13: Status Of Environmental Impact Assessment ...... 188 Annex 14: Supervision Schedule ...... 196 Annex 15: Project Planning Matrix, Indicators And Implementation Schedule...... 197 Annex 16: Disbursement Profile...... 201 Annex 17: Selected Documents And Data Available In The Project File ...... 202

MAPS

IBRD 27654 - Participating Prefectures IBRD 27655 - Luliang Prefecture IBRD 27656 - Yuncheng Prefecture - 1 -

1. BACKGROUND

A. INTRODUCTION

1.1 The Governnent of China has requested the International Development Association (IDA) to assist in financing a poverty alleviation project in Shanxi Province. The proposed project would raise incomes and living standards in some of the poorest counties of one of China's less prosperous provinces. This would be achieved by improvements to irrigation systems, land development, expansion of household livestock and horticulture, and modernization of agricultural processing. The project was prepared by the Yuncheng and Luliang prefectures under the direction of the Shanxi Provincial Planning Commission with assistance from the Food and Agriculture Organization. The project was preappraised in March 1995 and appraised in June 1995.

B. RURAL POVERTY IN CHINA

1.2 China's economic reforms, begun in 1978, sharply reduced poverty in the period 1978-85. In 1978, 270 million (one third of the population) lived below the absolute poverty line compared to 100 million (one tenth of the population) in 1985. But, since 1985 there has only been a small decline in the incidence of absolute poverty. This is because gains in farn incomes have come mainly in areas with favorable natural resources, where farmers could benefit from market-oriented reforms. Gains in poverty alleviation have been harder to make in remote mountainous areas, where the area of farmland per family is small and irrigation potential is limited. In these areas, per capita output of grain and subsistence foods failed to show any significant increase in the 1980s, and rural enterprises employ only 4 percent of the rural labor force in the poorest counties in contrast to the 22 percent national average. China's poverty reduction strategy is now focused on raising living standards and incomes in the poorer areas through investments in land development, rural works, and rural enterprises.

1.3 The Government's first poverty-focused program was initiated in 1986, when 18 priority areas throughout China, including two in Shanxi Province, were targeted for assistance. Recognizing the necessity for a stepped-up redirected effort, in 1993 the State Council endorsed a new program to focus on the poorest counties throughout China. Called the "Eight-Seven Poverty Alleviation Plan (8-7 Plan)", its objective is to raise the estimated 80 million people in absolute poverty to above the poverty line by the end of the century. Counties included in the plan had incomes below Y 400 per head (1992 prices), or incomes below Y 700 per head despite involvement in the previous poverty program. The 592 nationally designated poor counties include over 70 percent of the 80 million poor. The budget for the prograrn is about Y 4 billion per year, of which 70-80 - 2 - percent is provided by the central government, 10 percent by local governments and 10-20 percent by intemational donor agencies.

1.4 Shanxi Province, one of the poorest provinces in China, has 118 counties, of which 50 have been identified as poverty stricken. Thirty-five of these counties were identified by the national poverty alleviation program and 15 classified by the province. The total population of the 50 counties is 8.4 million, of whom 7.5 million are rural. Average rural per capita income in 1993, which was a good year for agriculture, was Y 509 per head, about 29 percent less than the Y 718 average rural income for the province and just over half the national average rural per capita income of Y 921. Within the 50 counties, some 492 townships with a population of 3.8 million have been classified as areas of absolute poverty with incomes of below Y 400 per head.

1.5 The poverty alleviation strategy of the Shanxi Government aims to raise cultivable land from the present 1.3 mu (0.09 ha) per head to 2 mu (0.13 ha) per head, to develop agroindustries. to improve rural infrastructure, and to encourage integrated development of orchards, forests and ruminant livestock.

1.6 Since 1985, a program to increase the high-quality cultivated land area through comprehensive rehabilitation of small watersheds, including terracing of slope lands, has been pursued in Shanxi. The program is an important means of tackling poverty through the development of unused land in poor areas. Over the next five years, the plan is to terrace around 293,000 ha of land in the 50 poor counties.

1.7 To encourage land development, the Province published a regulation in 1994 that sets out arrangements to extend the period for which land can be contracted to farn households. Normal land contracts, previously maximum of 15 years, are now extended to 30 years, except in poverty and marginal areas where they are for 50 years. In areas of uncultivated slopes, gullies and river beach land, the tenure can be extended to 100 years.

1.8 These new regulations aim to encourage farmers to practice sound soil and water conservation measures. As a further incentive, farmers on uncultivated slopes and gullies will be exempted from payment of agricultural taxes for the first 10 years of occupancy. The method of land allocation would be by auction among farmers in nearby villages. In order to protect the interests of poorer families in the community, payment for the land can be by installments over a period of years. The main objective of the auction system is to give farmers security in the use of their land, provided their farming practices meet the standards laid down for land management by the province.

1.9 Poverty alleviation activities in the province are coordinated by the Shanxi Poverty Alleviation Office. Two nongovernmental organizations, the Laucu Promotion Association and the Shanxi Poverty Alleviation Association, are also active in the province. - 3 -

1.10 The following ongoing programs for poverty alleviation in the poverty (and proposed project) areas, Luliang and Yuncheng prefectures, are currently being supported by IDA and other international organizations:

(a) Education Development in Poor Provinces Project (Cr. 2336-CHA, FY92). The project covers Shanxi and five other provinces. In Luliang the project counties are Linxian, Xinxian, Lishi, Zhongyang, Lanxian, Fangshan and Shilou. The project objectives are: (i) to improve the efficiency and quality of primary and lower secondary school education and support the establishment of a nine-year compulsory education system; and (ii) to support the development and restructuring of higher level education and the efficient use of resources by colleges and universities and improve provincial and county-level education planning.

(b) Rural Health Workers Development Project (Cr. 2539-CHA, FY94). This project covers six provinces and includes Yuncheng and Luliang among the six prefectures in Shanxi Province. It provides for medical colleges, township hospitals and training centers.

(c) Forest Resource Development and Protection Project (Cr. 2623, FY94). The project is designed to enhance the productivity of forest resources, the efficiency of resource use, and the institutional capacity for sustainable management in 16 provinces of China including 15 counties in Shanxi Province. Pinglu county in Yuncheng is covered by the project.

(d) China-3923 Project (World Food Programme, 1992-97). The project aims to increase farmers' incomes and improve their living conditions through a comprehensive program of soil and water conservation in Lishi, Linxian and Zhongyang counties of Luliang Prefecture. The project covers an area of 1,846 square kilometers in 568 administrative villages under 31 townships and will benefit 248,000 farmers.

1.11 Local Programs. In Luliang, an "Experimental Special Zone Implementation Plan for Poverty Alleviation Development" has been formulated based on the outlines provided by the provincial government. The prefecture has also prepared a comprehensive program for poverty alleviation known as the "Eight-Seven Poverty Program" consisting of: (a) farmland and water conservancy construction; (b) pasture and livestock development with emphasis on runinants; (c) creation of four fruit production bases; (d) construction of roads and highways; (e) water supply for rural residents and livestock; and (f) training.

1.12 Chen Poverty Alleviation Program. This is a new Chinese program which draws funding from wealthier areas and provides credit for poverty alleviation projects. The program involves the nine poorest provinces and autonomous regions. Luliang Prefecture is being used as the pilot area for this project in Shanxi. The four aims of this program include: (a) elimination of illiteracy; (b) technical and occupational training; - 4 -

(c) health and hygiene education; and (d) reduction of the school dropout rate for older children. The All China Women's Federation (ACWF) is one of the lead agencies for project implementation. Training and education provided under the program will complement projects that focus on economic development.

1.13 All China Women's Federation. The ACWF, through local women's federations, is active at the county level throughout China. Its main focus is on improving the status of women in the home and the workplace. As a nongovernmental organization, it involves women in local or national issues. It can also assist in the dissemination of information to grass root levels. In Luliang Prefecture, the ACWF has been active within the WFP 3923 Project. Their trainers have helped to organize and deliver technical training in health education, child care and adult literacy courses for women in the project villages. Also, with financing from the Agricultural Bank of China and the Chen Poverty Alleviation Project, the ACWF has organized female trainers in groups of three or four to provide technical training (6,800 women have participated to date) in livestock, greenhouses, cotton, and fruit trees.

1.14 Project Hope. This is a nationwide educational program for school dropouts in poor areas. It helps to finance the cost of building and operating schools, school textbooks, and provides a source of financing for adult education. i.15 Green Certificate Training Project. This national project was initiated in 1990 to promote training of farmers to apply modern scientific and technological methods. To date, the project has been extended to 516 (25 percent) of the counties in China. There have been 600,000 trainees of which 120,000 have obtained Green Certificates (two years of theory and practical study). The education program includes tree planting, fisheries, animal husbandry, agricultural machinery, rural enterprises and environmental protection. Certificate holders are given preference for land contracts, loans, technical instruction, and extension services. The target is to train 10 million farmers by the year 2000-one farmer for every 20 rural households. This project was introduced to Yuncheng Prefecture in 1994, which includes a pilot programnin Wanrong County and Yuncheng City. The work is being implemented by the Agricultural Broadcasting School. As of March 1995, about 2,000 trainees were participating in the program.

C. PROJECTRATIONALE

1.16 The proposed project would complement the ongoing activities described above, and support the Government's policy to reduce the imbalance in economic development between the increasingly prosperous eastern provinces and the poorer central and western regions. Not only is Shanxi poor relative to other provinces, but some poor, remote and backward rural areas have much lower living standards than industrial areas within the province.

1.17 Some of the reasons for poverty are to be found in the climate, the small farm size, the difficulties in farming the steep slopes and easily erodible loess soils, inadequate irrigation and relative isolation in terms of new technology and markets. Poor farmers - 5 - have limited access to credit and lack the funds to make the investments needed to improve the situation. Nor has the land tenure system in the past provided sufficient incentives and security for farmers to engage in land improvement activities that generally make heavy demands on their labor and pay back only in the medium or long term.

1.18 These factors are addressed by the Province's poverty alleviation plan and by the proposed project's support for the plan. Terracing and improvement in irrigation are likely to increase agricultural production and hence raise subsistence levels or increase cash income. A better supply of drinking water saves time that can be more productively used, reduces water-borne diseases, and tends to benefit the poorer and remote villages. Rural roads in remote areas improve market access and encourage farmers to grow cash crops. Livestock offers ways to raise farm incomes in many villages, provided the farmers can be given financial assistance to buy animals. Crop residues, and communal and individual grazing on better managed natural and improved pasture could support more animals than at present.

1.19 Improvement of the irrigation system in the proposed project area-Yuncheng Prefecture-will have a major impact on poverty alleviation. At present, because of small farm sizes and unreliable irrigation, farm families live in considerable insecurity. Even if a family manages to escape poverty in one year, it often returns to poverty the next. The project would also have significant environmental benefits, since past problems in diverting water from the Yellow River have led to sinking of large numbers of tubewells and overexploitation of the aquifer. The irrigation system to be constructed under the project would help to replenish the groundwater resource.

1.20 There will be no investment in social services such as education or health because these sectors are covered by existing programs; however, an indirect benefit is anticipated because higher incomes can lead to a marked improvement in living standards, housing, nutrition, health care and education. In this manner, the project should help to alleviate poverty by directly raising incomes and improving living standards, and by indirectly benefiting social services which have been targeted by other programs. Therefore, instead of a fully integrated project targeted at specific villages, this project aims to augment an existing programs for poverty alleviation that has identified subprojects that can greatly benefit a large number of poor people.

D. LESSONS FROM PREvious BANK GROUP OPERATIONS

1.21 The Bank Group has helped to finance numerous projects designed to raise living standards and incomes and reduce poverty in the rural areas of China. Overall, these projects have been implemented efficiently, time and cost overruns have been moderate, despite periods of sharp price escalation, and rates of return have generally equaled or exceeded appraisal estimates. A notable feature of these projects has been the involvement of local communities in their planning, design, and implementation. The agricultural and water conservancy bureaus of the counties and townships have played a -6 - leading role in the projects, under the overall supervision of the provinces, and several projects, such as the Red Soils I and II Projects, the Gansu Agricultural Development Project, and the Loess Plateau Project, carried out in relatively resource-poor areas are or have been notably successful.

1.22 Worldwide, the lessons derived from a recent review by the Bank's Operations Evaluation Department of nearly 300 projects of similar nature point to the importance of: (a) concentrating on geographical areas where the poor live, products and services the poor produce and consume, and assets the poor hold; (b) commitment to and ownership of the project objectives and components by the people directly affected, which in turn requires active beneficiary participation during planning and design of the components; (c) an enabling policy environment providing sufficient incentives for the farmnersto respond to the opportunities offered by the project; (d) flexibility to react to unforeseen or unforeseeable events by adopting a process approach for components with higher risk; and (e) design simplicity and replicability. These lessons have been explicitly incorporated into the design of the individual components of the project. Careful selection of the project areas and targeting of beneficiaries, active participation of shareholders throughout the design phase, focus on the policy environment through guaranteed long-term land contracts, flexibility and process approach in components with higher risk, such as livestock, and design simplicity where appropriate, for exarnple, horticulture and watershed rehabilitation, were integral parts of project preparation.

1.23 To succeed, past experience clearly indicates that poverty alleviation projects need strong government commitment, broad based beneficiary participation, incentives for the rural poor to complement project investments with their own efforts, a capable institution to implement the program, and proven technologies backed by functioning support services. These are present in the project areas.

E. RATIONALE FOR BANK GROUP INVOLVEMENT

1.24 The project is consistent with the Country Assistance Strategy being presented today. Under this strategy two of the Bank Group's operational priorities in China are poverty alleviation and environmental enhancement and protection. The Bank's 1992 report: "China: Strategies for Reducing Poverty in the 1990s" and the subsequent International Conference on Poverty Issues in China held in Beijing in November 1992, led to a substantial level of agreement between the Chinese authorities and the Bank on the nature of the poverty problem and approaches to its alleviation. The project design reflects those approaches and the strategy of the Government's "8-7 Plan" by addressing two of the key challenges facing rural development in China-slow income growth and limited entrepreneurial development as well as the need for greater government investrnent in rural areas. The project attacks poverty at its core and will improve the lives of many of the rural poor in the project areas. -7 -

2. THE PROJECT AREAS

A. LOCATION

2.1 Shanxi covers 156,000 km2 along the east bank of the Yellow River and has a population of 30.3 million. Agriculture in Shanxi in 1993 accounted for about 15 percent of the province's gross product compared to 57 percent from industry and construction (particularly coal mining and mineral processing) and 28 percent from other sectors (transportation, commerce, communication and service industries). Agriculture has declined over time as the industrial and other sectors have developed, but the sector continues to employ almost half of Shanxi's labor force and provides the bulk of its food requirements. About 3.7 million ha, or 23 percent, of Shanxi's 15.6 million ha total land area is cultivated. Of this, about 1.2 million ha, or 32 percent, have some forn of irrigation. The main crops grown are wheat (about one million ha), maize (0.65 million ha), millet (0.35 million ha), oil crops (0.34 million ha), soybean (0.28 million ha) and cotton (0.09 million ha). The area devoted to orchards, notably apples, Chinese dates and pears, has expanded quite rapidly in recent years to around 0.24 million ha, mostly interplanted with grain. The mountains and hilly areas contain some good forest stands, and the area of forest of 2.6 million ha takes up 17 percent of Shanxi's land area. Livestock in Shanxi consists of around 2 million head of cattle, 7 million sheep and goats, and 4 million pigs.

2.2 Shanxi Province comprises 12 prefectures with 32,000 villages under 1,510 townships in 118 counties. More than 80 percent of the province is located in hilly and mountainous terrain on the Loess Plateau. Rural per capita incomes are 80 percent of the national average. Poverty in rural areas is acute. While in 1985 only 35 counties in the province were recognized as poor counties, this number has now risen to 50. The project prefectures of Luliang and Yuncheng are the two poorest prefectures in Shanxi with an annual rural per capita income of only 75 percent of the provincial average. They cover 25,000 km.,2 16 percent of Shanxi's land area.

B. YUNCHENG PREFECTURE

2.3 Geographic Location. Yuncheng Prefecture lies in the southern tip of Shanxi Province, and is bounded to the west and south by the Yellow River and to the north by the Fen River. Altitudes range from 180 to 2,300 meters, with mountainous areas along the northeast part of the project area. About 70 percent of the area has loess soils, with the remainder being alluvial soils along the river valley and in the floodplain. Erosion is less of a problem than in the Luliang area and is mainly concentrated in the loess terraces bounding the Yellow and Fen Rivers. Yuncheng has a monsoon continental climate. Annual precipitation averages 530 mm, mostly in the form of rain in the months of May - 8 - to September. Average monthly temperatures can exceed 300C in the summer and can fall as low as -50C in the winter. The frost-free period is between 185 and 235 days.

2.4 Population Characteristics. The 13 project counties cover an area of 14,000 km and have a population of 4.4 million (1.1 million households), of which 3.8 million (88 percent) hold a rural registration. Migration in and out of the prefecture is quite small, representing about one percent of the total population annually. Immigration exceeded outmigration by 12,000 people in 1992. The natural population growth rate was 1.14 percent in 1992, significantly below the national average of 1.5 percent. Among the 13 counties, annual birth rates range from 1.43 percent to 2.14 percent whereas death rates range from 0.41 percent to 0.60 percent. The death rates are average for China but the birth rates are quite low. This may be attributed to the poor economic conditions and successful fanily planning. Many farmers in poor villages recognize that they simply cannot raise more children on their small plot of land. Ethnic minorities account for only 0.2 percent of Yuncheng's population; they are mainly Hui residing mostly in urban areas and will be unaffected by the project. Located at the confluence of the Yellow and Wei Rivers, Yuncheng was the ancestral birthplace of the Han culture, and the region has retained its strong Han dominated characteristics over the centuries.

2.5 Social Organization and Diversity. Although the household responsibility system has been in place for 10-15 years, the social structure of the previous commune system is still evident in the poorer areas of Yuncheng Prefecture. In the lowlard areas, households are arranged in compact housing settlements surrounded by farrnland allocated on a per capita basis. Most of the villages contain 1,000 to 1,500 people and serve as administrative centers. Despite the shift towards free market mechanisms, many areas have not modernized due to the lack of investment funds. In addition, the high population density and carrying capacity of the land offer few cash income options other than horticulture and livestock. Local governments still maintain a mandatory procurement system for cotton and grain, thus effectively reducing the maximum cultivated land area that can be converted to orchards to about 20 percent. This is in contrast to mountain areas where isolated villages are smaller (<500 people) and housing is often scattered. Here the local economy is based on subsistence agriculture and the social networks are still closely tied to work groups.

2.6 Within a village, households share similar livelihoods, assets, and living standards. Outmigration of the better educated villagers often tends to leave the remainder of the village stagnant in terms of economic development. Socially, many villages change little with time due to the tradition for men to stay in the village and women to marry outside the village. Some villagers have gained higher economic and social status by heading specialized households (e.g. they own a fruit orchard, or raise cattle), but they represent a small proportion of households in most rural areas. Although the region is still relatively poor, there has been a general improvement in living standards and mobility since the 1980s. Improved roads and the use of small tractors to move people and goods have increased contacts between villages, as well as between villages and larger towns and cities. This has helped to promote education, job -9 - opportunities and social interaction. Since there is little ethnic diversity, most villages appear quite similar in terms of social and economic structures/networks. There are, however, some differences between lowland (market farm) villages and mountain area (subsistence) villages. In the latter, physical isolation and low living standards have slowed the rate of modernization. Traditional cultures and values are quite dominant in these areas.

2.7 Agriculture. The cultivated area is about 610,000 ha, mainly planted with grain crops. The most important crops are wheat (380,000 ha), maize and other grains (73,000 ha), soybeans and other oilseeds (68,000 ha), cotton (70,000 ha), vegetables and other crops (19,000 ha). Double cropping is possible in the lower altitudes with winter wheat followed by maize or some other grain crops. Cotton is planted too early and harvested too late to allow combination with another crop in the same year. The cropping intensity for field crops is about 105 percent. In recent years greenhouse production of fruit and vegetables has grown rapidly. Interplanting of Chinese dates, walnuts, apple and pears is a common practice. The average farm size is about 0.6 ha. There are about 720,000 large animals, mostly cattle, and about 320,000 sheep and goats. There is potential for improved irrigation, expansion of fruit and nut trees, and livestock raising. Forest cover is about 19 percent.

2.8 Irrigation. About 200,000 ha in the project area are currently, or have until recently, been irrigated to some degree. The largest area of irrigation, the 123,000 ha Yuncheng Irrigation Project (YIP), suffers from a shortage of water. This is because a shift in the course of the Yellow River has greatly reduced the water supply to pumping stations that serve the area. As a result, within the YIP and in other parts of the prefecture, there is extensive exploitation of groundwater. This is causing a steady decline in pressure in the main deep aquifer, and on many farms the lift in the tubewells is over 200 m.

2.9 Rural Incomes. The average annual income for the rural population was Y 480 per capita in 1992. This ranged from a low of Y 379 in Pinglu County to a high of Y 574 in Yongji County. The higher incomes tend to reflect proximity to urban centers or mining districts. There appears to be a positive correlation between incomes and grain output although nonagricultural sideline production is the key factor in high incomes. Since only a small proportion of households benefit directly from township and village enterprises (TVEs), the majority of farmers have much lower incomes than the averages would suggest. There is little correlation between land area and incomes because the traditional commune system had allocated land equitably based on the quality of land.

2.10 In 1993, income levels rose by an average rate of 22 percent but the real increase after inflation was only 8 percent. This was considered a good crop year because the rains came at the right time, and yields increased by 27 percent. Profits, however, were depressed because crop prices remained low while input costs rose quickly. In 1994, incomes rose again by an average rate of 28 percent, but since inflation was very high, the real increase was only 4 percent. Fortunately, the farmers benefited from significant -10- gains in crop prices which enabled them to keep pace with the general cost of living increases. In real terms (1992 prices), the 1994 per capita rural income for Yuncheng was Y 540 and ranged from Y 415 in Yuanqu County to Y 636 in Yongji City.

2.11 Income Distribution. The difference in incomes between 1992 (a normal year) and 1993 (a very good year) demonstrates the vulnerability of farmers to weather, especially the arnount and timing of rainfall. In 1992, only 2 percent of rural households had incomes less than Y 200 per capita but 10 percent were between Y 200 and Y 300 and 57 percent were between Y 300 and Y 500; 30 percent of households eamed more than Y 500 although most of them earned less than Y 800 per capita. In 1993, one of the best years for crop output, almost 60 percent of the households earned more than Y 500 per capita. In 1992, 40 percent of the townships were below the poverty line and 15 percent of townships were still below the poverty line in 1994. In a year with a serious drought, 70 percent of the townships and 80 percent of rural households could fall below the poverty line.

2.12 Education and Health. Yuncheng Prefecture ranks average compared with national education levels. Within the adult population (urban and rural), 10 percent are classified as illiterate, 43 percent of the adult rural population has only primary school education, 46 percent has reached middle school and only 1 percent has achieved higher education. Yuncheng Prefecture has good basic facilities for primary education. The enrollment in primary school is reported above 98 percent and the dropout rate is only 3 percent to 5 percent. These good results stem from the fact that primary education is mandatory, education is highly valued by villagers and school facilities are available in every administrative village and some natural villages. However, the rural facilities are limited to essentials, the levels of teacher qualifications are fairly low and the cost of education is relatively high for farm families (a typical rural family spends around 30 percent of its available cash on education). As a consequence, the enrollment rate drops to 80 percent for junior middle school and the average dropout rate rises to 40 percent. It tends to be much higher in poor and mountain areas where poor access and high costs combined with poorly educated students lead to very high dropout rates. The cost of junior middle school can be Y 1,200 per child annually if room and board are provided. In many cases, the costs of continuing education appear very high compared to the perceived opportunities for students.

2.13 Survey results from villages located closer to the county seats indicate that when facilities are available and income levels are higher than average, households place a strong emphasis on keeping their children (male and female) in school. Junior middle school graduation is a minimum requirement for employment in industrial enterprises. There are a number of good upper middle schools and technical schools that provided opportunities to good students with adequate financing. The priorities for education are: (a) to improve schools and classroom facilities; and (b) to improve the quality of teachers. Half of the primary school teachers are paid by the State but the remainder are paid lower salaries by local government. The best teachers go to villages that can afford to pay higher salaries and bonuses. Therefore, income levels within a village have high positive correlation with the quality of education provided. Local communities have also invested in school improvements.

2.14 Health facilities in the rural areas are basic. Generally each administrative village has a three room health clinic with a doctor, pharmacist and nurse. In rural areas, there are 2.2 doctors and 2.4 beds per thousand people. On average each township (20,000 people) maintains only 50 hospital beds. Villagers can get good medical care in larger towns and cities but the cost and time required often prevent them from using these services. The quality of medical staff is related to the ability of patients to pay for services.

2.15 The health of the rural population is reasonably good considering the standard of living. Basic health education is taught in the schools, and health clinics provide education and advice to adults. All children are vaccinated against diphtheria/polio/tetanus, smallpox, and whooping cough. The World Health Organization (WVHO)estimates coverage to be more than 80 percent, with only the most isolated areas lacking good programs and facilities. The death rate of children up to age 3 years is 30 per thousand. The death rate for childbearing women is 0.4 per thousand. Endemic diseases in Yuncheng Prefecture include goiter due to a lack of iodine, and bone problems caused by high fluoride content in the groundwater supply. Another concern is undulant fever (brucellosis) which is transmitted from sheep during milking and birthing. Although not reported, there is some evidence of malnutrition due to a lack of protein and calories in the local diet of people in poor villages. There are programs to eliminate goiter by added iodized salt to food. This is reported to have already been successful and most goiter cases are limited to older people. The problem of high fluoride is more serious and persistent. The only solution is to provide a better source of drinking water, but this is not always affordable. The problem of brucellosis is being tackled by training herdsmen how to avoid the disease.

C. LULIANGPREFECTURE

2.16 Geographic Location. The seven project counties in Luliang Prefecture cover an area of 11,000 kM2 with a population of 1.2 million, of which 93 percent is rural. The project area is in the west central part of Shanxi and is bounded on the west by the Yellow River. Almost all of the land is mountainous or hilly at an altitude between 1,000 and 2,000 meters. The topography shows a landform common in the loess plateau, with steep slopes and numerous deeply eroded gullies. More than 50 percent of the area has slopes over 15 degrees, and the gully area amounts to more than 40 percent with a density of 3 kilometers of gully per square kilometer. Large areas of the slope lands have been terraced to conserve moisture for crops and to prevent soil erosion. Luliang has a temperate continental climate. Annual precipitation averages 500 mm, mostly in the form of rain in the months of May to September. Temperatures reach 350C in the summnerand can fall as low as -1 0°C in the winter. The frost-free period is between 150 and 170 days. Climate and topography impose limitations on agriculture, but over 85 percent of the population in this remote prefecture depend on farming for their livelihood. - 12 -

Over 75 percent of the villages in Luliang have no telephone service, and 490 villages have no roads suitable for motor vehicles.

2.17 Luliang Prefecture is comprised of 13 counties, but only the seven poorest counties are included in the project. The project counties include 117 townships (xiang) and 2,515 administrative villages. The average size of villages in Luliang is only 450 people compared to 1,150 in Yuncheng. Some townships in the seven counties are not included in the proposed project since they are already being assisted under other projects financed by the Bank Group and other agencies.

2.18 Population Characteristics. In the project area, 884,000 people have poverty status. The project area represents 39 percent of the total prefecture population but comprises 61 percent of the households below the poverty line. Migration in and out of the prefecture is quite small and balanced, representing about 1.4 percent of the total population annually. The natural population growth rate was 1.01 percent in 1992, well below the national average of 1.5 percent. Amongst the seven project counties, annual birth rates range from 1.34 percent to 1.70 percent and death rates range from 0.39 percent to 0.62 percent. The death rates are slightly below the national average for China whereas the birth rates are considerably lower, particularly in rural areas. There are only 404 ethnic minority people residing in Luliang Prefecture and only about 70 are registered in the project area.

2.19 Social Organization and Diversity. Villages on the loess plateau in Luliang can be characterized as typical mountain villages. These are small and isolated with houses commonly scattered. The focus is on subsistence agriculture, and social networks are still closely tied to work groups and kinship. The better educated villagers have been migrating to towns and cities leaving the remainder of the village stagnant in terms of economic development. There is also a pronounced outmigration of young women from poor villages to marry men in wealthier villages. This has a significant impact on the socioeconomic system of poor villages (e.g., fewer children, fewer nuclear families, more laborers per household). Physical isolation, low education levels and poor living standards have slowed uiie rate of modernization. Traditional cultures and values are quite dominant in these areas.

2.20 Agriculture. The area under crops is about 198,000 ha. The main crops are millet and sorghurn (70,000 ha), maize (23,000 ha), soybeans and other oilseeds (95,000 ha), vegetables and other crops (10,000 ha). The area is generally single cropped since the growing season is too short to permnitdouble cropping. Irrigation is limited to an area of 17,000 ha with limited scope for expansion. Fruit and nut trees are beginning to be more widely grown on the terraces and the project area is a major producer of Chinese dates. The average farm size is about 1.0 ha. Draft animals, mainly cattle, number about 150,000, and there are about 900,000 sheep and goats. There is considerable scope for expansion of fruit and nut trees, livestock raising and further increases in terracing. - 13 -

2.21 Rural Incomes. The rural population is primarily employed in the production of field crops, orchard management and animal husbandry for domestic needs. Agricultural conditions are constrained and income levels are low unless there are mining activities in the township. Closer to the urban centers, the rural population has good opportunities for sideline activities and nonagricultural employment. The commercial sector is not well developed except in the county seats. Good road transportation is limited to the main river valleys where paved county roads connect the major centers. In other areas, transportation is poor and roads that do exist become impassable during rains.

2.22 The average annual income for the rural population was Y 318 per capita in 1992. This ranged from a low of Y 272 in Xingxian County to Y 372 in Liulin County. In 1992, 104 (89 percent) of the 117 townships had incomes below the poverty level of Y 400. In 1993, income levels rose by an average of 24 percent but the real increase was 10 percent. In 1994, income levels rose another 45 percent due to higher grain prices. In real terms (1992 prices), the 1994 per capita rural income for the Luliang project area was Y 398 and ranged from Y 316 in the four project townships of Lishi City to Y 435 in Liulin County. Although this has been an impressive 25 percent real increase since 1992, there were still 82 townships (70 percent) below the poverty line and only 9 townships with more than Y 500 per capita in 1992 prices. However, in a bad year, 95 percent of the townships are likely to fall below the poverty line.

2.23 Income Distribution. Seven percent of rural households had incomes less than Y 200 per capita but 32.3 percent were between Y 200 and Y 300 and 52.6 percent were between Y 300 and Y 500. Roughly 70 percent of the households fell below the poverty line (Y 400 per capita). Only 8 percent of households earned more than Y 500. When incomes rose by 24 percent in 1993, 82 percent of the households still earned less than Y 500 per capita.

2.24 Education and Health The Luliang project area has below-average education levels. Within the adult rural population, 20 percent are classified as illiterate. An estimated 49 percent of the adult rural population has only primary school education, 30 percent has reached middle school and less than 1 percent has achieved higher education. Luliang is a poverty stricken prefecture and consequently primary education facilities are quite limited. Despite the poor quality of schools, teachers and materials, the total enrollment in primary school is reported to be above 98 percent and the dropout rate is low. Although primary education is mandatory and education is highly valued by villagers, the schools are limited in buildings and facilities, and this tends to reduce the effectiveness of education. Primary schools are available in most administrative villages. However, due to the isolation of numerous natural villages, it is difficult to provide good quality and affordable primary education to every household.

2.25 Health facilities in the rural areas are quite limited. Many villages have makeshift clinics managed by "barefoot doctors". The conditions of facilities and staff are well below national standards but programs are now underway to improve the situation. In rural areas, there are only 1.4 doctors and 2.7 hospital beds per thousand people. - 14 -

Villagers can get adequate medical care in larger towns and county seats but the costs are often beyond their means. Health problems in rural areas are relatively moderate considering the standard of living. Basic health education is taught in the schools and health clinics provides education and advice to adults. Most children are vaccinated for the prevention of diphtheria/polio/tetanus, smallpox, and whooping cough. The infant mortality rate is 58 per thousand (high due to TB and stillbirths) while the death rate of children up to age 5 years is 74 per thousand. The death rate for childbearing women is 2.2 per thousand. The endemic disease situation is similar to that of Yuncheng. - 15-

3. THE PROJECT

A. PROJECTOBJECTIVES

3.1 The project's main objective is to help alleviate poverty in the 20 poorest counties of Yuncheng and Luliang Prefectures in Shanxi Province. The project will include a range of activities aimed at raising incomes for about 3 million poor through rehabilitation of an existing irrigation system, improvements of rural roads and construction of village water supplies, land development, expansion of livestock raising and horticulture, and expansion of primary agricultural processing capacity. The project, prepared in detail by the Poverty Alleviation Bureaus at the provincial and prefecture levels, draws on their considerable experience in similar poverty alleviation projects and programs, and complements ongoing activities under the national 8-7 Poverty Alleviation Program.

B. PROJECTDESCRIPTION

3.2 The main features of the project are:

(a) construction of a new pumping complex and associated structures in Yuncheng located on the bank of the Yellow River at Langdian to supply water to three existing pumping stations; and provision of 14 floating pumps at the existing station at Zuncun;

(b) improvement and expansion of the 123,000 ha Yuncheng Irrigation System;

(c) river beach development, including land leveling, electrification, upgrading of rural roads, aquaculture development and construction of tubewells on 13,000 ha of presently cultivated river beach land in Yuncheng;

(d) construction of 78 village water supply schemes to serve 620,000 people in Yuncheng, and 204 smaller village water supply systems to serve 64,000 people in Luliang;

(e) improvement of existing rural roads with a total length of 209 km in Yuncheng and 118km in Luliang;

(f) soil and water conservation works in small watersheds in Luliang consisting of terraces on 13,400 ha of land, construction of 56 check dams, and afforestation on 4,200 ha of slope land; - 16-

(g) expansion of the area under fruit and nut trees;

(h) expansion of livestock raising by individual farmers;

(i) expansion and improvement of agricultural processing facilities;

(j) support for a program targeted at poor and disadvantaged women managed by local women's federations operating under the aegis of the All China Women's Federation (ACWF); and

(k) facilities for project management and training and overseas study tours.

C. PROJECT COMPONENTS

3.3 Langdian Pumping Complex. The Langdian Pumping Complex will increase the supply of water to the Yuncheng Irrigation System in the southern part of Yuncheng Prefecture. In the past. three pumping stations were built to lift water from the Yellow River to this system. But the river channel, which was close to the left bank when the pumping stations were built, has moved away from the river bank. Now, every year channels are excavated from the active channel to the pumps but these fill with sediment when the river is in flood and sometimes the channels have to be excavated several times a year during the flood season. The details of the pumping stations are summarized below:

Design Date of Present Capacity Head Date River Capacity Station (cms) (m) Built Shift (cms)

Jiamakou 9.5 10 1960 1976 7 Xiaofan 6.0 18 1961 1969 0 Zuncun 46.5 7 1978 1987 15

3.4 The current water delivery capacity is only 22 cms compared to the design capacity of 62 cms. This problem is to be overcome by building the new Langdian pumping station upstream of the three existing stations and connecting it to them through a 13.5 km canal. The capacity of the pumping station will be 43 cms. In addition, floating pumps with a capacity of 18 cms will be placed near the Zuncun station. A 1.5 km long channel between the river and the Zuncun station will require annual maintenance dredging.

3.5 The site of the Langdian station is at a point in the river where the channel is close to the left bank and is believed to be stable. Satellite images show that the site has been free from sediment accretion since 1980, the date of the earliest images. Flow patterns - 17- during this period have been superimposed on the imagery, and these show that the bulk of the flow stayed close to the left bank, except in 1984. In that year, the main flow shifted away but pumping would still have been possible at the proposed site. Local people at the site report that the channel has been stable in its present location for more than 30 years. From a review of all the available data, a team of river training experts from the Yellow River Conservancy Commission (YRCC) and IDA has concluded that the river channel at the site is stable and is likely to remain so. In the case of a major flood event there is a possibility that the main channel could shift further to the right bank. The dredges operating in the desilting pond would then be used to maintain an intake channel on the left bank. Further details are given in Annex 3.

3.6 Yuncheng Irrigation System. The Yuncheng Irrigation System in the southern part of Yuncheng Prefecture was planned to serve an area of about 123,000 ha. Works built to date command an area of about 90,000 ha. The project provides for rehabilitation of the existing stations, canals and other structures, and completion of the Yuncheng irrigation system, except for 10,000 ha in the upper part that have been excluded because of difficult topography. The completion works consist mainly of constructing lateral canals (and sublaterals), each of which serves about 60 ha, over an area of 33,000 ha. Because of the loss of pumping capacity, most of this area has for years depended on tubewells; this has led to a fall in the groundwater level to nearly 100 meters in some areas and the level continues to fall by 2 meters a year. This situation is not sustainable, and there is a need to greatly increase the input of surface water to the area to avoid further depletion of the aquifer and conserve the groundwater resource for domestic use. The combined capacity of Langdian and the floating pumps will be sufficient to meet virtually all of the irrigation demands from surface water. In the months of July and August the sediment load in the Yellow River is high and the pumping will be reduced to avoid silting up of the canals. During these months, surface water will be supplemented by groundwater to meet the relatively low wet-season demands of the irrigated area.

3.7 River Beach Development. About 13,000 ha of protected land along the river (river beach land) in eight counties of Yuncheng is proposed for development. Much of this land did not exist until the 1950's when a change in the river's course left behind flood plains where the sediment gradually accumulated to form new land. About 80 percent of the land is now under crops and plantations, but only 20 percent is irrigated mainly by 690 tubewells (the area has ample groundwater resources). The land is leased to the villages on the high ground bordering the river. These lands can be made highly productive at a relatively low cost. The component includes installation of 1,300 tubewells and associated electrification, light land leveling on 13,000 ha, and upgrading of 175 km of rural road. It further includes an aquaculture component consisting of the rehabilitation of 330 ha existing but badly deteriorated fish ponds, and construction of 200 ha new fish ponds. A new fish hatchery covering 5.3 ha will supply the necessary fry. Furthermore a fish farmers' association will be established to provide market intelligence and technical advice, and conduct applied research. An area of about 1,300 ha of undeveloped beach land which attracts large numbers of migratory waterfowl has been designated by the province as a nature reserve. The project will establish necessary - 18- infrastructure for the reserve, such as a forest protection belt and observation points for visitors.

3.8 Rural Water Supply. There is a severe shortage of water in many villages in both prefectures. In Yuncheng, wells to produce a reliable supply of good quality water (20-30 m3 /hour) have to be between 150 and 300 meters deep. In Luliang, groundwater can be found in shallow aquifers (10-15 m deep) in the beds of gullies, but these can only be pumped for a few hours at 5-10 m3 /hour. Most villages get their water from pits in the ground (cisterns) filled with storm runoff, and from shallow wells in the beds of gullies. The latter are very low yielding and in the dry season people have to wait for hours for the wells to recharge after the first villagers have filled their buckets. Water is often sold in the villages by people who have access to a well in their own village. The average family in water-short areas spends around Y' 100 in a year on drinking water-this is about 10 percent of the average family income. In addition to the cash cost, the water shortage also causes many hours to be spent hauling water which could be spent on more productive activities. In most cases, the source provided by the project will be a well which feeds one or more storage tanks. Water is piped to the villages' distribution systems from the storage tanks. Cisterns will be built in small villages where the people cannot afford the investment and operating cost of a pumped system. A better water supply will also: (a) expand possibilities for villagers to own draft animals for farming and transportation; (b) reduce the incidence of water-borne diseases; and (c) allow for watering of seedlings in orchard establishment. Operation and maintenance of the system will be the responsibility of the village, and is usually contracted out to an individual household.

3.9 In Yuncheng, the plan covers 78 comparatively large systems including 59 deep well systems and 19 diversion schemes serving 516 villages, 620,000 people and 120,000 draft animals. Luliang plans to construct water supply facilities for 204 villages, including 77 deep well systems, 65 schemes based on springs, and 1,179 household cisterns in the remaining 62 villages. The schemes will serve 64,000 people or about 50 percent of the remaining population of 135,000 in Luliang without access to reliable drinking water. The other 50 percent of the villages will receive water supply systems using local poverty alleviation funds during the same period.

3.10 Rural Roads. The existing highway systems in the prefectures are in reasonable condition and well maintained, but there is considerable scope to improve and extend existing rural roads to provide all-weather access to some of the townships. Both the provincial government and the local population attach great importance to extending the rural road network to remote communities as a way to reduce poverty. The project will support this policy in both prefectures. The component will upgrade existing roads and tracks to Class 4 Standard (Rural Roads). The roads will be 7.5 meters wide (a 6 m pavement of 20 cm of compacted gravel, and 0.75 m shoulders). The improved roads will: (a) lower transport costs of inputs and outputs for farmers and small mines; (b) attract buyers for farm produce; and (c) lead to new bus services, or more frequent services, that will expand opportunities for off-farm employment and education. The - 19 - project includes upgrading six roads with a total length of 209 km in Yuncheng and five roads totaling II 8 km in Luliang.

3.11 Soil and Water Conservation. This component in Luliang Prefecture includes terracing on slope land, construction of sediment control dams, and afforestation on slope land that is too steep for terracing or crop cultivation. Terracing is planned for 13,400 ha. The conversion of slope lands to terraces serves a number of purposes. First, it creates a better environment for crop production through moisture conservation; in a year of average rainfall, grain yields on terraces are two to three times higher than on slope lands. Second, terraced land is more resistant to damaging soil erosion during intense storms than slope land. And third. sediment runoff is much lower from terraces than from sloped land. Generally, terraces are confined to lands where slopes are less than 200. But where there is a shortage of crop land, terraces are built on slopes up to 250. Soils are deep in Luliang and the area is therefore well suited to terracing, but the topsoil is often set aside and replaced upon completion of the terrace. About 7,600 ha will be wide terraces of 13-16 m built on slopes of 5°-10°, and 5,800 ha will be narrower terraces of 10-13m built on slopes of 10°-15°. The terraces will be level and the lower parts of the risers vertical, with a sloping top to allow for establishment of grasses and other vegetative cover plants to protect the riser from erosion. After terracing, the fields will be deep plowed, fertilized with 150 kg of urea and 300 kg of superphosphate. The main crops will be sorghum, maize, millet, beans, potatoes and sunflower.

3.12 The works also include the construction of 56 sediment control dams. These are earth dams with heights between 10 and 25 meters built in the gullies. Gross initial storage capacities range between 100,000 m3 and 1,000,000 mi3. The dams reduce flooding and sediment loads in the downstream rivers, and the sediment deposits behind the dams create high quality agricultural land, estimated for these dams to amount to 270 ha. Numerous similar dams have been built in Luliang. The procedures for design review and supervision will be the same as those adopted for the dams financed under the Loess Plateau Project (para. 3.25). These procedures are fully consistent with Bank Group standards. The reservoir sites are in deeply eroded gullies and are devoid of agriculture and human habitation. During the first few years after construction, the water stored behind the dams can be used for irrigation and village water supplies.

3.13 Afforestation is another important component of the integrated watershed development. Tree planting is planned for 4,200 ha of steep slopes and wasteland. Chinese pine, larch and poplar are the main species suited to the area. Trees will be planted on land where the steep slope or poor soils render it unsuitable for crops or orchards. This increases the supply of fuel wood and lumber, and improves soil and water conservation. Poplar will mainly be planted on gentle slopes without terraces. Pine and larch will be planted on narrow terraces on land with steep slopes (20°-30°). Participating households will tend I ha of plantings. The area planted will be 1,400 ha of each of the three species giving a total plantation area of 4,200 ha. In practice, the three species, together with other suitable tree and shrub species, will be established as mixed plantations. - 20 -

3.14 Horticulture. The prefectures specialize in Chinese dates and prickly ash (a source of spices) and other fruits and nuts. In Luliang, the fruit trees selected for planting are Chinese date (Zizyphus jujuba), kernel apricot (Prunus armeniaca), walnut (Juglans regia) and apples and pears. Generally, plantation will be on low-yielding hilly or mountainous areas with slopes of 150-20°. In Yuncheng, fiuit and nut trees to be planted are Chinese date, Chinese prickly ash (Xanthoxylum bungaenum), walnut and chestnut (Castanea mollissima). Fruit trees are normally interplanted with field crops such as wheat and soybean in Yuncheng and millet and soybean in Luliang. The choice of varieties and the establishment and management of the plantations draws on successful experience in the past. The total proposed fruit tree area to be intercropped is 69,240 ha distributed as follows:

Yuncheng (ha) Luliang (ha)

Dates 23,270 15,000 Prickly Ash 12,500 Apricots (kernel) 2,800 Walnuts 8,870 2,800 Chestnut 3,300 Apples and Pears - 700 Total (ha) 47,940 21,300

3.15 In Luliang, trees will generally be planted on slope land on narrow terraces I m wide. Depending on the tree crop planted, farmers will be able to intercrop for 3-7 years before the trees reach maturity. In contrast with the system to be adopted in Luliang, the Chinese dates in Yuncheng will be planted at wide interrow spacings (15 m) in lowland cereal fields, and grain cropping will continue over the whole life of the tree. In Luliang, the present nursery capacity is inadequate for a program of this size. Accordingly, the project will finance material inputs for 250 small household nurseries each of 0.1 ha. The project will also provide for the construction of a tissue culture laboratory at the Forestry Research Station at Lishi with an initial annual capacity of around 50,000 plantlets per year. This technique is well established in China and is successfully used for Chinese date propagation in Henan Province. Chinese dates are somewhat difficult to multiply with traditional techniques, thus a rapid multiplication technique is appropriate to ensure that sufficient high quality seedlings of high value varieties are available.

3.16 Livestock. The provincial poverty alleviation program already includes the distribution of cattle to some poor households. Demand is strong, and rural households, especially the women, rank the ownership of a large animal among the highest priorities to improve their incomes. All livestock are valued, not only for their directly saleable products, but also for their manure, as a form of savings, and, in the case of cattle, as draught animals. Technically, ruminant livestock also fit in well to the farming systems, which in many areas have abundant unused crop residues, and there is a potential for - 21 - increased fodder production from wasteland too steep or too poor to be brought into arable cultivation.

3.17 The main feature of the livestock component will be the introduction of large animals to new households selected from amongst small farmers with limited financial resources. This will provide the opportunity for immediate cash savings and new income generation. In addition, acquisition of animals will increase the security of households and their ability to cope with unexpected crises. All these benefits meet the fundamental criteria of poverty alleviation and give the component a strong justification. However, livestock keeping is not without risk and the design of the component will recognize the limited technical and management knowledge and financial vulnerability of new project livestock farmers. Supporting this primary initiative will be investments to improve veterinary services, the existing artificial insemination program, research activities and the development and expansion of new technology. The component consists of: (a) the introduction of livestock to poor and marginal farmers who have access to adequate crop residues and/or large areas of unimproved natural pasture; (b) the improvement of veterinary and artificial insemination services; (c) the introduction of better techniques for silage making and the upgrading of artificial and natural pastures amongst existing livestock owners; and (d) the development of research topics which will assist small livestock farmers, as well as training for project officials and farmers.

3.18 New project livestock farmers will be provided with one or two breeding cows, depending on resource availability. In the river beach land areas, some farmers will be provided with a nucleus flock of sheep. The farmers themselves will construct the necessary livestock shelter, water trough and silage pits. Repayment will be scheduled over 6-12 years and farmers will be required to take out an insurance policy against the death of their foundation animals. Simple low-cost fodder conservation techniques such as ammoniated straw silage will be promoted and farmers will be encouraged to keep their operational cash commitments to a minimum. Up to 13,000 farmers will receive assistance under this component.

3.19 Improvements to the facilities and the equipment of about 220 existing veterinary service stations will take place, and support will be provided for the Shanxi Frozen Semen Center in Taiyuan, the Jinan Yellow Cattle Breeding Center in Yuncheng and a frozen semen and liquid nitrogen production center in Lishi. To promote better quality silage making, grass/straw choppers will be procured and sold to existing livestock owners. Crop residues from a number of farmers will be handled by a single chopping machine and every effort will be made to locate machines in villages where new livestock farmers are to be established.

3.20 Agricultural Processing. Agroprocessing plants provide markets for farmers' outputs, add value to commodities close to their point of production, and provide employment. The proposed agroindustries are unlikely to face input shortages as they will make use of additional agricultural production as raw material for their operations. The selected enterprises consist of a mix of TVEs and county-operated companies. The - 22 - individual investments will be relatively small (less than $1 million in each case). The key criteria for their inclusion into the project included considerations of comparative advantage, market opportunities and management expertise. The companies will participate in a pilot program which will involve submission of an enterprise reform plan, and they will experiment with various incentive systems and reforms of their ownership structure towards a shareholder system during implementation. The following enterprises will be included in the project. They involve expansion and improvement of existing small plants except where noted. Each plant is briefly described in Annex I1.

Yuncheng Luliang

Jishan Guangong Distillerv Linxian Paper Board Mill Wenxi Dehydrated Vegetables Fangshan Cooking Oil Refinery (new) Jishan Date Processing Xinxian Cereals Mill (new) Jiangxian Food Products Shilou Leather Factory Wanrong Dehydrated Vegetables Liulin Liuyu Distillery Guanghua Food Processing Shilou Feed Mill Yuanqu Silk Reeling Liulin Date Processing (new) Xiaxian Feed Mill Lishi Date Processing (new) Xiaxian Flour Mill Wenxi Biscuit Factory Xingjian Dehydrated Vegetables Yuncheng Flour Mill Pinglu Fruit Packing

3.21 All China Women's Federation. The All China Women's Federation (ACWF) through local women's federations, manages a number of active programs in the project areas to support women in income-producing enterprises and activities.' Among these are skill training in handicrafts, rabbit, poultry and pig production and a range of sideline activities. The ACWF programs specifically target poor and disadvantaged women, and their activities will complement many of the project's other components. Under the project the ACWF will identify small and focused subprojects to generate cash income for women in remote villages. These will mainly consist of small livestock raising (pigs, poultry, rabbits), combined with training programns. The ACWF has adequate training facilities in Luliang, which will be supplemented with selected equipment and training materials. Larger individual credits offered to women for commercial activities will first be appraised by local branches of the Agricultural Bank of China (ABC), following standard credit procedures before approval by the Project Management Offices (PMOs).

l The Luliang Branch of the ACWF has received national recognition for its innovative approach to help poor women. - 23 -

The IDA credit will fund the part of the costs of the ACWF component, amounting to some $0.3 million. This would include the weaner pig production farm (about Y 182,000 for works, Y 110,000 for equipment, Y 500,000 for livestock purchase, feed and veterinary services), small livestock enterprises (about Y 3.0 million), and training (about Y 750,000). The component is described in more detail in Annex 10.

3.22 Project Management Support Services. The prefectures will provide equipment and facilities for project management, project monitoring and training. In Luliang, Yuncheng, and Taiyuan. this includes upgrading of office buildings, provision of vehicles, and office equipment. Training centers will be updated in both prefectures and equipped with furniture and audiovisual equipment. Extension services will be strengthened in each county. including renovation of buildings and supply of equipment and vehicles. Monitoring and evaluation of the impact of project activities will be supported through upgrading of observation stations and provision of equipment.

3.23 Training and Overseas Study Tours. The project includes 21 staff months of overseas study tours, 16 staff months of overseas training, and 70 staff months of domestic study tours covering all aspects of project management, monitoring, and technical training. At negotiations assurances were obtained that Shanxi will prepare and furnish to the Association hy November 30 of each year, a proposed program of training activities to be carried out during the following calendar year and thereafter, implement such program as approved by the Association (see para. 4. 1).

D. STATUSOF DESIGNS

3.24 Designs are virtually complete for the irrigation components, beach land, roads, water supplies, and soil conservation works, and for most of the agroprocessing enterprises. Preparation of construction drawings and bid documents for the irrigation works will be completed by early 1996.

3.25 Current procedures require multilevel technical reviews and approval of the design and construction of sediment control dams. Preliminary designs are carried out by county water and soil conservation bureaus. Initial review and approval of structural design and siting are carried out by provincial water and soil conservation authorities who are responsible for ensuring compliance with design procedures and technical specifications. During negotiations, assurances were obtained that all dams (a) which will either exceed 10 m in height or create a reservoir with a gross storage volume of 2,500, 000 cubic meters or more, or (b) which possess unusual design features, involve difficult geological conditions, or are situated so as to be significantly destructive in the event of a failure, will be (i) subject to independent reviews as to their designs and construction by a panel, whose membership and TORs are acceptable to the Association, and (ii) periodically inspected by the panel in accordance with sound engineering practices in order to determine whether there are any deficiencies which may endanger their safety. - 24 -

E. IMPLEMENTATION SCHEDULE

3.26 The project will be implemented over a period of six years. Project completion is expected by December 31, 2001, and the credit closing by December 31, 2002. Most of the construction for the irrigation system and beach land will be by manual labor, employing farmers in the project area. The peak periods for labor availability are after the wheat harvest in July/August, and in the winter until the planting season in April/May. During this period there will be long spells when it is too cold for concrete work and the ground is too hard for manual excavation. Thus, for manual labor the construction season lasts for about 180 days. For work carried out with equipment, construction can proceed for most of the year except for the coldest months. An implementation schedule is shown in Annex 15.

F. COST ESTIMATES AND FINANCING PLAN

3.27 The project has an estimated cost of $182.8 million, including $26.6 million of foreign exchange ( 15 percent of the total). Cost estimates are summarized in Table 3. 1. A more detailed summary with an expenditure schedule is given in Annex2, and cost estimates for individual components are given in the relevant annexes. Project cost estimates reflect end- 1995 prices using a unit cost approach in which unit prices are applied to detailed quantity estimates. The unit prices are based on experience with similar works and projects in the prefectures. Where unit prices were not available, they were derived by estimating labor, material and equipment inputs. Since there are no large physical uncertainties, a physical contingency of 5 percent has been applied to the construction costs. Project works are labor-intensive, and labor rates for off-season employment are not likely to be subject to the sharp escalation now being experienced in more prosperous parts of China. Also, many of the villagers employed on the project will stand to benefit from the improvements in land productivity and, therefore, the counties will have some leverage in setting rates. Expected price increases for the total project cost expressed in Yuan were derived by applying price escalation of 10.5 percent for 1996, 8.5 percent for 1997, and 7.0 percent for 1998, 6.5 percent for 1999 and 6.2 percent for the following years. For the total cost expressed in US dollars, the escalation factors are 1.8 percent for 1996, 2.6 percent for 1997 and 2.5 percent after 1997. - 25 -

Table 3.1: COST SUMMARY

Local Foreign Total Local Foreign Total % ------Yuan Million------US$ Million------Foreign

Yuncheng Irrigation System 255.7 39.3 295.0 30.4 4.7 35.1 14 River Beach Development 92.5 37.1 129.6 11.0 4.4 15.4 29 Rural Water Supply 55.7 21.6 77.4 6.6 2.6 9.2 28 Rural Roads 143,2 0.6 143.8 17.1 0.1 17.1 1 Soil & Water Conservation 114.6 8.8 123.4 13.6 1.0 14.7 7 Horticulture 174.0 50.1 224.1 20.8 6.0 26.7 22 Livestock 117.8 4.1 122.0 14.0 0.5 14.5 3 Agricultural Processing 114.9 30.2 145.1 13.7 3.6 17.3 21 All China Womens' Federation 5.0 - 5.0 0.6 - 0.6 - Support Services 92.6 21.0 113.4 11.0 2.6 13.5 19

Base Cost 1.166.0 212.7 1,378.7 138.8 25.3 164.1 15 Physical Contingencies 75.9 - 75.9 9.0 - 9.0 - Expected Price Increase 286.1 44.3 330.5 8.4 1.3 9.7 13

TotalProiect Cost 1,528.0 251 1 .1785.1 112 2k .1125

3.28 The proposed IDA Credit of SDR 67.3 million ($100 million equivalent) will finance 55 percent of the project cost, Shanxi Province will finance 25 percent, the prefectures/counties 4 percent, and the farmers 16 percent. The province will receive an allocation of funds from the Central Government under the 8-7 Poverty Alleviation Program over the project period that will make up about one-third of the province's contribution (Table 3.2). Shanxi Province has a strong track record of implementing foreign funded projects and past performance has been highly satisfactory. Table 3.2: FINANCINGPLAN

LQa11 Foreign IQTal ------($ million)------

IDA 73.4 26.6 100.0 Shanxi Province 45.7 - 45.7 Prefectures/Counties 7.3 7.3 Farmers 2. - 22.m 156.2 26.6 182.8

G. PROCUREMENT

Works

3.29 Civil Works worth $73.4 million would be required for the project comprising Yuncheng irrigation system infrastructure ($30.9 million), beach land development infrastructure ($10.3 million), water supply ($6.7 million), rural roads ($18 million), and buildings ($7.5 million). Except for the Langdian pumping complex in the Yuncheng - 26 - irrigation system, the civil works for this component consist of many small undertakings spread throughout the project areas ($21.0 million) and to be built under force account by experienced country teams in cooperation with the beneficiaries over a period of five to six years. Structures costing about $9.9 million at Langdian pumping complex would be procured through national competitive bidding (NCB) procedures acceptable to the Association. The beach land works include a variety of activities such as well-drilling, leveling, earth roads, irrigation canals, and electrification. These works ($10.3 million) would also be carried out under force account. Supervision of these works will be the responsibility of the Yuncheng Water Conservancy Bureau. Rural roads involve improvement of the existing roads and some new bridges and culverts. The sites are widely separated and it is difficult to quantify the work in advance. With the exception of some large structures ($2.5 million), that will be contracted out through NCB procedures acceptable to IDA, these will be built as force account operations ($15.5 million) by the county road construction teams employing the villagers living along the roads. The water supply works consist of well-drilling, construction of pumping stations and storage tanks, and laying of distribution pipes. These will be executed by county water conservancy bureaus under the direction of the prefecture water conservancy staff ($6.7 million). Villagers will assist in installing the distribution systems. Buildings for project offices and agroprocessing enterprises ($6.1 million) will be procured through NCB procedures acceptable to IDA.

3.30 Soil and water conservation works in Luliang ($15.9 million) will be carried out under force account by the villages with assistance from equipment deployed by the county and township soil conservation teams. The horticulture component would be carried out under force account by the villages ($22.5 million for the establishment and tending of fruit orchards), under the supervision of the local agriculture bureaus. In total, works costing $92 million equivalent or less in aggregate, may, with the Association's prior agreement, be carried out under force account by experienced country teams in close cooperation with the project beneficiaries. The above force account works are justified due to the labor-intensive and scattered nature of the works to be carried out over a span of time, and are considered unsuitable for competitive bidding.

Goods

3.31 Equipment and materials worth $34 million would be required for the project comprising equipment for agroprocessing ($7 million), pumps and motors ($3.8 million), electrical equipment ($7.1 million), dredgers and excavators ($2.4 million), PVC pipes ($2 million), fertilizers ($7.4 million), vehicles ($2 million) and miscellaneous equipment ($2.3 million). ICB procurement procedures would apply to most pumps and motors ($3.4 million), electrical transformers ($4.0 million), dredges and excavators ($2.4 million), PVC pipe ($1.8 million), fertilizer ($7.4 million), and most vehicles ($1.7 million) for a total of $20.7 million. To the extent practicable, contracts for goods would be grouped into bid packages estimated to cost the equivalent of $250,000 or more for each. A margin of preference equal to 15 percent of the CIF price of imported goods or the actual customs duties and import taxes, whichever is less, will be allowed to domestic - 27 - manufacturers bidding under ICB procedures. Equipment for agroprocessing ($7 million) includes numerous items of processing equipment of many different types for 21 enterprises. These will be procured and installed over a period of three to four years and cannot be packaged for ICB; therefore, they will be procured through national and international shopping. Some pumps and motors ($0.4 million), conductors and insulators ($3.1 million), a small portion of the PVC pipes ($0.2 million), some vehicles ($0.3 million), and other small equipment ($2.3 million) would be procured through national and international shopping. In summary, equipment, vehicles and materials costing $250,000 or less per contract, and $13,300,000 or less in the aggregate, may be procured through shopping.

3.32 In addition, animals for the livestock component ($11.9 million) would be procured through national shopping procedures at regional or local markets by teams comprising representatives from the beneficiary villages and the local animal husbandry bureaus.

Consultancy Services and Training

3.33 Services worth $17.3 million would be required for the project and comprise training services ($2.2 million), project management ($14 million) and various services for the livestock and horticulture components ($1.1 million). Consultants will be employed in accordance with Bank Group guidelines for the use of consultants and the use of the Bank's standard form of contract for consultants' services. Miscellaneous expenditures amounting to $7.2 million and comprising mainly recurrent operating expenditures will not be financed by the Bank/IDA, including project management of $14 million.

3.34 IDA Approval and Review. All contracts for goods would be grouped into bid packages whenever possible to attract competition and permit bulk purchasing. Standard bidding documents approved by IDA would be used. All contracts for goods of $250,000 or more would be subject to prior review by IDA, which would cover about 80 percent of the total goods by value. All contracts for works of $1 million equivalent or more would be subject to prior review. All contracts for consultant services in excess of $100,000 for engagement of firms, and $50,000 for engagement of individuals would be subject to prior review by IDA, which would cover about 75 percent of the total consultant services by value. For consultants' contracts below these thresholds, prior review will apply to terms of reference, single source selection, assignments of a critical nature and any amendments that would raise contract value above the prior review threshold. Other contracts for goods would be subject to ex-post review by IDA supervision missions. The procurement profile is shown in Table 3.3. The International Tendering Company (ITC) of the China International Trust & Investment Corporation has been chosen to represent Shanxi Province in procurement matters. - 28 -

Table 3.3: PROCUREMENTPROFILE

Item ProcurementMethod

ICB NCB Other /a NIF /b Total Civil Works and Buildings Yuncheng Irrigation 9.9 21.0 30.9 Beach Land 10.3 10.3 Water Supply 6.7 6.7 Rural Roads 2.5 15.5 18.0 Buildings 6.1 1.4 7.5 Total 18.5 53.5 1.4 73.4 (9.2) (26.8) (36.0) Soil and Water Conservation Terracing 12.6 12.6 Check Dams 2.0 2.0 Afforestation 1.3 1.3 Total 15.9 15.9 (9.5) (9.5) Livestock Animals 11.9 11.9 Support Services 0.6 0.6 Total 12.5 12.5 (9.0) (9.0) Horticulture Establishment and Tending 22.5 22.5 Support Services 0.5 0.5 Total 23.0 23.0 (9.0) (9.0) Equipment/Goods Agroprocessing 7.0 7.0 Pumps and Motors 3.4 0.4 3.8 Electrical 4.0 3.1 7.1 Dredgers and Excavators 2.4 2.4 PVC Pipes 1.8 0.2 2.0 Fertilizer 7.4 7.4 Vehicles 1.7 0.3 2.0 Miscellaneous 2.3 2.3 Total 20.7 13.3 34.0 (20.7) (13.2) (34.0) ACWFComponent 0.6 0.6 (Goods, works and training) (0.3) (0.3)

Training and Study Tours 2.2 2.2 (2.2) (2.2) Project Management 14.0 14.0 (0) (0) Miscellaneous 7.2 7.2 (0) (0) TOTAL 20.7 18.5 121.0 22.6 182.8 (20.7) (9.2) (70.1) (0) (100)

/a Other includes force account, community participation and shopping, and training. LbNIF: Not IDA-financed. Note: Figures in parentheses are the respective amounts financed by the Bank Group. - 29 -

H. DISBURSEMENTS

3.35 The proceeds of the IDA Credit will be disbursed as follows:

Amount Category ($ mn) Percent Disbursement

1. Civil Works and Buildings 36.0 50 percent of expenditures.

11. Goods/Equipment 34.0 100 percentof foreign expenditures; 100 percentof local expenditures (ex-factorycost); and 75 percent for other goods procured locally. 111. Soil and Water Conser-vation 9.5 60 percent of expenditures.

IV. Livestock 9.0 80 percentof expenditures. V. Horticulture 9.0 40 percentof expenditures. VI. ACWF Component 0.3 50 percentof expenditures. VII. Consultants' Services. Training 2.2 100 percentof expenditures. and StudyTours

Iotai IQ°°Q

3.36 Retroactive financing is recommended for payments made between August 1, 1995 and the date of signing of the Credit Agreement. The construction season in the project areas depends on the climate and the farmers' cropping cycle. Therefore, the prefectures must begin construction in the winter of 1995 to ensure a full working season. Retroactive financing will also cover the necessary funds for completion of detailed designs for several components. The total amount of retroactive financing will be SDR 6.73 million ($10.0 million equivalent) based on work programs reviewed by IDA.

3.37 Statements of expenditure (SOEs) will be required for disbursement to be made against (a) contracts for goods costing less than $250,000, (b) study tours and training, (c) civil works costing less than $1 million, and (d) consultants' services costing less than $100,000 for firms, and less than $50,000 for individuals. For force account works, unit prices were decided by the CPMO and IDA at negotiations, and will be updated annually at the end of each calendar year thereafter, with IDA concurrence.

3.38 To facilitate disbursement, a Special Account to be operated by the Provincial Finance Bureau will be established in a bank acceptable to IDA. The Special Account will be set up in an arnount of $8 million, the estimated scale of disbursement over a - 30 - four-month period during the early implementation phase. An estimated schedule of disbursements is provided in Annex 16.

1. ACCOUNTS AND AUDITS

3.39 The county PMOs will maintain separate accounts for all project expenditures. These will be consolidated by the prefectural PMOs and submitted annually to the provincial PMO. These accounts will be audited annually by independent auditors. During negotiations assurances were obtained from the Borrower and Shanxi Province that they will cause the project accounts, the Special Account and SOEs to be duly audited by an independent auditor acceptable to IDA and will submit them to IDA within six months of the close of Leachjinancial year. The State Audit Administration will be acceptable for this purpose. In the case of SOEs, the audit report will contain a separate opinion by the auditors as to whether SOEs submitted during the financial year, together with the procedures and internal controls involved in their preparation, can be relied upon to support the related withdrawals.

J. ENVIRONMENTAL AND SOCIAL IMPACTS

3.40 This is a Category B Project and, overall, the project is expected to have a favorable impact. Environmental Impact Assessments (EIAs) have been prepared by each prefecture and these formed the basis for a comprehensive EIA prepared by the Shanxi Provincial Institute for Radiation Prevention. This report, prepared in accordance with the Bank Group' s recommended format and guidelines for EIAs, finds that the project's environmental and social impacts are beneficial and the potentially adverse impacts are confined to some of the agroprocessing plants. Mitigation measures are described in detail and the report contains detailed proposals for environmental management and monitoring. The report was approved by the National Environmental Protection Agency (NEPA) and is satisfactory to the Association. During negotiations assurances were obtained that Shanxi shall implement the project in accordance with an environmental management and monitoring plan acceptable to the Association.

3.41 Positive environmental effects of the project include:

(a) creation of a better environment on a 123,000 ha irrigated area by increasing the input of surface water to arrest unsustainable exploitation of groundwater;

(b) a safer drinking water supply for nearly 700,000 people;

(c) modernization of agroprocessing facilities to enhance efficiency and reduce pollution;

(d) conservation of land and reduction in sediment runoff in parts of Luliang prefecture, and - 31 -

(e) support for establishment and protection of a nature reserve in Yuncheng Prefecture.

3.42 Social benefits include:

(a) lower production costs in the irrigated areas through less reliance on deep tubewells;

(b) higher farm incomes from horticulture and livestock raising;

(c) easier access for villagers in remote areas to markets, medical services, schools. and employment opportunities;

(d) freedom from hauling water long distances to allow more productive activities: and

(e) creation of employment opportunities for several thousand rural poor in the processing industry.

3.43 The sediment control dams will be sited in uninhabited gullies and, therefore, no relocation of population will be necessary in the submergence areas. The topography of the watersheds allows considerable flexibility in siting the dams, and all will be located at sites remote from existing or potential settlements. Detailed guidelines for safe construction and operation of dams have been prepared, but in the unlikely event of failure there would be no danger to life and limited damage to property (see Annex 5). The agroprocessing plants will be designed and operated to meet the strict guidelines established by NEPA.

3.44 This project directly targets poor and disadvantaged women through support of the ACWF. Women will be the prime beneficiaries of the improved rural water supply systems and the livestock component. Not only will the distances to water points be dramatically reduced, but reliable water supply allows the household to keep a draft animal and small livestock, both directly beneficial to women. In all other components, women will be treated on an equal basis with men and the project will endeavor to promote their increased representation at all levels of project management. Women are fully involved in the agricultural production processes. They will benefit equally from the increased production and income resulting from the project.

K. RESETTLEMENT

3.45 The components that require land acquisition and relocation of some houses are: (a) agroprocessing plants; (b) rural roads; and (c) the Langdian and Zuncun Pumping Complexes.

3.46 Agroprocessing Plants. The agroprocessing plants include expansion of existing township enterprises. They are located in various county towns and some will require up - 32 - to one hectare of land for expansion of facilities. In Yuncheng, six of the 13 plants have sufficient land area to complete the expansion without any land acquisition. Five of the plants will require land adjacent to the present site, of which one already owns the land (0.45 ha), one will acquire the land (0.67 ha), and three will rent the land (2.2 ha in total). Two of the plants will build the facilities at new sites which require land acquisition (1.33 ha in total). In Luliang, four of the eight plants own sufficient land to complete the expansion without any new land acquisition. One of the plants will purchase 0.1 hectares adjacent to the present site. and three will rent the land (4.3 ha in total). There will be no houses affected.

3.47 Rural Roads. rhe proposed rural road schemes will upgrade existing roads to Grade 3 (7.5 m wide). As a result, each road will require the acquisition of a strip of land on each side of the existing road. In some areas, the road will be realigned slightly and in the mountain passes, new roads will extend where only footpaths existed before. The total amount of land acquisition will be 184 ha, of which about 57 ha is farmland, 60 ha is slopeland, and 67 ha is wasteland. The widening of roads will affect 84 households that will be fully compensated. There will be compensation for the costs involved in moving structures, and for the loss of farm land and economic trees owned by farmers. Also, the construction of the roads will cause temporary impacts on farmland and these losses will be compensated.

3.48 Langdian and Zuncun Pumping Complexes. The Langdian Complex will require the construction of a canal along the beach land parallel to the river. The 13.5 km long canal will have an average width of 15 m which will occupy 13.7 ha of wasteland within the floodplain. In addition, a 2.6 km section of the canal will be widened to form a 400 m wide sedimentation basin that will occupy almost 100 ha. The floodplain belongs to the YRCC and contains no farms or buildings. The Zuncun Complex will have a sedimentation basin that will have a length of 1,400 m, a width of 350 m, and take up 50 ha of beach land, much of which is presently used as seasonal farmland. Farmers who have contracted this land will receive land compensation. No houses or structures will be affected. The other components of the Langdian schemes involve improvements to the existing pumping stations and canal networks; these will not require any land acquisition. Also, the construction of the Langdian scheme may cause minor temporary impacts to nearby farmland and these losses will be compensated.

3.49 Resettlement Action Plan. The principles to be followed for land acquisition are based on the Law of Land Management as it is applied at the provincial level. This law stipulates the land rights and procedures for establishing compensation. Compensation of land, crops, economic trees and houses is based on standard factors and replacement value. Some negotiation of rates is typical before the rate is set by local government. There is a formal appeals process if the affected party is still dissatisfied. Seasonal farmland in the floodplain that has not been contracted, and belongs to the YRCC, is typically compensated but at one-half the amount for contracted floodplain land. For the land compensation, the funds are allocated to the affected village and the proceeds and/or land will be adjusted accordingly. For crops, economic trees and houses, compensation - 33 - will be given to the affected household. The funds can then be used at the discretion of the household. If houses are to be demolished, the owner is entitled to salvage any materials. The individual will be responsible for the construction of the new house. The village will provide support in selecting a new site and assisting with the relocation. Each village and household will receive fair compensation and they will then be responsible for any relocation or rehabilitation requirements. Since the quantity of land involved is small and dispersed amongst several villages, no significant impact on livelihoods is anticipated. Any disputes are likely to be resolved at the village or township level. During negotiations assurances were obtained that each prefecture will implement the Resettlement 4ction Plan agreed with IDA.

L. CONSULTATION, PARTICIPATION AND TARGETING

3.50 Public Awareness. The Poverty Alleviation Office has already been financing projects for 10 years in Luliang and for four years in five counties of Yuncheng; thus, many rural people are quite aware of the general poverty alleviation programs. When IDA expressed an interest in supporting poverty alleviation activities, people recognized that this would ensure significantly increased funding for the next six years. During the process of project preparation-including four IDA and FAO/CP missions conducting numerous site visits and two years of field preparation-the prefecture PMOs have created widespread awareness of the project. Numerous meetings were held at the township and village level to identify candidate villages and households.

3.51 The public media have been well utilized to increase awareness in the entire project area (multiple TV and radio coverage of preparation activities). The environmental assessment team has conducted an opinion survey of farmers, administrators, technicians and intellectuals. The social assessment team has conducted pilot surveys of 130 villages in Yuncheng and 70 villages in Luliang. Consequently, the level of awareness is high and the local farmers are anxious to see the start of the project. Most farrners understand that they will have the obligation to repay part of the village investment.

3.52 Public Consultation. The Poverty Alleviation Office has directly involved all relevant line departments, local governments and the beneficiary villages, but they have also had consultations with the general public. In March 1994, IDA participated in an informal symposium with heads from local democratic political parties, intellectual societies, and the ACWF. Although the purpose was to bring diverse groups together to become involved with the project, it became clear that all groups had already been consulted during the past two years and strongly supported the project. Each group described poverty alleviation activities that their members were involved with and some expressed an interest to support the implementation of this project.

3.53 Community Participation. Successful implementation of the project requires a high level of community participation. The larger engineering schemes will require labor input from the villagers as their contribution to the project investment. Proper - 34 - participation, mobilization, motivation and organization will be required to ensure high quality construction and a feeling of ownership in the project. For the livelihood improvement schemes, a broader community approach will be taken although typically there are few target households in each village. This will provide learning opportunities for other villagers and will prepare the ground for future investments using local funds. In China, introduction of the household responsibility system has developed more individual attitudes amongst the farmers. Now some blending of entrepreneurial initiative and collective support is required for poverty alleviation to extend maximum benefits to the greatest number of poor.

3.54 Targeting and Selection of Project Townships, Villages and Households. This project will take a two-pronged approach to the alleviation of poverty. Some components will provide direct benefits to targeted villages and households. Other components will benefit a large area and large numbers of people. The latter components tend to be locationally fixed and include: (a) the Langdian irrigation scheme in Yuncheng; (b) the beach land development in Yuncheng; (c) aquaculture improvements in Yuncheng; (d) check dams in Luliang; (e) protection forests in Luliang; and (f) agroprocessing.

3.55 A significant amount of time was spent during preparation to develop realistic criteria to target beneficiary villages and poor households for livestock farms, horticulture, land terracing, rural roads and rural water supply. Although there is some variation among components, criteria typically include income levels, willingness and commitment to participate, and availability of natural resources. The livestock component, as an example, includes the development of household farns for cattle or sheep/goat raising. Initially some 9,500 households in Yuncheng and 3,100 households in Luliang will benefit from this component. It is dispersed widely to virtually all of the project area townships in both Yuncheng (194 of 211) and Luliang (117 of 117) Prefectures. In Yuncheng, this component will be targeted at poor households in the hilly areas (28 percent), in the beach land areas (8 percent), and in the farmland areas (64 percent-cattle only). The criteria used to select project villages and beneficiary households include:

* all townships in five poverty counties (83 townships);

* poor townships in other counties (66 townships);

* poor villages in other townships (45 townships); and

* villages that possess good natural resources (e.g., 20 to 40 ha of natural pasture and five ha for herbage; or adequate farm residue/fodder).

Within these villages, between two and 10 households will be identified that:

* are poor (incomes below Y 500 per capita);

* have a young adult who completed junior middle school; - 35 -

* are capable of good animal husbandry management skills but presently have no livestock; and

* want to participate in the prograrn.

The household livestock enterprises will be modest in scale, starting with one cow in the first year and purchasing another cow in the second year provided the first year was successful. This will ensure that the farmer can manage the livestock enterprise.

3.56 The Rural Drinking Water Supply component, as another exaznple, includes 78 water supply schemes to benefit 516 villages in Yuncheng and 204 schemes in Luliang. All of the project villages have accepted the proposed schemes and their responsibility to collect water fees from each household to repay the capital and operation costs. In Yuncheng, the selection of villages focused on two types of conditions: (a) clusters of villages in dry areas that could access groundwater by a deep tubewell which will serve all villages; and (b) small isolated villages whose needs could be satisfied by nearby streams or springs using gravity schemes. Most of the villages were selected from the hilly or mountainous areas where access to water is limited. Gravity schemes were targeted for villages that either use shallow wells or rainwater collection ponds, which go dry for several months of the year. The selected villages are located in 74 townships, of which 52 are below the poverty level. In the remaining townships, the selected villages are below the poverty level and many have average incomes below Y 350 per capita. Annex 12 provides further details. - 36 -

4. MANAGEMENT AND ORGANIZATION

A. PROJECT ORGANIZATION

4.1 Project Leading Groups. Overall responsibility for the project rests with the Shanxi Provincial Government. The planning and subsequent implementation of the project is coordinated at the provincial level by a Project Leading Group (PLG), headed by the Vice-Govemor responsible for agriculture, and including representatives from all the concerned agencies. including the Poverty Alleviation Office, the departments of planning, finance, agriculture, water conservancy, forestry, and animal husbandry. The Provincial PLG draws on the experience of the World Bank Project Office of the Finance Bureau which has considerable experience in dealing with Bank Group projects. At the prefectural level, the PLG is headed by the Commissioner of Yuncheng Prefecture and the Vice-Commissioner of Luliang Prefecture and has similar representation to that at the provincial level. The role of the PLG at each level is to decide on policies and project components, and coordinate the work of the relevant departments in preparing and subsequently implementing the project. The day-to-day management of the project will be handled by the Central Project Management Office (CPMO) which will channel provincial and central government funds to the prefectures, operate the Special Account, prepare progress reports and withdrawal applications, and supervise procurement in cooperation with the ITC. The CPMO will be given the status of a line department reporting directly to the Vice Govemor. An assurance was obtained at negotiations that Shanxi will prepare and submit a detailed annual budget and work plan to IDA for review by November 30 of each year in respect ofproject implementation in the following year, and carry out such plans, as approved by the Association.

4.2 Project Management Offices. Under the PLG at each level, a Project Management Office (PMO) will be responsible for executing the project. The PMOs will direct, coordinate and manage the work of the various implementing agencies such as the water conservancy, agricultural, and animal husbandry bureaus. Prefecture PMOs will (a) draw up annual work programs and budgets; (b) review and approve lower level PMO work plans; (c) undertake procurement not covered by the central project office and distribute procured materials, (d) prepare and submit to the central PMO detailed project accounts, audits and progress reports; (e) undertake project monitoring of physical and financial progress and evaluations of project impact; and (f) organize research, local training, and project supervision. PMOs at lower levels have been established under the county and township administrations with a similar structure and responsibilities. All these PMOs have been involved in the detailed preparation of the project and will be responsible for all aspects of implementation. The PMOs will supply procured materials to fanners in a timely manner and organize irrigation works and terracing in such a way that agricultural production suffers minimum disruption. For the livestock component, - 37 - staff will assist farmers in acquiring animals. The township PMOs have been working closely with the villagers through village committees in developing project proposals. They will continue to play a key role in project implementation through organizing collective efforts at the village level which are crucial to the success of the project. Assurances were obtained at negotiations that CPMO and PMOs at prefecture, county and township levels would he maintained with terms of references acceptable to IDA and staffed by competent staff in adequate numbers.

4.3 Poverty Alleviation Offices. The PMOs will cooperate closely with the Poverty Alleviation Office which has branches at the provincial, prefecture and county levels. This office was already responsible for disbursement of funds under the Eight-Seven Poverty Alleviation Program. The Poverty Alleviation Office is not a line department, but rather a separate agency. that reports directly to the Provincial Planning Commission. Its advantage is its ability to coordinate the various line departments all the way down to the township level.

4.4 Village Committees. The village committee will be the key to physical implementation of the livelihood components and will mobilize village labor for the rural works components. The village committee is normally comprised of a village chief, a deputy, an accountant and a women s representative. Proposals from households to participate in the project will first be vetted by the village committees. Only then will applications be forwarded to the township office. In some villages the agreement for village schemes will be signed by the village committee. For household schemes, agreements will be signed by the head of the household, but the village chief will endorse the agreement as a guarantor for the household. For project implementation, special groups will be formed to manage the mobilization of farmers, organize training, supervise construction and control financing. Once completed, the beneficiary households will be fully responsible for managing the operation and maintenance of the facilities, and for repayments for the livestock as well as paying charges to recover costs associated with orchard, agriculture, protection forest, improved pasture, improved terraces, and collection well components.

B. FINANCIAL MANAGEMENT

4.5 Flow of Funds. The Ministry of Finance (MOF) will make available the proceeds of the IDA credit to Shanxi Province at an annual interest rate of 3.5 percent with a repayment period of 20 years, including a 7-year grace period. The foreign exchange risk will be borne by the Shanxi Finance Bureau. A portion of the IDA funds will be used directly by CPMO and the prefectures to cover the costs of research, training, and equipment expenses. The Finance Bureau will channel the remaining funds successively to prefecture, county and township governments. Funds will be made available to villages only for activities that have been appraised and approved by the PMOs. According to Chinese practice, contracts will be signed at each level of government operation, indicating the terms of availability of funds/equipment. During negotiations, assurances were obtained from the Shanxi Provincial Government that -38 - livestock; as well as subloans for agroprocessing and ACWF subprojects, would be made available in accordance with procedures, terms and conditions acceptable to the Association.

4.6 Domestic funds, which account for about 45 percent of project costs, will be contributed by government loans and grants at provincial, prefecture and county levels, or by project beneficiaries who will contribute in cash and/or labor. According to Chinese practice, terms and conditions for use of govermmentgrants will be indicated in contracts signed at each level of government and between project beneficiaries and relevant governnent agencies.

4.7 Cost Recovery. Shanxi Province will recover from the prefectures all funds disbursed from the proceeds of the IDA Credit and the Poverty Alleviation Fund which in total amounts to about 60 percent of the project cost. The prefectures will recover costs from the beneficiaries. The village committees will collect funds from farmers, and these funds will be channeled through the townships and counties to the prefectures. The fees established for cost recovery are realistic and have been deternined based on local capacity to pay. The mode of recovery varies among components as described below:

(a) ITigation. Farmers are charged according to the volume of water they use. The rate of Y 0.3 per cubic meter is sufficient to cover operation and maintenance, and loan repayment. Offices in the townships have the responsibility to organize measurement of water use and to collect fees from all villages receiving irrigation water. Payments are then passed on to the counties and then to the Yuncheng Water Conservation Bureau.

(b) Terraces and Check Dams. Farmers will be charged an annual fee of Y 300/ha starting three years after terrace completion; this will cover more than 50 percent of the cost. The annual fee for land formed behind the check dams will be Y 3,000/ha since it is new and highly productive land. The fee will be charged from when the land becomes available about 10 years after the dams are built.

(c) Beach Land. A fee per ha will be charged to the farmers at a level to be determined, that will be sufficient to recover 60 percent of the cost.

(d) Rural Roads. Tolls will be charged for the project roads since they are financed from external sources. The small tolls range from Y 1 to Y 3 per vehicle depending on capacity (Annex 6). These tolls are reasonable and unlikely to discourage road users.

(e) Water Supply. A charge of Y 1.3 per cubic meter will cover O&M and 60 percent of the cost. In some poor villages in Luliang, the charge may be lower and the villages will compensate with free labor on rural works. There will also be some direct contribution to the cost of water systems through free labor in pipe laying, etc. - 39 -

(f) Livestock. Animals will be purchased by the PMOs with the participation of selected farmers. The farmers will pay 10 percent of the initial cost. The remaining 90 percent of costs will be recovered from the farmers within 5-6 years from the proceeds of sales of offspring.

(g) Horticulture. Fertilizer, pesticides and seedlings will be provided to the farmers. Once the farmers have a positive cash flow, charges will be imposed to recover 60 percent of all costs other than the farmers' own labor.

(h) Agroprocessing. Subloans provided to agroprocessing enterprises will be on commercial credit terms in line with comparable loans provided by ABC.

C. OPERATION AND MAINTENANCE

4.8 The relevant prefecture and county bureaus will be responsible for ensuring adequate maintenance and repair of irrigation works, roads and water supplies. The cost will be borne in part by the proceeds of user charges and in part by free labor contributed by the beneficiaries. In rural areas, all adults are required to contribute 30 days of free labor to communal works. The arrangements described below follow the principles and practices already employed on existing facilities in the prefectures.

(a) Yuncheng Irrigation System. The pumping stations will be operated and maintained by employees of the prefecture and county water conservancy bureaus, and will be financed through costs recovered from the beneficiaries (para. 4.7). The canals and canal service roads will be maintained by the villages and townships they serve with technical and financial assistance from the county bureaus for major repairs. The canals are all concrete-lined down to the 5 ha service units, so that maintenance consist mainly of clearing silt from the canals, and occasional repairs to the concrete lining. Canal maintenance will be carried out by the farmers, under the village and township leadership, and will be credited to their free labor contribution.

(b) River Beach Land. Operation and maintenance of the tubewells will be the responsibility of the farmers' groups using the wells. Roads will be maintained by villages and townships using some free labor. Power lines and transformers will be maintained by the county power bureaus.

(c) Rural Roads. For maintenance, sections of the roads will be assigned to nearby villages and enterprises. They will organize work teams to carry out routine maintenance of the road surface, structures and drains on a voluntary basis. Improvement and major repairs will be fimded by the counties and townships, and work will be assigned to local construction teams. -40 -

(d) Water Supplies. Materials and replacements will be provided by the county water supply bureaus and, where necessary, labor will be supplied by the villages.

D. LANDCONTRACTS

4.9 The reforms of the late 1970s and early 1980s introduced the household responsibility system to China's farmers. Under this system, a household is given use of and responsibility for specific plots of land in contrast to the former practice of collective farming. The introduction of this system is considered the key to China's successful rural reform program that, together with other reforms, has led to the dramatic growth in China's agricultural production over the past 15 years. In Shanxi Province, the land contract system has been extended beyond crop land to the areas reclaimed by afforestation, grasslands and even wastelands. In the areas to be developed under the project, farmer households or groups of households will be allotted land under long-term contracts which will specify management standards. In return, the farners will have the right to fully benefit from the output of the land for which they are responsible. The current terms for land contracts have recently been adjusted and are now for a minimum of 30 years. Under the project, longer terms for land contracts will be applied in all areas covered by the project: a minimum of 50 years for steep waste land; 50 years for forestry plots; and 30 years for orchards, terraces and land behind dams. An assurance was obtained at negotiations that Shanxi will ensure that the land developed under the Project is leased to farmers for terms between 30 years and 50 years under written contracts.

E. MONITORING, EVALUATION, AND ]REPORTING

4.10 Social Impact Indicators. During project preparation a thorough assessment of the likely social impacts of the project was conducted. In cooperation with the preparation team, a logic framework diagram was prepared that shows how the individual project components are linked to poverty alleviation (Annex15). There will be direct impacts which will be monitored early and indirect impacts which will occur at a later stage. The following indicators (gender specific where possible) will be monitored on a regular basis:

(a) Per capita rural incomes.

(i) real increase in incomes;

(ii) percentage of households above the poverty line; and

(iii) sources of income (income stability). - 41 -

(b) Rural employment:

(i) number of labor days created and wages for local farners during construction; and

(ii) number of people employed in enterprises and salaries (the indices will include a gender breakdown).

(c) Rural living standards:

(i) quality of housing and new house construction; and

(ii) household assets (farm machinery and consumer items).

(d) Specialized households:

(i) household equity and repayment of loans; and

(ii) number of defaults or additional loans.

(e) Local economic growth:

(i) new enterprises and employment in villages and townships;

(ii) wage income (full-time, part-time); and

(iii) local investment in social infrastructure (schools, clinics).

4.11 In addition to these indicators, the PMOs will monitor physical and financial progress on a regular basis. For each component, the status of project implementation will be measured in terms of percent completion of each component, costs, quality, and number of people benefited. During negotiations an assurance was obtained from Shanxi that it will monitor the Project in accordance with indicators acceptable to the Association and prepare and furnish to the Association semi-annual progress reports by January 31 and July 31 of each year.

4.12 Baseline Data and Surveys. The CPMO and the prefecture PMOs will have overall responsibility for socioeconomic monitoring and evaluation. Work has already commenced to collect and compile baseline data in Yuncheng and Luliang. Income statistics and agricultural data have been collected at the county and township levels. General statistics on income, living standards, health, education, and agricultural production by crop have been compiled for each county. These data will form part of the baseline information which will be updated annually with data from the Bureau of Statistics.

4.13 In order to focus on the project villages, it was deemed essential to collect additional data using questionnaire surveys. A survey has been designed for the village - 42 - level to assess the impact of the individual project components on the livelihood of the beneficiaries. This information would be gathered annually by a special group under contract to the CPMO. A sample size of 180 villages in Yuncheng and 140 villages in Luliang would cover 5-6 percent of the project villages. In addition, 60 nonproject villages would be surveyed in each prefecture as a control group.

4.14 The questions in the village survey form are designed to focus on economic and social indicators that would be most affected by the project components. The surveys have been field tested to ensure that the questions are both relevant and answerable. In fact, about two thirds of the data will come from statistics maintained by the village administration. This data is not readily obtainable from the county statistics bureau; hence, the need for the survey approach.

4.15 To further validate the village survey information, income data would be collected directly from households stratified by region, income group and project component. This type of survey would be conducted using a modified survey form. The collection of accurate income data at the household level is difficult in China. Many households tend to overestimate revenues (e.g., yields and prices), underestimate expenditures, and omit important categories of incomes (e.g., sidelines). The poorer families may overestimate incomes because they do not include all expenditures. The wealthier families tend to under report incomes to avoid taxation. Nonetheless, household surveys can be informative when properly conducted, and are sufficiently accurate to demonstrate income trends.

4.16 Data Evaluation and Reporting. Special attention will be given to measuring changes in output due to investments in land development and to the new technologies introduced by the project. At the same time household investigations will measure the impact of the project on household wealth, and access to social services. These data will be retained in the project's database, thus allowing close correlation between investments, their quality and cost, and their social and economic benefits. Because investments will be identified in detail (i.e., it will be possible to define precisely where each site is located, the costs incurred, the management practices applied, and annual yield data), it will be relatively easy to undertake analysis of different sites and extrapolate the data to the project as a whole.

4.17 The PMOs will require time to set up the monitoring system databases and reporting formats. Some training may be required but it is felt that the PMOs possess the capability to provide training internally. The system should remain simple and user friendly (it will consist of a database, spreadsheet and Geographic Information System (GIS) package) to ensure transparency and access by the project supervisory staff.

4.18 Monitoring Environmental Changes and Benefits. Both prefectures will establish an environmnental monitoring unit. Details of the environmental monitoring plan are given in Annex 13. The project will provide additional instrumentation to allow effective measurement and collection of data; some automatic measuring devices will be -43 - installed in remote areas. Data from collecting stations will be reinforced by the use of satellite imagery and mobile field teams that will undertake special investigations at selected sites.

4.19 Organization and Costs. The CPMO will have overall responsibility to ensure that the provinces carry out effective monitoring and that standardized methodologies are used. CPMO will prepare annually a monitoring report for the overall project. In the prefectures monitoring will be carried out at prefecture, and county levels. Where necessary PMOs will contract other agencies and institutions to undertake special studies, particularly of sociological and economic impacts. Each year the Monitoring Plan and feedback will be reviewed by the CPMO.

4.20 Project Launch Workshop. IDA and the CPMO will conduct a Project Launch Workshop in Shanxi Province in April 1996 for staff of the PMOs at all levels. The purpose of the workshop will be to review the program for implementation and to clarify tasks and responsibilities at each level. Topics will include procurement and disbursement guidelines and procedures, financial management, supervision, monitoring, evaluation and reporting, and other relevant subjects.

4.21 Supervision and Mid-term Review. A plan for IDA supervision is given in Annex 14. CPMO would undertake a mid-term review of the project to assess progress and chart remaining implementation and would also prepare an implementation completion report for submission to IDA no later than six months following the closing date. An assurance was obtainedfrom the government at negotiations that Shanxi would furnish the Association with a mid-term report by September 30, 1998. - 44 -

5. BENEFITS AND JUSTIFICATION

A. BENEFITS

5.1 The project will raise incomes and living standards for about 3 million people in some of the poorest areas of Yuncheng and Lulling Prefectures in Shanxi Province. There will be significant increases in crop production in the 123,000 ha Yuncheng Irrigation Project through a more reliable supply of irrigation water, and on 13,000 ha of the river beach lands of Yuncheng through irrigation and other works. Water supply schemes will provide a safer source of water for nearly 700,000 people, and will relieve them from the task of hauling water from long distances so that their time and energy may be more productively used. Rural roads will help 355,000 people in remote areas to diversify their agricultural production on about 70,000 ha through better access to markets and input supply. and enhance employment opportunities and access to social services. Expansion of horticulture and livestock raising will offer opportunities for tens of thousands of families to raise their incomes. Several thousand women will benefit from a program to increase their incomes and provide training. Finally, expansion and improvement of agroprocessing facilities will provide more markets for agricultural produce and create employment. Total incremental production from project activities is summarized in Table 5.1.

5.2 The project responds to the challenge of providing sustainable improvements in the lives of the rural poor in remote areas. Its focus is on measures to raise incomes, primarily from crops and livestock. Other important needs of these areas such as health and education are not directly addressed, but access to these services and their affordability will be enhanced for many of the families affected by the project. Also, these services are often being improved by other projects. Each component of the project addresses a critical need, has the necessary institutional support and beneficiary commitment and, above all, promises a satisfactory return to the farmers and the economy.

B. MARKETS AND PRICES

5.3 The main crops and other outputs produced by the project are in demand in China and this is likely to continue. China is currently importing from 10 to 15 million tons of wheat annually. Wheat imports will continue in the future as land under wheat is used for higher value crops, or taken up by factories, roads and new housing. In the 1980's, China shifted from an importer to an exporter of maize, mainly to South Korea, Japan, and Russia. In the long run, China is likely to become again a net importer of maize because of the need to meet the rising demand for animal feeds. Domestic cotton production is Table 5.1: ANNUAL INCREMENTALPRODUCTION AND INPUT USE AFrER FULL PROJECT DEVIELOPM1ENT

Total Yuncheng River Check Value UJnit Irrigation Beach Terracing Dams lHorticulture l,ivestock Total (Yuan mln.)

Crops & Fruit Trees Crop Production Wheat ton 126,500 16,950 - - - - 143.450 183.62 Cotton lint ton 10.670 2,000 - - - - 12.67() 119 10 Colton secd tol 21340 4,000 25.31) 20 27 Maize ton 87.000 12.000 14.125 675 - - I I 1.00 136 56 Soybean 1(tn - 1,64(0 3.070 - -. 710 8 48 Sorghum tonl - - .1 1 - - 41 0 31 Sunhllower toin 9( 138 228 0 27 Potato tol - - 9.200 - - - 9.200 3 68 Waterinclon-s ton 28.000 - - - - '8.)00 8.40 Frmit& Nut Production Dates ton - - - 228.850 - 228.850 457,70 Prickly assh ton - - - - 7.500 - 7.50( 120.00 Chestnut ton - - - - 26.640 - 26.640 53.28 W.lnut ton - - - - 45.280 - 45.280 271.68 Apricot ton - - - - 2,800 - 2,800 56.00 Apple ton 79,300 - - - 8,400 - 87,700 140.32 Input Use Urea ton 11,122 1,484 792 41 10,308 - 23,746 28.50 Ammonium bicarbonate ton - 1,290 - - - - 1,290 0.77 Phosphate(SSP) ton 7,637 2,238 925 61 13,456 24,316 12.16 Agrochemicals ton 448 - - - 206 - 654 13.09

Livestock & Fish Production Calves No. - - - - - 13,160 13,160 23.03 Cattle No. - - - - 2,688 2,688 8.04 Fish ton - 2,500 - - - - 2,500 17.11

IncrementalFamily Labor '000 WD 4,728 1,310 181 29 17,915 470 24,633 221.69 - 46 - regulated by a system of quotas and a relatively low official procurement price. These regulations may be relaxed and this might encourage further production gains. But, China has recently bought a substantial amount of cotton on the world market and imports may become an annual event to meet the needs of the textile and garment trade. Outputs from the primary processing component are competitive locally and more than half of the products have excellent prospects for export into other provinces or overseas markets.

5.4 The project areas have a comparative advantage in fruit production. The climate and soils are well suited to temperate zone fruits, and the farmers are skilled in their cultivation as a sideline to grain and cotton production. At current prices, investments in fruit trees show an attractive return. Until the fruit trees bear they are intercropped and this tends to improve the financial returns. But even if prices should fall in the future, fruit trees will still be a significant source of cash income to the poorer farmers. Fruits not only provide income, but they also add variety and balance to the farmers' diet. And in periods of seasonal drought when grain yields are low, fruit trees will still be productive enough to provide cash income and food. In the loess area where much of the fruit is grown, there are excellent storage sites in the form of caves; these allow farmers to keep fruit for six to eight months without suffering a significant reduction in product quality. Thus, there should be no problem in disposing of the project's large volume of incremental fruit production

C. ECONOMIC AND FINANCIAL ANALYSES

5.5 Approach. Each component has quantifiable benefits that were measured against the capital and operating costs. There are also important benefits that were not quantified, but the nature of these are described. Sensitivity tests and switching values were derived for all components to judge their economic and financial risks, and the impact of changes in prices, costs, or implementation delays.

5.6 Cropping patterns, yields, and economic crop budgets were estimated for all of the main project components for the "without project" and "with project" cases. These were used to estimate project benefits for the irrigation, beach land, rural roads, horticulture and soil conservation components. Household models were used to derive benefits for the livestock component. For the water supply component the economic analysis was based on projections of future water use and the villager's willingness to pay for the supply of drinking water to the village. The period of analysis for most of the components was 20 years. with the exception of the protection forest and the agroprocessing component. where it was 35 and 17 years respectively. Operating costs for Yuncheng Irrigation. the beach land and the water supply component include pumping costs, maintenance and replacement of pumps and other equipment, and personnel.

5.7 Economic prices in 1995 constant terms were calculated for all traded inputs and outputs based on the World Bank's price projections. For nontraded goods the economic - 47 - prices are the local market prices (Annex 1). Economic rates of return (ERRs) for all project components and for the project as a whole are summarized in Table 5.2. The analyses are briefly described below and supporting tables are given in each of the technical Annexes.

5.8 Yuncheng Irrigation System. The Langdian Pumping Complex and the completion of the Yuncheng Irrigation System to serve an area of 123,000 ha has an ERR of 40 percent. This high return is due to the large sunk cost and the low investment cost per hectare. The benefits arise largely from providing a full supply of irrigation water to lands that are presently rainfed and partly irrigated. As a result of the project works, Yuncheng will be able to resume using the volume of water allocated to the project by the Yellow River Conservancv Commission in the 1970's. It might be argued that areas in the lower reaches of the Yellow River will in future be deprived of water once the diversion capacity of Yuncheng is restored. This would be true only when the divertible flow is zero at projects in the lower reaches; a situation that might arise for short periods in May and early June. But, in such a situation, the flow at Langdian might be as low as 100 cubic meters per second, and much of this would be lost through seepage and evaporation before reaching the downstream projects. Thus, it can be assumed that the opportunity cost of the water diverted at Langdian in the low flow period would be too small to have a material effect on the ERR.

5.9 Soil and Water Conservation Works. The conversion of slope land to terraces conserves moisture for crop growth. It is now well established that this doubles yields and leads to a shift towards maize from the lower value grains. The main crops grown in Luliang on the terraces will be maize, potatoes, soybean, and some millet and sorghum for domestic use. Crop models have been prepared for these crops (Annaxu5). They are aggregated into an area model reflecting the change in the cropping pattern. The ERR of 18 percent is based on cropping benefits only. Benefits due to the reduction of sediment load in the downstream river system have been included in the analysis.

5.10 The 56 check dams proposed for construction under the project will retain a sediment load of 1.8 million tons annually. The analysis uses the sediment retention benefit of Y I per ton of silt derived for the IDA-financed Loess Plateau Watershed Rehabilitation Project. The land created behind the dams will be fertile and will be used for crop production. It is expected that up to 270 ha will be available for cropping of mainly maize, sorghum and sunflowers. Economic crop budgets have been prepared for these. The annual incremental net value of crop production in Year 10 will reach Y 787,000, and the ERR is 14 percent (Table 5, Annex 5).

5.11 The afforestation of 4,200 ha of steep slopes has direct benefits from forest products and indirect benefits ranging from erosion control and downstream damage prevention. Economic crop budgets show that the long-tenn benefits from timber and the medium-tenn benefits from poles and firewood generate an ERR of 13 percent (Annex 5, Table 12). - 48 -

5.12 River Beach Land. The provision of irrigation, land leveling, roads, and electrification will lead to irrigation of 16,000 ha of land that is now rainfed. This will raise the cropping intensity from 100 percent to 115 percent and more than double yields of wheat, maize, cotton, soybean, and groundnut. Improvement of 330 ha of existing ponds and construction of 200 ha of new fish ponds will increase fish production by 2,500 ton per year. For this component all investment costs are weighed against benefits expected from gains in crop and fish production. These are the main economic activities in this area and will benefit most from the proposed improvements in basic infrastructure. The model does not measure benefits from livestock and timber production, which are difficult to estimate but could be significant. The ERR of 29 percent for this component also reflects the sunk cost of past development, mainly in the form river training, land clearing and rough land leveling.

5.13 Rural Roads. Approximately 355,000 people living in remote upland areas will directly benefit from the improvement of rural roads. The benefits will consist of (a) transport cost savings which in turn will lead to lower prices for farm inputs and higher farmgate prices, (b) higher production efficiency expressed in higher yields due to a better and more timely availability of inputs and a reduction of post harvest storage and transportation losses, and (c) stimulation of economic development, because of a wider choices for diversification and production of higher value products. All economic sectors will benefit from the proposed roads, but the economic analysis is based only on the agricultural benefits. Economic crop budgets have been estimated for two representative roads in Luliang and Yuncheng. These show separately the benefits from transport cost reduction and from the expected yield improvements (Ann=&). The ERR for the road in Luliang was found to be 37 percent, the ERR for the Yuncheng road was 22 percent. The weighted average rate of return for the road component is estimated at 25 percent. This rate of return does not include other benefits which could be significant. Some of the roads serve small-scale mining operations, others are important for transit traffic. In all cases there will be benefits in the growth of small enterprises, access to schools, extension services, health care, and off-farm employment.

5.14 Rural Water Supply. The economic justification of the rural water supply component is based on the peoples' willingness to pay. In villages in Yuncheng, without access to drinking water, and where the water is transported in tanks towed by farm tractors, people pay up to Y 10-13 per cubic meter. A typical family spends about Y 100 to Y 130 per family for drinking water during the dry season when their rain water tanks dry up. This is a reasonable measure of the upper limit of peoples' willingness to pay. In villages with existing water supply systems the people pay between Y 1.5 and Y 2.5 per cubic meter and spend about Y 30 to Y 40 per family in a year. For the benefit calculation, the lower value of Y 1.5 per cubic meter is used as an average figure for the willingness to pay. This is a conservative estimate, since the observed value of Y 1.5 is a marginal value and many people would be willing to pay higher prices particularly for smaller amounts of water as the situation in Yuncheng shows. On this basis, the rural water supply component was found to generate an ERR of 22 percent (Annr x7). - 49 -

5.15 An alternative measurement of the benefits has been tested, based on the fact that people spend a substantial share of their time in collecting and hauling water. At many of the open wells there is a long waiting time for the well to recharge after each villager takes his or her share. It is assumed that 40 percent of the population are economically active and spend about 10 percent of their time hauling water. The distance to the water source in many locations in Yuncheng is between 3 and 5 kilometers and, particularly in Luliang, there is also often a difference in height of 100 to 200 meters between the village and the water source. If the time for collecting water is conservatively valued at Y 2.5 per day, the time saved amounts to about Y 25 million annually and the ERR is 23 percent. This is close to the ERR based on willingness to pay.

5.16 Horticulture. Individual fruit and nut tree models on a per hectare basis are shown in Annex 9. The individual ERRs range from 22 to 33 percent. An aggregated area model has been built to show the economic results for entire investment. The weighted ERR is 26 percent. A sensitivity analysis was made to test the economic results for a drop in fruit and nuts sales prices and an increase in labor costs if off-farm employment opportunities would become more attractive. A drop in sales prices by 50 percent would bring the ERR down to 12 percent, while increased labor costs by 50 percent would drop the ERR from 26 percent to 17 percent.

5.17 Livestock The introduction of cattle to farmers in the project area will allow them to generate income from a surplus of feed resources. In the plain areas of Yuncheng there are large amounts of wheat straw and maize stover as byproducts from the cropping activities, and in the hilly areas in both prefectures there are unused resources of natural pasture and byproducts which can best be exploited by large ruminants. A farm model has been prepared to estimate the likely financial and economic results of the introduction of livestock in the farm operation (Anac&J). To minimize the risk to the individual farmer the investment package will be designed to introduce only two breeding animals as an additional farming activity and costs will be kept to a minimum. The participating farmer will take credit only for the purchase of two breeding cattle or heifers. The construction of shelter, silage pits, water tanks and some fencing will be low cost and done with household labor. On this basis the farmer will be able to pay back the initial credit for the breeding animals from the sale of the offspring within six years and he will have a cash surplus -even during this repayment period-of about Y 490 per year to supplement his household income.

5.18 After repayment, the annual net income from this livestock operation will be about Y 1,800, which represents a return to labor of Y 37 per day. The ERR is estimated to be 20 percent and includes all investment in support services such as artificial insemination centers and veterinary services. Functioning support services are critical to the success of the livestock component. Sensitivity analysis shows that a drop in the fertility rate from 70 to 60 percent (from poor insemination practice and/or poor health standards and calf death), will reduce the ERR from 20 to 14 percent. The support services financed by the project will serve farmers outside of the project, but these benefits have not been included in the economic analysis. - 50 -

5.19 Agroprocessing. A financial analysis has been carried out for the agroprocessing enterprises in the project (Annex I l). The weighted average financial rate of return is 28 percent and ranges from 18 percent for the Xiaxian Flour Mill to 45 percent for the Wenxi Biscuit Factory. Most of the factories break even between Year 6 and Year 8.

5.20 Three sensitivity scenarios have been modeled for each factory: (a) a drop in the sales prices of 5 percent; (b) a drop in prices of 10 percent; and (c) a reduction in the production capacity by 20 percent. The financial parameters of some of the factories are sensitive to a drop in the sales prices. Particularly affected are those factories with low fixed costs and high turnovers operating with small margins. However, these type of enterprises would generally compensate by paying lower prices to their suppliers of raw material. All of the factories would still be financially viable under a reduced capacity of 20 percent. However, the Xiaxian Flour Mill would be just at the margin with a FRR of 12 percent. Most other factories could economically operate at even lower capacity.

5.21 An expansion of the agroprocessing activities in the project area will lead to a number of important economic benefits. Processing generally doubles or triples the value of agricultural raw materials and a large share of this additional value would be kept within the region in the form of employment and income. Processing of perishable agricultural raw materials such as fruits and vegetables close to the place of production reduces significantly postharvest storage and transportation losses. For all products, transportation requirements are reduced and become less time-bound. This is an important factor in rural China where the transportation system is heavily loaded.

5.22 Total Project ERR. The total ERR for the project including all costs and quantifiable benefits is estimated at 28 percent.

5.23 Sensitivity Analysis. Sensitivity of the ERRs for the project components has been tested for cost overruns, increased input costs and shortfalls in output. Table 5.2 indicates that all components are economically viable. With the exception of the sediment control dams, this would not change if investment costs increase by 10 percent, or benefits decrease by 10 percent, or the benefit is delayed by two years, or a combined cost increase and benefit decrease by 10 percent. Switching values for cost overruns range from 110 percent for check dams to 550 percent for the horticulture component. More specific sensitivity scenarios, for example a 50 percent drop in fruit prices for the horticulture component or severe flood damage for the Langdian water intake, have been modeled for each individual component (details are shown in the Annexes). None of these variants reduced the combined ERR of the components below acceptable levels. In fact, a worst case scenario, a major shift of the Yellow River channel away from the pumps at Langdian within five years of completion, would only lower the ERR of this component to 17 percent. Table 5.2: TOTAL ECONOMIC CASH FLOW AND SENSITIVITY (Values in Yuan million)

Yuncheng River Beach TerTacing Check Darns Protection Rural Rural Water I loniculture LIivestock Agro- Total Yecar Irrigation Systenm D[vciopment Forests / Roads Supply processingb/ Projccl

1996 -43 86 -31 37 -18 67 -302 -3 ol 264It -2. .', ;o 1997 Uo -75 54 -297 83 -90 14 -3225 -2777 -262 -4S -59647 2227 ro'722 -1 86 1998 -82 77 -11 79 -351 09 -21 65 -22 59 -I 02 *2 9v -l 01 -6 6i hl32 .12 66 12 63 1999 -71 17 9 74 -272 01 7 70 -I 27 -264 -024 4 4u 8-) 1 -i 63 33 81 -12199 20(() 46 88 2652 1130 88 - 47 23 75 156t s hh 4 2490 451 9 135 07 2(il 22314 4149 1610 12 -13 1 '2946 1 102 2002 - 21 i 2520 46 30 363 88 27338 4792 20 26 196 -I 3 3799 1546 -704 214 7 21003 27338 46 23 456 83 4792 2331 204 -13(1 4876 1744 14103 1773 4606 2004 27338 4758 48936 2331 211 -130) 7014 1744 4779 1773 4589 200)5 27338 4758 54407 2331 220 470 8835 1744 7i, 79 1773 4244 59391 2006 27338 4018 2331 161 467 9489 1744 15475 2007 27338 2147 4521 67690 3906 2331 189 123 9957 1744 24095 2520 2008 27338 3855 4652 76854 2331 219 078 9957 1744 34132 2520 4575 2009 27338 4006 86750 23.31 214 -136 9957 1744 45161 2147 4571 973.32 2010 27338 4244 23.31 245 790 9957 1744 53259 2011 27338 1773 4567 1062.47 4500 23.31 249 789 99.57 1744 64045 1773 2012 27338 45.64 1.172.89 47.58 23.31 2 59 262 99.57 17.44 695.24 17 73 2013 273.38 11332 1.292.77 47.58 23.31 2.59 1.94 99.57 17,44 741 34 21 47 2014 273.38 1.228.61 47.58 23.31 2.59 -1.36 99.57 17.44 775 47 25.20 2015 273.38 51.41 1,263.18 23.31 2 59 95.21 99.57 17.44 1,307.72 25.20 1,955.54 IRR: 40% 29% 18% 14% 13% 25% 22% NPV (at 12%) 841.22 25% 20% 28% 28% 124.32 31.74 1.20 2.91 190.75 38.25 699.09 39.66 133.58 Shareof NPV 40% 6% 2,108.47 2% 0/. 0% 9% 2% 33% 2% 6% 100% Sensitivity Analysis (resulting ERR) Cost Incrasc by 10%/6: 38% 26% 16% 12% 13% 24% 19% 24% 18% Cost Increaseby 20%/: 36% 25% 27% 24% 15% 10% 13% 22% 16% 24% 15% 23% Benefit lower by IO1N. 37% 26% 25% 16% 12% 12% 23% 18% 24% 17% 25% 26% Bencfitlowerby200/. 34% 23% 14% 10% 11% 21% Benefiutdelayby 15% 20% 15% 22% 23% I year 32% 23% 15% 11% 13% 21% 17% Bencfitdelay by 2 years 23% 16% 23% 24% 26% 20% 13% 9% 12% 18% 13% 21% Costup+benefitsdownby I0 13% 19% 21% 35% 24% 14% 10% 12% 22% 15% 22% Switching Values: 15% 23% 24% at increasedcost level of... 460% 210% 1400/o 110% 1400/. 260% 140% 550% 140% 210°/. atbenefitlevelof.. 36% 47% 308% 71% 91% 86% 50/. 73% 57% 71% 50/. 50o/' I/ Net benefits afteryear 20 discountedat 12%and addedto year 20. bl Financialvalucs. - 52 -

5.24 Incomes. The incremental incomes for typical beneficiaries of the project are summarized below. These are after payment of agricultural taxes, special goods tax, land rent and loan repayment (16-20 percent of household expenditure). The project would add 50 to 100 percent to the farm incomes of project participants.

Average Incremental Incremental Typical Household Income Farm Size Income Component (Yuan/mu) (mu) (Yuan/year) at full development

Yuncheng Irrigation System 244 5 1,220 River Beach Development 240 5 1,200 Terracing 152 3 456 Check Dams 266 2 532 Fruit Orchards 885 3 2,655 Livestock Raising - - 1,800

5.25 Financial Analysis. For most of the components, financial analyses are of limited value. Normally such analyses are done to test the financial attractiveness of the farrning opportunities offered by the project. In this case, there is ample evidence in the field that farmers are willing to grow irrigated crops, plant fruit trees, and take advantage of land development works. In effect the project creates opportunities that precedent shows are clearly attractive to farmners. The livestock component raises issues of financial viability which were examined in the course of appraisal. A financial analysis of a typical livestock operations is shown in Annex 8, and financial analyses have been prepared for the individual agroprocessing enterprises (Ame2J1 1).

D. PROJECTRISKS

5.26 The project will be executed by local government units that have a good record in implementing agricultural and rural development projects. Notably successful have been Shanxi's components of the Loess Plateau Watershed Rehabilitation Project, and the WFP 3923 Project in Luliang Prefecture. Two components of the project present some elements of risk, the Langdian Pumping Complex and the livestock component. The channel configuration of the Yellow River at the Langdian site appears to be stable, but this might change suddenly in the afterrnath of an extreme flood or through gradual changes in the river's morphology. The use of three different water intakes at the new Langdian Pumping Station significantly reduces this risk. It is also to be noted that the discounted net agricultural benefits of the Langdian complex will exceed the cost of the - 53 - complex after three years of operation. The livestock component will introduce thousands of farmers to livestock ownership. This will call for careful selection, intensive training, and monitoring of the beneficiaries, all of which are supported under the project. - 54 -

6. AGREEMENTS AND RECOMMENDATION

6.1 The following agreements were obtained at negotiations. The Borrower and/or the Provincial Government will:

(a) prepare and fturnishto the Association by November 30 of each year, a proposed program of training activities to be carried out during the following calendar year and thereafter implement such programs as approved by the Association (para. 3.23);

(b) ensure that the project will comply with agreed procedures and technical specifications for review of design, construction and maintenance of hydraulic structures (para. 3.25);

(c) cause the project accounts, the Special Account and SOEs to be duly audited by an independent auditor acceptable to IDA and will submit them to IDA within six months of the close of each financial year (para. 3.39);

(d) implement the project in accordance with an environmental management and monitoring plan acceptable to the Association (para. 3.40);

(e) ensure that each prefecture will implement the Resettlement Action Plan agreed with IDA (para. 3.49);

(f) prepare and submit a detailed annual budget and work plan to IDA for review by November 30 of each year in respect of project implementation in the following year, and carry out such plans, as approved by the Association (para. 4.1);

(g) ensure that CPMO and PMOs at prefecture, county and township levels would be maintained with terms of reference acceptable to IDA and staffed by competent staff in adequate numbers (para. 4.2);

(h) make available livestock, as well as subloans for agroprocessing and ACWF subprojects, in accordance with procedures, terms and conditions acceptable to the Association (para. 4.5);

(i) ensure that the land developed under the Project is leased to farmers for terms between 30 years and 50 years under written contracts (para. 4.9);

G) ensure that project monitoring would be carried out in accordance with indicators acceptable to the Association and prepare and furnish to the - 55 -

Association semi-annual progress reports by January 31 and July 31 of each year (para. 4.1 1); and

(k) ensure that Shanxi would furnish the Association with a mid-term report by September 30, 1998 (para. 4.21).

6.2 Subject to the above, the proposed project would be suitable for a Credit of SDR67.3 million ($100 million equivalent) on standard IDA terms to the People's Republic of China. -57- ANNEX 1

ANNEX 1: FINANCIAL AND ECONOMIC PRICES

Table 1: FINANCIALPRICES

Financial Prices (1995)

Unit Yuan Unit Yuan Outputs Inputs Crop products Seeds& Seedlings Wheat kg 1.28 Wheatseed kg 2 Cottonlint kg 9.40 Maizeseed kg 4.4 Soybean kg 1.80 Cottonseed kg 5 Groundnut kg 2.20 Soybeanseed kg 3 Maize kg 1 120 Mbilelsed kg 2 - Sorghum kg 0170 Sorghumseed kg 3 Millet kg 0.80 Sunflowerseed kg 3 Sunflower kg 1.20 Groundnulseed kg 4 2 Polato kg 040 Waterrelon seed kg 200 Frult&Nut products Potatoseed kg I Dates kg 2 00 Date seedling(Yuncheng) Pt 1.2 Prickly ash kg 16.00 Dale seedling(Luliang) Pi I a Chesinut kg 2 00 Prickiyash seeding Pi 0.3 Walnul kg 600 Walnutseedling (Yuncheng) Pi 1.5 Apricot kg 2000 Walnulseed"ing (Lutang) Pi 2 Apple kg 1.60 Appleseedling Pi 2 Water melon kg 0.30 Chesinutseedling PI 1 Forestry products Apricot Seedling Pt 11. Pine tknber m' 600 Production materals Pine rafter No. 12 Urea kg 12 Firewood kg 2 Anwonium bcarbonate kg 0.6 Larch timber m' 800 Phosphate(SSP) kg 0.5 Larch rafter No. 15 Agro-chemicals kg 20 Poplar linber m' 350 Manure ton 15 Poplar rafter No. MachIneryand Animal labour By-products andCrop residues Animal labour WDs 12 Cottonseed kg 6.80 IrrIgation Wheat straw kg 0 04 trngationYuncheng System (average)la m' 0 3 Soybeansiraw kg 0 04 IrrigationYuncheng System (9th station)lb m' 0 4 Groundnudstraw kg 0 08 Irrigationwater (RiverBeach Land) m' 0.25 Maizestover kg 0 04 Labour - Milel slover kg 0 04 Animallabour WOs 12 Sorghumslover kg 0 04 Family farm labour WDs 10 Sunflowerslover kg 0 04 Animal products 5 Cow (breeding) unit 3.990 %aOperating costs are 27.5 Fenlrn' 30 Fenlm Is used as a consevatieigure Caln und 1.750 \b Operatingcosts are 38.6 Feniml. 40 Fen/mi Isused as a conservativefigure. Manure I 15 Animal labour WDs 12 Fish Silver carp kg 3.60 Variegatedcarp kg 4.00 Carp kg 6.00 Crucian carp kg 600 Grass carp kg 6 80 -58- ANNEX 1

Table 2: EsTIMATEDIMPORT/EXPORT PARITY PRIcEs (For the Year 2000, Expressed in 1995 Prices)

Unit Export Price Pwrities impolt PkicePaiiles Cotton Oil Cotion Coke Wheat Soybean gt Maize Cotton Lint hi Beef Meat U,ea TSP iI onittLogs twIhaaaal tS.K.*.l S. Al tert tCa"edel tu .S G.ilt) tu S. Gun gAvE_uNlt _ tWtpeAlaattrte ItEMe

World Matket Pricesa/ USl/ton 708 166 116 250 106 1.684 3.129 17 143 49 Ouwhty Adjustennt % 0% 0% 0% 0%0 0% 20% 40% 0% 50% 20% Ocoen Fteight US$lon. 25 20 25 25 20 45 250 48 42 30 CIFtFOB Price US/tAon 663 135 141 .275 126 1.392 2.127 235 9U GS

CIF/FOB Price lYuanl ht Yuan/ton 5.737 1.134 1.1B2 2.308 1.059 11.695 17.669 1.974 833 S61 Pew Ch.rges cl Yuntton 35 35 35 35 35 72 72 40 40 60 Pot tolfrom Wholesa"r dl YuentIon 21 21 21 21 21 27 106 21 21 27 MlM/Wholeter - PontOt20kml Yuan/ton 35 35 35 35 35 45 173 35 35 89 Conversion tate A 17% 53% 100% 100% 100% 100% 100% 100% 100% 100% Farm to MitttWholessler 112km Yuan/on 7 7 7 7 Processing Costs Yuwnhen 21 49 Econ. Farm Gaie Yuan/Ion 932 497 1.272 2.399 1l149 11.839 16.219 2.077 93S 738 Financial Prices Yuantton 700 450 1.280 1.t00 1.200 9.400 14.000 1.200 Soo 6O0 Conversion Factot % 133% 110% 99% 133% 96% 126% 130% 173% 107% 123%

/iBasic essumption of price projetions are taken frorn Wortd lank CommnodityMaikets and the Dveloping Coun tres. A Wortd Bank Guarterly (August k9941. Price tor wheat raters to U.S. Soft Ftd Wintet No. 2 Fo.b.. 1993/94 price, usng the relative price increases as projected by the World Sank lot Canadian Weetern Red Spring. - Prie for colton kntistaos to A Index quaityLivempool. bct. 1994 quotation, using %he same reltaive puice increasesas procleted by the Wodld Sank. Pke for Wool refers to October 1993 price for 64's. London. Significant 1994 ptice iceates eking piece in 1994 are not consideted to contirne. Ptices for Cotton Oil and Cake are average prices of 1993 pubiishd by FAD. Pkice tor Log Wood Is based export prices compried by FAO Fotestry Deprntrnent. No siJwicsnt price change ts assumed Iromn 1990 to 2000. bt Exchange rate ol 8.4 Yuan per US,. el Local price used. di Tinjn.Taiyuan ppgoximaltey600km: 0.024 Yuan per km and ton local price adjusted-y CF of 1. 1; 30% additionwt adiustment lot bulky products. a) 0.3 Yuan per ton peckm local price adusted by CF of 0.96; 30% adjustmnenttor bunly products. 11 0.6 Yuen per ton per km local price sdusitedby a CF ot 0.96; 30% adjusted tor bulky products. gl It is expected Ihat China's rapidly paowingdemand for soymeal for animnl feed wit mtakethe counlry a nel importer of soybeans in the nter futue. h/ BOsedan ihe assumption that 1 ton oa seed cotton - 380kg lint. 55kg oi. 400kg cake and 165kg waste a weighted conversion factor for seed ot 1.2 is used. 1U A 60 % quality adjustment Is mae on Triple Super Phosphate to compare with locally used SSP. -59 - ANNEX2

Table 1: PROJECTCOST SUMMARY

% % TOM rfu.n miluioni muSmilliot) Forlgn Bse Local Forin Total Local Foruign TotIl Exchange Coeo Yuncheng: A. Yuncheng irrigation System 1. owXsource Compiex Lmrtdm Pump"g Stain 36.3 8 2 44 s 43 1t0 5 3 la 3 S.ed wont_ nPond 16.3 11.9 283 1.9 14 34 42 2 Fedr Ca 4"0 49.6 5.9 5 9 4 Zu*2n IlIUS. (Pumpng soels am Sadnwn. Pond) a 9 a .0 69 I 1 0o 2.0 47 1 SubtotalWalarsourcaComnplea 111.2 28.1 139.2 13.2 3.3 16.6 20 10 2. Xiaetan tumpn SWoonRotablJWUon 15.7 2.9zs 6 1.9 0.4 2.2 t1 I 3. 7uncun Irngauon Syswm ComptOon SIuIn I to 5Rh4*_bIAS 484 41 4 5.8 5.8 . 4 Stan s to 9 R __eunIntpVuin 804 8 3 8tt 7 9.6 1.0 106 9 6 Su12'l Zuncun lYtg Uoa3Stym Completion 128 8 8t3 137 1 15.3 1 0 s63 6 10 SubtotalYunchsng Irrigation System 255.7 39.3 295.0 30.4 4 7 35.1 13 21 B. Rural WaterSupply 42.9 20.6 63.6 5. 2.3 7.6 32 5 C. Rural Roads 104.6 104 a 12.5 12.5 * 5 0. Horticulture Clhne Goes 42.5 128 55 4 5.1 15 6.6 23 4 P mcaNsian 17.5 52 22.7 2.1 06 2.7 23 2 Vft&'wA 27.0 3.0 30.1 3 2 0 4 3 6 to 2 ChMs't 1.1 I I 11 2 1 2 0 . 1.3 10 I SubtotalHorticulture 97.1 22.3 1194 11.6 2.7 142 19 9 E. River Boach Development liYLionFaaM.. 58.3 13.5 718 69 16 8.5 19 S hWraWUaa Is o 21.1 390 2.1 2.5 4 6 54 3 SaikPrr.uon 4 * 48 0 6 0.6 AquALa. 11 4 2.5 139 14 03 1 7 18 I Subtotal River BeachDevelopment z.s5 37.1 129 11.0 44 15.4 29 9 F. Uvostock AA." FW nErtsfaOkStl 91.0 91.0 l a 10 * - 7 LskSupponai Acsuw.s 2 3 2 8 5 2 0.3 0.3 0 5ss 0 Subtotal Uvestock 93.3 2.8 96.2 11.1 0.3 11.4 3 7 G.Agroprocessing 753 18.8 95.1 91 2.2 11.3 20 7 H. PrufecturalProject Support Services 55.9 II 4 67.3 6 7 1 4 8.0 17 5 YunchengTotal fASEUNE COSTS 818.5 152.3 970.9 97.4 11.1 115.5 l8 70 Lulang: A. Soll and Water Conservation Tamna9 t 9 8 5 4 10*a 1.0 11.8 9 7 ChOCK-0affa 140 0.I 14 1 1.7 00 1.7 I I P; dwtn Foor.u 17 0.2 99 1 2 0.0 1 2 2 1 Subtotal Soil andWater Conservation 114.6 .8 123.4 13.6 1.0 14.7 7 9 B. Rural WaterSuppty 12.8 1.0 13.8 1.5 01 1.6 7 I C. Rural Road 31.4 0.5 39.o 4.6 0.1 4*6 2 3 D. Horticulture Ft" am NAuTr. Ptlnttton 72.7 27.3 100.0 8.7 3.2 11.9 27 7 Nwswy Irpro4wmn1 2.9 0.3 3.2 0.3 0.0 0.4 11 0 SupeerI S.rvs 13 0 2 1 5 0.2 00 0.2 14 0 Subtotal Horticulture 76.9 27.8 1047 9.2 3.3 12.5 27 a E. Livestock Anu,pi F wm Estab shnmw 20.3 20.3 2.4 . 4 . I LremA Suppm AngcwNas 4 2 1.3 5 5 0.5 0.2 0.6 23 0 Subtotal Uvestock 24 5 1.3 25.8 2.9 0.2 3.1 5 2 F. Agroprocuseing 31.6 11.4 50.0 4 6 1.4 6.0 23 4 G. All-China Women Federation 5 o S.o0 6 0.6 H. Prefectural ProjectSupport Service 28.1 s5 33.7 3.3 0.7 4.0 17 2 Lulbeng Total BASEUNE COSTS 334.3 56.s 395 4 40.3 5.7 47.1 14 29 Provincial Project Support Services * 6 39 12.A 1.0 0.5 15 31 1 Total BASEUNECOSTS 1t166.0 212.7 1.37£.7 131.8 25.3 164.1 15 100

Ptl Conungmnafs 75.9 75.9 9.0 9.0 . 6 Expeaed Pnce vwase 216.1 44 3 330.5 8 4 1.3 9.7 13 6 Total PROJECT cosTs 1,528.0 257.11 1.785.1 156.2 2s.6_ 182.J8 1s 111 -60 - ANNEX2

Table 2: EXPENDITUREAccouNTs PROJECTCOST SUMMARY % %TOb (Yuan million) (USS milIonl Foeign ga" Local Foreign Total Local Foreign Total Exchange Cofta 1. Investmnt Costs A. Land Acquisiton tO.8 10.8 1.3 1.3 I 8. Civil Works EarthtStonewort 309.8 309.8 36.9 36.9 22 Buldings/StuMe 309.6 309.6 36.9 . 36.9 , 22 Subtota Civil Works 619.5 619.5 73.8 73.- 45 C. Equipment & Machinery Large Dedgers/Excavators . 18.7 18.7 2.2 2.2 100 I Eklecal Equment /a 15.2 52.4 67.6 1.8 6.2 8.0 78 5 SmnlScais&FarmMachnwy/i 16.1 14.3 30.4 1.9 1.7 3.6 47 2 Agrprocsa Equipment 30.1 26.6 57.0 3.6 3.2 6.8 47 4 Office Equipmwnt 3.9 3.5 7.4 0.5 0.4 0.9 47 1 SubtotalEquipmentt&Machinery 65.3 115.5 181.1 7.8 13.8 21.6 64 13 D. Inputs and Mateial PVC Pipes 1.3 14.6 15.9 0.2 1.7 1.9 92 1 FertltedAgro-Chemicls 57.6 57.6 6.9 6.9 100 4 Livutock 92.0 92.0 10.9 10.9 - 7 Seedsand Seedlings 67.1 67.1 8.0 - S.0 5 On-Form Labour 104.2 104.2 12.4 12.4 8 Oter Inputs 34.3 34.3 4.1 . 4.1 2 Subotal Inpus and Material 296.9 72.2 371.1 35.6 8.6 44.2 19 27 E VehiclIs Trucks & Suss 4.5 4.5 0.5 0.5 100 0 - ars& Jeeps 9.5 9.5 1.1 1.1 100 I1 Motor Cyles . 1.6 1.8 0.2 0.2 100 0 Subtotal Vehicls 15.8 15.8 1.9 1.9 100 1 F. Training. Study Tours Foreign Trainn 3.8 3.8 0.5 0.5 10 0 OmesticTraiin 6.7 - 6.7 0.8 0.8 0 Fongn Study Tou)s 5.2 5.2 0.6 0.6 100 0 O estic Study Tour 15 1.5 0.2 0.2 0 Subtotal Taining. Study Tours 2 90 17.2 1.0 1.1 2.0 51 G. Interest During Construction 9.2 9.2 1.1 1.1 1 H. Working Capital 23.8 2}8 2.6 2.8 2 1 AI-China Women'sFed. Lullang/b 5.0 - 5.0 0.6 0.6 0 1. Other Survey & Design 45.2 45.2 5.4 5.4 3 Resuch and Development 4.1 4.1 0.5 0.5 0 Extension 10.4 10.4 1.2 - 1.2 1 Admintrtion & Mnagement 5.2 15.2 1.6 1.8 1 Subtotal Other 74.9 74.9 6.9 - 8.9 5 Total Investment Costs 1.115.7 212.7 1.328.4 132.8 25.3 158.1 16 96 It. Recurrent Costs A. Monitoring & Evaluation 12.8 12.8 1.5 1.5 - I S. Project Management 36.5 36.5 4.3 4.3 3 C. IPM-StatUons 0.3 0.3 0.0 0.0- 0 D. FrozenSemenContra(Lulang) 0.7 0.7 0.1 0.1 0 Total Recunvnt Costs 50.3 50.3 6.0 6.0 4 Total BASEUNE COSTS 1t166.0 212.7 1.378.7 138.6 25.3 164.1 15 100 Physcal Contingenoes 75.9 75.9 9.0 9.0 6 Expected Pnce Inc aae 266.1 44.3 330.5 8.4 1.3 9.7 13 6 Total PROJECT COSTS 1t523.0 257.1 1,785.1 156.2 26.6 182. 15 11 la Exduding AgroprocassingEquipment. \b For disadvantagedwomen Supportedby the A&Cn Wmn 's FederationLukang. -61- ANNEX2

Table 3: PROJECTEXPENDITURE SCHEDULE

Yuan million 1996 1997 1998 1999 2000 2001 2002 Total Yunchng Irrigation System 40.9 81.9 75.2 65.6 31.4 0.0 0.0 295.0 Rivr Beach Development 32.5 33.6 29.7 16.8 12.3 4.6 0.0 129.6 Rural WaterSupply 10.9 12.3 28.2 21.8 1.4 1.4 1.4 77.4 Rural Roads 25.0 50.5 43.0 20.0 3.9 1.4 0.0 143.7 Horticulture 17.0 34.8 44.5 49.8 48.2 26.0 3.9 224.1 Llvestock 31.2 30.0 29.2 28.4 2.9 0.1 0.1 122.0 Agroprocessing 42.0 55.9 40.5 6.7 0.0 0.0 0.0 145.1 Sal andWaterConservaton 23.1 31.7 28.3 22.3 9.7 6.0 2.3 123.4 All-China WomenFederation 0.5 0.5 1.0 1.0 1.0 0.5 0.5 5.0 Support Services 36.4 14.6 14.6 13.8 12.5 10.8 10.8 113.5 Total BASELUNECOSTS 259.6 3.45.8 334.1 246.2 123.3 50.7 19.0 1,378.7 PhysicalContingencies 12.8 20.0 18.9 14.7 7.3 1.8 0.4 75.9

BASE COSTS Incl. Phys. Conting. 272.4 365.8 353.0 260.9 130.7 52.5 19.4 1.454.6 Expect*dPnce Increases 14.3 55.6 85.0 84.7 53.4 26.0 11.4 330.5

|Total PROJECT COSTS (Yuan million) 286.7 421.4 438.1 345.5 184.0 78.6 30.9 1.78S.1

USS million

BASECOSTS Incl. Phys. Conting. 32.4 43.5 42.0 31.1 15.6 6.3 2.3 173.2 ExpectedPnce increas 0.3 1.4 2.4 2.6 1.7 0.9 0.4 9.7 iTtal PROJECTCOSTS (USSmillion) 32.7 44.9 44.4 33.7 17.3 7.1 2.7 t |2.8

Inflation rates used (in %Ys)/a Annual rates -. Local 10.5 8.5 7.0 6.5 6.2 6.2 6.2 Foreign 1.8 2.6 2.5 2.5 2.5 2.5 2.5 Compounded rates Local 5.3 15.2 24.1 32.5 40.9 49.6 58.9. Foreign 0.9 3.1 5.8 8.4 11.1 13.9 16.7

la Yeary valuis are within Each Project Year -62 - ANNEX2

Table 4: PROCUREMENTPROFILE-NON-ICB/LCB AGREEMENTAS OTHER (TJ.S.Smillinn)

IC9 #4CC OOtc#4 NlJ. hi teas

Clvi Wo~ Yuntheng Imgabon System 9.90 20.98 30.88 Beachiand - 5.71 5.71 YunehengDnnking Water Supply - 6.46 0.27 6.73 RuwajRoads 1.35 16.45 - 17.80 Chek Dams 0.19 1.72 1.91 Oter- 0.41 041 Subtotal Civil Works 11.44 51.75 0.27 63.45

Land Development River BeachCanals and Land LeveUm - - 4.61 4.61 Tenrttng - 12.60 12.60 Horticulture 23.00 23.00 Potecton Forests 1.30 1 30 Subtotatl Land Oevilopment - 41.51 41.51

Livstock Animals 11.93 11.93 Buildings and Structures 2.44 2.44 Equipment 0.04 0.04 Supportservs 0.57 0.02 0.59 Subtotal Uvestock - 12.54 2.46 15.00

Agroprocessing BuMnp 5.09 5.09

Equmomena - . 6.98 6.98 Subtotal Agroprocesing 12.07 12.07

Equipment and Materals Pumps and Motors 3.41 - 0.29 3.69 Electncal 3.96 3.07 7.03 D9edgersand Excavators 2.34 - 2.34 Office Equipment 1.11 1.11 PVC Pipes 1.83 0.17 2.00 Fertlizer and Agrchomcals 6.91 0.51 7.41 Other 1.11 1.11 Subtotal Equipment and Materials 18.45 6.25 24.70

Vehicles 1.92 1.92

All-China Womens Federation 0.65 - 0.65

Training&StudyTours 2.15 2.15

Project Management - 14.09 14.09

Miscelbaneous 1.85 5.45 7.30

Total Project 20.36 11.44 128.77 22.27 182.83 11% 6% 70% 12% 100%

0 w Okds fted i # U. . YF: NoN10P4.nai -63 - ANNEX2

Table 5: PROCUREMENT ARRANGEMENTS-NON-ICB/NCB-AGGREGATED AS OTHER

PreemfwwrmMa b nwp.rud IDAStu"e Siddlag Diddilt.a O,[r No.P. Tot % Tobi A. Clvi WVota la 1. Yunhen PunipHouse 2.0O- - 2,060 80% 1,646 Lwtdien Feeer Cwnl h 3.336 3,335 80% 2,670 Sedimt Trealmet Pald 2.43 - 2.463 80% 1,970 Emianr4s I . . 5,524 6,524 50% 3,231 MainCanal 1.322 1,322 80% 1.057 Biunci Cnals WId1_ers . -14,241 14,241 50% 7,053 Ditni* Walt supply Id 5.547 - 5.547 80% 4,436 RuralRoad Rehebil - 1.347 11.795 13.143 50% 6S509 Rw_Ae Pia vW lh . . Ul8 64 50% 321 Rwr Beach RP - 1.533 - 1.533 50% 759 RbvrTea_, Tube.vieb Out canak) -725. 5.725 50% 2,835 Aqus - - 1.192 - 1,192 0% 590 Awb-Pro_4ing CoudIn W rs -- 3.223 3.223 50% 1,596 Uaeemst BuIdki 715 715 80% 572 oeWhsc W - 1.146 1.148 50%9 1. Luing Tem . 12.599 12.599 70% 8,829 ChoD ams 191 1m722 1,914 70% 1.341 Du1nidiigW i r 9p / * 912 912 80% 730 Wo 8rge SQ* . - 266 266 0% Rual Rad Ra4 . - 46 4,659 50% 2.330 Aoro.Pusne C _nludanWa - 1.671 1,871 50% 9m Cther . 50 505 50% 253 S-aal CI We 11.436 73,86 266 85,547 59% 5237 IL i.Equ4_nm I_ W 4ea lAmpL Scalasqimard 1D . °ni 2.0M - 2.035 100% 2,036 EFwutom 0 . 306 10% 30 Subtota Lue Seal EQUlPMn 2.340 - 2340 100% Z340 I Pumllpsan ar Lwgdbi. ltN SYlsm 1.344 . . 1.344 100% 1.344 Rbur Bach Lad 1.417 - 1.417 100% 1,417 Orq WlerUppVyA 333 83 416 10%D 416 Acluture - -A 93 - 93 100% 93 S:b5Ob ps_ a" Maqu 3.094 * 176 3,27t 100% 3.270 3. 0s1a'ea T renativme h 3.019 - 43 - 3.0S2 100% 3,062 Pow Linn 4 941 2.300 - 3.240 80% 2,592 :ubsl: Ekb l 3.9 2.342 - 6,302 90% 5.654 4. OMcsEiO r - - 8880t 8D% 704 5. t _ -a 6,977 - 6.977 80% 5,561 6. oter . 2,450 2.450 50% 1,225 Subed Equipmen 9.304 1z2826 22.220 64% 18,775 C. hIpub S M_bwas C Pipe"A 1,80 - 171 - 2,001 100% 2D01 Fwror 3,873 * * . 6,873 100% 6.673 Agaeo_a* A- 566 - 5 100% 505 vtck . . 11,962 - 11.982 80% 9,586 e-esS - 86.618 8.616 80% 6,694 On-FwmLboL . - 14,621 14.621 0% Othe . . 4,361 4,381 0% subbb* imput & Male67 21,276 t9,00 46,981 53% 25.859 0. VehdIces SeAn- - 10 10 1t00 100 LAe Jep (4W) 146 . . 146 100% 146 Sina Jep 329 - 329 100% 329 st#ndedJep 549 - - 549 100% 549 motr CYCes 323 323 100% 323 Trnds 564 584 100% 564 Suboall VelcldeW 1.911 100 2,011 100% 20t11

JEr1, 596 -4

'fI I <56

.. . . .

S e i aC § hi - -

a8 5 M .u88gUdp --

I._ i £Ra§ -65 - ANNEX3

ANNEX 3: YUNCHENG IRRIGATION SYSTEM

Introduction

1. The Yuncheng Irrigation System (YIS), in the southwest corner of Yuncheng Prefecture, has three main units. The two smaller units Jiamakou (18,400 ha) and Xiaofan (11,600 ha), supplied by pumping stations on the Yellow River were begun in the early 1960's and gradually developed through the 1970s. In 1969, the river veered away from the site of the Xiaofan station and in 1976 this also happened at the site of the Jiamakou station. Construction of Zuncun, the third and largest unit was begun in the mid-1970, with the aim of serving an area of 123,000 ha. This area was also supplied by a pumping station on the Yellow River built in 1978, but in 1987 the channel shifted several kilometers away from the intake. Because of the channel shift a decision was taken to delay the completion of the Zuncun system. The project will restore the pumping capacity for the three units and carry out works needed to complete the remaining 93,000 ha of the Zuncun unit. Cost estimates for this components are shown in Table 1.

Project Works

New Pumping Facilities

2. The Langdian Pumping Complex will increase the supply of water to the YIS. Three pumping stations were built to lift water from the Yellow River to this system. But the river channel, which was close to the left bank when the pumping stations were built, has moved away from the river bank. Now, everv year. channels are excavated from the active channel to the pumps but these fill with sediment when the river is in flood, and sometimes the channels have to be excavated several times a year during the flood season. The details of the pumping stations are summarized below:

Station Design H (m) Date Date of Present Capacity Built River Capacity (cms) Shift (cms)

Jiamakou 9.5 10 1960 1976 7 Xiaofan 6.0 18 1961 1969 0 Zuncun 46.5 7 1978 1987 15

The current delivery capacity is only 22 cms compared to the design capacity of 62 cms. This problem is to be overcome by building the new Langdian pumping station upstream of the three existing stations and connecting it to them through a desilting basin and a 13.5 km canal. The - 66 - ANNEX3

capacity of the pumping station will be 45 cms with a lift of 4 m. In addition, floating pumps with a capacity of 18 cms will be placed near the Zuncun station. A 1.5 km long channel between the river and the Zuncun station will require annual maintenance dredging.

Siting of the Langdian Station

3. The Langdian pumping station and river intakes station are at a point in the river where the channel is close to the left bank and is believed to be stable. Satellite images show that the site has been free from sediment accretion since 1980. the date of the earliest images. During this period, flow patterns were tracked on the river and these show that the bulk of the flow stayed close to the left bank, except in 1984. In that year. the main flow shifted away but pumping would still have been possible at the proposed site. Local people at the site report that the channel has been stable in its present location for more than 30 years. From a review of all the available data, a team of river training experts from the Yellow River Conservancy Commission (YRCC) has concluded that the river channel at the site is stable and is likely to remain so.

4. In March 1995, a nrver training expert, Mr. Max Lamnb,was retained by the Bank to review the siting of the Langdian Station. He reviewed the satellite images and other data and carried out a detailed inspection of the river reach on the left and right bank of the Yellow River, upstream and downstream of the project. His conclusions were in line with those of the YRCC experts. He recommended that the channel configuration be closely monitored to detect any trends that might lead to a channel shift. He also outlined a proposal for the location and design of a low spur that could be built at a cost of around Y 6 million if the channel should start to migrate. The dredges in the desilting basin (see below) will be available in the dry season if it becomes necessary to widen or deepened the approach to the Langdian station.

5. Following the March 1995 mission, experts from the YRCC and the Shanxi Provincial Water Resource Bureau met with the Yuncheng engineers to discuss further various alternatives of the layout of the pumping station and intakes. This meeting led to agreement on a plan in which the main intake gate will be at the original site for the pumping station, but the pump house will be located in the feeder canal about one kilometer downstream. A second intake will be placed between the main intake and the pump house. This would be operated if the bend in the main channel migrates downstream. A third option, if there is a further channel shift, would be to create an opening through the channel bank at the punp house. This multiple intake proposal adds flexibility to accommodate possible channel shifts in the future. The preappraisal mission had suggested that the need for river bank protection extending three kilometers upstream of the Langdian intake be reviewed. The YRCC team concluded that this protection will help to stabilize the river channel upstream of the intakes.

Langdian Delivery Channel and Desilting Basins

6. A 13.5 km long delivery channel, I I m wide and 2 m deep will link the Langdian Complex to the Jiamakou, Xiaofan and Zuncun pumping stations. The channel will carry a road on the IO m crest of the riverside embankment. The embankment will have a protective surface of hand-placed rock to guard against erosion during high floods in the Yellow River. During high floods, the Yellow River carries the highest sediment of any of the world's large rivers. At high sediment - 67 - ANNEX3 concentrations the Langdian pumping station will close down, but the pumps will be operated when sediment loads reach I to 2 percent of the flow. Each of the three main pumping stations will have its own sediment basin. When the sediment load is low, control gates will divert water directly from the feeder canal to the pumping stations. When the sediment load is high, water will first pass through the sediment basins.

7. In the flood months of July and August the irrigation demands are relatively low and the pumps will operate at less than half capacity. The total sediment load in these months will be about 1.5 million tons. About 50 percent of this will be removed by the sediment basins. The capacities of the sediment basins are 2, 6.4 and 42 million cubic meters respectively for Xiaofan, Jiamakou, and Zuncun. The basin at Xiaofan will have a life of 15 years before it will have to be enlarged, and the other two have lives of more than 50 years. Dredges will be placed in each basin to remove sediment deposit that might obstruct the intake to the pumps. These will be 80 m /hour dredges that can be assembled at the site which is accessible only by a narrow road. These dredges will also be available, if needed, to clear the approach to the Langdian pumping station.

Zuncun Pumps

8. A shallow distributarv channel of the Yellow River is within 1.5 km of the main Zuncun pumping station. During the drv season this is dammed with an earth dam and a connecting channel is excavated to the pumping station, or in some years simply re-excavated, by amphibious excavators. In the dry season the water level in the river is low and the most that can be extracted by gravity flow is 15 cms, and at times much less. The plan for the project is to pump water into the connecting channel from the distributary channel using a battery of floating pumps with a total capacity of 18 cms. The main Zuncun pumping station will discharge into the sediment basin or the feeder canal, depending on sediment conditions.

The Irrigation Units

9. Details of the three irrgation units making up the Yuncheng Irrigation System are given in Table 2 which shows technical parameters and operating costs. The main, branch and lateral canals for the Jiamakou and Xiaofan units are essentially complete but before the pumping stations resume operation some clearing of sediment and general repairs will be carried out. Works required for the Zuncun unit consist of:

(a) completion of the main pumping station for Stage 9 (8,000 ha);

(b) construction of four pumping stations for branch canals served by Stage 9;

(c) construction of branch canals for Stage 9; and

(d) construction of laterals for Stages 1-9. - 68 - ANNEX3

In the YIS below the main canals and branch canal, the laterals serve areas of about 60 ha. All canals including the laterals are concrete-lined. Below the laterals, unlined sublaterals serve 5 ha within which the farmers construct their field channels.

Crop Production

10. The YIS is generally 60 to 80 m above the Yellow River, but parts of the Zuncun unit are at higher elevations and require further lifts up to 100 m. The area has the "gullied plateau" landform of the Loess Plateau. The soils are deep and fertile. The main crops grown are wheat, maize and other grains, soybeans and other oilseeds. cotton, and vegetables. Double cropping is possible with wheat followed by maize and some other grain crops. Cotton cannot be combined with another crop in the sarne crop year because it is planted too early and harvested too late. The cropping intensity is about 105 percent. In recent years greenhouse production of fruit and vegetables has grown rapidly. Interplanting of Chinese dates, walnuts, apple and pears is a common practice. The average farm size is about 0.6 ha.. About 40,000 ha of the area is fully irrigated, 37,000 ha is partly irrigated, and 43,000 ha is rainfed. Irrigation is mainly from tubewells. Crops, cropping patterns and yields for the 'with' and 'without project' scenarios are shown in Table 3.

Water Supply

11. An estimate of the water requirements at the pumping stations for the YIS when developed for 123,000 ha is shown in Table 3 A. At present the delivery capacity of the pumping stations is less than 22 cms, which is much less than the demand for the 87,000 ha that is now irrigated. In fact, in some months in the flood season, the pumps are shut down because of silting in the supply channels excavated from the river. Most of the irrigation water at present comes from tubewells. The groundwater in the YIS has been depleted over the past 20 years. There are three aquifers. The shallow aquifer from 10-50 m is low yielding and wells produce 2-5 m3 /hour, but in many places the aquifer has been effectively dewatered. A middle aquifer at 50-100 m is somewhat higher yielding but generally the low yields do not justify deep wells. The deep aquifer at 150-320 m used to be highly productive and in most areas it was artesian, but overuse has reduced the pressure to 200 m below ground level. and most of the operating wells in the YIS are deep wells with lifts of over 200 m. There is evidence that the deep aquifer will respond to a reduction in pumping. In 1984 and 1985, the rains were timely and adequate for most of the growing season and there was a sharp drop in pumping. In one year the pressure in the deep aquifer rose over 10 m. Thus the project is expected to help restore the groundwater resource. However, the tubewells will continue to be used temporarily when the pumps are shut down to avoid excessive sediment inflow during floods.

Economic Analysis

12. The completion of the Yuncheng Irrigation System (YIS) will ensure an adequate water supply for irrigation of 123,000 ha of highly fertile crop land. The benefits arise largely from tuming rainfed and partly irrigated land into fully irrigated agricultural production. This will lead to an increase in the cropping intensity for the total area from 105 percent to 120 percent and will increase yields of wheat, cotton, maize and apples. The annual incremental agricultural output will be 126,000 tons of wheat, 87,000 tons of maize, 10,000 tons of cotton lint, and 79,000 tons of - 69 - ANNEX3 apples. This will create an additional annual net income of Y 384 million for the farming population of about 750,000 in the area, and will raise their average annual per capita income from Y 450 to almost Y 1,000.

13. The farmers in the area have a long experience with irrigation, and will readily achieve the change from rainfed to irrigated production. The crop budgets used to estimate the project benefits are based on differences in yields and inputs observed on rainfed, partly irrigated and fully irrigated fields in many places in the area (see Table 4). There is therefore a solid basis for the expected response of the farmers to the availability of irrigation.

14. The high ERR of 40 percent for this component reflects the large sunk cost of past development. The irrigation infrastructure is already largely in place, and a number of existing pumping stations are functional or need only small investment for rehabilitation. The water distribution infrastructure from the main canals down to the field level is in place over much of the area and the fields are levelled and ready for irrigation. The project completes some missing sections of the water distribution system.

15. The expected benefits are large enough to pay back all investment costs by the third year of operation (Table 6). A 50 percent increase in costs would still result in an ERR of 31 percent. The major uncertainty relates to the water intake from the Yellow River. Three different intake points plus the floating pumps at Zuncun minimize the risk that a channel shift could deprive the system of water. A sensitivity analysis shows that a worst case scenario, a major shift of the river channel away from the pumps five years after completion, would only lower the ERR to 17 percent. 70- ANNEX3

Table 1: YUNCHNGIRGATION SYSTEMINVESrmEN SUMMARY (Yuan Million) saw Cost Tom C04a ani Co"nU Langdian Pumping S oon 1. Pmwona Wors is 20.02 28.72 2. Pt moue 8.57 10.40 3. Pumps aris Eau t 9.87 11.34 4 Managmnt nuug at cana hted l e 2.2 5. Ms .maNo 0.39 0.48 SuMDOe Agnornn- Marageren fb 175 4,39 Sa lbi Langasn PurnpingSmoon 44.47 88.5

Sedhnesomon Pond 1. EJmI Wo 11t.28 1466 2. Drmm. far engaterng wor 0.6 0.30 3. Stau 1.59 2.33 4. Dn*g(11 FS20U) 11.94 14.15 5. Msoamneous 0.24 0.27 SaWVe.DfeinAumfi Manavge of lb 2 46 2.32 Subami Sedonaeuon Pond 83 F_td Can 1. Canal 182 24.35 2. S3vaus (gaes. s4us. onoges...) 5.73 6.95 3. Lamaauao 1.92 2.30 4. M aaneous 0 48 0.61 S. Feeder Cant S was ten 2. 30.13 Surwy.0esanmin-..managerneg 2.37 2.62 Subemn Feedr Caun 43.6I 67.18 Zunumn Nm4a (Pond andPnpsog 3oI I 1Pwroe ot tsuton 5.48 7.03 2. Sedment pato 9.S2 13.13 Sury.0engn .A.miti Managerent 147 .8 1 SUMm0dZWncun Intake (POW M Pun 6 220.4 Xahan PumnpingStaon Rehablltsdoin A. Xiedn 1st omeorstotn riprwvement 1. tst omer swtja a. Pumps anriEoa t 4.57 5.14 b. Earth wats ana strucn s 3 48 4 55 3b1tAl 1st ofi r s8t.n * 05 9.69 2. Masn canal wnprovemr, 0.13 1.00 3. Spare Partsouwrag 0.03 0.03 Subtotal Xohtan liStor saw en nor"een 8.91 10.72 B. Lngang 2nooronerjitaton noven- 1.19 1 44 C. kmrovng caa of or omr 1. CanaImnmg 4 70 6.37 2. StjucuMa on cani sees (280 ) 0.64 O. 3 Managementhous 0.92 120 4 Coimrmnicauantaclas 0.54 0.6O Subtotl ImoAng canal of aider 6.81 9.14 .0. Rueai 0.06 p.0 Surv D.0agnAdomn-Management 1bU6 1635 Subtotl Xibofan Pumping Station RehabiUlaln 1 .65 23.22 Zuncun brgation Scheme (Stabon I to 61 1 1It stageu ngatonarea (49) 1.64 2.23 2.2nd stag0rgauon ares (718 IN) a. Laras ron nma cn4267 7.22 8.75 b. Labtean frm reoshan man eal 3.81 4.62 c. Donpsa brnal canal (219 bwamp 6.J3 8.41 d. Sithigang ornanccra (133 lterA) 3.67 5.47 Subtotal 2nd stag mngaon area(718 )ea) 21.79 27.25 3. 3d stagogoan a (1a9 _Ill) 0.60 0.71 4 4mnsage egateon are (27 _brs) 0.93 1.22 to be osnantd -71 -

Yuncheng Irigation System Invwttment Summary (continued) ANNbFe

BaseCost Total Costs IncL Contingencies 5. 5th stageimgation ams (400 laterals) 10.75 14.57 6. Fom imgatlonarea (92 latraIs). 3.21 4.23 7. DrainageSystem (280 latersal) a. 199escape lterals m Yongjicity 3.90 5.20 b. 81 escapelaterals in Yunchengcity 1.39 1 93 SubtotalDrainage System (280 laterals) 5.29 7.14 Survey.esignAdmin..Manaeemnt/D 4.00 4.70 SubtotalZuncun Irrigation Scheme(Station I to 5) 48.41 62.13 9th StageMain PumpingStation 1. PumptngStation a. PumpHouse 0.88 1.10 b. Pumpsand Equipment 3.70 4.66 SubtotalPumping Station 4.58 5.75 2. OtherStructures 3.39 4.65 3. Electnrcaltngmneenng 2.66 3.06 4 Misceilaneous 0.94 1.08 Survey,DesignAdmin-Managementlb 0.75 0.92 Subtotal9th Stage MainPumping Station 12.32 15.47 Oh StageMain Canal(11km) 1. Ninthstage main canal bed 5.15 6.79 2. Ninthstage maih canal strueures 4.31 5.70 4. Misceilaneous 0.43 0.54 Survey.DesignAdmin-Management lb 0.87 1.04 Subtotal9th StageMain Canal 10.76 14.06 8th SLageBranch CanalPumping Stations 1. The secondsubchannel stabon a. Buildingsand Stucturs 0.90 1.23 b. PumpsMotors and Equipment Instalation 0.71 0.87 SubtotalThe secnd subchannelstation 1.62 2.10 2. The thtrdsubchannel station a. Buildingsand Structurms 0.86 1.17 b. PumpsMotors and Equpment Instalation 0.77 0.95 SubtotalThe third subchannelstation 1.64 2.12 3. The fourthsubchannel station a. Buildingsand Stnrctures 0.93 1.26 b. PumpsMotors and Equipment InstaIation 0.59 0.73 SubtotalThe fourtnhsubchannel sation 1.51 1.98 4. Electncitytransforming & distributingengineenng 2.66 3.30 5. Miscellaneous 0.40 0.50 _ Survey.DesignAdonin.,Malagemento 0.72 0.89o Subtotal9th StageBranch CanalPumping Statons 8.55 10.89 9th StageBranch Canals 1. First branchcanal 3.15 4.62 2. 2nd branchcanal 0.61 0.9t 3. 3rd branchcanal 2.86 4.18 4. Waterreceding canal 3.81 5.50 Survey.Design.Admin-Managementtb 0.94 1.24 Subtotal9th StageBranch Canals 11.37 1S64

IrrigationArea Completion 1. 8th stageirgation area(123 atermls) 11.51 16.92 2. 9th stageirigation area(86 laterals) 7.61 10.36 3. Completionof the 9th stationCommand Area 22.80 34.27 Survey,Design.Admin.,Managementlb 3.77 5.04 SubtotalIrrigation AreaCompletion 45.69 6.59 Total Yuncheng Inigation System 294.98 388.86

%aPumping station site protectionand upsteam bank potection(3.6km). %b9% of directinvestment costs. Tablc 2: YUNCIIENGIRIUCA I ION SYSTEM-TECIINICAL PARAMENTERS ANDOPERATING CoSrS

-Tchbnicl P.amtetas Ccsnmnd Areas'OO Opst Costs Yuen) Stamiianx et Capach Itead Hesd et.4t,1. Vent. P. ew"d l.cIl Of vect cl 21i .cu.duy Ma"_.. 41. am. Overbwut ______9- Ac&clnd. bW WAmDyea a. kWh 'uat & F 1 hWomtioaipo.lg r by calPIJ''

Pu,tpngStation 42.90 4.2 4.2 2.520 445 7.79 0.00 129.91 3.117 633 3.260 323 Sedbnerniion PoWd 42.90 2.300 445 s 60 2.706 963 608 442 S _aI maka. Jiamakou s56 612 Head StatWn 9.50 70.7 74.9 10.030 96 28.52 3.635 16.35 t1 402 tim *a . b.beou .ee.emuleast Xbltut~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 1 68s 441 474 Xioln Head Station 6.00 18.2 22.4 1.290 60 459 0 00 I I.ss 12835 ttlw.a XJOtacas...awda..aIel SubStation -1 2.70 I9e6 62.91 1.650 26 4.34 5.03 5.03 1.736 Sub-Station 1.2 4.20 49 6 71.9 3.300 33 6.91 6,40 6.40 2. 765 *ama 2.773 4.391 4.720 Pun*inBoasas 13.20 V. s .5 420 193 1.22 48468 tiere ZwZcaa c_s.w.,Ma00 1. Sta HedStatdldt 45.26 7.5 11.7 7.460 472 14s7 667 200 0 5s947 Zuncun Sohmetatn Pod 45.26 too 472 1.60 640 Sklne Stati 1-2 1.50 61.0 62.7 2.120 3 1.32 1.79 1.79 723 Sidaino Station 1-2 0.44 43.3 5ss0 270 3 d62 0.72 0.72 240 2.StagealinStcten- 42.66 23.2 409 I6.7SO 441 54.03 50.27 93.34 21,611 siduln station 2.1 6.40 36.2 77 1 4.400 s2 7.60 10387 10 97 3.119 Sidetw Sctaion2-2 0.44 13.9 54.3 210 3 0.o9 0 70 0 70 77 Sid.linestataon23 0.44 20.3 61.7 0SO 3 030 072 072 119 Sidelne Station 2.4 5.76 27.3 66.2 2.660 53 6 13 12 33 11.33 2.453 Sd*&" statio 2.6 1 0.66 7.9 466e 120 s 0 26 0.99 0.99 62 SwdatingStation 2.6 1.44 6.3 47.7 253 o024 1.79 1.79 96 Sadeine.Sub-Stelaon2-6-1 2.00 ro 52.7 22o 3 023 1.79 1.79 71 Sldeln tsaton 2-7 0.o6 1S.37 s 2 220 a 0 49 1 60 1 60 295 3. sea" St"o 22.57 .87 49.6 3.520 204 7.44 2 92 43.17 2.973 4. Sti 22.30 1el.1.0 606 3.520 295 900 2.0 422 3sss S. Stagemd. awStat1 20.3S 22.7 733 4.500 I90 10.22 19.17 40.17 4.045 Sidehw statiof 5t 0.56 2S s 33s 1SO 7 0 33 1 s9 1 9s 132 Sidee-Sub-Stabln 56-t-1 0.58 63 69.1 52 7 0 27 2.59 1 59 67 Side* StstioS 5-2 1.05 12.5 65s 225 12 0 63 2 56 2 56 254 Swarm Ssatil S-3 0.30 9.2 32 5 * 60 3 0 12 0 67 0.67 49 Stlne-Sth-Siation S6-t-1 0.30 69 9633 60 3 006 067 067 31 SLd Station 5-4 0.86 7 0 60.3 60 4 0.12 05 0 5s 47 6t. tay Ma Stbats 13.03 26.9 90.2 3.200 99 704 3.33 21 00 2.614 1. Stama"Stctleim 11.34 21.9 112.1 3.000 32 7.45 2.02 17.17 -2981 3. Stag main Sttib 10.60 9 122 0 1.610 72 2 97 715 IS15 1.189 Sid Stationl.2Su 0.19 7 2 129 2 30 2 0 06 0 64 0 43 24 Sidea Station. 3-3 2.29 2S 1472 * S00 12 1.33 0.97 2 59 531 SW.-Sub-Stetion 8.3-1 0.63 179 I15 7 180 a 056 1 63 1 63 231 S;dee Station. 6-4 0.26 45 161 5 220 3 0 46 0.30 0 53 192 Sidel Station. 3.5 0.14 24 3 146 a 74 2 0.21 0.65 0 43 S5 9. Step Mic Selad 4.26 32 @ 3 2.000 38 5 04 7.99 7.99 2.015 Sub-Stctbn 9-1 0.07 125 1663 22 1 007 027 027 27 Sub-Stalion 9.2 047 360 18t 7 264 7 1.t2 157 . 157 448 Sub-Statio 9-3 0 56 30 4 164 2 264 11 1.36 2 26 2 25 545 5uh-Suction9-4 0.54 243 2736 Ig0 20 2.02 203 2.06 409 _ ___tt _ 34.324 638 204.03 1229.1 62.101 7.277 9.256 6.607I tut~. [email protected] got Lanhof Water Jai Jotal. of which tieceica, mengiment Uamin&mcs Ovehail Il Auac"S1u.16IuimWv t1ar10- ISaac Average Opraction Costs at Head h 16.50 1247 1.14 1.45 1s04 1TJlaidCooeaduraaWttOO samelA eiAutca. Aversgc Operation Costs at Fed Level S/ 27.49 21.45 1.90 2.42 1.73 31Wu.t a puce*o4f 40FoetWh pka coalsSo h t esgwe. macswroumMesginal Opwation Cotas at Field9th Suimon 38 56 32.52 1.90 2 42 1.73 41Swedes cV altfcsteat.. AIAcsacaig c£wcv elimet, 4430% ree. haid ias9.4 -73- ANNEX3

Table 2A: YUNCHENGIRRIGATION SYSTEM-IRRIGATION REQUIREMENTS

Annual Cropping 0 N 0 J t M A U J J A Intensity Crp ltbgaon Requr,ewnt (mm)

What ,1o 100 100 o00 100 Cotton 100 100 100 maiMs 100 100 Fruit 100 100 100

CroppingIntasity (%)

Wheat 65 30 35 60 25 45 Cotton 20 20 20 20 Maza 20 20 20 Fnuit 15 15 15 15

_ .ODivemion Requvmment(rmnV1,000 ha)

Wheat 0.46 0.54 0.92 0.38 0.60 Conon 0.31 0.31 0.31 maize 0.3-1 0.31 Fruit 0.23 0.23 0.23

Totals 0 0.46 0.77 0 0 1.1S 0.38 .0.02 0.62 0.62 0.31 0

For 123.000he 0 S7 95 0 0 142 47 114 76 76 38 0 Cap. mcnVmo 157 157 157 157 157 157 157 157 157 157 157 157 .74- ANNEX3

Table 3: YUNCHENGIRRIGATION SYsTEM -TOTAL AREAMODEL CROPPEDAREAS AND YIELDS

Without Projea With Project preint future full development) Area('000ha) Yeld (tlha) Aea (fOOOha)Yiid (tla) Area('OOha) Yield(tVha)

lrigated: What 23.7 4.5 21.9 4.5 60.0 4.7 Cotton 6.4 0.9 6.4 0.9 24.6 1.0 Maize 5.S 5.5 5.S 5.5 24.6 6.0 Apples 4.0 18.0 5.8 18.0 18.4 19.0 Paftially Irrigated: Wheat 21.7 3.5 20.2 3.5 Cotton 5.9 0.7 5.9 0.7 Maize 5.5 4.0 5.5 4.0 Apples 3.4 15.0 4.9 15.0 Rainfed: Wheat 34.5 2.5 32.1 2.S Cotton . 10.1 0.4 10.1 0.4 Maize 3.2 3.0 3.2 3.0 Apples 5.3 12.0 7 7 12.0

Total Aea COOOha) 129.5 129.5 147.6 CroppingIntensity (%) 105.3 105.3 120.0

S.~~~~~~~~~~~~~~~~~~ -75 - ANNEX3

Table 4: YUNCHENGIRRIGATION SYSTEM-ECONOMIC CROP BUDGETSPER HECTARE

Maize

. Irrigated Partly Irrigated Rainfed Unit Quantity Value Quanity Value Quantity Value Unit Price (Yuan) (Yuan) (Yuan) Output Maize kg 1.15 5.000 5.760 4.000 4,608 3.000 3.456 Maize stover kg 0.04 6,600 264 4.800 192 3.600 144 Total Output 6.024 4.800 3,600 Operating Inputs Maize seed kg 4.40 35 154 35 154 35 154 Urea kg 2.08 130 270 100 208 100 208 Ammonium bicarbonate kg 0.71 100 71 100 71 50 35 Phosphate (SSP) kg 0.94 180 168 120 112 80 75 Manure ton 15.00 15 225 15 225 15 225 Agro-chemicals kg 20.00 1 20 1 20 1 10 Animal labour VWDs 12.00 23 276 22 264 20 240 Labor * WDs 7.20 110 792 100 720 85 612 Total Input 1.976 1.774 1.559 Net Value of Production 4,048 3,026 2,041

Cotton

IrrHgated Partly Irrigated Rainfed Unit Quantity Value Quantity Valuo Quandty Value Unit Price (Yuan) (Yuan) (Yuan)

Output Cottonlint kg 11.84 900 10.660 700 8,291 400 4.738 Cotton seed kg 0.96 1800 1.722 1400 1.340 800 765 Total Output 12.382 9.630 5.503 Operating Inputs Cotton seed kg 5.00 120 60 120 600 120 600 Ures kg 2.08 200 415 10 311 100 208 Anmnonium bicarbonate kg 0.71 100 71 100 71 50 35 Phosphate (SSP) kg 0.94 250 234 200 187 70 65

Manure - ton 15.00 15 225 13 195 10 150 Agro-chemicals kg 20.00 27.5 550 21 420 1S 300 Animal labour WDs 12.00 30 360 28 336 22 264 Ginning Yuan 122 122 95 95 54 54 Labor WDs 7.20 225 1.620 200 1.440 160 1.152 Total Input 4.191. 3.655 2.828 Net Value of Production 8,155 5,975 2.675

to be continued -76 - ANNEX3

Table 4 (Cont'd)

Yuncheng Irrigation System (continued) Economic Crop Budgets per hectare

Wheat

Irrigatsd ParUyIrrigated Rainfed Unit Quantity Value Quantity Value Quantty Value Unit Price (Yuan) (Yuan) (Yuan)

Output Wheat kg 1.27 4500 5.702 3500 4 435 2500 3.168 Wheatstraw kg 0.04 4500 180 3500 140 2500 100 Total Output 5.882 4.575 3.268 Operating Inputs Wheatseed kg 2.00 150 300 150 300 150 300 Urea kg 2.08 160 332 100 208 100 208 Anmmonumbcabtonate kg 0.71 150 106 100 71 80 57 Phosphate(SSP) kg 0.94 200 187 150 140 100 94 Manure ton 15.00 12 180 8 120 7 105 Agro-chernihcas kg 20.00 1.25 25 1 20 0 0 Animal labour WDs 12.00 25 300 22 264 20 240 Threshing Yuan 30 30 25 25 20 20 Labor WOs 7.20 98 706 89 641 £2 590 Total Input 2._66 1.768 1.613 Net Valueof Production 3.716 2.787 1.655

Apple

Irrigated Psrty Irrigated RaInfed Unit Quantity Value Ouantity Value Quantity Value Unit Price (Yuani (Yuan) (Yu_n_ output Apple kg 1.60 18000 28.800 15000 24.000 12000 19.200 Total Output 28.800 24.000 19.200 Operating Inputs Urea kg 2.08 400 830 300 623 250 519 Ammoniumbicarbonate kg 0.71 150 106 150 106 100 71 Phosphate(SSP) kg 0.94 400 374 250 234 200 187 Manure kg 15.00 20 300 18 270 1S 225' Agro-chemicals ton 20.00 12.5 250 10 200 5 100 Labor WDs 7.2Q 230 1.656 210 1.512 200 1.440 Total Input 3.517 2.945 2.542 Not Value of Production 25283 21,055 16,6U Table 5: YUNCIIENGIRRIGATION SYSTEM-CROPPING PATYERN ANDECONOMIC NET VALUEOF PRODUCTION(NVP)

Present Future wIthout Project Future with Project Area NVPWma TotalNVP Are; NVPIha TotalNVP Area NVPIha TotalNVP ('00 ha) (Yuan) (Yuanm;il.) rOOOha) (Yuan) (Yuan r) (o000ha) (Yuan) (Yuanmill) Irrigated 6 Wheat 23 7 3.716 e8 08 21.9 3.716 81 39 800 3,716 29732 Cotton 6 4 8,185 52 38 6.4 8.185 52 38 24 6 8,185 20135 Maize 5 8 4.048 23 48 58a 4.048 23 48 24 6 4,048 99 58 Apples 40 25.283 10113 5a 25.283 14664 184 25,283 46521 Partly Irtigated Wheat 217 2.787 6047 202 2.787 5629 1 Colton 5 9 5.975 35 25 5 9 5.975 35 25 _ Maize 5 5 3.026 1665 5 5 3.026 1665 . Apples 3 4 21.055 71 59 4 9 21.055 10317 I Ratnfed Wheat 34 5 1.655 57 09 32.1 1.655 53 12 Colton 10.1 2.675 27.01 10.1 2.675 27 01 Maize 32 2.041 6 53 3 2 2.041 6 53 Apples 5 3 16.658 88 29 7 7 16.658 12827

Total Cropped Area 1295 1295 147.6 CuttivatedArea 123.0 1230 1230 Cropping IntensIty 105% 105% 120% Total NVP 627.96 730 19 1.06346

IncrementalNet Value of Production 333.27 (At Full Development) a -78 - ANNEX3

Table 6: YUNCHENGIRRIGATION SYSTEM-ECONOMIC CASHFLOW ANALYSIS(YUAN MILLION)

Project O&M a/ O&M a/ Incremental Incremental Net Benefits Year Investment Costs without project with project Costs Benefits (11 {21 (313) (1)+{3)-(2} (A4 1996 43.9 45.3 45-3 43.9 0.0 -43.9 1997 87.7 45.3 47.8 90.1 0.0 -90.1 1998 80.3 45.3 47.8 82.8 0.0 -82.8 i 999 70.7 45.3 47.8 73.2 0.0 -73.2 2000 34.3 45.3 64.2 53.1 100.0 46.9 2001 45.3 88.8 43.5 266.6 223.1 2002 45.3 105.2 59.9 333.3 273.4 2003 45.3 105.2 59.9 333.3 273.4 2004 45.3 105.2 59.9 333.3 273.4 2005 45.3 105.2 59.9 333.3 273.4 2006 45.3 105.2 59.9 333.3 273.4 2007 . 45.3 105.2 59.9 333.3 273.4 2008 45.3 105.2 59.9 333.3 273.4 2009 * 45.3 105.2 59.9 333.3 273.4 2010 45.3 105.2 59.9 333.3 273.4 2011 45.3 105.2 59.9 333.3 273.4 2012 45.3 105.2 59.9 333.3 273.4

2013 45.3 105.2 59.9 - 333.3 273.4 2014 45.3 105.2 59.9 333.3 273.4 2015 45.3 105.2 59.9 333.3 273.4

IRR: 40% Break Evenin year 2002 NPV: 841.2

Notes: a/ O&M costs include regularoverhaul of pumpsand replacementof parts. SeeTable 'Technical Parameters OperatingCojt3'. In the without project sttuattonall Management.Maintenance and Overhaulcosts exc for the Langdianintake complex are includedand 30 percentof the electricity costs of the with project s

Sensitivity Analysis Scenarios: resulting IR-

(1) Investmentcost increaseby 20% 36% (2) Investmentcost increaseby 50% 31 % (3) Incrementalbenefit decreaseby 20% 34% (4) Incrementalbenefit decreaseby 50% 21% (5) Investment cost increaseby 20% andincremental benefit decrease by 20% 30% 16) Delay in the benefit stream by 5 years(no benefits beforeyear 20041 19% (7) Complete reconstructionof the LangdianPumping Station after 5 yearsand delay in the benefit stream from Langdianby 5 years (PumpingBoats work as scheduled) 24% (8) Completereconstruction of the LangdianPumping Station after 5 years and delay in the benefit stream by 5 years Ino project benefitsbetore year 20041 18% (9) Completereconstruction of the LangdianPumping Station and the FeederCanal after 5 years and delay in the benefit stream by 5 years (no project benefitsbefore year 20041 17% -79 - ANNEX4

ANNEX 4: RIVER BEACH LAND

Project Works

1. River beach land has been formed by deposition of Yellow River sediments. Until the creation of the PRC, the course of the Yellow River was virtually uncontrolled, and beachland was scoured and deposited unpredictably over a cycle of 20 to 30 years. Over the past 20 years some of the more stable areas of beach land have been protected by river training works and now about 58,000 ha of land bordering the left bank of the Yellow River in Yuncheng Prefecture is recognized by the local authorities as river beach land. The beach land is found in eight of the poorest counties of Yuncheng, and four of these are listed as national poverty counties. The land is in narrow strips, 2-8 km wide, scattered along a river length of 345 km where the river forms the westem and southem borders of the prefecture. About 32,000 ha has been developed for crop production and forest plantations, and much of the remainder is sporadically farmed. The main crops are wheat, maize, groundnuts, soybean, and small areas of cotton. Virtually all of the crops are rainfed. The main forest species is pawlonia. Rainfall ranges from 500 mmnin the north to 600 mm in the south. The shallow groundwater aquifer is productive with yields around 10 m3/ hour, but it has not been widely exploited because of poor road access and lack of a power distribution system.

2. The project will develop 13,000 ha of land within the eight counties. Irrigation will be provided by 1,300 wells (one well for 10 ha.), and around 1,300 km of concrete lined irrigation channels will be built. Typical wells are 30 m deep and use the traditional concrete casing and porous concrete screens with a submersible pump. Township and village enterprises are skilled in drilling and installing such wells. The area will be connected to the existing power system by 110 kv transmission lines. Other power facilities will include 110 kv, 35 kv and 10 kv power lines with associated transformers and switch gear. About 175 km of roads will be built to the Fourth Grade Rural standard. The road bed will be about 50 cm of compacted earth with a 5 m wide lime-stabilised surface, with I m shoulders. Aquaculture has been profitable in the area and, therefore, the project will include 200 ha of new ponds and improvement of 330 ha of existing ponds. Cost estimates are shown in Table 1.

Economic Analysis

3. Crop budgets and cropping patterns with and without the project are shown in Tables 2-4. The project will raise the cropping intensity from 100 percent to I IS percent and more than double yields of wheat, cotton, soybean, and groundnuts. Irrigation will also lead to production of high-value crops such as vegetables, and fruit crops such as water melons. All investment costs including Y 4.8 million for 5 km of bank protection and Y 1 million for the preservation of a migratory bird reserve are weighted against benefits expected from improved cropping and fish production. Crops and aquaculture are the main sources of benefits. However, there will be -80- ANNEX4 benefitsfor the livestockand timber productionin the area, that are not quantified. The ERR of 29 percentfor the component(Table 6) reflectssunk costs of past development,mainly in the form of land clearing,rough land levellingand dirtroads. -81- ANNEX4

Table 1: RIVER BEACH DEVELOPMENT-INVESTMENTCOSTS

Unit Unit Price Quanfti Toat Cost (Yuan'000) (Yuan V'W0)

WeNDnlng. Cig. Filt ... ' No. 10.39 1.603 16.662 Pumps No. 7.00 1.603 11.227 Transformer No. 2.60 1.603 4.16S PowerLin km 5.20 802 4.168 Oter (swvtAt.comoensator. *tc.) lumosum 2.315 Subtotal Wells 3S.540 'Canals Lind Canal km 14.99 1.603 24.031 Outlt No. 0 34 1 603 548 Subtotal Canal 24.579 Land Levelling ha 6.67 1,300 8,670 Roado Ea Dhwonks OOOm' 9.81 293 2.869 Suuetures km 16.72 90 1.505 Surhsng km 62.96 90 5.666 Oter lmo sum 1.016 Subtotal Roada 11.056 Electrification 110KVTransnussi&n Line km 239.20 17 4.068 110KVLine Rehabultation km 93.60 30 2.806 IIOKVSub-Station mWM 416.00 20 6.320 35KVLine km 135.20 14 1.693 35KVSub-Station MW 391.07 19 7.391 I0KVLin km 31.99 . 79 - 2.512 Subtotal Electrification 25.990 Bank Protection (SO.um.) Eath filling '000m' 9.28 166 1,537 Cage stone ooOt 48.51 7 960 Filn stone 'OOOm' 141.02 7 930 aBckin stone -OOOm* 107.46' 9 936 Et mgencystone 'OOm 78.09 a 618 Cnuted atone 'OOnm 119,59 7 842 Subtoul Bank Protection 5.643 Aquacultut. Now Fish Ponds(200ha) EaW Excavation ha 18.16 200 3.631 Tube-wellConstucaon No. 570 72 410 ManagementHouse No. 2.28 360 821 Pots andJoints lump sum 381 Transmison Les kuimpsm 340 Transformers No. 30.16 12 362 Aernfer No. 1.94 300 582 Pumps snd Auxdiians lump sum 381 Tnick No. 61.20 6 487 Other lumo sum 334 SubtotalNow Fish Ponds 7.729 Fish Pond Improvment EarthExcavaDon ha 6.84 333 2.280 Tube-wel Consuucton No. 6.64 S0 342 ManogementHouse lumpsum 342 Pipesand Joints lump sum 265 Transmisin Lines lump sm 390 Adafir No. 1.94 250 485 Pumpsand Auxains lumpsum 269 Nets kimo sum 8S Subtoul Pond impnrvemnt 4.479 BreedingFish Frms (5.3ha) lump sum 698 uo1irngcapil lump sum 950 Suppon SefNc Equionent lumosum 61 Subtotal Aquacultura 13.918 Total River Beach Development 129.595 -82 - ANNEX4

Table 2: RIVER BEACHDEVELOPMENT-ECONOMIC CROP BUDGETS Per Hectare

Wheat

Peent Future without proj. Future with project Unit Quantity Value Quantity Value Quantity Value Unit Prce (Yuan) (Yuan) (Yuan)

Output Wheat kg 1.27 1,900 2,408 2.000 2.534 4.700 5.956 VAeatstraw kg 0.04 1.900 76 2.000 s0 4 700 188 Total Output 2.464 2.614 6.144 Oprating Inputs Whea toed kg 2.00 150 300 150 300 1S0 300 Urea kg 2.08 70 145 80 166 180 374 Amnmoniumbicarbonate kg 0.71 50 35 S0 35 150 106 Phosphate(SSP) kg 0.94 50 47 60 56 220 206 Manure ton 15.00 5 75 6 90 12 180 Agro-chemrels kg 20.00 0 0 0 0 1 25 Annal babour WDs 12.00 20 240 20 240 26 312 Thshing Yuan 20 20 20 20 30 30 lnigtion Water mS' 0.25 0 0 0 0 4.050 1,013 Labor Famitlyabour WDs 7.20 75 540 77 554 100 720 Total Input 1.402 1.462 3.265 Net Valueof Production 1.081 1.152 2.879

Cotton

Present Future without proj. Future with project Unit Quantity Value Quantity Value Quantity Value Unk Pdice (Yuan) (Yuan) (Yuan) output Cotton fint kg 11.84 400 4.736 S00 5.922 1,000 11.84 Cotton eed kg 0.96 S0W 765 1,000 957 2.000 1.914 Total Output 5,503 6,879 13,758 Operating Inputs Cottonseed kg 5.00 120 600 120 600 120 6oo Urea kg 2.08 100 208 100 208 200 415 Amrmoniumbicarbonate kg 0.71 50 35 70 50 150 106 Phosphate(SSP) kg 0.94 70 65 100 94 250 234 Manure ton 15.00 10 150 10 1S0 15 225 Agro-chemicals kg 20.00 15 300 15 300 30 600 Animal labour WDs 12.00 22 264 24 288 30 360 Ginning Yuan 54 54 68 68 135 135 Ingation Water ms 0.25 0 0 0 3.090 773 Labor Famiy labour WDs 7.20 160 1,152 163 1.174 230 1.656 Total Input 2.828 2.930 5.104 Not Valueof Production 2,6751 3,941 8.6S4

to be continued -83 - ANNEX4

Table 2 (Cont'd)

River Beach Development (continued) Economic Crop Budgets per hectar

WaterMelons

Present Future without proj. Future with project Unit Quantity Value Quantity Value Quantity Value UnIt Price (Yuan) (Yuan) (Yuan)

Output Water Melons kg 0.30 28.000 8.400 Total Output 8.400 Operating Inputs Seed kg 200.00 2 460 Urea kg 2.08 150 311 Anmmoniumbicarbonate kg 0.71 150 106 Phosphate (SSP) kg 0.94 300 281 Manure kg 15.00 20 300 Agro-chemicals ton 20.00 6 120 Anenal labour WDs 12.00 36 432 IrmgationWater mn 0.25 1.575 394 Labor Family tabour WDs 7.20 236 1.699 Total Input 4.103 Net Value of Production 4,297

Soybean

Present Futur without proj. Future with project Untt Quantity Value Quantity Value Quantity Value Unit Price (Yuan) (Yuan) (Yuan)

Output Soybean kg 2.39 1.100 2,633 1.200 2.873 2.200 5.267 Soybean straw kg 0.04 1,100 44 1.200 48 2.200 88 Total Output 2.677 2.921 5S355 Operating Inputs Soybean seed kg 3.00 60 180 60 180 60 180 Urea kg 2.08 50 104 50 104 70 145 Phosphate (SSP) kg 0.94 130 122 150 140 250 234 Manure ton 15.00 5 75 5 75 10 150 Agro-chemicals kg 20.00 0 7 1 10 1 20 Animal labour WDs 12.00 20 240 20 240 25 300 Threshing Yuan 20 20 20 20 40 40 Irrgation Water ms 0.25 0 0 0 0 1.575 394 Labor Family labour WDs 7.20 82 590 85 612 106 763 Total Input 1.338 1.381 2.226 Net Value of Production 1,340 1,540 3,129

to be continued -84- ANNEX4

Table 2 (Cont'd)

Rhi Beach Developmernt(continued) Economic Crop Budgeu per hetre

Groundnuts

Preent Future without prol. Future with project Unit Ouantity Value Quantity Value Quantity Value Unit Price (Yuan) (Yuan) (Yuan)

Output Groundnuts kg 2.20 1.200 2.640 1.300 2.860 2.300 5.060 Grounanutstraw kg. 0.08 1.400 112 1.500 120 2.600 208 Total Output 2.752 2.980 5268 Operting Inputs Seed kg 4.20 160 672 160 672 160 672 Ursa kg 2.08 30 62 30 62 70 145 Phosphate(SSP) kg 0.94 150 140 160 150 300 281 Manure ton 15.00 10 150 10 150 15 225 Agro-chenihcals kg 20.00 0 0 0 0 2 30 Animal aour WOs 12.00 20 240 20 240 25 300 imgataonWater ma 0.25 0 0 0 0 1,575 394 Labor Familylabout WDs 7.20 16 115 18 130 31 223 Total Input 1.380 1.403 2.270 NetValue of Production 1,372 1,577 2.998

Maize

Present Future without proj. Future with project Unit Quantity Value Ouantity Value Quantity Valtu Unit Price (Yuan) (Yuan) (Yuan)

Output Maize kg 1.15 6.000 6,912 Maize stover kg 0.04 7.200 2t8 Total Output 7.200 Operating Inputs Maizesed kg 4.40 35 154 Urea kg 2.08 IS0 311 Anmoniumbicaftonate kg 0.71 100 71. Phosphate(SSP) kg 0.94 200 187 Manure ton 15.00 1S 225 Agro-chenicais kg 20.00 1 20 Anwmallabour WDs 12.00 23 276 InigationWater m 0.25 1.575 394 Labor Family labour WDs 7.20 115 828 Total InpAut 2.466 NetValue of Production 4,734 - 85 - ANNEX4

Table 3: RIVER BEACH DEVELOPMENT- CROPPING PATTERN AND ECONOMCNET VALUEOF PRODUCTION(NWP)

Pgent Futurewithout Project Future with Propect Area NVP/ha Total NVP Area NVP/ha TotalNVP Area NVP/ha Total NVP ______(000ha) (Yuan) (Yuanmill.) (oCoha) (Yuan) Yuanmill. rooo ha) (Yuan) (Yuannm.) Rainfed Wheat 6.8 1.081 7.35 6.8 1.152 7.84 Cotton 1.0 2.675 2.67 1.0 3.949 3.95 Soybean 2.3 1.340 3.08 2.3 1.540 3.54 Groundnut 2.9 1.372 3.98 2.9 1,577 4.57

Irrigated Wheat 6.5 2.879 18.71 Cotton 2.5 8.654 21.63 Soybean 2.0 3.129 626 Groundnut 1.0 2.998 3.00 Water Melon 1.0 4.297 4.30 Maize 2.0 4.734 9.47

Total Cropped Area 13.0 13.0 15.0 Cultivated Area 13.0 13.0 13.0 Cropping Intensity 100% 100% 115% Total NVP 17.09 19.90 63.37

IncrementalNet Value of Production 43.47 (At Full Development) TalIc 4: IIIVEI BEACII DEVELOPIMENT-AQUACUILURE: FIsII IPONI) INIPROVEmENT (333.33 ia)Tolal Arca Modcl

OuanUUla Economic Velues (Yuen '00) Wlihoul Unrale l: FiiOsal Pm).c2 VWth PrO)OCI hIcroment, (YMAnl Pn .CS Mth Projest Inerments UnlVYenr> 2.20 1 2 3 4 20 t 2 4. 10 -120 1 2 3 4.t6 20 t 2 1 4.tO 20 Mal PmducUoe45 Stow Crp ton 101 01S 901 9N1 1.001 31 61 125 360 3.154 .IS4 3.264 3.31 3.604 3.604 - 113 225 450 450 VarlwgtedCorp Ion 120 lie I2 11<4 IO .1 .14 -10 4.0t 512 512 454 456 400 400 -21 -56 .112 -112 Cffsear ten 300 300 413 521 lSO 113 22S 450 S.0 2,040 2040 1.SOS 3.510 SIW 5 .100 65 ISt30 3.060 3.060 C-p Ion 114 14 206 231 30 32 63 126 6.0 1.391 1.22 1.644 1.696 2.400 2.400 252 5O4 1.006 1.00t Cnhacancp ton 25 as 31 38 SO 6 2 25 *000 ISO ISO III 225 300 300 3 175 ISO ISO F aWVCp ton I 12 2S s * I 2 0 . ,64 160 331 321 64 166 321 331 GmeasVau Of ProducUon 1.241 1 240 6.411 9694 12.140 12.140 1.223 2.446 4.891 4.693 hwseetmenl Purchased Inputsl21a 0 ,0 Pwt"aae InpiAJConskrmdu Yuan (O) 1 201 1t201 2.402 1.201 I 201 2.402 Op*rsino Purchased h6pu46 b1wom" &h lon10 106 li 104 26 . 43 6 113 6.911 1.043 1.043 1.266 1,489 1,935 1.935 2 4 9 9 Fod "o 1.415 1.41 1.131 9I'ttO 2.500 - 254 513 2 025 1.000 1.326 1,326 1.621 1l014 X 500 1.SOO 29S SSG 1.11 1.113 Hega Ion 4.500 4,500 .875 1.250 1O.O0 - .315 2.150 .500 SO 225 225 294 33 SaO SOO 69 2IN 215 215 Mama Ion 1.250 1.250 1.106 1.12$S t.Ol 63 -125 250 IS IS It 16 1I Is S - t -2 4 .4 FgsIag son 12$ I2S 12$ 115 .125 1.400 11$S 1S 1ZS 1S 15 1$S Waf e Elbda0y Yun (000) ISO 150 ISO 15t 150 1SOt 1U4,dl1ehII'o Yuan tCOwl tOO OO 100 100 t)O 100 Tianspodaon Yuan 00) ISO ISO 2SO ISOO ISOt SO lda Yuan (VW0) SO SO SO SO SO SO - I E*ntm hllanance Yuan (0) 01 1O0 t00 1001 100 100 RFeplcantad Yuan (000 250 IS0 250 250 250 250 opluql coils lWa Yuan (V) 325 325 325 325 325 325 Labo Fanry, mo . IOS (000) 250 2SO 21s 30 350 5s . 2to ,200 .6 tOtttOI 1.9t0 2.60 2.520 2.520 SO 360 720 120 Weltin Capita 596 596 1.161 596 S"6 1.191 Tot tOut" S6.314 0.113 8.Sl1 11441 9.3O 6.30 IttOO 2.564 S.21 2.056 3.054 SalvageWow ng Captt 2t394 2.3_4 Calh Flow 934 066 .401 .1t141 2.110 5,164 ISO 1.340 2.64tl 1.083 4.230

tAN 2S% NrV 4.311

I . Table 5: RIVER IBEACIIDEVELOPMIENT-AQUACULTURE: NEW FisIlI PONDS (200 lia) Total Area Model

Quantities Unit Price Economic Values (Yuan '000I UnitIYears*> 1 2 3 4 to 20 (Yuan) 1 2 3 4 to 19 20 Main Production Silvercarp lon r 68 135 270 3.600 243 486 972 972 Variegited carp ton 16 32 65 4,000 65 130 259 259 Carp ton - 284 567 1.134 8,000 2.268 4.536 9,072 9,072 Cruciancarp ton - 7 15 30 6,000 45 90 180 180 By-products Wheat ton - 78 156 312 1.280 100 200 399 399 Bean ton 24 49 98 1,815 44 89 171 177 Gross ValueOf Production 2,765 5.530 11.059 11.059 Investment Projectinvestment Yuan('0) 1.978 1.978 3.957 Operating Purchased Inputs OD Breedingfish Ion 53 105 210 12.214 641 1.283 2.565 2,565 _ Fodder ton - 413 825 1.650 2.073 855 1.710 3.420 3,420 LandCultivalion Yuan('000) 67 134 267 267 Water& Electricity Yuan('000) 113 225 450 450 Medicine Yuan('000) 8 15 30 30 1 Transportation Yuan(000) 18 36 72 72 Toots Yuan '000) 7 14 27 :27 Equipmentmaintenance Yuan('000) 11 23 45 45 Replacemnent Yuan('000) 50 99 198 198 Oppordunitycosts land Yuan(COOO) 49 98 195 195 Labor Famlylabor WDs ('000) - 53 105 210 7.200 378 756 1.512 1.512 Working Capital 359 359 718 Total Outflows 2.337 4,533 9,065 8,781 8.781 SalvageWorklng Capital 1.436 CashFlow -2,337 -1.768 -3,536 2,278 3.715 IRR 24% NPV 6.682

l~~~~~~~~~~~~~~~~~~~~~~~~> -88 - ANNEX4

Table 6: RIVER BEACHDEVELOPMENT-ECONOMIC CASH FLOW ANALYSIS (Yuan Million)

Investment Costs Total Incremental Benefits Not Benefits Year Irrigation Infra- Bank Fish Investment Agricultural Fish Facilities &I structure Protection Ponds Const Crops Production 1996 14.1 14.1 3.2 31.4 - -31.4 1997 16.3 13.0 1.9 3.2 34.5 1.2 1.0 -32.3 1998 17.3 7.2 1.9 6.4 32.8 9.1 2.1 -21.6 1999 14.3 2.4 1.3 18.1 23.7 4.1 9.7 2000 9.8 2.4 1.3 13.5 35.9 4.1 26.5 2001 4.9 4.9 42.3 4.1 41.5 2002 - 43.8 4.1 47.9 2003 - 43.8 4.1 47.9 2004 43.5 4.1 47.6 2005 - 43.5 4.1 47.6 2006 7.4 7.4 43.5 4.1 40.2 2007 8.5 8.5 43.5 4.1 39.1 2008 9.0 9.0 43.5 4.1 38.6 2009 7.5 . 7.5 43.5 4.1 40.1 2010 5.1 5.1 43.5 4.1 42.4 2011 2.6 2.6 43.5 A.1 45.0 2012 - 43.5 4.1 47.6 2013 - 43.5 4.1 47.6 2014 - 43.5 4.1 47.6 2015 - 43.5 7.9 51.4

IRR: 29% NPV: 124.3

Notes: &/ It is assumedthat pumps and tubowellsare replacedatter ten years. The costsfor oporatingthe tubwelilsare includedin the cropbudgets. They are calculatedwith Yuan0.25 per m'.

Sensitivity Scenarios: ' resulting IRR:

Cost Increaseby 10%: . 26% Cost Increaseby 20%: 24% Benefitlower by 10% 26% Benefitlower by 20% 23% Benefitdelay by 1 year 23% Benefitdelay by 2 years 20% Cost up + benefitsdown by 10% 24% Switching Values: at cost overrunof 210 percent at benefit level of 47 percent -89 - ANNEX5

ANNEX 5: LAND DEVELOPMENT AND EROSION CONTROL

Background

1. Since the creation of the PRC there have been several campaigns in the Loess Plateau, especially in the 1970s, involving terracing, afforestation, and silt control dams. In the past, the purpose of these measures was seen mainly as soil conservation and little attention was given by planners or farmers to maximizing production and incomes. The liberalization of the agriculture sector in the 1980s and the growth of a free market has given farmers more incentives to exploit the resources of the plateau. While individual efforts are now rewarded by the market, the development of the Loess Plateau calls for carefully organized, collective efforts to cope with the highly complex land forms and land capabilities, and the small area of arable land (about 0.5 ha) available to a farm family. Thus, a new element that has been introduced in recent years is the comprehensive and integrated planning of individual watersheds. The objectives are to create sustainable production of field crops and orchards on high-yielding level farmland, and reduce the area of erodible slope lands devoted to crops. The slope lands are then planted to a range of trees, shrubs and grasses to produce fuel, timber and fodder. While the area devoted to crops is reduced the overall output value per hectare is significantly increased. The watershed is the basic physical unit and the village is the basic social unit. The success of this integrated approach depends on close consultation between the planners and the village leaders and villagers. In recent years, this approach has been successfully implemented on a large scale in a number of watersheds in the plateau, and it has proved to be sustainable. In Luliang Province, the following soil and water conservation measures will be implemented as part of the project:

(a) terracing of 13,400 ha;

(b) construction of 56 sediment control dams; and

(c) afforestation of 4,200 ha of slope lands.

Terraces

2. The conversion of slope lands to terraces serves a number of purposes. First, it creates a better environment for crop production through moisture conservation; in a year of average rainfall, grain yields on terraces are two to three times higher than on slope lands. Second, terraced land is more resistant to damaging soil erosion during intense storms than slope land. And third, sediment runoff is much lower from terraces than from sloped land. Generally, terraces are confined to lands where slopes are less than 200, but where there is a shortage of crop land, terraces are built on slopes up to 25°. Soils are deep in Luliang and the area is therefore well suited to terracing, but the topsoil is often set aside and replaced upon completion of the terrace. About 7,600 ha will be wide -90- ANNEX5

terracesof 13-16m built on slopesof 5°-10Oand 5,800ha will be narrowerterraces of 10-13mbuilt on slopes of 10°-15°. The terraceswill be level and the lower parts of the risers vertical,with a sloping top to allow for establishmentof grasses and other vegetativecover plants to protect the riser from erosion. After terracing,the fields will be deep plowed,fertilized with 150 kg of urea and 300 kg of single superphosphate. The main crops will be sorghum,maize, millet, beans, potatoesand sunflower.A cost estimatefor terracingis shownin Table 1.

Sediment Control Dams

3. The project includesthe constructionof 56 sedimentcontrol dams. These are earth dams with heights between 10 and 25 metersbuilt in the steep-sidedgullies typical of the loess plateau. Gross initial storage capacitiesrange between100,000 m 3 and 1,000,000m 3. Numeroussimilar dams have been built in Luliang. The damsreduce flooding and sedimentloads in the downstream rivers, and the sedimentdeposits behind the dams createhigh qualityagricultural land, in this case about 270 ha. The water stored behind the dams can be used for irrigation and village water supplies.

4. Parts of the loess plateau in the Yellow River Basin have some of the highest rates of sediment runoff in the world. Sedimentrunoff from an area is expressedas tons/km2/year(the sedimentmodulus) and is averagedover a numberof yearsbecause there is a wide variationin soil erosionfrom year to year. The parts of the loess plateauwith the highest sedimentrunoff have a modulusof about 20,000. This is, however,an averageof runofffrom a widevariety of terrainand land use. Researchershave foundthat typicallyabout 70 percentof the soil loss is from the sides of the gullies and about 30 percentfrom the surroundingland.

5. Sedimentcontrol dams serve a number of purposes. First, they intercept sediment that would otherwise be deposited in downstrean river channels. This depositionof sediment raises bed levels and hence flood levels, and in turn requires periodic, and costly, raising of flood embankments. Second, the reductionin high sediment flows leads to more efficient irrigation; canalsdo not have to be closedas frequentlydue to highsediment flows, and there is less sediment to be cleared from the irrigationchannels. Third, the dams largely eliminatehigh flows in the gullies, and this reduces the undercuttingand collapseof the gully sides that contributesmuch of the sedimentrunoff. Fourth,the sedimentcollected by the damscreates high-quality farmland.

6. The dams are homogenous,earth fill embankmnents.The areas submergedby the dams consistof erodedslopes and gully beds and are uninhabited.In recentyears a mode of construction using hydraulicfill has been perfected. The loess materialon the sides of the gully is sluiced with high pressure hoses into the dam body. The fill is containedbetween upstream and downstrem shells formed by bulldozers. The loess formingthe foundationfor the dam is cleared of loose materialin the gully bed and the abutmentsbefore the fill is placed.

7. The proceduresfor design reviewand supervisionwill be the same as thoseadopted for the dams financed under the IDA- financed Loess Plateau Project. These procedures are fully consistentwith Bank standards. Designand constructionstandards for sedimentcontrol dams have been improved considerablyfollowing some dam failures in 1977 when exceptionallyintense storms hit the loess plateau. The design standardscall for the dams to be designedfor a 30-year -91- ANNEX5

flood and checked for a 200-year flood. A 30-year flood is in fact the volume resulting from a 30-year storm. This volume has to be contained without exceeding a reservoir level 3 m below the dam crest. The flood from a 200-year storm has to be contained with a reservoir level 0.5 m below the crest. A 30-year, 24-hour storm in the loess plateau depends on location and ranges between 100 and 160 mm and a 200-year storm ranges between 140 to 210 nmu. This design approach is conservative since the significant flood-reducing effect of dams that have been built, or may be built, upstream is ignored in the design of the key dams. The active storage capacity for the dams is the gross capacity less the volurne of sediment estimated to be stored in 15 years. Thus, in the years when the sediment is building up in the reservoir, the actual capacity of the reservoir exceeds the required design capacity, and it is during this period that the upstream catchment is likely to be further controlled by additional sediment control dams.

8. The geometry of the gullies is such that key dams and warping dams have to be relatively high to serve their purpose; the range is usually 5-15 m but some are as high as 30 m. For most reservoirs, the bulk of the active storage volume is in the top 5 m and, when sedimentation begins to infiringeon the flood storage capacity, the option is available at most sites to increase the height of the dam. This can be done at a fraction of the initial cost since it involves a low embankment placed on the sediment behind the dam. At many sites, raising could be carried out a number of times since a dam typically occupies a small part of the total heigJt of a gully. Each damnhas an outlet conduit with an intake structure designed to accommodate future raising of the dam.

9. The topography of the watersheds allows considerable flexibility in siting the dams. Site selection criteria for the dams include a requirement that they should be located at sites remote from existing or potential settlements. All the dams proposed for the project satisfy that criterion. Therefore, in the unlikely event of failure there would be no danger to life and limited damage to property.

10. Sediment control dams are designed by the provincial water resource bureaus according to standards developed by the Ministry of Water Resources in 1986 ("Technical Standard for Major Gully Control Structures," SDI75-86). These standards have been endorsed by the Planning Academy of MWR as well as the Ministry of Energy. They specify all aspects of design and construction including planning procedures, site selection, dam body layout, calculation of hydrologic design parameters, foundation design, choice of construction materials, construction techniques, hydrologic and hydraulic design.

11. The procedures require multilevel technical reviews and approval of design and construction of sediment control dams. Preliminary designs are carried out by county water and soil conservation bureaus. Initial review and approval of structural design and siting will be carried out by prefecture water and soil conservation authorities who will, in tum, submit construction * applications to the provincial authorities for final review and approval. The ultimate responsibility for ensuring compliance with design procedures and technical specifications will rest with the provincial authorities. These procedures, are currently applied to structures over 15 m height, but the province has agreed to that they will be applied to all dams over 10 m height. -92 - ANNEXS

12. Constructionis carried out by constructionteams selected and supervisedby the county water conservancybureaus. There are numeroussuch tearnsqualified to constructdarns using the hydraulicfill technique. The advantageof this mode of constructionis that it producesa dense and uniform fill which is less demanding, in terms of close quality control and inspection, than mechanicallycompacted fill.

13. Routine maintenanceand inspectionof structureswill be carried out by townships and villagesunder a contractto the countywater conservancybureaus. Thesecontracts specify the type of maintenanceto be performedand how often these proceduresshould be performed. Prefecture authoritieswill also carry out inspectionsof each key dam during the year. In addition to such routine maintenance,the provincialauthorities will conductpre- and post-floodseason inspections of all key dams and an informationsystem will establishedby the prefecturalwater resourcebureau to documentconstruction and maintenancehistory for all sedimentcontrol dams. A cost estimate for the check dams is shown in Table 5.

Afforestation

14. Tree planting is plannedfor 4,200 ha of steep slopes and wasteland. Chinese pine, larch and poplar are the main speciessuited to the area. Trees will be plantedon land where the steep slope or poor soils render it unsuitablefor crops or orchards. This increasesthe supply of fuel wood, lumber,and improvessoil and water conservation.Poplar will be mainlyplanted on gentle slopeswithout terraces. Pine and larch will be plantedon narrowterraces on land with steep slopes (20°-300).Participating households will tend I ha of plantings. The area plantedwill be 1,400ha of each of the three speciesgiving a total plantationarea of 4,200 ha. In practice,the three species, togetherwith other suitabletree species,will be establishedas mixed plantations. Cost estimates are shown in Table 8.

Economic Analysis

15. The project would convert 16,400 ha of slope land to 13,400 ha of terraces. The higher yieldsof maize, soybeanand potatoeswill lead to significantgains in their net productionvalues. Crop budgets are shown in Table 2, and the with and without cropping patterns are shown in Table3. The ERR for terracingis 18 percentas derivedin Tables3 and 4.

16. The 56 check dams will retain a sediment load of 1.8 million tons annually. The benefit from this is based on the sediment retentionbenefit of I Yuan per ton of sediment derived in studiescarried out for the appraisalof the IDA-financedLoess Plateau WatershedRehabilitation Project. The 270 ha of land createdby the dams is highlyfertile and will be used mainly for maize, sorghum and sunflower. Economiccrop budgets (Table 6) have been estimated for these crops showingthat the annualincremental net valueof crop productionwill reach Y 787,000by Year 10 (Table 5). The economiccash flow analysispresented in Table 7 includessediment retention and crop benefits. The ERR is 14 percent.

17. Economiccrop budgets for pine, larch and poplar are presented in Tables 9, 10 and 11. These show that the long-termbenefits from timber and the shorterterm benefits from poles and firewood generate,even under conservativeyield assumptions,sufficient returns to pay back the - 93 - ANNEX5 investment costs. The aggregated cash flow analysis for a 34 -year period of analysis shows an ERR of 13 percent (Table 12). -94 - ANNEXS

Table 1: LULIANGTERRACING-INVESTMENT COSTS

Total Unit Price Total Costs Unit Quantities (Yuan) (Yuan '000)

A. Wide Terraces 1. Terrace Construction EarthWorks '00Om3 20,900 1,879 39,265 Plantng on Soft Bank ha 7,600 331 2.513 Subtotal Terrace Construction 41,778 2. Soil Improvement Soil Deep Ploughing ha 7,600 193 1.466 Urea t 1,140 2.132 2.430 Calcium Superphosphate t 2.280 812 1.851 ManualLabor '000 WD 152 10,260 - 1,560 Subtotal Soil Improvement 7,307 Subtotal Wde Terraces 49,085 B. Medium Terraces 1. Terrace Construction Earth Works 'OOOm' 23,200 _ 1,713 39,751 Plantingon Soft Bank ha 5,800 694 4,027 Subtotal Terrace Construction 43.778 2. Soil Improvement Soil Deep Ploughing ha 5.800 193 1.119 Urea t 870 2,132 1,854 Calcium Superphosphate t 1,740 812 1.413 ManualLabor '000 WD 116 10,260 1,190 Subtotal Soil Improvement 5.576 Subtotal Medium Teerces 49.354 C. Diesel Transporter No. 6 152,250 914 Total 99,352 -95 - ANNEX5

Table 2: LULIANGTERRACING-ECONOMIC CROP BUDGETS (Per Hectare)

Main

Unit Oucabty Val Vakue u*ni P,IC (Yuan) (Yuan)

o_ mom. kg 1.15 250 2.860 4,500 5,1U4 mom _NNW kg 0.04 3.000 120 5,500 220 * Ow u 3.000 5,404

meseced kg 4 40 35 154 35 154 Un kg 2.0S 50 104 t50 311 Ptigeeu(SSP) 4 0.64 65 79 200 17 ."nges Olm 1S.00 7 10 14 210 AAml lahor WlS 12.00 20 240 22 264 Labo Femiy labor VMS 7.20 of 634 120 4 TaOWmes 1.315, 1,390 et Vale of Pd 1.584s 3.414

Millet

wwinu Projec wooI Project URN Oauaatty Vaue OUaatft Val Unit Pelt (Yuan) (Yuan)

Mi kg 0.60 1.000 600 2.500 2.000 Maoet _A kg 004 1.200 48 3000 120 TOWt OPA 648 * 2.120

hi" t d kg 2.00 15 30 ls 30 Ue kg 2.08 45 93 75 t54 _h(5ef SS1 kg O.t4 so* 75 110 103 mange. lan 15.00 8 60 12 1t0 AM labo woo 12.00 17 204 19 228

_.v* how0 WVM 7.20 70 504 *S 64 Tetallnet * 34 t1361 Net Valu ef Prd I .64 733

Soybean

wwmut Proe Ww' Project Unit Gumntiy Vk Quant"y Valuo Unit Prce (Yun) tYuanl

Skgn 2.30 500 1.17 1.600 3.60 Sobean Slw kg 0.04 500 20 1.600 64 Toa 0uu 1.217 3.664 TW0~ lapub ybeanced5 .k 3.00 *0 ISO *0 1W0 Urn s 2.06 30 62 40 63 PhsaNM (SSP) 4 0.t4 75 70 100 *4 Mans on 15.00 7 105 14 210 A#ted 1eo WVS 12.00 17 204 1 226 Lab_ Fw* how Woo 7.20 50 360 65 *12 Total In" 9611 1.407 etVal Preof 23 to bbe ntnusd -96 - ANNEX5

Table 2 (Cont'd)

Lutn Tem~ {ue.ne eaow Cow u w b_

Potato"

Whtu Preed W* -rj Undt Quinl Vau Quant Vau URNt Pue (Yuen) (Yuan) OA Pebee_kg OA40 6.000 2.400 14,000 5.100 TOa Outu 2,400 5.600

PotamSoe kg 100 1500 1500 1500 1.500 Urea kg 2.08 50 103.1 150 311 Pheehau (SSP) kg 0.94 100 93.5 250 234 Manrew tn 15.00 10 150 20 300 A*Wn UV" WVS 12.00 17 204 22 264

Fwndy a r WMe 7.20 70 504 o 576 TOWaInw 2.555 3.105 No Vau of ProuMoe .16 2.416

Sunflawom

Wiout r Wmh PrOet Uni Quaty Val"o quant Valu Unit Price (Yuan) (Yuani

Su.er kg 1.20 600 720 1S50L 1.800 TOl Outu 720 1.400

SanioeorSed kg 3.00 1s 54 16 54 Ur" kg 2.0 40 .83.04 90 16 P*tmdna' (SSP) kg 0.14 s0 74. 150 140 Manue Ion 1S.00 S 71 10 ISO Ara" ar Wos 12.00 15 10 20 240 Labor Fny lar wos 7.20 55 336 70 5m4 TotaI nOut 63 1.275 MM Value of Podu n 1431

Sorghum

WUtoot Proect W Projet URNI uanty Vakue uVal UR*t Pite (Yuann (Vufi)

Sarell- kg 0.70 1.500 1.050 3.000 2.10 Soghun SMe kg 0 04 1.600 72 3.600 144 TOt 0tWu 1.122 2.244 Open

swgeum eed kg 3.00 30 90 30 80 uta kg 2.U0 45 13.42 80 167 Palia (SSP) kg 0.14 so 74.6 150 1O Malure Io01 15.00 6. 90 12 1I0 AJURUnalOsWOe 12.00 1 216 20 240 Labor Family Or Wos 7.20 60 576 107 770 Tout Int 1.140 1.607 Me Valu, of Produc. -is 63? - 97 - ANNEX 5

Table 3: LUL[ANGTERRACING-CROPPING PATrERN AND ECON'OMICNET VALUEOF PRODUCTION(NVP)

Without Project With Project At Full Development a Area NVPIha Total NVP Aras NVPIha Total NvP rOOoha) (Yuan) (Yuanmill.) t000 ha) (Yuan) (Yuanmin.) Crop Sorghum 2.5 -18 -0.05 1.3 637 0.80 Maize 6.5 1.684 10.95 6.8 3.414 23.04 Millet 2.5 -148 -0.37 1.0 739 0.74 Soybean 2.5 236 0.59 2.7 2.488 6.72 Potatoe O.S -155 .0.12 1.0 2.415 2.41 Sunflower 1.6 -143 -0.23 0.7 525 0.37

Total Cropped Area 16.4 13.4 Cultivated Area 16.4 b/ 13.4 cl Cropping Intensity 100% 100% Total NVP 10.77 34a08

Incmemental Net Value of Production 23.31 (At Full Development) al New terracea land will be oevelopeO accoraing to tre following annual schedule (curmutative figures): 0. 16. 43. 66. 85. 93. 98, 100 percenti It is assumed that the improved yield on the new terraces will build up within 4 year (s-shaped funAion assumed). b/ Cortsnsg 7.300 ha wdh 10 degree to 15 degree slope for medium terraces (10 to 13m width), and 9.100 ha with 5 to 10 degree slope for wide terraces (13 to 16m width). cl Finished are compnsing 5.800 ha of medium width terraces and 7,600 ha of wide terraces: overaml lossof areadue to terracing works is about 18%. - 98 - ANNEX5

Table 4: LULIANGTERRACING-ECONOMIC CASH FLOW ANALYSIS (Yuan Million)

Projet Incremental NetBenfits Year InvestmentCosu Benefits

1996 18.67 0.00 -18.67 1997 27.89 0.12 -27.77 1998 25.12 2.52 -22.59 1999 19.76 12.07 -7.70 2000 8.48 19.79 11.30 2001 5.45 21.65 16.19 2002 2.55 22.82 20.26 2003 23.31 23.31 2004 23.31 23.31 2005 23.31 23.31 2006 23.31 23.31 2007 23.31 23.31 2008 23.31 23.31 2009 23.31 23.31 2016 23.31 23.31 2011 23.31 23.31 2012 23.31 23.31 2013 23.31 23.31 2014 23.31 23.31 2015 23.31 . 23.31

IRR: 18% NPV: 31.74

SensitivityAnalysis Scenarios: resulting ERR:

Cost Increaseby 10%: 16% Cost Increaseby 20%: 15%' Benefit lwer by 10% 16% Benefit lower by 20% 14% Benefit delay by 1 year 15% Benefit delay by 2 years . 13% Cost up + benefits down by 10% 14% Switching Values: at cost overrun of 140% at benefit level of 71% -99 - ANNEX5

Table 5: LULIANGCHECK DAM INVESTMENTCOSTS

Total Unit Price Total Costs Unit Quantities (Yuan) Total

A. Construction Works 1. Earth Works Dam BaseExcavation '000 M' 61.3 2.622.0 160.8 Rock Excavation '000 M' 3.5 13,965.0 49.1 Other Excavation '000 M3 149.3 3,648.0 544.8 Fill Work (manual) '000 M' 37.0 8,493.0 314.2 Earthfilland Compaction(machine) '000 M' 1,155.1 6,583.5 7.604.4 Subtotal Earth Works 8,673.3 2. Intake, Culvert and Spillway 75# Mortar Stone M' 17,046.0 182.4 3,110.0 100# Concrete Ms 838.2 278.5 233.4 150# Concrete M' 112.1 257.0 28.8 200# ReinforcedConcrete M' 495.6 523.6 259.5 Loose Stone M' 5,621.0 82.5 463.9 Sand and Pebble Ms 4,353.0 80.2 349.2 Pitch Mortar Ms 25.8 2,781.9 71.7 CementMontar Facing Ms 391.3 366.7 143.5 Subtotal Intake, Culvert and Spillway 4,659.9 3. Temporary Works Worker Houses (20 No.) Ms 1,120.0 228.0 255.4 Access Roads lump sum 56.0 5,700.0 319.2 Subtotal Temporary Works 574.6 Subtotal Construction Works 13,907.8 B. Equipment lump sum/dam 56.0 3,663.5 205.2 Total 14,112.9 -100 - ANNEX 5

Table 6: LULIANG CHECK DAm COMPONENT-ECONOMIC CROP BUDGETS (Per Hectare)

Maize Sorghum Sunflower Unit Quantity Value Unit Quantity Value Unit Quantity Value Unit Price (Yuan) Price (Yuan) Price (Yuan) Output Yield kg 1.15 5.000 5.760 0.70 5.500 3.850 1.20 2.500 3.000 By-Product kg 0.04 6,000 240 0.04 6.500 260 0 Total Output 6.000 4,110 3.000 Operating Inputa Seed kg 4.40 35 154 3.00 30 90 3.00 18 54 Urea kg 2.08 150 311 2.08 150 311 2.08 150 311 Phosphate(SSP) kg 0.94 250 234 0.94 200 187 0.94 200 187 Manure [on 15.00 15 225 15.00 15 225 15.00 15 225 Agro-chemicals kg 20.00 0.75 15 20.00 0.75 15 20.00 0.75 15 Animallabour WDs 12.00 23 276 12.00 25 300 12.00 20 240 Labor Familylabour WDs 7.20 110 792 7.20 117 842 7.20 80 576 Total Input 2.007 1.971 1.608 NetValue of Production 3,993 2139 1.392

Cropping Patternand EconomicNet Valueof Production(NVP)

Area NVP/ha TotalNVP (ha) (Yuan) (Yuan'000) Crop Maize 135 3.993 539 Sorghum 80 2.139 171 Sunflowers 55 1,392 77

TotalCropped Ara 270 CultivatedArea 270 a/ CroppingIntensity 100h Total NVP 787

.1 TrWwgrpaog ame W be eenond by m uaU of 50 c01,4ams wie VWPf Tte amr*eeveiepm.e wi beas kfwlag. imm,iaVe ri"is): 0 atar ftnt 5 year Uwiuatw10. 20, 30. 40. 50. 60.50. 100 pOeint - 101 - ANNEX 5

Table 7: LULIANGCHECK DAM CONIPONENT-ECONOMIC CASH FLOW ANALYSIS (Yuan '000)

Project CheckDam Incremental Sediment Net Benefits Net Benefits Year InvestmentCosts Raisinga/ Benefitsfrom Crops Retention without Sediment wth Sediment

1996 4,417 500 -4,417 -3,917 1997 3,619 1,000 -3.619 -2,619 1998 2,621 1,600 -2,621 -1,021 1999 2,975 1,700 -2,975 -1,275 2000 920 1,800 -920 880 2001 653 81 1,800 -573 1,227 2002 157 1,800 157 1,957 2003 238 1,800 238 2.038 2004 315 1,800 315 2,115 2005 395 1,800 395 2,195 2006 662 472 1,800 -190 1,610 2007 543 629 1,800 -87 1,887 2008 393 787 1,800 394 2,194 2009 446 787 1,800 341 2,141 2010 138 787 1,800 649 2,449 2011 98 787 1,800 689 2,489 2012 787 1,800 787 2,587 2013 787 1,800 787 2,587 2014 787 1,800 787 2,587 2015 787 1,800 787 2,587

IRR: none without sediment retention benefits NPV: -10.239.9 without sediment retention benefits IRR: 14% with sediment-retention benefits

NPV: 1,200.7 - with sediment retention benefits

ax It is assumedthat the heightof thedams is to be raisedafter 10 years with investmentcosts of 15%of Initialconstnujcon costs.

SensitivityAnalysis Scenarios: resulting IRR:

Cost Increaseby 10%: 12% Cost Increaseby 20%: 10% Benefitlower by 10% 12% Benefitlower by 20% 10% Benefitdelay by 1 year 11% Benefitdelay by 2 years 9% Cost up + benefitsdown by 10% 10% Switching Values: at cost overrunof 110% at benefitlevel of 91% -102 - ANNEX 5

Table 8: PROTECTIONFORESTS INVESTMENT COSTS

TOW UIP3P1e Qsanue Caandd Cost Toal Cot Undt (Yuan) perha fwN.01 prl ha Yuan000)

A. CNneae Phn 41.400 ha) 1. lst Yar Opeaton a. Matrial Input Seed14 No. 0.1 3.300.0 4.120 371.2 521.7 FPe dkg 20.3 2.0 3 40.6 56.8 b. Labor input SodPurtawn WO 10.3 42.0 5S 430.9 603.3 Plng Wo 10.3 30.0 42 307.8 430.0 Teng WO 10.3 30.0 42 307.8 430.9 c. Oer kimp miur 57.0 79.8 Sublbe lst Year OpendUon 1.520.3 2.120.4 2. 2nd Year OpeumUon a. Mbawta Input Sedln Nlo. 0.1 660.0 924 75.2 105.3 PeCKOS kg 20.3 0.5 1 10.2 14.2 b. hputn Ptaabng WD 10.3 a 0 a 61.6 86.2 Tending WD 10.3 6.0 8 61.6 66.2 C. O'e kI, umowm . 11 4 16.0 Subtol 2nd Yer Operftn 219.9 307.9 Subttaol Cftlne Pin 1.740.2 2.430.3 U. Lath (1.400ha) - t. 1st Year Opdbn a. Matalal Inpt 3eedig No. 0.1 3.300.0 4.620 376.2 526.7 Peae- kg 20.3 2.0 3 40.6 56.8 b. Labor nbput Sol Psoamtn WV 10.3 42.0 59 430.9 603.3 Pianng WV 10.3 30.0 42 307.8 430.0 TVng W 10.3 30.0 42 307.8 430.9 C. Ot * 5.0 .8 Subtota l.t Yea Opean 1,520.3 2.128.4 r2ndYear Opet tbon a. MaterialInput Sling No. 0.1 660.0 924 75.2 105.3 - - P* 1o kg 20.3 0.5 1 10 2 14.2 b. Labor4nput Pang Wv 10.3 10 a GI 6 06.2 TO"ng WV 10.3 6.0 * 616 86.2 c.Other kwno sum I14 110a Sublotal 2nd Year Operudon 2199 307,9 Subtoal Larch 1.740.2 2.436.3 C. Poplar (1.400ha) 1. 1st Year Operation a. Matwal Input Seedg No. 0.5 Z500.0 3.500 1.140.0 1.596.0 Pe.hades kg 20.3 2.0 3 40.6 56.6 b. Labor Input Soil Pro nt WV 10.3 126.0 179 1,313.3 1.38.6 Planong WV 10.3 45 0 63 461.7 646.4 Teing V 10.3 20.0 28 205.2 287.3 C. Other km s wn 68.4 95.J subtotallet Year Operutiln 3.229.2 4.520.9 2. 2nd Year Operton a. Material Input Se No 0.5 500.0 700 223.0 319.2 Pesods kg 20.3 0.5 1 10.2 14.2 b. LaworInput Ptn WV 10.3 6.0 13 023 129.3 Taxg V 10.3 4.0 6 41.0 57.5 c. Other m swunm 22.3 31.9 Subtotal 2nd Year Oper on 394.3 552.1 Subttal Poplar 3.623.5 5.072.S Total Investment 9 s45 . Tablc 9: PiNETREES CROP MODEL-ECONOMIC BUDGET (Per Ilecturc)

Year -> Quantities UnitPrlke EconomicValue (Yuanlb) UnI I 2 3 4.19 20 21-26 -9 IYuan) 1 2 3 4-19 20 21-29 JO Output MainPtoduction PI" nXet m' - - - 60 714 00 - - - - 42.8404 2 Rafer No. - - - 1.350 12.00 - . - 16.200 Sub4ouaMain Production . 16.m20 - 42.U40 By Products Firewood kg . * - 1.21S - 1.215 2 00 . 2.430 2.430 Sub-toal Output - 18.630 - 45.270

Malodal Yuan 414 97 . - Operating pgs*dJe kg 3 3 3 5 5 - 20 00 60 60 60 100 100 100 Other Yuan 35 35 35 35_ 35 35 480 C Sub-toal Operating Costs 9S 95 95 135 135 135 480 t. Sub4ota hIput costs 569 ?192.9° 135 135 135 480 icom e(Dor. Labor Costs) -569 19Z 95 -135 16,49S Labor 135 44.790 Plntailon WDS 143 16 - 720 1.030 115 Operating Wlh 30 30 30 30 60 30 100 7.20 216 216 216 216 costa 432 216 Sub-lotaLabor 1.246 331 216 216 1432 216 20 su-oen. Costs (AftrLabor ) -1.i14-523 -311 -351 18,063 -351 44.0t0 kwome(AllotLabwCosts)~~~~~~~~~~~~ Table 10: LARcII TIIEESCROP MODEL-ECONOMIC BUDGET (I'cr leca rc)

Yenar CQuantiltes Unit Price Economic Value (Yuantha) Unit 1 3 4-14 1 15-20 30 (Yuan) 1 2 3 4-14 16 16-29 30 Output Main ProducUnon Larchrsbor m' 80 71400 - - - - 52,120 RaRer No. - 1.350 . 1200 - - 16,200 - Sub-total MainProducUon - - - 1.200 - 57.120 By Products firewood kg - 1215 .1.21 200 Sub-lou - - 2.430 - 2410 Output - input - 15,b30 - 9.550 Investment , Malerl Yuan 474 07 Operaung Pestidde kg 3 3 3 5 5 5 605200 60 60 100 100 100 4 Other Yuan 3S 35 3S 335 35 3S 480 Sub-total Operating Costs 95 95 9S 13S 135 135 480 Sub-total Input costs 569 192 95 t135 35 135 46.0 income lbeofre Labor Costs) Labor *56 -192 *9S -135 1S,495 -\35 59,070 Plantaon WDs 143 16 7.20 1.030 15- Operating WDs 30 30 30 30 60 30 100 7.20 216 216 216 216 432 216 '720 OpSubeotaltborcortJ 1.246 331 216 216 432 218 720 Income(Ater Labor Costs .1,814 -523 .311 -3S1 18.063 -351 56.3$0

Ii Table I 1: I'OPLARTItEIS CIIOP Moi)EL-ECONON1ICBUDGET (IPer licctare)

Years -> Quantities Unit Price Economic Value (Yunlha) Uni 1 2 3 4-1 10 11-21 22 lYuan) 1 2 2 4- to 11-21 22 Output Main Production Poplabtimber m - - - - - 120 350 00 - - - 42.000 Ralter No. - - - 1350 a 00 - - - 10800 Sub-total Main Production - - - By Products - 10.80Q - 42.000 Flewood &g - - - - 1.000 - 1.200 2 00 2.000 2.400 Sub-loWlOutput - - 12.800 - Input 44.400

Iatmial Yuan 1.249 261 - - - - Opecating Pestcd"e kg 4 5 4 5 4 5 4 5 6 0 6 6 0 20 00 90 90 90 90 120 120 120 Other Yuan 40 40 40 40 480 40 480 Sub-total Operating Costs 130 130 130 130 600 160 600 Sub-total Input Costb 1379 39f 130 130 6C 160a Income isolre Labor Costs) .1.37i -391 -130 -130 1 200 -160 43.800 Labor PLbntaon WOs 270 19 - - 20 1944 137 operating WOs 32 32 32 13 70 I5 140 720 233 233 233 94 504 10 1.608 Sub-total Labor costs 2.177 370 233 94 504 106 f 008 hcome Alter Labor Cosb) 3.556 -761 -353 2t 1 696 -265 42792

IA -I06- ANNEX S

Table 12: PROTECTIONFoREsTs AREADEVELOPMENT

Area Development (ha, cumulative) Year 1 2 3 4

Pine tees 503 1,005 1,221 . 1,400 Lach trees 503 1,005 1,221 1,400 Poplar 503 1,005 1.221 1,400 Total 1,509 3,015 3,663 4,200

Cash Flow (Yuan million)

Net Net Year Benefit Year Benefit 1 -3.61 18 1.94 2 -4.52 19 -1.36 3 -2.95 20 7.90 4 -2.64 21 7.89 5 -1.47 22 24.28 6 -1.31 23 23.69 7 -1.30 24 8.21 8 -1.30 25 6.68 9 -1.30 26 -0.98 10 4.70 27 . -0.98 11 4.67 28 . -0.98 12 1.23 29 -0.98 13 0.78 30 50.89 _ 14 -1.36 31 51.14 15 7.90 32 22.00 16 7.89 33 18.33 17 2.62

IRR: 13.24% NPV: 2.91

S3nsitity Scenarios: rsulng IRR Timberand rafter price drop by 10% 12.50% Timbernd rafter price drop by 20% 11.60% Investmntcost increase by 10% 12.90% investmentcost increase by 20% 12.50% Combnedtimberirafter prkce drop (10%) and inwestnentcost scresseby 10% 12.10% -107- ANNEX 6

ANNEX 6: RURAL ROADS

Summary 1. The systemsin the prefecturesare in reasonablecondition and well maintained,but there is considerablescope to improve existingrural roads to provide all-weatheraccess to some of the townshipsand villages. This componentwill upgrade existinggravel roads to Class 4 Standard (Rural Roads) in the project areas by wideningthem to 7.5 meters(a 6 m pavement of 20 cm of compactedgravel, and 0.75 m shoulders). This standardcalls for a minimum radius of 30 m, minimumsight distanceof 30 m, and maximumgrade of 8 percent. The improvedroads will fill criticalgaps in the countyroad systemsand they will (a) lowertransport costs of inputs and outputs for farmers and small mines, (b) attract buyers for farm produce,and (c) lead to new, or more frequent,bus servicesthat will expandopportunities for off-farmemployment and accessto social services and education. The project will upgrade six roads with a total length of 209 km in Yunchengand five roadstotalling 118 km in Luliang.

2. The main economicbenefits of the improvedaccess provided by the roadswill arise from:

(a) more productiveland use due a switchto highervalue crops;

(b) higherfarm-gate prices for crops;

(c) lower input costs leadingto higherreturns to the farmers;

(d) lower materialcosts for existing miningoperations, and lower transportationcosts for the output of the mines.

3. More frequentand reliablemovement of passengervehicles will lead to social benefitssuch as:

(a) more opportunitiesfor off-farmemployment;

(b) easieraccess to healthand othersocial services;

(c) betteraccess to schools;

(d) a wider varietyof farm productsin the rural markets.

4. The roads will be built by the County TransportationBureaus using labor-intensive methods. For maintenance,sections of road will be assignedto nearby villages and enterprises. They will organizework teams to carry out routinemaintenance of the road surface,structures and drains on a voluntary basis. Improvementand major repairs will be fundedby the counties and townshipsand work will be assignedto localconstruction teams. -108- ANNEX 6

5. A notablefeature of these roadsis that tolls willbe charged. This is permissiblebecause the roads are externallyfinanced. The first call on these funds will be for maintenanceand repair, and this will ease the problemoften encounteredin securingfunds for rural road maintenance.The tolls proposedare as follows:

Trucks with 4 ton capacity or more: - Y 3 Trucks2.5-4 tons: Y 2 Vehicleswith less than 1-2, 5 ton capacity: Y 1

Yuncheng Prefecture

6. TongsL This 38 kan road in Yanqu county connects Tongshan township to Lishan townshipand beyond to Xihonghongat the border with Henan. The impactarea has a population of 25,000 and 2,470 ha of farmland. There are three iron ore minesand one copper mine on the road, and the ore is now moved by trailersand smalltractors to the main road. The high cost of moving the output and the pit props and other suppliesfor the mines reduces the profitabilityof these township enterprises. With the new road, farmingwill becomemore profitable,the mines will expandoutput, have lowertransport costs and employmore labor.

7. Moyuan. This 31 km road in Jiang county links two main highwaysand passes three townships. The impactarea has a populationof 25,000,3,100 ha of farmland,a coal mine, an iron ore mine and a coppermine. The roadwill tead to more diversityin farmingand expansionof the mines.

8. Laoxia. This 15 km road in Xiahuacounty will link Laoyaotouvillage to the county town. The impact area has a populationof 15,000and 1,560ha of farmland. There are five small coal mines with a combinedproduction of 150,000tons most of which is movedby mules and animal drawn wagons. Improvementof the roadwill raise farm production,allow expansionof the mines, and lead to higheremployment.

9. Pinguan. This 28 km road in Pinlu county will connect six townshipsto the provincial road and railroadsystem, and to a bridgeover the YellowRiver. The impactarea has a population of about 230,000. About 10 km of road surface has been improvednear the county town by voluntary labor and this has had led to increasedcultivation of fruits and vegetables. A similar effect is expectedwithin the 12,500ha of farmlandserved by the road. Lower transportcosts for suppliesand outputdue to the improvedroad will lead to more efficientand profitableoutput from the existingtownship and village#nterprises mining coal, gypsum,iron ore and titanium.

10. Xiaqi. This 69 km roadin Xia countyruns fromthe outskirtsof the countytown to Qijiahe townshipand passes five townships. The impactarea includes80 villages,and has a populationof 69,000. The farmlandarea is 6,770ha, and there is considerablepotential for farmersto switch to high value crops; marketingconditions are ideal since the countytown is on a provincialhighway. Countyofficials estimate that, with an improvedroad, annualoutput from at six existingmines will quickly expandfrom 85,000tons to 360,000tons and createover 1,000jobs. -109- ANNEX6

11. Zeguan. This 26 km road in Xinjiang county joins the townships of Zezhang and Guanwangmiaoand serves 65,000 people in two other townshipsand 50 villages. Earthworkfor 10 km of the road has been constructedby the voluntarylabor. The road is impassableafter rain or snow. The impactarea has 4,340 ha of fannland,devoted to wheat,cotton, maize and apples. The road will lead to higher productionof fruit and vegetables. There are two iron ore mines, two gypsum mines and five limestonequarries along the road. With a better road, the output of the mineswill increaseand transportcosts are expectedto fallby 25 percent. Luliang Prefecture

12. Qiliang. This 17 kmnroad in LanxianCounty connectsQijiazhunag and Liangjiazhuang townships. In its presentcondition the road is only passablein dry weatherby smalltractors. The impactarea has a populationof 11,000in 31 villagesand two townships. The area of farmlandis 3,600 ha. Important cash crops are potatoes, kernel apricots,and seabuckthorn,but poor road conditionshamper movementof crops to market and every year some of the harvest is spoiled. Side-line activities are community-ownedcoal and iron ore mines, which will become more profitableand will be expandedwhen the roadis improved.

13. Shizha. This 18 km road in Fangshan county connects Shizhantou and Zhangjiata townshipsand passes nearthree other townships. It is passableto smallvehicles and animal drawn carts. The impactarea has a populationof 9,500and familandof 2,600 ha. The main benefitof the road will be diversificationinto highervalue crops and expansionof orchards.

14. Caiwei. This 38 km road in Xingxiancounty connects Caijiaya and Weijiatantownships. The impact area has a populationof 43,600 in five townshipsand 113 villages, and farmland of 14,800ha. The area has potentialfor expansionof Chinesedates and applesand, when the road is completed,a processingplant will be built. An existingcoal minewill also be expanded.

15. Liuxia. This 25 km road in Linxiancounty connectsLiujiahui and Xiaojiatoutownships and passes close to three other townships. The impact area has a population of 65,000 and farmland of 12,500 ha. It is the main Chinese date productioncenter of Shanxiprovince. The improvementof the road will reducepost-harvest losses caused by damagein transportand closure of the road by rain and snow.

16. Xuexia. This 20 km road in Liulincounty connectsXuecun and Xiabo townships. It will serve 45,000 people in five townshipsand 103 villages. There is 8,120 ha of fannland, of which 2,200 is devotedto fruit and vegetables.The poor conditionof the road leadsto considerablewaste and spoilage. Road improvementwill lead to higherproduction and sales of high-valuecrops at betterprices. -110- ANNEX 6

Economic Analysis

17. The rural roads are in the areas where agricultureis the main economic activity. Their economicjustification rests largelyon improvedproductivity on 70,000hectare of farm land in the impact area of the roads. Therewould also be benefitsto small-scalemines operatedby township and villageenterprises, but these havenot beenquantified due to lack of data.

18. Agriculturalbenefits arise from:

(a) A cost saving effect due to a reductionin transportcosts (lower vehicle operating costs and shorterdistances) that lower farm-gateinput prices and raise farm-gate outputprices.

(b) An efficiencyimprovement effectdue to moretimely availability and lower cost of agriculturalinputs, and a reductionin post harvestlosses.

(c) A developmenteffect due to betteraccess to marketsthat causesa shift in cropping patternstowards high-value crops and increasedfruit production. The areas served by the roads have a comparativeadvantage for the productionof fruits (apples in Yunchengand Chinesedates in Luliang). 19. Economicanalyses were made for two typicalroads, one in Luliangand one in Yuncheng (Tables 2 to 7). Economiccro.p budgets and croppingpatterns for the "with" and "without" cases were derivedfor the majoragricultural crops in areas servedby the roads. Thesecrop budgets form the basis for calculatingthe total incrementalnet value of productionaccording to the effects describedabove (Tables 3 and 6). Annualmaintenance for the roadswas taken as 15percent of the capital cost. The ERR was 37 percentfor Luliangand 22 percent for Yuncheng. A sensitivity analysisshows that a 50percent reduction in benefitslowers the ERR to 18 percentfor Luliangand 12 percentfor Yuncheng.

20. The road selectedfor analysisin Yunchengshows a lowerERR than Luliangbecause of the high cost of a large bridge at the end of the road. This bridgeconnects to a wider area and the neighboringprovince, but the benefitsfrom this have not beenestimated. In general,the roads will have other benefits not captured by the analysis. These include mining benefits, off-farm employmentopportunities, and betteraccess to education,health and extensionservices. - I 111- ANNEX 6

Table1: RURALROAD REHABILITATION INVESTMENT COSTS (Yuanmillion)

Yuncheng Tongxi Moyuan Laoxia Pinguan Xiaqi Zeguan Total Eanhworks 1.42 0.00 1.47 2.69 3.80 0.00 9.39 Rock Excavation 12.97 6.99 1.26 1.85 4.07 5.97 33.11 Slope Protecbon 1.06 0.79 1.87 0.62 3.28 1.04 8.66 Road Surface 2.04 1.67 0.78 1.47 6.15 0.52 12.84 Bridges 1.94 0.26 0.65 11.26 1.05 0.00 15.16 Culverts 2.80 2.81 0.30 1.56 4.37 0.56 12.41 Misc. 1.28 0.62 0.49 0.67 1.26 0.42 4.74 Engineering 2.12 1.18 0.61 1.81 2.16 0.77 8.65 Total 25.63 14.33 7.44 21.93 26.14 9.29 104.76 Length (km) 39 31 15 28 69 26 208 Cost per km 0.66 0.46 0.50 0.78 0.38 0.36 0.50

Lullang Oiliang Shkzha Caiwei Liuxia Xuexia Total Earthworks 0.91 1.71 1.34 1.11 0.83 5.91 Rock Excavation 1.01 0.49 3.28 1.76 1.96 8.50 Slope Protection 0.69 1.06 2.47 1.35 0.93 6.50 Road Surface 0.34 0.48 1.13 0.58 0.42 2.95 Bridges 0.13 0.39 1.08 0.54 0.38 2.52 Culverts 1.20 0.84 2.09 1.10 0.80 6.03 Misc. 0.73 1.18 1.64 1.19 1.08 5.83 Engineering 0.10 0.11 0.23 0.15 0.12 0.72 Total 5.13 6.25 13.27 7.79 6.53 38.96 Length (km) 17 18 38 25 20 11U8 Cost per km 0.30 0.35 0.35 0.31 0.33 0.33 -112 - ANNEX 6

Table 2: LULIANGRURAL ROAD REHABILITATION(LIUXIA ROAD) ECONOMICCROP BUDGETS(Per Hectare)

Maize

Wlhout Improvd Road Economc With Imp-owd Road Unit Price Ouanity Value Lose b Unit Quantity Valte Unit adjusted al (YUatw (YuWVh) Price (Yu") Output Maize kg 1.14 2.300 2.827 .22 1 15 2.600 2.988 maze s%IU kg 0.04 2.800 112 0 0.04 3.100 124 TdUi Output 2.739 -22 3.119 Operoting Inpu" mainesoe kg 4.45 35 156 2 4 40 35 154 Ure kg 2.17 40 87 4 2.08 80 168 Phoapha (SSP) kg 1.03 60 62 6 0.94 100 04 MaKnurton 15.00 7 to5 0 15 00 7 105 sita Idbor WD. 12.00 20 240 0 12.00 22 264 Labor WOs 7.20 86 634 0 7.20 95 66 Total Input 1.283 11 1.467 Not Value of Production 1,451 .34 1,653

Potatoes

Wilhout Improved Road Economic With Improved Road Unit Price Ouantity Value Lose bh Unit Quanity Value Unh adQuateda/ (Yuanihs CYuanlta) Price (Yu }ma output Potatoes kg 0.39 5800 2.263 .57 040 7.200 2.60 Total Output 2.263 -57 2.80 Opeating InputB Potato See kg 1.01 1.500 1.515 15 1.00 1,500 1.500 Urs - kg 2.17 40 87 4 2.06 100 206 Phoaphat (SSP) kg 1.03 10 63 a 0.94 t 50 140 Manum ton 15.00 10 150 0 15.00 20 300 A.wm1Wlabor WDs 12.00 17 204 0 12.00 18 216 Labor WDs 7.20 70 504 - 0 7.20 72 516 Total Input 2.542 26 2.8U2 Net Value of Producuon .27S 43 -2

SunfIowem

Without Improved Road Economic W#htimproved Road Unt Price Quant Value Lossabi Unit Quantity Value Unit adjusted / eYuaniha (VYuanfha Price tYusnVha) Output Sunfobwer kg 1.19 600 714 -6 1.20 S00 960 Total Output 714 46 90 Operating Inputs Sunfloer Seed kg 3.05 Is 55 1 3.00 1 54 Ur" kg 2.17 30 65 3 2.08 60 125 Phosphate (SSP) kg 1.03 60 62 6 0.94 100 94 Mark ton 15.00 5 75 0 15.00 5 75 A1w" labor WDs 12.00 15 180 0 12.00 15 ISO Labor WDs 7.20 55 396 0 7.20 55 390 Total Input 833 10 923 Net Value of Production I.111 16 37

to be ned -113 - ANNEX 6 Lulang Rufal Road Rehabilitation (Uuxls Road) (continued) Table 2 (Cont'd) Economic Crop tBudgets per hectrer

Sorghum

Wihout Improwed Road Economic With impnred Road Unit Price Quantity Value Lose bl Unit Quantity Value Unit adjusted aV (Yuanrha (Yuanrhal Price (YuarVta) Output Sorghum kg 069 1.500 1.035 -15 0.70 1.700 1.190 Sorghum Stoer kg 0.04 1.700 68 0 0.04 2.000 80 Total Output 1,103 -15 1.270 Operating Inputs Sorghum *ed kg 3 05 30 91 1 3.00 30 90 Ure kg 2.17 40 87 4 2.08 60 125 Phosphate (SSP) kg 1.03 60 62 6 0.94 120 112 Manum ton 15.00 6 90 0 15.00 6 90 Anmal labot WDs 12.00 l8 216 0 12.00 18 216 Labor WDs 7 20 80 576 0 7 20 80 576 Total Input 1.122 11 t.209 Net Value of Production -19 .26 6I

Chinese Datesintercropped with Soybean

Without Improved Road Economic With Improved Road Unit Price Quantity Value Loss hi Unit Quantity Value Unit adjusted a/ (Yuan8ha (Yuan/hal Price (Yuan/ha) Output Dates kg 1.92 4.600 8.641 -359 2.00 4.700 9.400 Soybean kg 2.38 750 1.788 -7 2.39 760 1.867 Soybean Staw kg 0 04 600 24 0 0 04 600 24 Total Output 10.653 -366 11,291 Operating Inputs Soybean Seed kg 3.05 30 91 1 3.00 30 90 Ursa kg 2.17 45 98 4 2.08 60 125 Phosphate (SSP) kg 1.03 80 83 8 0.94 120 112 Manure - ton 15.00 6 90 0 15.00 8 90 Aiwmai Labor WDs 12.00 18 216 0 12.00 18 216 Labor. WDS 7.20 180- 1.296 0 7.20 190 1.368 Total Input 1,874 14 2.001 Net Value of Production 4,780 480 9.211

Basic Assumption: Ao*rge transeu distanew 15 km Econom.c transport cost vithout mnpr road: S Yuan/ton/on Economic trnsport cost with inproved rod: 1.5 YusnvlAton Share of product transpted: Gmns and Potatoes 10 % Fruits 80% 8y-Products 0 % Gran Seds 50 % Potato Seeds 10 % Chemcal Fortilizers 100 % Other Inputs 0 %

Notes: a/ The everge economic unit pnce for ipu and outputswihout road imprvment is derind from the da in ares *Fth adequate rood a*ss adjusted by the addinl transport costs to/rom te farm acrdig to the distunce and the shane of product transpored. For example t pie of mane (Yuan I 150ton) is decrased by 6.5 Yuan (tnspont rst differnce) times 15 (distance in km) times 10% (share of product transported) reutng in a pnce deceaso at farm gate Of Yuan 9.75ton. For dates the djusment is Yuan 78 per ton. because of the nher share (80%) of th pmduct tnsported. Trade farm inputs prces are inteed acewrdgity. W Repr pnt the pnr disadvantsge due to t hher ecinoic transport costs on te pesent arp budet. Table3: LULIArqGRURAL ROADREhIABILITATION (LiUxIA IROAD) CuiOP PATTERNAND ECONOM1ic NET VALUEOF PRODUCTION(NVP)

Wlthout Improved Road With Improved Road (Cumulatve Elects as Irom A to C) at A B C Transport Costkand Transport Coslt Changeof Combined Changeof Input Use Input Use, and Cropping Change In Transport Cost Effect Only CombinedEffect Pattern Effect Combined Net Value of Area NVP/ha Total NVP Area NVPfha TotalNVP Area NVPiha Toial NVP Area NVPIha TotalNVP Productilon ('000 ha) (Yuan) (Yuanml) ('000ha) (Yuan) (Yuanmiel) roo0ha) (Yuan) (Yuanmil) ('000 ha) (Yuan) (Yuanmill) (Yuanmill) Crop Sorghum 1.07 -19 -0 02 101 7 0 01 107 61 0 07 t 00 61 0 06 0.08 Maize 1.45 1.456 2 11 1 45 1,490 2 16 1.45 1,653 2 40 1 60 1.653 2 64 0.53 Potato 2 58 -279 -0.72 2 58 -196 -0 51 2 58 -2 001 2 40 -2 -0 01 0.71 J Sunflower 1.57 -119 -0.19 1 57 -103 -0 16 1 57 37 0 06 1 40 37 0 05 0.24 Dates(ntercropped) 5.82 8.780 51.13 5 82 9.159 53 34 5 82 9,291 54A11 6.10 9.291 56867 5.54

Total Cropped Area 12.50 12 50 12 50 12-50S059.42 Total NVP 52.321 54.84 56.62 59.42 7.11 IncrementalNVP 2.53 1 78 280) al it is assufed thatthe Iransportcost changewilt be effetive kinredialelyafter finishing cli worksand the changein productivilyand the shift In the croppingpattern wil take 9 yearsafter finIshngIhe cdviworks (s-shape fundion assumed). -115 - ANNEX 6

Table 4: LULIANGRURAL ROAD REHABILITATION(LIUXIA ROAD) ECONOMIICCASH FLOW ANALYSIS(Yuan Million)

Pr*ct Road lncrmental NotBenefits Year InvestmnentCosts Maintenancea/ Benefts 1996 0.76 0.00 -0.76 1997 2.45 - 0.00 -2.45 1998 3.39 0.00 -3.39 1999 1.86 0.94 3.45 0.64 2000 0.98 3.82 2.84 2001 1.01 4.19 3.18 2002 1.05 4.67 3.62 2003 1.10 5.19 4.09 2004 1.18 6.08 4.90 2005 1.24 6.74 5.50 2006 1.26 6.95 5.70 2007 1.27 7.11 5.84 2008 1.27 7.11 5.84 2009 1.27 7.11 5.84 _~ 2010 1.27 7.11 5.84 2011 1.27 7.11 5.84 2012 1.27 7.11 5.84 2013 1.27 7.11 5.84 2014 1.27 7.11 5.84 2015 1.27 ... 7.11 5.84

IRR: 37 NPV: 16.0 Break Evenat a level of 37%of the expectedbenefits fusing dynamicmaintenance work requirem Wnt _a

Sensitivity Scenarios: resulting IRR:

Constructioncost increase by 20% 31% Maintenancecost increase by 50% 33 Benefitdecrease by 10% 34% Benefitdecrease by 20% 30% Benefitdecrease by 50% 18% Combinedcost increase 20%, and benefitdecrease 20% 25%

a/ 15%of toLtlroad investment costs annually at l use ofthe road. tt is assumedthat the amountof maintenancework depends upon the use of the road. The maintenancecosts of 15%of the iwestmentcosts coverthe necessary works atfIU use of the road.Any reducionin th use is easumedto goalong with a reobtie reductionin maintenancecosts of halfof thisamounL For example,a 20percent reduction in the use would allowfor. 0Opercent reduction in the maintenancecost. -116- ANNEX 6

Table 5: YUNCHENGRuRAL ROAD REHABILITATION (PINGUAN ROAD) ECONOMICCROP BUDGETS (Per Hectare)

Maize

| Witout Improved Road Economic With Improved Road Unit Price QOntnty Value Los bI Unit Quantiy Value Unit adjusted a/ (Yuantha (Yuan4ha Price (Yuanlh) Outut maize kg 1.09 2.000 2.187 -ii7 1.15 2.800 3.225 masto kg 0 04 2.500 112 0 0 04 3.500 I'O Total Ouqtp 2.299 .117 3.366 Operating lnputi m1l seed kg A 45 35 1S6 2 4 40 35 154 Ura kg 2.17 50 109 5 2.0J ICa 208 Ph.pat (SSP) kg 103 40 41 A 09 4 80 75 MIanur tcn 15.00 15 225 0 15 00 15 225 Anwmallabor VOs 12.00 20 240 0 12.00 20 240 Labor WQs 7 20 85 612 0 7 20 8S 612 Total tnput 1t363 10 1 513 Not VJa of Producton 915 .127 1,852

Millet

Without Improved Road Economic With Improved Road Unit Price Quantty Value Lost hi Unit Quantty Value Unli adiusted a/ (Yuandfa (Yual _a Price (Yuanfl'st Output Mallet kg 0.74 1.200 890 -70 0 80 1.5C0 1.200 Miiet Stoier kg 0.04 1.500 60 0 0 04 1.800 72 Total Output 950 .70 1.272 Operatsng inputs Mike( kg 2.01 IS 30 0 200 iS 30 Ura kg Z17 40 87 4 208 75 156 Phosphate (SSP) kg 1.03 60 62 6 0 94 110 103 Mnure mon 15 00 6 90 0 15 00 6 9O Anamalabor_ WDV 12.00 17 204 0 I2.OC 1t 204 Labor WOs 7 20 70 504 0 r; 7c 504 Total Insout 977 10 1067 Not Value of Production .27 40 1s5

Cotton

WIthout Improved Road Economic With Improved Road Unit Price Quantity Value Loss bl Unit Quantity Value Unit sdjusted al (Yuansfh (Yu.nfla) Price (YuarVhal Output Conon Lnt kg 11.75 250 2.937 -24 11.84 300 3.553 Coton Seed 0 91 500 454 .24 0 96 600 574 Total Output 3.391 -49 4.127 Operating Inputs CottonwSed kg 5.05 120 606 6 5 00 120 600 Ursa kg 2.17 55 120 5 2.06 100 208 Phosphate ISSP) kg 1.03 30 31 3 0.94 S0 47 Mnur ton 15.00 10 150 0 *5.00 t0 150 Am" labor WHOs 12.00 22 264 0 12.00 22 264 Labor WDs 7.20 160 t 152 0 7 20 160 1.152 Togul Input 2.322 14 2.420 Net Value of Production 1.065 63 1,707 to be contnued -117- ANNEX 6

Table 5 (Cont'd)

Yunchrng Rural Road Rehabilitaton (Plnguan Road) (continued) Economic Crop Budgets per hectare

WVheat

Without Improved Road Economnic With Impoed Road Unit Pnce auuntity Valuo Losscu Unit Quantiy Valk Unit adjusted a/ (Yuanrha (Yua)hal Price (Yuan/hie Output VlVht kg 1.21 2.200 2.659 t129 1.27 2.500 3.1" WhatStraw kg 0 04 2.200 as 0 0 04 2.500 100 Total Output 2.747 -129 3.26 Operating Inputs Vat Saw kg 2.05 150 307 7 2.00 1S0 300 Uma kg 2.17 60 130 6 2.06 100 206 Phosphate (SSP) kg 1 03 60 62 6 0.94 100 94 Manure lon 15.00 7 105 0 t5.00 7 105 Anal labor WVS 12.00 20 240 0 12.00 20 240 Labor WDs 7 20 82 590 0 7.20 82 50 Total Input 1.435 19 1.537 Not Value of Production 1,312 .148 t,72

Apple

Without Improved Road Economic With ImprovwdRoad Unit Price Quantity Valuo Los bl Unit Quantity Vakt Unit adjustedal (Yuan/ia (Yuan/hal Price (YUanh) Output Apple kg 1.52 7.000 10.t54 .546 1.60 10.000 16.000 Total Output - - 10.654 -546 -- 16.000 OperaUng Inputs Urea kg 2.17 100 217 10 - 2.06 250 519 Phospnat (SSP) kg 1.03 100 103 10 0.94 200 17 ManLw ton 15.00 15 225 0 15.00 1S 225 A-nal labor WVs 12.00 0 0 0 12.00 0 0 Labor WDs 7 20 200 1 440 0 7 20 200 1.440 Total Input 1.98U 20 2.371 Net Value of Producuon 9,"4 .566 13,625

Basic Assumption: Avorge transportcistance 15 km Econmrc transo cost withoutwnprmvsd road: 8 Yuan/km/tn Economictransnort cost wdh wnprod oad: 1.5 Yuwnkmton Shar of producttransnted: Grams 60 % Cotton 100 % Frudis 60% By-Products 0 % Grain S5ds 50% Potato Seds 10 % Chemicl Featilitzes 100 % Other Inputs 0 %

Notes: at The average conormicunit pncefor onps andoutputs wdhot romadmprovmint is doevedfrom the data in wae ith adeqtuatefa anss aduSStedby au additonaltransport cost tolmfro wtae arm accrding to th distanceand the shae o producttransportd. For sample the pnoeof matze(Yuan 11501ton)is decrsaed by 6.5 Yuan (transt cat diffne) tbres I5 (distancein km) bimes60% (shaw of producttansported) resultingin a prcetdecrase at farm gate of Yuan 5.5/ton. For appleOm adgutmentis Yuan76 per ton. becauseof the hgher ahutm(60%) of the Producttported. Traded farm inputspnces am inresassaaCCDruity. Vi Repreoasnlngthe pnce1disadvantage due to the highereconomic taspOrt CdtS on the presentcrog budgt Table 6: YUNCIIENCIRURAL ROAD REIIABILITATION(PINGUAN IROAD) CROPPINGPArrEIRN ANDEcoNoMic NET VALUEOF PRODUCTION(NVP)

Wilhout Improved Road With Improved Road (CumulativeEffects asfrom A to C) aI A B C Transport Cost and Transport Cost, Changeof Combined Change of Input Use Input Use. and Cropping Change In Transport Cost Effect Only CombinedEffect Pattem Effect Combined Net Value of Area NVP/haTotal NVP Area NVPIha TotalNVP Area NVP/ha Tolal iVP Area NVP/ha TotalNVP Production roooha) (Yuan) (Yuanmlil.) (000 ha) (Yuan) (Yuan mill)(000 hi) (Yuan) (Yuanmill) (o0oha) (Yuan) (Yuan mill) (Yuan mill) Crop Wheat 8 17 1.312 10 72 8 17 1.460 11 93 817 1.732 14 15 7 40 1.732 12 St 2.09 Maize 0 76 916 069 0 76 1.044 0 79 0 76 1.852 140 08l 1,852 150 0 1 Millet 015 -27 000 015 53 001 015 185 003 012 185 002 003 1 Colton 0 44 1.068 0 47 0 44 1.131 0 49 0 44 1.707 0 75 0 47 1.707 a s0 0034 Apples 0 79 8.668 6.80 0.79 9.234 7 25 0 79 13.629 10 70 1 50 13.629 20 44 13 64 co

Total Cropped Area 1030 10 30 10 30 10 30 Total NVP 18068 20.47 2702 3558 1690 Incremental NiP 1.79 6 55 856, a Itis assumedtha the tansport cost changewill be effedivo immediatelyatet fimishingclviv works *nd thechange in productivHy nd theshifti n thecopping patternwill take 9 year afterfinishing the chil works(s-shape function assumed).

0% -119- ANNEX 6

Table 7: YUNCHENGRURAL ROAD REHABILITATION(PINGUAN ROAD) ECONOMICCASH FLOW ANALYSIS(Yuan Million)

Pr*ct Road Incremental NotBnefi Year InvesbuentCosts Maintenancea/ Benefits 1996 4.81 0.00 -4.81 1997 9.88 0.00 -9.88 1998 7.16 0.00 -7.16 1999 2.09 1.24 2.65 -0.69 2000 1.29 3.36 2.07 2001 1.35 4.26 2.91 2002 1.44 5.67 4.24 2003 1.56 7.54 5.99 2004 1.80 11.40 9.60 2005 2.02 14.78 12.77 2006 2.09 16.01 13.92 2007 2.15 16.90 14.75 2008 2.15 16.90 14.75 2009 2.15 16.90 14.75 2010 . 2.15 16.90 14.75 2011 2.15 16.90 14.75 2012 2.15 -16.90 14.75 2013 2.15 16;90 14.75 2014 2.15 16.90 14.75 2015 2.15 16.90 14.75

IRR: 22% NPV: 23.4 Break Even at a level of 50% of the expected benefits (using dynamicmainbtnance work requir.mrnfnW

Sensitvity Scenarios: resulng IRR:

Constructioncost increaseby 20% 19% Maintenance cost increaseby 50% 20% Benefitdecrease by 10% 21% Benefitdecrease by 20% 19% Benefitdecrease by 50% 12% Combined cost increase20%, and benefit decrease by 20% 15%

a/ 15%of roadinvestment costs and 3% of the nvestmentcost for th largebridge onnualy at ful useof th rad. ntis assumedthat the amountof maintenancework depends uponth use of the rod. The hf maintenancecosts cover the necessaywarks at h use of the oad.Ay reducionin the useis asumed to go alongwith a reltive reductionh ma ance cost d hal of ths amounLFor example,a 20 percentreduction In te usewould llowfor a 10percent rductbon in thermintenance cost -120 - ANNEX 7

ANNEX 7: RURAL WATER SUPPLY

- Summary

1. There is a severe shortage of water in many villages in both prefectures. In Luliang, groundwater can be found in shallow aquifers (10-15 m deep) in the beds of gullies, but these can only be pumped for a few hours at 5-10 m3/hour. Most villages get their water from pits in the ground (cistems) filled with storm runoff and from shallow wells in the beds of gullies. The latter are very low-yielding and in the dry season people have to wait for hours for the wells to recharge after the first villagers have filled their buckets.

2. Water is often sold in the villages by people who have access to a well in their own village. The average family in water-short areas spends around YI00-130 in a year-this is 10 percent of the average family income. In addition to the cash cost, the water shortage also causes many hours to be spent hauling water which could be spent on more productive activities.

3. A better water supply will (a) expand possibilities for villagers to own draft aninals for farming and transportation, (b) reduce the incidence of water-bome diseases, (c) allow for watering of seedlings in orchard establishment and (d) provide water for small township and village enterprises that will create jobs and raise incomes for the local population. The rural water supply component of the project will provide water supply systems for 516 villages in Yuncheng and 204 villages in Luliang.

4. The projects have been prepared by the Yuncheng and Luliang Water Resource Bureaus and they will supervise construction by the county and township bureaus. These bureaus have their own well drilling teams operating under the guidance of ground water geologists who have considerable experience in well location and testing. Cost estimates are shown in Tables I and 2.

Yuncheng

5. The plan for Yuncheng is for 78 comparatively large systems including 59 deep well systems and 19 diversion schemes serving 516 villages, 620,000 people and 120,000 draft animals. In Yuncheng, wells to produce a reliable supply of good quality water (40-60 m3/hour) have to be between 150 and 300 meters deep. The systems are planned to provide 30 liters per day (Ipd) per person and 50 lpd per animal. Some water is used for vegetable and fruit trees, but strict operating rules are imposed on each well to prevent over drawing the groundwater resource. Compliance with the rules is monitored by the county water resource bureaus. Violators are fined or their operating license is suspended. A typical deep well system consists of a well and pump house, an operators house, piping to storage tanks in each of the villages served, and distribution pipes to several standpipes in each village. Diversion schemes typically take water from springs. A collection tank is constructed at the source and protected from pollution. A pump is placed in the tank and the rest of the system is similar to the deep well schemes. -121- ANNEX 7

Luliang

6. Luliang plans water supply facilities for 204 villages, including 77 well systems, 65 schemes based on springs, and 1,179 cistems in the remaining 62 villages. The schemes will serve 64,000 people or about 50 percent of the remaining population of 135,000 in the prefecture without access to reliable drinking water. In Luliang, groundwater can be found in shallow aquifers (10-15 m deep) in the beds of gullies, but these can only be pumped for a few hours at 5-10 m3/hour. Except for the much shallower wells, the basic approach is the same as in Yuncheng, but the systems are generally smaller because of the lower population density.

D. Operation and Maintenance

7. The PMOs of the two prefectures' water conservancy bureaus will establish a Regional Support Unit (RSU) to oversee (a) overall project planning, implementation and management; (b) enforcement of Water Laws and regulations; (c) technical assistance and emergency repairs; and (d) supervision of routine operations and arbitration of disputes among villages or townships regarding water use. The actual construction works will be awarded to local contractors through competitive bidding. Routine operation and maintenance of the pumping and diverting systems would be contracted to individuals, who would follow the regulations stipulated in the Water Law and the guidelines set by the RSUs. These individual managers will also be responsible for collecting water charges from villages to finance the 0 & M.

E. Economic Analysis

8. The improved water supply will (a) reduce the amount of time or money required to carry or purchase water by villagers; (b) expand possibilities for villagers to own draft animals for farming and transportation; (c) reduce the incidence of water-bom diseases; and (d) allow for watering of seedlings in orchard establishment. In some locations, water will be provided for small township and village enterprises

9. The economic justification of the rural water supply component is based on the peoples' willingness to pay. In villages in Yuncheng, without access to drinking water, and where the water is transported in tanks towed by farm tractors, people pay up to YIO-13 per cubic meter. A typical family spends about Y 100 to Y 130 Y per family for drinking water during the dry season when their rain water tanks dry up. This is a reasonable measure of the upper limit of peoples' willingness to pay. In villages with existing water supply systems the people pay between Y 1.5 and Y 2.5 per cubic meter and spend about Y30 to Y40 Yuan per family in a year. For the benefit calculation the lower value of Y 1.5 Yuan per cubic meter is used as an average figure for the willingness to pay. This is a conservative estimate, since the observed value of Y 1.5 Yuan is a marginal value and many people would be willing to pay higher prices particularly for smaller amounts of water as the situation in Yuncheng shows. On this basis, the rural water supply component was found to generate a weighted average ERR of 22 percent (Table 3).

10. An alternative measurement of the benefits has been tested, based on the fact that people spend a substantial share of their time in collecting and hauling water. At many of the open wells there is a long waiting time for the well to recharge after each villager takes his of her share. It is -122 - ANNEX 7 assuned that 40 percentof the populationare economicallyactive and spend about 10 pement of thir time hauling water. The distance to the water source in many location in Yuncbhngis between3 and 5 kilometers,and particularlyin Lulian&there is in additionoften a differencein altitude of 100 to 200 meters between the village and the wate source. If this time is conservativelyvalued at Y 2.5 per day, the time savedamounts to about Y 25 millionannuallyand the ERR is 23 percent This is closeto the ERR basedon willingnessto pay (Table 3). -123 - ANNEX 7

Table 1: RURAL DRINKING WATER SUPPLY LULIANG INVESTMENT COSTS

Unit Cost Total Costs Unit (Yuan) Quantities (Yuan 000) Pumping Schemes Structures Mortar Stone ma 146 11,574 1.689 Concrete n9 417 1.587 662 Earth Works m' 4 265.342 1,107 Steel Bar Making ton 4.676 48 223 Subtotal Structures 3.681 Equipment (incl. Installation) Pumpsand Motors Set 8.405 77 647 Transformer No. 22.304 15 335 Diesel Generator No. 10.775 1 11 High voltageline km 32,325 6 199

Low voltage line km 17,240 36 - 618 Steel Pipe ton 6,441 244 1.571 Plastic Pipe ton 10.431 56 587 Water meter No. 65 1.578 - 102 Valve No. 65 2.545 165 Subtotal Equipment (incl. install 4,235 Subtotal Pumping Schemes 7,915

Diversion Schemes Structures Mortar Stone m' 146 8.381 1.223 Concrete m' 417 815 340 Earth Works '000nM 4,172 268 1.120 Steel bar making ton 4.676 23 106 Subtotal Structure 2,788 Equipment (incl. installation) Steel Pipes ton 6,441 55 353 Plastic Pipes ton 10.431 72 747 Water Meter _ No. 65 493 32 Valve No. 65 982 63 _ Subtotal Equipment (incl. install 1.196 Subtotal Diversion Schemes 3.984

Household Storage Tanks Structures Mortar Stone m 146 3,154 460 Concrete m' 417 2,044 852 Earth Works 0OOmM 4,172 122 510 Steel Bar Making ton 4,676 11 53 Steel Pipe ton 6,441 1 8 Subtotal Household Stonge Tanks 1,883

Total Rural Drinking Water Supply 13,783 -124 - ANNEX 7

Table 2: RURALDRINIUNG WATER SUPPLYYUNCHENG INVESTMENT COSTS

Unit Cost Total Costs Unit (Yuan) Quantities (Yuan'000) Tube-wells m 682 9,500 6.481 Pumps No. 26,507 100 2,651 Transformers kVA 773 4,900 3.787 PowerLines (10kV) km 31,298 70 2,191 PowerLines (400V) km 15,202 12 182 StorageTanks m3 439 37,500 16,470 PVC Pipes ton 8,578 1.700 14.583 SteelPipe ton 6,441 370 2.383 PrestressedPipe km 190,000 25 4,750 PipeLaying km 2,533 1.100 2.786 PipeAccessories lumpsum 2,000 Diversionworks lumpsum 783 Control Rooms lump sum 2.328 House Connections lump sum 2,200

Total 63,574 Tabllc 3: ECONONIC Cos r BENEFITIANAI.YSIS OF IRURAL l)IINKING WATEIt StlPI'LY, ACGRECATEDSUAIMARY TABLE FoR 213 WATEI SUPPLY SYSTEMSAND I,179 CISTERNS (Values in Yuan '000)

A. Benefits based on willingness to pay B. Benefitsbased on ime csaved OperatingCosts (Allemativebenefll calctlalionI Year Investment t Sries Ad_minstr. Maintenance Total Water dollvered Wtilingness Not Benelit fonsililng Timesaved Bensilt Not Benefit (11 . (2) (31 141 181 (000 ml) to pay 18) Popultlon | 000) 17! 1998 24.408 33 453 133 561 I.180 0 0 25.589 0 0 0 -25.589 1997 25.850 2.287 907 205 1.158 4.595 5.448 a.t72 -22.272 232.605 3.396 8.490 -2t)955 1998 17.502 3.014 1.217 355 1.558 6.144 It.329 t6.993 -6.653 484.t68 7.069 1.672 -S.974 1999 2.168 3.053 1.230 358 1.608 6.25 15.279 22.918 14.493 653.222 9.537 23843 15.418 2000 1.275 3.073 1.251 360 1.638 6.321 15.501 23.252 15655 663.742 9691 24.227 16630 2001 1.998 3.112 1,272 383 1.684 6.431 15,633 23.449 15.020 670.043 9.783 24.457 16.027 2002 1.275 3,131 1.285 365 1.713 6.494 15.822 23.732 15.963 679,094 9.9)5 24.701 17,017 2003lo IS 3.131 1.285 365 1.713 6.494 15.953 23.930 17.436 685.395 10007 25.017 18.523 201sl 74.477 58.389 24.328 0.945 32.187 121,848 286.403 429.605 233.2i0 179.478 448.695 2523710

IRR: 22% IRR: 23% NPV: 311.24 NPV: 44.272

SwUchhnValue for willingness Swftding Valuelor shadowprIce 10pay (Yuarnh): 1 oftabor (Yuanfday): 1.75

Noiese: (1) ludh.e supportservic Cwits, (2)0.3 Yuan per kvWhfo delata seeChdMduai cost benil lables. (3) SeebtdMduat cost benel tbbes lIo delks. 14)Se Individualcost beneLltables br deais. (5) 1% of iatloiawtstwe 4 kw anuenance.plus 1.3% of toti4alIresmeri br ovethui worls. 16)N Is assum"dthul Om averagewtgness lo pay for walerAn 11w proekc arew be of leal 1.5 Yuanper mo.I 17)In 00 labordays. assumnirg nhol 40% of Uw dolalpopudalion Is econwd layacUve and wouldhave 10sPend on average10% of theiractive timefor waterlethin Shadowprice odlbr wesassumed xi Yuan2.51day.

-4 TablC 4: ECONOMIC COST BENEFIT ANALYSIS OF RURAL DRINKING WATER SUPPLY, YUNCIIENC-TUBF-WELL l'UMPING SYSTEMS (Yuan '000)

OperaUngCosts Benefits Year investment Electicity Salaries Admlnistr. Maintenance Total Waler delivered Wiliingness NotBenefit J1) 12) 13) 14) (S) rooom') to payIS) 1996 18.315 374 112 421 907 0 0 *19,222 1"7 15,596 2.175 692 208 780 3.855 4.087 6,130 -13.321 1998 11,165 2.891 920 276 1.037 5.124 7.567 11,350 -4.938 1999 2.691 920 276 1,0317 5,124 10,058 15,087 9.964 2000 2.891 920 276 1.037 5.124 10.058 15.087 9.964 2001 2.891 920 276 1.037 5.124 10.058 15.087 9.964 2002 2.891 920 276 1.031 5.124 10.05, 15,087 9,964 2003to 15 2.891 920 276 1.037 5.124 10.058 15.087 9.964 Total 45.076 54.209 17.626 5.288 19.863 96.986 182.645 273.967 131.906

IRR: 20% CT NPV: 19.19S

Notes: (1)Including e of supportservice cost. (2) Calculationbased on Ohoperating tme ol pumpsper day, an instaled toal capacdyof 3300kWand a price of 0 3 Yuanper kWh. (3)230 operetors with an average annualsalary of Yuan4000 per operalor. (4) Yuan 1200per operator for smnaNofflc supplyand healing. communkation fees, travelexpenses. etc. (5) 1%of totallnvestment lor maintenance. plus 1.3% of totalInvestment fr overhaul.wos. (6) 1 Is assumed thatIhe averagewiilngness to pay forwater in the project area will beaI least 1.5Yuan per O'.

. s~~~~~~~~~~~~~~ Tablc 5: ECONOMIC COST BENEFIT ANALYSIS OF RURAL DRINKING WATERt SUPPLY, YUNCIIENG-WATER DIVERTING SYSTEMS (YUAN '000)

Operating Costs Boneflts Year Investmont Electricity Salaries Adminhsir. Maintenance Total Waterdelivered Wliingness Net Beneilt 11) (i2 131 (4) 1S) r OOOm', to pay (6) 1996 4.209 11 60 Is 97 186 0 0 -4395 1997 7.727 30 171 51 275, 527 1.165 1.748 6,506 1998 4.534 42 236 71 179' 728 3,305 4.958 -304 199 42 236 71 379 726 4.560 6.841 6.113 2000 42 236 71 379 728 4.560 6.841 6.113 2001 42 236 71 379 728 4.560 6.841 6.113 2002 42 236 71 379 728 4.560 6.841 6.113 20031o1S 42 236 11 379 728 4.560 6,841 6.113 Total 16.47i 798 4.479 1,344 7,190 13.811 81.998 122.997 92.715

IRR: 3S% NPV: 21,651

Notes: (1) Indudingshwe of suppodtservkce costs. (2) CakulatIonbased on 8h operatingthm of pumpsper day, an instaNedtotal capacty of 48kWand a priceol 0.3 Yuanper kWh. (3) 59 operatorswith an averageannual salary of Yuan 4000 per opernlor. (4)Yuan 1200 per operatorfor snial ofice supplyand heating, communikation fees. lyavelexpenses. etc (5) 1% of total nvestmentfor maintenance,plus 1 3% oftdal investmnentfor ovethaulworks. (6) It Is assumedthat the averagewVingness to pay to waler in the ptroed areawill be at least 1 5 Yuanper m'.

x

l~~~~~~~~~~~~~~~~~~~~~~- Table 6: ECONOMICCOST BENEFITANALYSIS OF RURAL DRINKINGWATER SUPPLY, LULIANG-1UIIE-WELL PUMPINGSYSTEMS (Yuan '000)

Operating Costs Benefits Year hnvestment Elctrlcty Salaries Adrmnlstr. Maintenanco Total Water delivered Willngness NettSnent (i) (2) 13) (4) (5) (GOOm') to pay (61 1996 846 23 10 2 19 54 0 0 -900 19? 1.460 62 28 5 53 147 67 101 -1.506 1998 733 81 37 6 t07 194 1e4 275 -652 9gg9 1.463 120 54 9 104 267 242 363 -1.387 2000 737 140 63 11 121 334 358 537 .534 2001 1.464 179 at 14 154 428 417 625 -1.266 2002 . 737 196 90 IS 171 475 534 800 412 2003 to 15 198 90 15 171 475 592 8s8 414 Total 7.441 3.381 1.534 256 2,917 8.088 9.500 14.250 -1.278 IRR: none NPV: -3,273

Notes: (1) Inckludngshate of supportservice costs. (2) Calculationbased on 2h operating ltme of pumnpsper day. an instaled totalcapacity of 906kWand a price of 0.3 Yuanper kWh (31?5 vage operatorswith an averageannual salary of Yun 1200per operaetr. (4) Yuan200 per villageopetalor for overheadcosts. (5) 1%of totalInvestment lot maintenUnce.plus 1.3%o tolatinvestment for overhaulworks. (6)It is assumned thatthe averagewilligness to payfor water in the projectarea will be at least 1.5Yuan per mi. Table 7: ECONOMIC COST BENEFIT ANALYSIS OF RURAL DRINKING WATER SUPrLY, LULIANG-WATER DIVERTING SYSTEMS (Yuan '000)

Operating Costs Benents Year Investment Electricity Salaries Admninisir. Maintenance Tolal Waterdelivered Willingness Not Benefit (11 (2) (3) (41 (6) (DOOOm') to pay (6) t996 840 9 I 19 29 0 0 -868 1997 724 16 1 36 54 89 134 -644 1998 727 24 2 53 79 167 250 -556 1999 363 28 2 61 91 244 366 -87 2000 366 31 3 69 103 283 424 -45 2001 363 35 3 78 It6 322 483 4 2002 368 39 3 86 128 360 541 47 2003to 15 39 3 86 128 399 599 471 Total 3,748 0 689 57 1.523 2.269 6,657 9.986 3.969 IRR: 10% NPV: -374 Notes: (1)Induding share of supportservice costs. (2) None. (3) 65 vilage operatorswith an averageannual salary of Yuan600 per operator. (4) Yuan50 per vilage opeqatortor ovetheadcosts., (5)1 % of lotal invesimenlfor mnatnenance,plus 1.3% of total Investmentfor overhaulworks. (6) It is assumedthat the averagewlgness to payfor waterIn Ihe prolectarea wil be at least 1 5 Yuanper m'.

! ~~~~~~~~~~~~~~~~~~~~~~~~X ITable8: ECONOMIC Cosr BENEFIT ANALYSIS OFRURAL DRINKINGWATER SUrPLY, LULIANG-WATER STORAGESYSTEMS (Yuan '000)

OpPrmiUnCosts Benefits Year Investment Eleciicty Saladrie Admtnsftr. Maintenance Total Waterdelivered Willingness Not boneit {1L.... {(2) (3) (43 (S) CooomJ) to pay (6) 1996 198 5 S 0 0 -203 1997 342 12 12 39 59 -296 1998 343 i 20 20 106 159 -204 1999 342 28 25 174 261 -110 2000 173 32 32 241 362 157 2001 1l1 36 36 275 413 205 2002 173 40 40 309 463 251 20031to l 40 40 343 514 474 TOAal 1.741 0 0 0 694 694 5,602 8,403 5,968

IRR: 26% NPV: 1.054

Notes: (1) Incudig shareof suppodservke coss. (2) None. (3) None. (41None. (5) 1%oftal inWstmentn kw maitnance, pis 1.3%of totalInvestment for ovethau'works. (6) 11Is assumedMat tw averagewngess to pay '?r wale In the proed arisv*3 be at lesst 1.5 Yuan per m'.

-41 -131- ANNEX 8

ANNEX 8: LIVESTOCK

Summary

1. The aim of the livestock component would be to raise the incomes of the poorer farmers through the introduction of large animals to their farming operation. The component also includes improvements in veterinary services, artificial insemination, and research. The main elements of the component will be:

(a) the introduction of livestock to poor and marginal farmers who have access to adequate crop residues and/or large areas of unimproved natural pasture;

(b) the improvement of veterinary and artificial insemination services;

(c) the introduction of better techniques for silage making and the upgrading of artificial and natural pastures amongst existing livestock owners; and

(d) research in topics relevant to small livestock farmers, and training for project officials and farmers.

2. Farmers would be provided with two breeding cows. The farmers themselves would construct the necessary livestock shelter, water trough and silage pit. The cows would be paid for over 6-12 years and farmers would be required to take out an insurance policy against the death of their foundation animals. Simple low-cost fodder conservation techniques such as ammoniated straw silage would be promoted and farmers would be encouraged to keep their operational cash commitments to a minimum. The current target is for 14,000 farmers to receive a livestock loan under the project.

3. Facilities and equipment would be improved at 222 existing veternary service stations, the Shanxi Frozen Semen Center in Taiyuan, the Jinan Yellow Cattle Breeding Center in Yuncheng and the frozen semen and liquid nitrogen production center in Lishi.

4. To promote better quality silage making, livestock owners would be provided with grass/straw choppers. Crop residues from a number of farmers could be handled by a single chopping machine located in villages where new livestock farmers are to be established. An additional 500 loans would be offered to existing livestock owners for the establishment of artificial pastures and improvement of natural pasture and wasteland. Where individual enclosure of pasture is either impractical or not accepted, loans should be offered to groups of livestock owners for the improvement of common grazing areas. Cost estimates are shown in Table 1. -132- ANNEX 8

Cattle Production

5. In recent years there has been a movementaway from large collectively-ownedherds of cattle in which a high proportion were male animals kept for draught purposes, to small individually-ownedherds where breedingcows predominate. Where grazing is available, these small herds are often managedas a group under the care of a professionalherdsman. In areas of intensive arable farming cattle are kept close to the homesteadin shelterswhere stall feeding is carriedout.

6. With the diversityin farmingpractices found in the projectarea, there are an equallyvaried set of cattle managementpractices. However,there appear to be commonmanagement themes developingamongst small cattle owners which deserverecognition. Farmersare anxious to own breedingcows and regardthem as a sourceof draughtpower as well as producingcash and other benefitsthrough calvesand manureproduction. Also, cattleare seenas a cashablesecurity in times of hardship or sudden crisis. It is widelyreported that the majorityof farmerssell calves in their first year of age primarilyto meet cashdemands but also to reducethe highfeed costs of winterand early spring. Few small farmersfatten cattle for beef.

7. Thereis some evidenceof specialisedbeef fatteningenterprises emerging to meetthe strong nationwidedemand for beef. Such operationsbuy animalseither directly from the small farmerin the village or from an officialcattle saleyards which are foundthroughout the project area. These enterprises are able to offer economiesof scale, cultivate better market access, and improved fatteningtechniques and management. It is a logical developmentfor an expandingindustry and one that will providebenefits for the smallfarmer engaged in cow-calfbreeding.

8. Livestockprices have risen rapidlyin the last two years, and in 1994rose on averageover 200 percent. Averagesale pricesfor in-calfcows and heifershave in the past 12 monthsrisen from Yl,300 to Y3,500and there has been commensurateincreases in value of yearling animals. The principalreason for this spurt in livestockvalues seems to be increaseddemand for beef and other meats brought about by the growth of disposable incomes throughout China. Deregulation throughoutthe economyis allowingfarmners to respondto demandby increasinglivestock numbers but the immediatesupply of breedingstock is limited. It will be difficultfor the projectto procure significant numbers of breeding cows in Shanxi Province without seriously distorting prices. Therefore,cattle will have to be purchasedfrom other provinceswhere at presentsurplus animals are available.

9. Managementtechniques and abilityare varied. In general,the cattle in the highlandsare kept less intensivelythan those in the low lands. Low calvingindices are apparentlyacceptable in both areas and it is a commonpractice not to servean animalwhich is lactating. Calvingindices reportedrange from 0.5 to 1; however,indices of 0.75 to 0.85 are not ambitiousand should be readilyattained.

10. Animal health is remarkablygood. Brucellosisand endo parasites are reported to be problemsbut the incidenceof abortionis reportedas low and routinetreatmnent for fluke and worms is said to be generallypracticed. -133 - ANNEX8

11. The policy of the Animal Husbandry Bureau (AHB) is to encourage the use of Artificial Insemination (AI) and promote the crossbreeding of the local Yellow Jinan cattle with exotics such as Simmental for their perceived faster growth rate and better carcass conformation. AHB estimates that about 30 percent of the cows in the project area are bred to Al with a success rateof about 1.8 inseminations per conception. However, no work seems to have been carried out to compare the feed conversion efficiency or biomass production of the local breeds with the exotics under normal village conditions, despite the evidence that the meat from the these local breeds is highly sought after and is even exported to Hong Kong. The project will initiate this research and provide funding to maintain the local breed.

Sheep and Goat Production

12. Most sheep and goat flocks are grazed extensively in the growing season and grazed in the winter and spring on crop residues and natural pasture with some supplementation with conserved fodder. The majority of flocks number between 20 and 50, the latter being the number which require a full time herder. The method of grazing sheep and goats on steep land accelerates erosion and intensive grazing in winter and spring, if not carefully controlled, increases tree damage through bark stripping. The project will assist in the development of improved herd managing practices. The main product is wool or fibre and the demand for meat is firm although not as high as that for beef and pork. skins are in demand for leather, and all by-products have a local market, and are also exported. Present management practices of sheep and goats are create erosion problems and endanger the long-term sustainable use of the natural grazing resources.

Livestock Services

13. Although the condition of roads in the upland and mountain villages of the project area are often poor, veterinary and artificial insemination services are found in all counties and townships with some sub-stations at village level. Veterinary staff at townships and below are funded by the charges levied for treatments and vaccinations and the mark-up on the sale price of medicines and inseminations. These veterinary staff are also responsible for demonstration and extension work relating to animal husbandry, animal health, pasture improvement and fodder conservation.

Institutions

14. The relevant administrative department at provincial level is The Shanxi Livestock and Veterinary Departrnent (LVD) is resposible for livestock throughout the province. It controls the Provincial Animal Husbandry Bureau (AHB) which in turn serves and supervises the county AHBs. All LVD and AHB staff are salaried. The AHBs train and supervises the township Veterinary Service Station staff, who are responsible for extension and some farmer training at the village level. Staff at this level draw their wages from the fees they charge, and from the mark-up on goods sold to farmers. In addition, it is cormrmonfor supplementary non-veterinary activities to be carried out to help fund veterinary activities and staff.

15. Further support for the sector is provided by the Shanxi Livestock and Veterinary Institute, the Shanxi Agricultural Research Institute and the Shanxi Agricultural University. All these -134- ANNEX 8 institutionsare activein animalhusbandry, grassland and pastureimprovement research, and in the selectionand evaluationof differentpasture plant accessions. The Pastwe and Grassland Station, the Fodder and Feed Station,the Livestockand Fowl Breeding Station and the Station for the Preventionand Treatmentof Diseasesof Livestockcome underthe provincialLVD.

16. The Shanxi Frozen Semen Center at Taiyuanis the main source of frozen semen in the provincefor artificialinsemination (Al) of cattle. The Jinan YellowCattle Improvement Center in Yunchengand the Lishi FrozenSemen Center act as semenstorage depots and distributioncenters for the Veteinary ServiceStations whose staff carry out the inseminations. 17. In-servicetraining of prefecturaland county staff is the responsibilityof the provincial AHB. Training of townshiptechnicians and farmersis carriedout by prefecturalstaff and county staff. Townshipsstaff serve as the extensioncontact with farmersgroups and individuals. In 1994 all prefecture and county level staff received a series of training programs on the use and improvementof natural pastures, the ammoniatreatment of crop residues, silage making and methodsof mixing feed for ruminants. Thesetechnical staff are now trainingtownship staff and farmers. Farmers appear to have a high degree of confidencein the skills of the lower level technicalstaff.

Credit and Insurance

18. Fonnal agriculturalcredit is the responsibilityof the AgriculturalBank of China (ABC). Recently ABC has undergone a restructuringwhere its loan commitmentsunder govemment programshave been spun off to a new loan entity, the AgriculturalDevelopment Bank of China. This move is designedto allowABC to followa more market-orientedand commercialapproach to agriculturallending. ABC's existinglivestock sector loan portfoliois small and loan repayments terms are limited to 1-2 years. The PrefecturalInsurance Company offers cover against death of animalswith insurancepremiums rangingfrom 3-5 percentper annumof the animal value. These insurancerates are much higher than those which might be expectedconsidering the low recorded death losses in the projectarea. However,in the past there appearsto have been farmerabuses of the insurancesystem and this is now reflectedin higherrates. Detailed Features

19. Introduction of Cattle. About 10,900farmers in Yunchengand 2,900 farmersin Luliang will receivetwo breedingcows/heifers.

(a) Priority would be given to farmersfrom villagesthat do not have large numbersof existinglivestock and whereagricultural income levels are belowaverage.

(b) In the lowlands,farmers should have a minimumof lOmuof arable land under grain crops from which residues can be retained for animal fodder. In addition, these farmers should be locatedin areas where there are surplus crop residueswhich can be acquiredin exchangefor manure,labor or cash. -135 - ANNEX 8

(c) In the mountains,farmers should also have about 10 mu of arable land under grain crops and accessto naturalpasture under a contract of not less than 30 years. Care should be taken that the natural pasture areas have adequate capacity to receive additionalanimals. (d) Farmers would be expected, from their own resources, to provide an adequate animalshelter, a watertrough and a silage pit or pits .

20. The cost of breeding cattle has risen sharply over the last 18 months, and quality cows/heifersare expectedto cost Y 4,000 per head at the time of purchase. Full procurementof a sufficient number of quality animals for the project may prove difficult in a single year and implementationwill be phasedover two or more years. However,as regards individualfarmers, they will receivea completeanimal package in one transaction.

21. VeterinaryService Stations. A total of 324 township veterinaryservice stations (VSS) service the project area in both prefectures and about 222 stations have been identified for improvement. They are staffed by betweentwo and four veterinarytechnicians. At present the VSS's have no motorized transport and their ability to service the veterinary and artificial inseminationneeds of remote areas is limited. The project would provide a motorcyclefor the identifiedVSSs and motorcycleswould be assigned and sold to specific staff to avoid overuseor misuse. Staffreceiving a motorcycleloan will be paid an allowancefor duty use whichwould fully cover the operationand maintenanceof the machine. Each VSS will have a refrigerator,liquid nitrogen flasks, a microscope,a sterilizerand a basic set of surgicalinstruments. The project will financethe constructionof 90 treatmentrooms in those VSS's withoutthis facility. To assist in the tansport and distrbution of semen, liquid nitrogen, demonstrationmaterials and vaccines,eight utility vehicleswill be providedfor those counties(five in Yunchengand three in Luliang)having the highestwork load.

22. ArtificialInsemination Centers. The Shanxi Frozen Semen Center at Taiyuan will be supported by providing computerequipment for contemporarycomparison of bull performance. This equipment will assist the Center in the publication of a herdbook with comparative performancefigures. The projectwill also provide a second line for the productionof frozensemen straws and plugs and the purchaseof four Jinan Yellow bulls for the maintenanceof good quality germ plasm of localbreeds. 23. Jinan Yellow Cattle Breeding Center. Upgrading the Jinan Yellow Cattle Breeding Center in Yunchengrequires no major structuralwork but the project will provide funds for the renovationof the well, pump, powerline,water tower. Similarly,funds will be providedfor the repair of the two existing liquid nitrogen generators. At Lishi, the Animal HusbandryBureau intend to relocatethe frozensemen center into buildingsaway fromthe town's center. The project will provide funds for alterationsto these buildingsand for the purchaseof a new 20 liter per hour liquid nitrogen generator. To assist with the procurement of semen from Taiyuan and its distribution together with vaccines and demonstrationmaterials throughoutthe project area, the projectwill providefor eight utilityvehicles (Yuncheng five, Luliangthree). -136- ANNEX8

24. Silage Makdngand PastureImprovement. To supportthe developmentof higher quality ammonia treated straw and grass silage,the project will provide loan finds for existing livestock farmers to purchaseelectrically operated grass/straw choppers. Two hundredchopping machines will be funded and extensionstaff will focus their silage demonstrationon farmers using these machines. Five hundredpasture improvementloans will also be providedfor existing livestock owners to establishartificial alfalfa/chinese vetch pastures and improvenatural pastures through the introduction of better grass and legume species and the application of fertilizer. Similarly, extension staff will work with the farmers taking up pastures loans to promotethe wider use of quality pastureamongst livestock owners.

25. The introductionof cattleto farmersin the project area will generateincome from a surplus of feed resources.In the plain areasof Yunchengthere are large amountsof wheatstraw and maize stover as byproductsfrom the croppingactivities and in the hilly areas in both prefecturesthere are unused resourcesof naturalpasture which can best be exploitedby large ruminants.

Financial and EconomicAnalysis

26. A farm model has been prepared to estimate the likely financialresults of introducing livestockto a typicalfarm (Table2). The risk to the farmer is limitedby keepingthe investmentsto a minimum and he will borrow only for the purchase of two breeding cattle or heifers. The constructionof shelter,silage pits, water tanks and some fencing will be low cost and done with his own labor. On this basis the farmer will be able to pay back the initial loan for the breeding animals from the sale of off-springwithin six years and he will have, even during this repayment period, an annual cash surplusof about Y 490. After repayment,the annualnet farm incomefrom this livestockoperation will be about Y 1,800,which will be a returnto laborof Y37per day.

27. The ERR is 20 percentand includes all investment in supportservices such as artificial inseminationcenters and veterinaryservices (Table 3). These serviceswill not be limited to the project farmers and will createwider benefits that are not includedin the economicanalysis. A sensitivityanalysis shows that a drop in the fertility rate from 70 to 60 percent,which could result from poor inseminationpractices and/or poor health standardsand calf death,would drop the ERR from 20 percentto 14 percent. -137- ANNEX8

Table 1: LIVESTOCKINVESTMENT COST SUMMARY (Base Costs)

Unit Price Total Costs Unit Quantity (Yuan) (Yuan'000)

Yuncheng Prefecture A. Cattle Farms (9400 No.) Animal Purchasing(2 cows per farm) No. 18.800 3.990 75.012 Farmer Investment/a lump sum 15.988 Subtotal Cattle Farms 91.000 B. Veterinary Stations (10 No.) New treatmentrooms No. 60 12.996 780 Equipment lump sum 1.293 Motor cycle No 150 8.120 1.218 Subtotal Veterinary StatIons 3.291 C. Al Support Center lump sum 534 0. Pasture Improvement 1.042 E. Grass Chopper No. 160 1.800 288 Total Yuncheng 96.155

Luliang Prefecture

A. Cattle Farms (2100 No.) Animal Purchasing(2 cows per farm) No. 4200 3,990 16.758 Farner Investment/a 3.591 Subtotal CatUeFarns (2100No.) 20.349 B. Veterinary Stations (72 No.) New treatmentrooms No. 30 12.996 390 Rehab,of treatmentrooms No. 42 3.420 144 Equipment lump sum 566 Motor Cycle No. 72 8.120 585 Subtotal Veterinary Stations 1.684 C. Al Support Center InvestmentCosts lump sum 499 Operating Costs (year 1 to 7) lump sum 654 Subtotal Al Support Center 1.153 0. Pasture Improvement 1.025 E. Grass Chopper No. 40 1,800 72 F. Adaptive Research and Demonstration Pasture and FodderCrop Research lump sum 547 FeedingTrials lump sum 205 Natural PastureDevelopment lump sum 194 ExtensionSupport lump sum 570 Subtotal Adaptive Research and Demonstration 1.516 Total Luliang 25.800

Taiyuan Frozen Semen Center lumpsum 1.985

Total Livestock Component 123,941 baFor stable. silagepit, drinkingwater pond. etc. (no IDA disbursement). Table 2: CATrLE FAIRMCASnI FLOW MODEL

UniPike Establishment Uni auanilly (Yuan) Year I Yew 2 Yew 3 Yec 4 Yee S YewS Yew Yew 5 Vyer 9-13 year 14 Yew I5 Year 16.20 Cattle No. 2 3.990 7.980 Sheler. Slage Pits & Waler Tanks (arm 1.700 1.700 Total Establishment Costs YuanI 9.680

Annual Operation Prke or Fadot Herd Composbion Breeding Cow/Helfer No. 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 Calt (90% In year 1. and 70% In No 90%170 1.8 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 years 2 to 20 fertlhty rales) Sales Calf No. 1,750 1.8 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 Cult Cow No. 2.990 1.0 1.0 1.0 1.0 Income Animal Sales Yuan 3.150 2.450 2.450 2.450 2.450 2.450 5,440 5.440 2.450 5.440 5.440 2.450 1 Contrad Anml Labor Yuan Yuan 12/day 300 600 600 600 600 600 600 600 6W 600 600 600 Gross Income Yuan 3.450 3.050 3.050 3.050 3.050 3.050 6.040 6.040 3.050 6.040 6.040 3.050 . Operating Expenditure Ctop R"idues (samonia treatmnt) Yuan 74 74 74 74 74 74 74 74 74 74 74 74 Concentrate Feed and Sal Yuan Yuan 800/top 336 336 338 338 338 336 336 336 336 336 338 336 Aitifidal insemination/natural broodin Yuan Yuan 351 straw 140 140 140 140 140 140 140 140 140 140 140 140 Veterlnary Servke Yuan Yuan 20 1 head 76 68 68 68 68 68 68 68 68 68 a8 68 insurance Yuan 4%docowfvalue 319 319 319 319 319 319 319 319 319 319 319 319 BreedingCow/Heiler Yuan I 3.990 3.990 3.990 3.990 Total Operating Expenditure Ibform debt servicing) 945 937 '. 937 937 .,937 937 4.927 4.927 937 4.927 4,927 937 |Flnancia lCashFlow(operating) 2.505 2.113 2.113 2.113 2.113 2.113 1,113 1.113 2.113 1.113 1.113 2.113| Loan repaynent for cattle Yuan 1.623/ year (8 years) 1.623 1,623 1.623 1.623 1,622 1.622 of which: Prncipal 1.144 1.213 1.286 1.363 1.444 1.530 Interest (@ 6%) 479 410 337 260 176 92 Materal for Shelter, Silag Pis Waler Tanks 30% of lotal costs0 510

Not incremental Fann income 372 490 489 490 490 491 1.113 1,113 2,113 1,113 1,113 2,113 Economic Analysis Economic input Costs A/ 11.487 1.105 1.105 1.105 1,105 1,105 6.292 6.292 1.105 6.292 6.292 1.105 Labor Costs b/ Yuan 7.2 I day 1.195 360 360 360 360 310 360 360 360 360 360 360 Econonic lncome c/ 4.335 3,665 3.665 3.665 %3.665 3.665 7.552 7.552 3.665 7.552 7.552 3.665 rEconomic Cash Flow -8.347 2.200 2.200 2.200 2.200 2.200 900 900 2.200 900 900 2,200 Economic IRR: 24%, a The financal price for animls I adjusted by a converslon fador of 1.3: the concentrate feod prke Is adjusted by 1.5; other Inputs rto valued at fnancal prkes. b 116 days establishmnnt. and30 days annual operation. C/The finandal prike for anknals Is adlusted by a converion factor of 1.3; aninal labor Is adjusted by 0.8. -139- ANNEX 8

Table 3: LIVESTOCKCOMPONENT ECONOMICCASH FLOW ANALYSIS (Yuan million)

SuppontService Costs InamentalBenefts (Farms) NetBenefits Year Luling a/ Yuncheng Taiyuan Luliang Yuncteng 1996 2.63 2.35 1.99 -4.38 -19.62 -30.96 1997 0.40 1.79 -3.23 -14.45 -19.86 1998 0.40 0.91 -2.07 -9.28 -12.66 1999 0.40 0.21 -0.92 -4.11 -5.63 2000 0.40 4.62 20.68 24.90 2001 0.09 4.62 20.68 25.20 2002 0.09 3.94 17.62 21.47 2003 0.09 3.25 14.57 17.73 2004 0.09 3.25 14.57 17.73 2005 0.09 3.25 14.57 17.73 2006 0.09 3.94 17.62 21.47 2007 0.09 . 4.62 20.68 25.20 2008 0.09 4.62 : 20.68 25.20 2009 0.09 3.94 17.62 21.47 2010 0.09 3.25 14.57 17.73 2011 0.09 3.25 14.57 17.73 2012 0.09 3.25 14.57 17.73 2013 0.09 3.94 17.62 21.47 2014 0.09 4.62 -20.68 25.20 2015 0.09 4.62 20.68 25.20

IRR: 20% NPV: 39.66 a/ Inituding oAertional costsof LishiArtifical Insemination Center.

Sensitivity Scenarios:., resulting IRR: Economic Prices of Livestock drop by 20% 16% Economic Prices of Livestock increased by 20% 23% Fertility Rate is 60% instead of 70% 14% Concentrate Feed Prices increased by 50% 16% Opportunity Costs of Labor increased by 50% 17% -140- ANNEX 9

ANNEX 9: HORTICULTURE

Summary 1. The projectplan for fruit and nut trees in Yunchengand Luliang,summarized below, builds on considerableexperience of suitableorchard crops in the project areas. Except in Yuncheng, where the Chinesedates and prickly ash will be interplantedin the wheatfields, the orchardswill be establishedon slope lands where the slope is too steep for field crops, or on reclaimedwaste land. In most cases field cropssuch as milletand soybeanwill be interplantedin the early years of the orchards. The projectwill also includeimprovement of seedlingnurseries. This component will raise incomesfor more than250,000 households in the projectareas, and will also contributeto erosioncontrol. Cost estimatesare shownin Table 1.

Luliang Yuncheng - Area in ha ChineseDates 15,000 23,300 PricklyAsh 12,500 KemelApricots 2,800 Walnuts 2,800 8,800 Chestnuts 3,300 Apples 700

Luliang Prefecture Chinese Date (Zizyphus sativa)

2. The red Chinesedate (jujube)has beencultivated in Shanxiprovince for thousandsof years. During the centuries naturalevolution and artificialselection made by the local populationhave resultedin many outstandingvarieties. The Chinesedate can surviveand give a good yields in a climatewith a short vegetativeseason (frost-free period being only 150-170days), dry springs,dry and cold winters (-23°C), sparse rainfall (only 400-500 mm/year) and absence of irrigation. Abilityto withstandthese extremeclimatic conditions makes the Chinesedate a good choice for the loess hills of Luliang. It is also highly efficientin using the high sumrnmersunlight and the little water available. Consequentlyit is a good crop for exploitingthe 266,000ha of slope land and 118,000ha of wastelandin the projectarea. So far, around42,000 ha of Chinesedates have been planted in the project area, with a production of about 30,000 tons (many trees being still immature). The range of varietiesadopted has been reducedto severalhigh-perfomiimg cultivars, selectedfor their adaptabilityto the dry soils and climaticconditions of the Luliangmountains. -141- ANNEX 9

3. The Chinese date can be eaten fresh or dried and converted into a wide range of products, including candied forms, sweets, jellies and juices. In its dried form the fruit can be kept up fo one year. The fruit has a high level of Vitamin C content; around 400 mg/I1Og freshweight, which is fourtimes more than kiwi fruit as well as other vitamins A, B and P, and it has an important place in Chinesese traditional medicine.

4. These new orchards will occupy the hilly loess region,with slopes of 15-20 degrees on the west side of the Luliang prefecture. This is land that is considered "low -input and low- output" famiing land, mostly used for growing soybean or millet. Within the project, four counties will be involved in the new plantations: Xingxian (2,100 ha), Linxian (5,000 ha), Liulin (4,100 ha), and Shilou (3,800 ha).

5. Land preparation will consist of constructing Im wide terraces with 2 m sloping risers. A basin will be formed around each plant to conserve moisture. The orchards will have an average density of 750 plants/ha (4mx3.3m). Planting will be mostly in spring, with some in autumn. After planting, soybean intercropping will also be possible for the first seven years. Each household will manage its own plot of about 0.4 ha (6 mu). At present typical farms have an average of 10 mu cultivated as follows: 4-5 mu soybean, 2-3 mu of millet, 2-3 mu of maize.

6. The new Chinese date plantings will require around 13,500,000 seedlings in six years, or an average of 2.25 million plants annually. The existing nurseries are not able to supply immediately such a large amount of'plants, but the project will stimulate the output from farmer-owned and operated nurseries. Chinese dates plants produce suckers naturally from the roots. These suckers can be collected and transplanted in the nurseries at high density planting (5,000 suckers/mu = 75,000 suckers/ha) for one or two years, with an output of high quality plants estimated at 4,000 plants/mu (= 60,000 plants/ha). In some cases, grafting on wild Chinese date seedling can also be adopted. The large number of existing trees in the project area assures the availability of suckers for the nurseries. To speed up the project implementation with good plant material, the project includes finance for about 250 household Chinese date nurseries with an average nursery area of 0.1 ha.

7. Incremental production after 16 years will be around 1 12,500tons. Added to the output of the existing area of Chinese dates planted in the project area of 42,000 ha (315,000 tons), future production will be around 428,000 tons. The main part of this output will be sold on the domestic market, inside Shanxi but also in the southem Chinese provinces where the fruit is popular. The Chinese date fruits can be easily stored without any cold storage, thus sales to domestic and foreign markets can be carried out all the year around. The "Mu Zao" variety has a good reputation and is recognized by domestic and foreign buyers for its high quality in relation to its relatively low price.

Kernel Apricot (Prunus armeniaca)

8. The kemel apricot is suitable for planting at high altitude, from El. 800 m to El. 1,200 m. The varieties are selected for their cold and drought resistance, high yield and almond-kemel quality. The plan is to plant 2,800 ha of new kemel apricot orchards in the cold, rocky mountain areas of five counties, in shallow soils of the millet fields. These local selected apricot varieties -142 - ANNEX 9 appear particularly adapted to the climatic conditions, and few alternative fruit trees are suitable for these cold areas. Luliang has a long tradition of growing kernel apricots.

9. Each householder will convert an average of 0.4 ha (6 mu) of his land to apricot orchards, so that about 7,000 households will directly benefit from the project with a total of 28,000 family members. The existing county nurseries can supply around 319,000 plants, and the households nurseries around 801,000 kernel apricot plants, which will be more than sufficient for the plantings in the first year (350,000 plants). The use of this kernel apricot is widespread and popular in China, and most of the incremental production will be sold at the domestic market. However, exports will also be promoted since the main constraint on exports is lack of product, and in the past exports have been made to Japan and to Europe.

Walnut (Juglans regia)

10. New walnut orchards will be planted on 2,800 ha in the high, cool region of the middle section of the Luliang mountain, in five counties. The plantations will occupy existing millet fields on sloping land. There is a long history and tradition in the project area for walnut cultivation. Walnuts are easy to store and transport, the oil and fruit are nutritious, and the wood has many uses for ornamentals and furniture.

11. The new plantations will have a density of 400 plants/ha(5mx5m)and will be intercropped with with millet during the first six years. Before planting, the slope land (15-20 degrees) will be terraced with lm wide benches and 4m wide sloping risers.

12. For the project implementation the existing state nurseries (at county level) within the project area can produce 230,000 walnut plants annually and the household nurseries produce 550,000 plants, so there willbe an ample supply of seedlings. The main constraint wi be the need for good quality plant material in terms of genetic correspondence with the chosen variety grafted on a good rootstock, two years old, and capable of good survival after planting in the field. An average of 0.4 ha (= 6 mu) will be planted by each household, for a total of 7,000 families or 28,000 people.

Apple

13. About 700 ha of new apple orchards will be spread over seven counties. There are a number of apple nurseries in the project area ensuring an adequate supply of good planting material. Existing famiing land occupied by soybean will be planted with low density orchards (4rnx4m = 625 plants/ha), using the common well-known high-yielding varieties; the local red "Liulinhong" and the more famous "Fuji". The land chosen for apples has 10-15 degrees of slope and wide terraces, of about 4m, will be prepared for planting the apple seedlings. At full orchard development the new 700 ha of apples will give a fruit output of around 8,750 tons, very small in relation to the existing apple production of Shanxi province, which is about 330,000 tons. -143 - ANNEX 9

Research, Development and Training

14. A prograrn of research and development will be undertaken under the supervision of the Agricultural Academy of Sciences, in co-operation with the Yuncheng and Luliang Forestry Bureaus. In general, the purpose of the described activities is to establish a good, strong relationship with the training and extension services, as well as with other institutions in Shanxi and in other provinces with similar aims, interests and programmes.

15. Tissue Culture Laboratory. Because of the potential use of the micropropagation technique in a medium term program and mainly with the aim of propagating new selected jujube clones recently found in the Prefecture, a Tissue Culture Laboratory will be established at the Forestry Research Station of Lishi in Luliang. It will include a new building, all necessary instruments, a greenhouse and a shade house for transplanting the plantlets to "in vivo" conditions. The size of the laboratory will permit an initial production of around 50,000 plantlets/year.

16. Cutting Nursery. Besides the tissue culture laboratory, a cutting nursery and a plot for mother plants for suckers and scions will also be set up at the Forestry Research Station for research in vegetative clonal propagation. In recent years, various experiments have shown the possibility of obtaining jujube plants by means of cuttings and rooted under fog or mist irrigation.

17. Mother Plant Nursery. A plot will be set up at Lishi where selected mother plants can be collected and used every year to obtain suckers or scions for grafting. The proposal includes 60m2 of cold storage for the scions, 4 refrigerators and a intensive orchard plantation of 14,000 selected mother plants. This will assure good plant material for project implementation as well as for any other nursery activity for the near future in the field of jujube and walnut vegetative propagation. A number of specific research and development projects will be undertaken.

18. Increasing yield in young Chinese date orchards. In three counties (Xingxian, Liulin and Shilou) plots of 30 mu (2 ha) of existing orchards will be used for different trials of intensive soil and plant management for 3 years. Staff will also visit Cangzhou city (Hebei), Jishan (Shanxi), Jaocheng (Shanxi). Consultancy will be provided by the Provincial Pomology Institute and Provincial Forestry Institute.

19. Rejuvenating existing old Chinese date orchards. In three counties (Linxian, Liulin and Xingxian) plots of 20 mu (1.3 ha) will be treated to obtain higher yield by means of pruning and soil management during three years. This work will be carried out by Luliang Prefecture Forestry Bureau, in co-operation with Agronomic Department of Shanxi Agriculture University. Visits are planned to Jiaocheng, Jishan and Taigu. The main consultants will be the Provincial Pomology Institute and Provincial Forestry Institute.

20. Increasing yield in walnut orchards. Two plots of 2 ha each will be planted in Linxian and Liulin Counties with different varieties, different plant material and different management to obtain early fruit bearing and higher yield in a typical loess area with drought problems. The research will be carried out by the Shanxi Forestry Research Institute and Shanxi Food Research -144 - ANNEX 9

Institute. Visits and consultancieswill be undertakenby Forest ResearchDepartment of Shanxi AgriculturalUniversity.

21. Control peach moth in Chinesedate. In Kehu town (Linxian County)an experimental plot will be established,in which pheromonetraps will be used as well as chemicalsover a three year period. Visits and consultancieswill be the responsibilityof the Plant ProtectionDepartment of ShanxiPomology Institute.

22. Chinese date post-harvesttechnology. In co-operationwith the Shanxi Farm Product Storage and FreshnessConservation Institute, trials will be carriedout (i) to improvethe storage technology of fresh fruits that are the most valuable in the market and have a highnutritional content; and (ii) to improvetechniques for drying,grading and storingdried fruits. These will be done in collaborationwith the Shanxi Pomology Institute and Hebei AgriculturalUniversity (Baoding).

23. Increasingyield in kernel apricot orchards. Two plots of 5 ha, in Lishi County and XingxianCounty will be establishedto researchsoil and water managementmethods to raise yield. ShanxiForestry Research Institute, Shanxi Pomological Research Institute and LuliangPrefectural ForestryBureau will be involvedin the trials.

24. Trainingand Extension. A networkof TechnicalExtension Stations, Pest Management Stations,Forestry Stationsand ForestryBureaux operates at variouslevels. About 8,700 farmers will attend one-daytraining courses, twice a year.Prefecture, county, and townshiptechnicians will be trainedfor five days twicea year.

Yuncheng Prefecture

Chinese Dates

25. Chinese dates are indigenousto Yunchengprefecture and the presenceof many old trees, sometimesover 400 yearsold, and manyjujube orchards,demonstrates the excellentadaptability of this crop to the local environmentalconditions. Chinesedate are interplantedwith grain in areas round the Fen river and alongthe Yellowriver. Locallyselected varieties of the Chinesedate show an extraordinaryadaptability to the local soil and climate conditions,withtheir late shooting qualities,high cold hardiness,and droughtresistance.

26. In Yuncheng,Chinese date are mostlyplanted in wheat fields,both in the plains and the hilly terraces. The plantsare obtainedmainly by suckering,or occasionallyby graftingon "shan zao" (wild jujube = Zizyphus spinosus Bge ).

27. The plan is to plant Chinesedates at wide spacingin about the 23,300ha of existingwheat fields. Average tree density per ha will be only about 180 (15 m rows and 3.7 m spacing) At a conventionalorchard spacing density of around750 plantsper ha, this will be equivalentto around 5,600 ha. Varieties will be matchedto planting site. A featuresof the Chinese date, is that in spring time it is late in shootingand fonningleaves, in autumnthe leavesdrop early, in such a way that the light availabilityfor field crops standingunder the tree canopy is quite high for long -145 - ANNEX 9 periods. Chinese date orchards in wheat fields have few technical risks; the main constraints is the availability of good plant material.

28. For the 23,270 ha of new plantings, there is a need for 8,500,000 plants, plus 1,700,000 for 20 percent replanting or a total amount of 10,200,000 plants. To provide this large number of plants, a great effort will be required by both the state nurseries and those of farm households. The only data available gives the area actually taken up by plants in the county nurseries, as follows:

29. The nursery land for jujube trees is 10.2 ha. Considering an average of good quality plants of 60,000 plants/ha, 612,000 plants are presently available from state nurseries. Survey data on household nurseries indicates that their annual capacity will be around 1,000,000plants. The area of planting of 4,700 ha in each of the first two years has been set bearing in mind the ability of the nurseries to produce adequate numbers of plants of suitable quality. This allows time to develop the nurseries to produce good quality plants for the third and following years of the project implementation, when 9,400 and 9,170 ha will be planted.

Prickly Ash (Zanthoxylum Bungeanum Maxim)

30. The new 12,500 ha of Chinese prickly ash orchards will be planted in the same areas as existing Chinese prickly ash plantations, in the Emei and Mingtiao mountain ridges, at El.600-800 m. The fruits main use is as a spice for cooking, but about 5 percent is used for medicinal purposes. Most Chinese families know, and frequently use, this spice. The orchards will be established on narrow terraces with a density of 750 plants/ha, and a spacing of 4 x 3.3 m. Planting material will be one year old seedlings, provided by local nurseries, of a self-pollinating variety, named "Da Hongpao" that is seedling propagated. This variety is chosen for its full red fruit colour, high yield, good spicy taste, aroma and flavour.

Walnut (Juglans regia)

31. The areas chosen for 8,870 ha of new walnut orchards are in six counties in the Zhong Tiao mountain, chain. at about El.700-800 m. All the new areas will be reclaimed from wasteland. The orchards will have a density of 278 plants/ha (6m x 6m) planted on terraces. The plants will be two year-old seedlings, obtained from seeds of the local varieties. The genetic quality of the plants seemed to be one of the main constraints to good walnut orchard development.

Chestnut (Castanea mollissima)

32. New chestnut orchards will be established on 3,330 of reclaimed wasteland in three counties in the Zhang Tiao mountains. This an area in Shanxi province where chestnut trees have been grown from many years with good results. The rate of planting will have to be kept within the capacity of local nurseries to produce good quality plants. Plant densities will be 5m x 5m = 400 plants/ha. -146 - ANNEX 9

Research, Development and Training

33. Four subjectswill be investigated,all concemingChinese dates.

(a) Increasingyield: 10 ha of orchards in Jishan county will be rented and trials established on orchard managementto find means of improving productivity, testing differentsoil and water management,fertilising and pruning methods. The work will be carriedby PrefectureForestry Station and CountyForestry Station.

(b) Variety improvement: 5.2 ha of orchards will be bought and new orchard established for testing varieties. The work will be carried out under the responsibilityof the ShanxiPomology Institute.

(c) Pest management: 30 ha of orchardsin Jishan, Ruichengand Yuncheng,will be used by the PrefectureForestry Bureau and CountyBureau to develop integrated pest managementsystems. (d) Drying techniqueimprovement and spreading: 39 sites will be selectedin the 13 counties and trials will be conductedby the Forestry Stations at prefecture and countylevel.

Trainingand Extension

34. A network of TechnicalExtension Stations, Pest ManagementStations, Forestry Stations and ForestryBureaux operates at variouslevels. Each year 2,500 selectedfarmers will be trained for 3 days. The main aim of the trainingactivity will be to provide the farmers with practical informationon the technicaland financialaspects of fruit trees. For this, the trainersmust first also undertake courses to give them up to date informationon orchard management,and 30-70 personnelwill be trainedfor 10 days twicea year.

EconomicAnalysis

35. At full development,the increasedannual fruit and nut productionwill be 225,000tons of Chinese Dates, 7,500 of tons prickly ash, 45,300 tons of walnuts,25,600 tons of chestnut,2,800 tons of apricots,and 8,400 tons of apples. This will create Y 885 million additionalannual net income, that will mainly accrue to the poor people in the mountainousareas of Luliang and Yuncheng. The componentwill createemployment; about 33,000person-years will be neededfor the initialestablishment of the orchardsand 64,000people will find permanentemployment in their operation. Secondaryincome and employmentbenefits will comefrom fruit processing,packing and marketing.

36. Economiccrop budgets have been estimatedfor each horticulturecrop in each prefecture (Tables 2 to 10). The ERRs range from20 percentfor Chinesedates in Yunchengto 33 percentfor prickly ash. In an aggregatedarea model an overallrate of returnof 25 percenthas been calculated (Table I1). The ERR has been testedfor a drop in sales prices. A 20 percentlower fruit and nut -147- ANNEX9

price would lower the ERR to 22 percentand only a drop of 50 percentwould bring the ERR close to 12 percent.

37. The climnatein the projectarea offersa comparativeadvantage for fruit and nut production. The apportunitycosts on the slope and bill lands are negligible. Theseareas cannotreasonably be used for any annual crop and are too steep for terracing,but they provide good conditions for perennialhorticulture crops. The economicrisk for the farmeris negligible,since he does not have to give up any other economicactivity. The investmentis smalland consistsbasically of seedlings, fertilizer, and family labour. The inputs and operationalcosts again are low. On the other hand even a small number of fruit treesprovide a significantadditional income. -148 - ANNEX 9

Table 1: HORTICULTUREDEVELOPMENT INVESTMENT COST-LULLNG

Unit Quantities Costs Total Unit Price per ha pertha Coats Chines. Dates (15,000ha) (Yuan) (Yuan) rooo Yuan) A. lot Yaar Operation 1. Materil input Seedn No. 2.1 750 1.539 23.085 Ure kg 2.1 I60 341 5.116 Phoshalle kg 0.8 160 130 1.949 Manur It 17.1 10 171 2.565 Pastaode kg 20.3 2 41 60S 2. Labor Input Sed oreparaon WD 10.3 64 657 9.850 Fertilizer no, ton WD 10.3 12 123 1.U7 P4rnwg WD 10.3 30 306 4.617 Pruning WD 10.3 4 4A 616 Pestiod pplcaton WD 10.3 3 31 462 atearngmatenalranspon WD 10.3 20 205 3.078 3. Other Input lunp sum 57 655 Subtotal lot Year Operation 3.643 54.647 S. 2nd Year Operation 1. Material Inputs Seedlr forr ganting No. 2.1 150 308 4,617 Una kg 2.1 160 341 5.116 Phosplate kg 0.8 160 130 1.949 2. Labor Input ReplanbngAtmnd WD 10.3 18 185 2.770 Subtotal 2nd YearOpeation 963 14.452 C. 3rd Year F.rtillzir Urs kg 2.1 145 3t0 4.648 Phoephate kg 0.6 130 106 1.583 Subtotal 3rd Year Fertilizer 415 6 231 Total 5.022 75.330

Unit Quantits Costs Total Unit Prkc. per ha per ha Cost Walnuts (2.B00ha) (Yuan) (Yuan) (t000Yufln A. ist Year Operation -1. Maerial Inputs Seeding No. 2.3 400 912 25SA Urea kg 2.1 120 256 16 Phosphate kg 0.6 120 97 273 Manure t 17.1 6 103 287 Pesbode kg 20.3 1 20 57 2. Labor Input Bed preparatin WV 10.3 57 585 1.637 Fergizerappotin WD 10.3 10 103 287 Plantftg WV 10.3 20 205 575 Pruwng WD 10.3 4 41 115 Pasbd aplIation WD 10.3 1 10 29 W etrnatenal transpot WD 10.3 15 154 431 3. Other Input lurnp sum 57 160 Subtotal 1st Year Operaiton 2.543 7.120 e.2nd YearOperation 1. Matrial Inputs Seeding forreplantng No. 2.3 60 162 511 Urea kg 2.1 120 256 716 Phosphate kg 0.6 120 97 273 2: LaborInput Replentinghtendid WV 10.3 10 103 267 Subtotal 2nd Year Operation 638 1.787 Total 3,18161 6.907 to to cntmued -149 - ANNEX 9

Table 1 (Cont'd)

Horticulture Development Investment Cost - Luliang (continued)

Unit QuantJtil Coats Total Unit Price per ha per ha Cost Kernel Apficots (2,800ha) (Yuan) (Yuan) (o000Yuan) A. lot Year Operation I. Matarial inputs Seding No. 2.1 625 1.283 3.591 Ursa kg 2.1 188 400 1.11S Photpnate kg 0.6 18t 152 425 Manure I 17.1 10 171 479 PestioG kg 20.3 2 30 a5 2. Labor input Bed preparation Wo 10.3 50 513 1.436 Fertihzerappltion WD 10.3 10 103 287 Plantmg W0 10.3 25 257 718 Pnrnin WD 10.3 A Al 115 Pestode aoolttion WD 10.3 3 31 86 Watenngimatenaltranspor WD 10.3 19 195 546 3. Otier input lump sum 57 160 Subtotal 1st Year Operation 3.232 9.049 S. 2nd Year Operation 1. Material inpuu Seedtngforrepdantng No. 2.1 125 257 718 Urea kg . 181 r 400 1.119 Phonate kg 0.8 18a 152 426 2. Labor input Revptnungltending WV 10.3 18ai _ 51 Subtotal 2nd Year Operation 993 2J51 Total 4.225 t1.52

Unit Quantties Cots Total UnnI Pnce per ha -Por ha Costa Apple Trees (700 ha) (Yuan) (Yuan) (000 Yuan) A. 1st Year Operation 1. Mataral inputs Seelming No. 2.3 625 1.425 996 Urea kg 2.1 1" 400 280 Phosrata kg 0.8 168 152 107 Manure t 17.1 10 171 120 Pestixde kg 20.3 2 30 21 2. LAbor input Bed reparation WD 10.3 140 1t436 1.005 Fertilzer appication WD 10.3 10 103 72 Ptantng W 10.3 40 410 287 Pnunwg WD 10.3 4 41 29 Pestiodeapplication WD 10.3 3 31 22 Weteynmnatanaltransport WD 10.3 22 225 158 3. Other Input kxnp sum 91 64 Subtotal 1st Year Operation 4.516 3.162 S. 2nd Year Operation 1. Material inputs Seding toereplantng No. 2.3 125 285 200 Un4 kg 21 188 400 260 Phosphate kg 0.8 188 152 107 2. Labor input Reolantz/endng WV 10.3 26t 267 II? Subtotal 2nd Year Operation 1t104 773 Total 5.620 3.934

Total HorticultureTree Planting . Luliang 100.001 -150 - ANNEX 9

Table 2: HORTICULTUREDEVELOPMENT INVESTMENT COST-YUNCHENG

Unit Quantities COtsD Total Untt Price per ha per ha Costs Chinese Dates (23.270 ha) (Yuan) (Yuan) (000 Yuan) A. 1st YoarOperation i. Materal Inputs Seedling No. 1.4 360 492 11.460 Urea kg 2.1 s0 171 3.96B Phosphate kg 0.8 s0 65 1.512 Manure t 17.1 12 205 4.775 Pesticide kg 20.3 4 S1 1.890 2 Labor input Bed preparation WD 10.3 50 513 11.938 Fertilizer application WD 10.3 12 123 2.865 Planting WED 10.3 20 205 4.775 Pruning WD 10.3 4 41 955 Pestkide application WD 10.3 4 41 955 3. Other Input knmpsum 46 1.061 Subtotal 1st Yeor Operation 1.983 46.153 B. 2nd Year Operation 1. Material Input Seedlingfor replantung No. 1.4 72 98 2.292 Urea kg 2.1 80 - 171 3.968 Phosphate kg 0.8 80 65 1.512 2 Labor Input Repbanting WD 10.3 6 62 1.433 Subtotal 2nd Year Operation 396 9.204 Total 2.379 55.3S7

Unit Quantities Costs Total Unit Price per ha per ha Costa Prickly Ash (12.500 ha) (Yuan) (Yuan) roooYuan)

A. lot Year Operation 1. Material Inputs Seedling No. 0.3 750 257 3.206 Urea kg 2.1 120 256 3.197 Phosphate kg 0.8 150 122 1.523 Manure t 17.1 8 137 1.710 Pestiode kg 20.3 2 41 508 Irrigation Water 0.6 15 9 107 2. Labor Input Bed preparation WD 10.3 45 462 5.771 Fertilizer application WD 10.3 7 72 898 Pbanting WD 10.3 20 205 2.565 Pruning WD 10.3 3 31 385 Pestiode application WD 10.3 3 31 385 lnigating WD 10.3 9 92 1.154 3. Other Input kampsum 23 285 Subtotal 1stYear Operation 1.735 21.693 B. 2nd Year Operation 1. Material Inputs Seed ng for replanting No. 0.3 150 51 641 2. Labor Input Replanting WD 10.3 3 31 385 Subtotal 2nd Year Operation 82 1.026 Total 1.318 22.719 to be continred -151- ANNEX 9

Table 2 (Cont'd)

HorticultureDevelopment Investment Ccst Yuncheng(continued)

UnIt Quantes Costs. Total Untt Price per ha per ha Costs Walnut 18,870 ha? (Yuan? (Yuanl 1r000 Yuan) A. lot Year OperadIon 1. Matenal Inputs Seedling No. 1.7 278 475 4.217 Urea kg 2.1 100 213 1.891 Pnosonate kg .0.8 110 t9 792 Manure t 17.1 5 86 758 Pesticide kg 20.3 2 41 360 Imgation Water m. 0.6 10a5 6 2. Labor Input Land Retlamation WD 10.3 150 1.539 13.651 Bed preparatn WVD 10.3 35 359 3.185 Fertilazerappication WD 10.3 5 51 455 Plantng WD 10.3 20 205 1.820 Pruning WV 10.3 2 21 182 Pesticde appicaoun WV 10.3 2 21 182 Imgating WD 10.3 11 113 1.001 3. Other Input lump sum 34 303 Subtotal 1st Year Opration 3.252 2t.848 B. 2nd Year Operation 1. Material Inputs Seedling for replanting No. 1.7 56 96 89 2. Labor Input

- - Replanting WD 10.3 4 41 364 Subtotal 2nd Year Operation 137 1.213 Total 3.3891 30.062

UnIt QuantWtes Costas Total UnIt Price per ha per ha Costs Chestnuts /3.330 ha) (Yuan) (Yuan) (.000 Yuan)

A. 1st Year Operation 1. Matertal Inputs Seedling No. 1.1 400 456 1.518 Urea kg 2.1 100 213 710 Plhospnate kg 0.8 110 89 297 Manure I 17.1 5 86 285 Pesticide kg 20.3 2 41 135 Irrgation Water m' 0.6 11 6 21 2. Labor Input Land Redamation WD 10.3 150 1.539 5.125 Bed preparation WV 10.3 35 359 1.196 Fertilizer application WV 10.3 5 51 171 Planting WV 10.3 20 205 683 Pruning WV 10.3 2 21 68 Pesticideapplcation WO 10.3 2 21 68 Irrgating WD 10.3 12 123 410 3. Other Input lump sum 34 114 Subtotal 1st Year Opertion 3.244 10.802 B. 2nd Year Operation 1. Material Inputs Seedling for replanung No. 1.1 80 91 304 2. Labor Input Replanting WV 10.3 4 41 137 Subtotal 2nd Year Operation 132_ 440 Total 3,376 [ 11.242

Total Horticulture Trve Planting - Yuncheng 119,380 TIIblC 3: CIIINEsE D)ATES INTIhl[CAROPPED(LUI.IANG) CROP MODEL ECONOMICBUDGET PERH IECTARE la

Years > I Quantities Unit Price Economic Value (Yuanlha) Unit 1 2 3 4-5 6.7 8.10 11-15 16-20 (Yuan) 1 2 3 4-5 6-7 *.10 1116 16-20 I Output Main Productilon Yield kg - 300 900 1.500 3.000 7,500 2.00 - - - 600 1.800 3.000 6.000 15.000 By Products Soybean kg 500 500 500 400 300 - 2.39 1.197 1.197 1,197 958 71B Soybean slraw kg 400 400 400 300 200 - 0.04 16 16 16 12 a . Sub-total Byproducts 1.213 1.213 1.213 970 726 - - Sub-total Output 1,213 1,213 1.213 1.570 2.526 3.000 6.000 I5.000 Inputs investment Seedlings No. 750 150 1.80 1.350 270 - , Urea kg 160 160 145 2.08 332 332 301 - - - - -. Phosphale (SSP) kg IB0 160 130 - 0.94 150 150 122 - - - - - Manure ton 10 - 15 00 150 Agio-chemlcals kg 2 ------20.00 40 Sub-total lnvestment Cosr 2.022 752 423 - - - Operating - Seed kg 50 50 50 40 30 - - 3.00 1S0 150 150 120 90 - Urea kg - 150 150 150 150 150 2.08 - - 311 311 311 311 311 Phosphate (SSP) kg 150 150 150 150 150 0.94 - 140 140 140 140 140 Manure Ion IS 15 15 15 IS IS15 15.00 - 225 225 225 225 225 225 225 Agro-chemicals kg 2 2 2 2 2 2 2 20;00 40 40 40 40 40 40 40 Other Yuan - 40 40 40 40 40 40 40 Sub-total Operating Costs 150 455 455 877 847 757 757 757 Sub4total Input costs 2.172 1.207 878 877 847 757 757 757 Net Value of Production (Belore Labor Costs) -959 6 335 693 1.680 2.243 5,243 14.243 Labor Invesiment costs WDs 133 18 - - - 7.20 958 130 - . OperatingCosts Wos 150 200 200 200 200 200 250 250 7.20 1.080 1.440 1,440 1.440 1.440 1.440 1.800 1,800 Sub-Iotal Labor costs 2.038 1.570 1.440 1,440 1.440' 1.440 1.800 1 800 Net Value of Production (Afner Labor Costs) -2.996 .1.563 -1.105 -747 240 803 3.443 12:443 X IRR - 19.6%. NPV - 7,687.47

a/ The economic net value ol produdion on existingplope land Is consideredto be aboutzero ornegative. No oppodunily cosis have therehorebeen consideredfor the land. T'able4: WALNUTI'SINTERCROPPED (LULIANG) CROP MODEL ECONOM IC BUDGE IPERI IECTARE LA

Years -> Quantlties Unit Price Economic Value (Yuanlha) Unit 1 2 3-5 6-10 11-15 16-20 (Yuan) 1 2 315 6-10 11-15 16-20 Output Maln Productilon Yield kg - - 400 2.000 3.500 600 - - 2.400 12.000 21.000 By Products Millet kg 1.000 1.000 1.000 - - 080 800 800 800 Millet stover kg t.000 1.000 1,000 - - 0.04 40 40 40 Sub-total Byproducts 840 840 840 - - - Sub-total Output 840 840 840 2.400 12.000 21.000 Inputs Investment Seedlings No. 400 80 - - - 2.00 800 160 - - - Urea kg 120 120 - - - 2 08 249 249 - - - Phosphate (SSP) kg 120 - - 120 - - 0.94 112 112 - - - . Manure ton 6 - - - 15 00 90 - Agro-chemicals kg I - - - 2000 20 - Sub-total InvestmentCosts 1.271 521 Operating Seed kg 30 30 30 - - 2.00 60 60 60 - - - Urea kg - - 120 120 120 120 2.08 - 249 249 249 249 Phosphale(SSP) kg - - 120 120 120 120 094 112 112 112 112 Manure ton - 10 10 10 10 10 15 00 150 150 150 150 150 Agro-chemicals kg - 2 2 2 2 2 2000o 40 40 40 40 40 Other Yuan 60 60 60 140 140 240 Sub-total Operaling Costs 120 310 671 691 691 791 Sub-total Input costs 1.391 831 671 691 691 791 Net Value of Production (Before Labor Costs) -551 9 169 1.709 11.309 20.209 Labor Inveslmeni WDs 107 10 - - 7.20 770 72 Operating WDs 150 200 200 200 250 250 7.20 1 080 1.440 1.440 1.440 1.800 1.800 Sub-total Labor costs 1.850 1.512 1,440 1.440 1.800 1.800 of Net Value Production (After Labor Costs) -2,402 -1.503 -1.271 269 9.509 18.409 M IRR a 25.6%,NPV - 17.932,25

a/ The economicnet value of productionon existingslope land Is consideredto be aboulzero or negalive. No opporluniy costshave thereforobeen considered for the land. 'ablec5: Apricots Intcrcroppcl (Luli:ing) Crop Model EcononmiclBudgct Pler llectare lA

Years -> Quantities Unit Price Economic Value (Yuanlha) Unit 1 2 1 3 4.6 7 *-10 11-15 11-20 (Yuan) 1 2 3 4-6 7 6.10 11-16 16-20 Output Main Productilon Yiekid kg - - I170 250 250 750 1.000 20.00 3.400 5,000 5.000 15,000 20.000 By Products mUlct kg 1.000 1.000 1.000 - 00 g80 800 800Bo Milbt slover kg 1.000 1,000 11.00 - - 0.04 40 40 40 - - Sub4tobalByproducts 840 840 840 - - - - Sub-total Output 840 040 840 3.400 5,000 5.000 15,000 20.000 Inputs I Investment I Seedlings No. 625 125 -1.80 1.125 225 - Uresa kg 188 188 1 U . 2.08 390 390 .- Phosphale (SSP). kg 188 188 - - - 0.94 176 176 - - - - Manure ton 10 - - - 15.00 150 - Agro-chemnials kg 2 - - - - - 20.00 40 - Sub-total Investment Costs 1.881 791 Operating Seed kg 30 30 30 - - 2.00 60 60 60 - - Urea kg - 200 200 200 200 200 200 2.08 - 415 415 415 415 415 415 Phosphate(SSP) kg - 200 20( 200W 200 200 200 0.94 187 187 187 187 187 187 Manuie ton IS 15 IS 15 15 15 IS 15.00 - 225 225 225 225 225 225 225 Agoo-chemicals kg - 2 2 2 2 2 2 2 20.60 40 40 40 40 40 40 40 \ Other Yuan 100 100 100 100 200 200 200 200 Sub-total Operating Costs 160 425 1,027 967 1.067 1.067 1.067 1.067 Sub-total Input costs 2.041 1.216 1.027 967 1.067 1,067 1.067 1.067 Net Value of Production (Before Labor Costs) .-1,201 .376 -187 2.433 3.933 3,933 13.933 18.933 Labor Invesinent WDs III 18 - 7.20 799 130 Operating WOs 200 250 250 250 250 300 300 300 7.20 1,440 1.800 1.800 1.800 1.800 2.160 2.160 2.160 Sub-total Labor costs 2.239 1,930 1.800 1,800 1.800 2,160 2,160 2.160 Net Value of Production (After Labor Costs) -3.440 .2.306 -1.987 633 2.133 1.773 11.773 16.773

IRR = 28.1 %, NPV * 22.35e871 a/ The economic nel value ol produdion on exltingstope land Is consideredto be aboutzero or ngative. No oppotuniy costs have theefore been consideed for the land. TaIble 6: AiIt.E IN I I ItCRtO0I'[EI)(LULIANC) CIo0 MODEL IECONONIICILII)CELI'PEITIECIARE La

Years Q'Quantities Unit Price Economic Value (Yuan/ha) Unit 1 2 3 4.6 7 3-10 11-15 16-20 (Yuan) 1 2 3 4-6 7 8-10 11-15 16-20 Output Main Productlon Yield kg - - - 450 2.25O 6.750 9,000 12,000 1.60 - - 720 3.600 10.800 14.400 19,200 By ProducLs

Soybean kg 400 400 400 400 - 2.39 958 958 958 958 - - Soybeanstraw kg 350 350 350 350 - 0.04 14 IA 14 14 Sub-total Byproducts 972 972 972 972 - - - - Sub-total Output I 972 972 972 1.692 3,600 10,800 14.400 19,200 Inputs Investment Seedilngs No. 625 125 , , , 200 1.250 250 - - - - - Urea kg 18 188e - - - - 208 , 390 390 , Phosphate(SSP) kg 188 188 - - - - 0 94 176 176 - - - - Manute Ion 10 - - - - 15.00 150 Agro-chemicals kg 2 - - - 20.00 40 - Sub-total InvestmentCosts 2.006 816 - - Operating Seed kg 50 50 50 50 - - 3 00 )so 150 150 150 I Utea kg - 200 200 200 200 200 200 2.08 415 415 415 415 415 415 Phosphate(SSP) kg - - 200 200 200 200 200 200 0.94 - - 187 187 187 187 187 187 Manure Ion iS 15 i1 I5 15 25 15 15 00 225 225 225 225 225 225 225 Agro-chemicals kg - 3 3 3 3 3 3 3 20.00 - 60 60 60 60 60 60 60 Othef Yuan 80 80 80 80 140 140 240 240 Sub-total Operating Cost.s 230 5t5 12117 1.117 1,027 1.027 1.127 1.127 Sub-total Input costs 2.236 1.331 1.117 1.117 1.027 1.027 1.127 1.127 Net Value of Production (Before Labor Costs) 1,264 -359 -146 574 2.573 9.773 13,273 18.073 Labor Investment WDs III 18 , , 7.20 799 130 - - - - Operuling WDs 200 250 250 250 250 300 300 300 7.20 1,440 1.800 1.800 1.800 1.800 2.160 2.160 2.160 Sub-total Labor costs 2.239 1.930 1,800 1,800 1,800 2,160 2.160 2a160 Net Value of Production (After Labor Costs) -3,504 -2,289 -1.946 -1.226 773 7.613 11.113 15.913

IRR- 30.1%. NPV * 25.711.64

a/ The economicnet value ofproduction on eMisilngslope land Is consideredto be aboutztero or negative. No opportunly costs have thereforebeen consideredfor the land. TaIbIC7: CIIINI.ESI)A1ES (YUNCIIENG)CRoI0 MOI)EI, ECONOMICIBUDGET PER I IECrAItE

Years -> Quantities Unit Price Economic Value (Yuanihsa Unit 1 2 3 4-5 8-7 8-10 11-12 13-20 (Yuan) 1 2 3 4-5 6-7 8-10 11-12 13-20 Ylfld kg - 540 900 1.100 2,200 5S000 2 00 . * *.080.0 1.800.0 2.2000 4.400.0 10.000 0 Input Invetiment SeedVings Pi 360 72 - * - - 1.20 432.0 86.4 Urea kg 80 80 - . 2.08 106.1 166.1 - - - - Phosphals (SSP) kg s0 80 - * . . 0.94 74.8 74.8 - . . . Manue Ion 12 -0 - .: .0 .W 180.0 Agro-chemkals kg 4 - - . . 20 00 80 0 Sub-total InvestmentCosts 932.9 327.3 - Operating Urea kg 80 80 80 80 80 80 2 08 * * 166.1 166.1 166.1 166.1 166.1 166.1 Phosphate (SSPJ kg so so so 80 80 So 0.94 - - 74.8 74.8 74.8 74.8 74.8 74.8 Ln Manure Ion 10 10 10 10 10 10 10 I500 150.0 I500 150.0 150.0 150.0 150.0 I500 C' Agro-cheemlcals kg - 3 3 3 3 3 3 3 20.00 60.0 60 0 60.0 60 0 60.0 60.0 60o0 1 Other Yuan - 80.0 80 0 80.0 60.0 80.0 80.0 80 0 Sub-total Operating Costs * 290.0 530.9 530.9 530.9 530.9 530.9 530 9 Sub-total Input costa 932.9 617.3 530.9 530.9 530.9 530.9 530.9 530.9 Not Value of Production (SBeoreLabor Costs) *932.9 -617.3 *530.9 549.1 1.269.1 1.669.1 3.869.1 9.469 1 Labor Investment WDs 90 8a . 7.20 648 0 43.2 - - - Operafng WeedhWs 5 5 5 5 5 5 5 7.20 36.0 38.0 38.0 36.0 36.0 36.0 36 0 Pestidke appicatan "Os - 2 2 2 2 2 2 2 7.20 - 14.4 14.4 14.4 14.4 14.4 14.4 14 4 Ferilfler eppication WDs - 10 10 10 10 10 10 7.20 - 72.0 72.0 72.0 72.0 72.0 72.0 Pruning vws 20 20 20 20 20 20 20 7 20 144 0 144.0 144.0 144.0 144.0 144.0 144.0 Management WDs * 10 10 20 20 20 20 20 7.20 72.0 72.0 144.0 144.0 144.0 144 0 144 0 HarvesUtlanspontallon WDs - 30 45 45 ISO 18 7.20 2180 324.0 324.0 1.080.0 1.2960 Sub-total Operating Costa * 266.4 338.4 626.4 734.4 734.4 1t490.4 1.706.4 Sub4otal Labor costs 6480 3096 338.4 626.4 734.4 734.4 .1490.4 1.706.4 Net Value of Production (Aftor Labor Costs) -1.580 9 -926.9 -869.3 .77.3 534.7 934.7 2.378.7 7.762.7

MR * 26.8%. NPV * 9.858.62 x>C Ta:blc 8: l'IPICKLYASII (YUNCIIENG)CROP MODEL ECONOMIC BUDGET P}ER I[EC1TARE

years - Quantiie Unit PlIc EconomicValue (Yuanlha) Unit t 2 J 4-S s-r *-10 I-112 13t20 (Yuan) I t 3 4-s s.7 6.10 1t-1t 13-20 Yield kg - 120 180 250 300 600 1600 - .920 2.880 4.000 4.800 9.600 Input Investment Seedling Pi 750- 150 - - 0.30 225 45 - Urea kg 120 - - 2.08 249 Phosphabs(SSP) kg 150 - - 0.94 140 Manure ton 8 - - IS 00 120 AgFo-chemicals kg 2 - 20.00 40 IrrigatioWater m I5 - -so - - - a - Sub-totalInvestment Costa 782 45 Operaling Ures kg 120 120 120 120 120 120 120 2 08 249 249 249 249 249 249 249 Plhosphate(SSP) kg 150 ¶50 ¶50 150I 50 150 150 0 94 - 140 140 140 140 140 140 140 u Manure ton - 0 10 t0 10 10 to 10 IS 00 150 150 ISO150 ¶50 ISO 150 Agro-chemicals kg - 3 3 3 3 3 3 3 2000 - 60 60 60 60 60 60 60 Other Yuan 80 o0 80 80 80 80 0o Sub-totalOperatlng Costa 679 679 679 679 679 679 679 Sub-totalInput costs 782 724 679 679 679 679 679 679 Net Valueol Production D8olor.Labor Costs) -782 -724 -679 1.241 2.201 3.321 4.121 8.921 Labor Investment WDs 87 3 - 7.20 626 22 . Operating Weeding WDs 5 5 5 5 5 5 6 720 - 36 30 36 36 30 36 36 PesIlicdeapplcatlon WDs - 2 2 2 2 2 2 2 7.20 - 14 14 14 14 14 14 14 FerdMlzerapplkallon WDs - 10 10 '0 to0 10 ¶0 1o 7.20 72 72 72 72 72 72 72 Pnuning WDs - 20 20 20 20 20 20 20 7.20 144 144 144 144 144 144 144 Managenenl WDs 20 20 20 20 20 20 20 7 20 144 144 144 144 144 144 t44 llarvestlransportallon WDs 45 60 60 180 200 7.20 - - 324 432 432 1t296 1.440 Sub-toal OperatingCosts - 410 410 734 842 642 1.76 1.850 Sub-totalLabor costs 626 432 40 734 842 842 1.706 1.850 NotValue of Production(Aler Labor Costs) 1.408 -156 1,090 506 1.358 2.478 2.414 7.070

IRR 32.5%.NPV I 197f6.82 x 1;11)IC9: WAI,NU'S IN-I'l.ICROlr0PEI)(YUNCIIENG) CItO MODEL 1ECONOMIC BlUi)cDErPER IIECTAItE

Years a uanillesuUnl P,lce Economic Value (Yuan/hal Unit 1 2 3 4 5-7 I * 10 11 12 13 14.20 (Yuan) 1 2 3 4 5.7 6 5 10 II 12 13 14-20 Yield kg 1.000 1.200 3.000 3.500 o3,5004.000 600 6W0007.200 1t.000 21.000 21.000 24.000 By Products Soybean kg t00 700 600 500 400 400 40w 2 39 1915 1,676 1.436 1.197 g95 958 956 Soybeansitaw kg 640 420 360 300 240 240 240 004 26 IT 14 12 10 10 10 - Subtolal Revenue 1.941 t,693 1.451 1.209 967 967 6.967 7.200 19.000 21.000 Inputs 21.000 24.000 Investment SeedNing Pi 276 56 - 0Iso 417 64 Urea kg 100.. - 2 0t 206 Phosphale(SSP) kg 110 0 94 103 Ma3nee Ion 5.1500 75 Agro.hen4cals kg 2. - - - 20 00 40 inlgalanWaler m t 1 050 so 6 Sub4ot*lInvestment Costs 646 84 Operaling Seed kg 60 60 F o0 60 60 60 60 300 tto0 60 160 too too too ISo - OD Urea tekg O ISO 1S0 ISO 1so 150 200 200 200 200 300 300 2006 311 311 311 311 311 311 415 415 415 415 623 623 1 Phosphale(SSP) kg 300 300 300 300 300 300 400 400 4W 400 500 500 094 261 281 281 281 261 281 314 374 314 374 466 468 Ma1nure ton 20 20 20 20 20 20 20 20 20 20 20 20 I S00 300 300 300 300 300 3003 0 300 300 300 300 300 Agro-chemicals kg 2 2 2 2 2 3 3 3 3 3 4 4 20 00 40 40 40 40 40 60 60 60 60 60 60 Other Yuan s0 505050 50 so so 70 t0o o 100 100 260 260 Sub-lolal Operating Costs 1.162 1.162 1t162 1.162 1.162 1.202 1,409 1.239 1.249 1.249 1.750 is50 Sub40talIinput costs 2.010 1.248 1.162 1.162 1162 1.202 1.409 1.239 1.249 1.249 1.750 I1750 Not Valueof Production (BeforeLabor Costs) .69 447 269 47 -195 .235 5.556 5.961 18.751 19.751 Lrbor 19250 22.250 investment Ltnd Reclamation V\lt ISO 7 20 1.060 Otw tabour% WDS 75 4 `720 540 29 Operating Weeding WDs 40 40 40 40 40 40 40 4b 5 5 5 5 7.20 266 26 266 266 260 206 268 206 36 36 36 36 Pesticde apptcAtlon Wis 7 7 7 7 13 7 13 13 13 13 20 20 7.20 So so So 50 50 94 94 94 94 94 144 144 ferlltzerapplIcallonWDS 20 20 20 20 20 20 30 30 30 30 40 40 720 144 144 144 144 144 144 216 216 216 216 208 2S6 Pruning WDS 10 10 10 10 to 20 20 20 30 30 40 40 7 20 72 72 72 72 72 144 144 Managehenl Wi), so so so so 144 216 216 266 266 sb so so 50 so50 50 50 7.20 360 360 360 360 360 360 360 360 360 360 360 sowng WDs 360 75 45 45 45 45 45 45 7.20 540 324 324 324 324 324 324 ItaNest4Iransportalion WDS 60 60 60 60 60 70 70 90 100 100 ISO IS0 7.20 432 432 432 432 432 504 504 646 720 720 1.060 1.060 Sub-lotal Operating Costs. 1.666 1.670 1.670 1.670 1.670 1.656 1.930 1.750 1.642 1,642 2.196 2.1_6 Sub-total Laborcosts 3i506 1.699 1.670 1.670 1.670 1.065 1.930 1.750 1.642 1.642 2.196 2.196 NetValue of Producton (After Labor Costs) -. 575 1.253 1.382 -. 623 .1.865 .2.092 3.626 4.2i I15.109 16.109 17.054 20.054

IRR * 26.7%.NPV * 26.64062 Tabtl 10: CIIISI NUIS INTIEItCatOl''EI)(YUNCIIENC) ClIor MODEL IECONOMICl;UDGET I'EEl ZIECT1AiE

Years -> Quaniltles Unit Prke Economic VsIue IYuanlhal Unit 1 2 3 4 s5i I 10 11.t2 13-20 (YusnJ t 2 3 4 6.7 I 9 10 11-12 13-20 Udnr Production . . . 400 600 1.600 2.00W 3.000 *.000 2 00 800 1.600 3.200 4.000 6.000 16.000 By ProductS soybean k4 Soo Boo 700 600 500 500 500 400 239 1.915 1.915 1.6r6 1.436 1.197 1.197 1.197 958 Soybeansraw kg 640 840 580 480 400 400 400 320 a004 28 26 22 19 18 lo le I3 Total Revenue 1.941 1.941 1.698 1.456 2.013 2.8t3 4.413 4.9T0 6.000 triput costs 16.000 Inverlemnt costs Seedling Pi 400 00 . . . - 100 400 0o Urea kg 100 . . . . 0De 20.20 . Phosphat (SSP) g 110. . .". 94 103 Manure ton S. . . IS 00 75 Agro.chendcals kg 2 - - 20 00 40 .o bBrallon Waler m 11 O50 6 I Sub4otalInvetsmont COelA 831 0O Operating Coals Seed kg 60 60 60 60 60 60 .60 60 300 160 ISO too ISo Igo 160 Igo too Ulea kg 15o 150 150 150 ISO 150 200 200 200 300 200 311 311 311 311 311 311 415 415 415 623 Phosphate(SSPD kg 300 300 300 300 300 300 400 400 400 600 094 261 261 281 201 281 261 314 314 314 Sal Manua Ion 20 20 20 20 20 20 20 '20 20 30 1500 300 300 300 30w 300 300 300 300 300 450 Agro'emncaIa kg 2 2 2 3 2 2 3. 4 4 6 20 00 40 40 40 40 40 60 60 80 s0 120 Other Yuan So 50 50 so 60 70 60 90 100 t80 Sub-lotal Operating Costa 1t162 .tt62 1.162 1.162 'ii72 1.202 1.409 1.439 1.269 2.034 Sub-total Input costs 1.t93 1.242 1.162 1.162 .I72 1i202 1.409 1.439 1.269 2.034 Netvalue of Produclon ilelore Labor Costs) .52 699 536 294 841 1.611 3.004 3.531 4.731 13.966 Lebor knvestment LandRecdamation WDS 150 - - 7.20 1.00 - - OtherLabour VMS 70 4 . - T 20 547 29 Operating WeedV- WVS 40 40 40 40 40 40 40 40 5 5 7.20 268 266 268 286 286 268. 286 268 36 36 Pesicldae ppIaacon WDS 7 7 7 7 13 7 13 13 13 20 720 50 50 50 50 S0 94 94 94 94 144 Ferlllrerapp6slcn WDs 20 20 20 20 20 30 30 30 30 40 7.20 144 144 144 144 144 216 216 216 216 286 Pmntng WIs 10 10 10 10 10 20 20 20 20 30 7 20 12 12 12 72 72 144 144 144 144 216 Management W& 50 50 50 50 50so 50 s0 s0 s0 50 7.20 360 360 360 360 360 360 360 360 360 60 SO-rg WDs 75 45 45 45 45 45 45 45 7 20 540 324 324 324 324 324 324 324 - tt ltaNre,lndornsportlb WOs 60 60 60 60 70 75 75 80 100 150 7.20 432 432 432 432 504 540 540 576 720 1.060 Sub-total Oper X ting Costs 188.6 1670 1.610 1.610 1.742 1.906 1.966 2.002 1.510 2.124 Sub-totlALsbor costa 3.514 1.699 1.610 1.670 1.742 1.966 1.966 2.002 1.570 2.124 NetValue of ProducUon lAnaiLabor Costsl .3.566 .1.000 .1.134 .1.377 .901 .355 1.038 1.530 3.161 11.642

IRR * 20.S%.NPV a 1050455: -160 - ANNEX 9

Table 11: HORTICULTUREDEVELOPMENT CROPPING PATTERN AND ANNUAL ECONOMIC NET VALUE OF PRODUCTION (NWP)

NVPIha Total NVP annualfigures at full development Lullang 1 2 3 4 5 (Yuanrhal (Yuanmill.) Chiese Dates 3.158 7.105 11.053 14.211 15.000 12.443 186.65 Walnuts 875 1,750 2.450 2.800 2.800 18.409 51.54 Apricots 875 1,750 2.450 2.800 2.800 16.773 46.96 Apples 175 350 525 700 700 15.913 11.14 Sub-total Luliang 5,083 10,955 16,478 .20.511 21,300 296.30 Yuncheng ChineseDates 2.586 7.757 15.513 23.270 23.270 7.763 180.64 PridclyAsh 2.744 6.098 9.451 12.500 12.500 7.070 U8.38 Walnut 2.087 4.696 6.783 8.870 8.870 20.054 177.88 Chestnut 740 1.480 2.590 3.330 3.330 11.842 39.43 Sub-total Yuncheng 8.157 20.031 34.337 47.970 47.970 486.33 Total Project 13.240 30,986 50,815 68,481 69,270 782.62

Cash Flow Analysis (Yuan million)

Supporting Costs Tree Crops Value of Year Nursenes [PM NVP Timber al Net Benefit 1 324 0.89 -33.24 -37.38 2 - 0.21 -60.01 60.22 3 0.16 -83.16 43.32 4 0.09 -89.30 - -89.39 5 0.09 *58.46 .58.54 6 0.05O-32.80 -32.85 7 - 0.05 -6.99 -7.04 8 - 0.05 14.08 14.03 9 0.05 47.85 47.79 10 0.05 76.85 76.79 11 - -0.05 154.81 154.75 12 0.05 241.01 240.95 13 - 0.05 341.38 341.32 14 - 0.05 451.67 451.61 15 0.05 532.64 532.59 16 - 0.05 640.51 640.45 17 - 0.05 695.29 695.24 18 0.05 741.40 741.34 19 0.05 775.52 775.47 20 - 0.05 782.62 525.15 1.307.72

IRR: 25% NPV: 699

a* Estimatedvolume of walnuttimber is SOm'per ha valuedwith Yuan900 perm'. Valueof other tmeesnot considered.

Sensitivity Scenarios: ResultingIRR Fruit/NutSales prices dropby 20% 22% Fruit/NutSales prices dropby 50% 12% EconomicLabour costs increased by 20% 23% EconomicLabour costs increased by 50% 17% -161- ANNEX 10

ANNEX 10: ALL CHINA WOMEN'S FEDERATION

Summary

1. The All China Women's Federation (ACWF) is a national organization with representation at all levels of government. The Federation's aim is to assist women to improve their skills and earning capacity; Its committed and motivated staff work directly with their women in the townships and villages. Over the past six years in Luliang Prefecture the Federation has implemented a Rural Women's Poverty Alleviation Project (RWPAP). The aim of the project is to train and assist women in low-income families so that they can help other women in their immediate neighborhood.

2. Since its inception in 1989 the RWPAP has assisted women in 19,000 households and the initial loan funds of Y2.6 million have been fully repaid and reinvested in new enterprises. Over 70 percent of the recipients have undertaken small livestock enterprises and many of them have received their stock from the Federation's own livestock multiplication farms. Currently the Federation operates farms for cashmere goats, breeding rabbits, lean pig production and caged chickens. With the rapidly increasing demand in the national economy for livestock, these farms have proved a valuable source of supply and the weaner pig farm included in this component will add to this supply base.

3. The success of the Federation in Luliang in helping women in poor households to raise their incomes has received national recognition, and government funds have been provided for the construction of a training center in Lishi. UNICEF has also provided training equipment and some operational funding. The Federation's poverty alleviation program suffers from a shortage of loan funds and presently only 20 percent of the women in low income households are receiving some forn of assistance. The component will improve this situation by providing Y 3.0 million to be used for loans to poor households.

4. The main aim of the ACWF component is to assist in the development of small livestock enterprises at the household level in Luliang Prefecture. These enterprises will provide a new source of income for women without the need for additional land. In addition, such enterprises will provide assets to secure loans in times of financial emergencies.

5. The component will expand and diversify the existing livestock development programs of the Federation through better access to weaner pigs, laying chickens and breeding rabbits. Households will be offered loans to establish the small livestock enterprises and will be provided with technical, financial and marketing training by Women's Federation staff. Participants in the -162 - ANNEX10 component will form a core of households through which technical skills and new sources of livestock will become available for future expansion of similar enterprises at village level.

6. The main features of the component will be;

(a) the establishment of a weaner pig production farm in Luliang Prefecture.

(b) loans to women for small pig, chicken and rabbit production enterprises.

(c) the provision of technical, financial and marketing training for participating households.

Weaner Pig Production Farm

7. To increase the supply of weaner pigs for fattening,a farm will be establishedwith an annual productioncapacity of about 3,400 weaners. In recent years, the Women's Federationhas shown the capacity to operate successful livestock enterprises and competent technical staff have already been selected to establish and operate the proposed farm.

8. It is proposed to lease an existing pig farm in Lishi County and renovate and expand the facilities. About 200 new pigsties, a water storage tank and one kilometer of road will be constructed and the existing 10 pigsties, warehouse storage, feed processing room and worker accommodation will be renovated. Construction cost will be about Y182,000 and the work will be completed in the first six months of the project. Equipment purchase (YI 10,000) will include a feed grinder and mixing machine,a water pump and fittingsand a farmtruck for feed transportand livestock delivery.

9. About 600 young pigs and 5 stud boars will be purchased from which a foundation stock of about 200 breeding females will be selected. Artificial insemination will be used for breeding. It has been estimated that the breeding females (sows) will have an average of 2 litters per annum and about 17 piglets will be weaned from each mature sow. About Y 500,000 will be provided for livestock purchase and feed /veterinary costs. After selecting the foundation stock the balance of the pigs will be fattened for selling as pork at six months of age. This fattening exercise will only take place in the first year and its revenuewill be used to providethe requiredoperating funds in the second year before commencement of weaner pig sales.

10. About 700 households will receive up to five weaner pigs at market prices from the breedingfacility and initiallyall willbe fattenedand sold formeat.

11. While the above farm has been designedfor the productionof weaner pigs for meat, the plan is to receive approvalto sell young breedingstock. Presentlygovernment policies, in an effort to safeguardgenetic quality, control the sourcesof supply of breedingpigs. However,the existing governmentfarms are finding difficultiesin keepingup with demandand unless new sources of breeding pigs can be establishedthere is dangerthat expansionof the pig industrywill be limnited. Well-managedpiggery operations such as those operatedby the Women'sFederatfon will increase -163 - ANNEX 10 the supply of breeding pigs to farmers and the Federation's approach of using nucleus households rapidly increase quality pig production.

Small Livestock Enterprise Loans

12. The corner stone of the Women's Federation effort to alleviate poverty has been the provision of small production loans to the women of poor households. The project will support and further develop this capability by providing about Y 3.0 million for about 3,000 new loans. Finance will be provided to low-income households (annual eamings less than Y 300 per capita) for pig raising, egg production and rabbit rearing enterprises on repayment terms of 4-5 years. Principal repayments received during the project period will be recycled into further loans. The small livestock loans will be designed to acconmmodatea range of households with varying labor availability and inherent skills. Within a target group of low income households (those with anual earnings of less than Y 300 per capita), loans will be made for the purchase of pigs, chickens and rabbits. Recipients will be first trained and then offered a loan based on their skills and the labor availability within the household.

13. About 800 loans will be provided for fattening weaner pigs for pork. The average individual loan cost will be Y 2,375 and will provide for the purchase of 5 weaner pigs (8 weeks old) and sufficient foodstuffs for the first year's operation. The borrower will provide a suitable pigsty. The pigs will be expected to reach about 100 kg live weight within 26-30 weeks and will then be sold on the local markets. The pig fattening operation will be a relatively simple enterprise to manage with a low labor requirement. AWCF's experience with similar loans has shown a low incidence of animal health problems and satisfactory profit levels. The larger profit from the first year_s operation will be carried forward to pay for pig and feed purchase and this practice will be continued in subsequent years. Loan repayments will be spread over five years and the enterprise will self-sustaining thereafter. Annual profits are expected to be about Y 300-400 so raising household income by about 25 percent.

14. For egg production about 150 loans of about Y 2,000 will be made for the purchase of 110 day-old chickens and sufficient feed for the chickens. The borrower's contribution will be the purchase of laying cages. The day-old chickens will be reared through to 16 weeks when laying will commence. Each mature chicken will be expected to produce about 15 kgs of eggs and on ceasing laying the chicken will be sold on the market. Past experience has shown that successful egg production enterprises require high technical, financial and marketing skill levels. While the gross labor input required is comparatively low, the quality of labor needs to be high. Young chickens are susceptible to a range of ailrmentsand need careful attention. Feed quality is critical to both growth and laying frequency and correct financial management is essential to ensure the timely purchase of new chickens and future feed supplies. Marketing problems have been experienced where producers were isolated and the Federation has developed a policy of grouping egg producers. This approach attracts buyers to the villages, but also allows the producers themselves to collectively market their produce in the towns or directly to large industrial sites. However, notwithstanding the difficulties, the potential profits from an egg production enterprise can be highly attractive and margins are sufficientto repay a loan in four years. Training will be an important element of this component. -164- ANNEX 10

15. Rabbit production will be supported by 2,000 loans of about Y 400. The loan amount will allow for the purchase of 5 females and I stud rabbit, planting of about 0.13 hectare of grass or suitable fodder and a rabbit shed. Each female rabbit will be expected annually to produce 28 offspring that will be sold directly after weaning. While rabbit production is a simple enterprise to manage with low investnents it does have a high labor requirement for harvesting and transporting the fodder. Past experience has shown that about 110labor days are required each year for such an enterprise but returns to labor are about Y 9 per day and this is much higher than the normal opporunity cost for such labor at village level.

Training

16. The loan program will be supported by an extensive training program covering all areas in the Luliang Prefecture. Using the existing Women's Federation central training facility in Lishi and their 10 rural training centers, funds would be provided for the specific training costs and materials required to support the project's loan program. Emphasis would be placed on providing the appropriate technical , financial and marketing knowledge to potential loan recipients. Training activities would be aimed at about 6,000 women during the project period. Livestock availability will to a large extent dictate the training timetable but it is expected to be scheduled over a four year period. Total cost of the training program would be Y 750,000. Eleven training courses a year, one at each rural training center, would be provided throughout the project area. Each training course wil Ibe run for 3 days and would cater for 150 trainees. The project will fund the cost of accommodation, meals and training materials for the trainees and the wages for the teachers. The courses will cover the technical, financial and marketing aspects of small livestock production units. -165 - ANNEX I

ANNEX 11: AGRICULTURAL PROCESSING

Summary

1. The agroprocessing component includes 22 enterprises, of which there are 13 in Yuncheng and 8 in Luliang. These are expansions of existing enterprises except for four new enterprises in Luliang. The expansions consist of adding new equipment in buildings on factory-owned land near the existing facilities. This expansion of processing capacity adds value to the raw material produced by the project, and the profits accrue to communities in the project areas. A reliable market for their produce also gives the farmers more incentives to invest in higher yields and new crops. Furthermore, the enterprises add to the local tax base and create employment opportunities for managerial and technical staff, and off-farm employment for the farm households.

2. The enterprises are mainly township and village enterprises (TVEs), a form of ownership that is now common throughout China and can be seen as a transition between government ownership and ownership by private individuals. TVEs are subject to market forces in procurement of raw materials and the sale of finished products. The enterprises in this project plan to expand production to meet well-defined market opportunities, and they will in most cases acquire machinery that is more efficient and produces higher quality goods. Cost estimates are shown in Table 1.

Yuncheng Prefecture

Jishan Guangong Distillery

3. The distillery was established in 1988 as a township enterprise. The distillery produces white spirit from sorghum and other locally available grains and rice husk purchased from other provinces. The factory extension rill be located on an empty site about half a kilometer from the existing plant. Buildings will include raw material storage, warehouse, bulk white spirit storage, stores for packing materials, two packaging workshops, stores for finished products, a laboratory, dormiitoriesand other buildings. The existing site will be modified to provide more space for spirit manufacture and to move storage to the new site. The expansion will allow production to increase from the present 1,000 tons to 5,000 tons.

4. The distillery has won several awards and sells its products in 24 provinces of China and reports exporting 60 percent of its annual production to Russia, Korea, Thailand, Hong Kong, Macau, Taiwan and other parts of South East Asia. The Hong Kong Wang Li Brewery Company apparently will be able to take 2,000 tons per year for export to other parts of Asia, another company have signed a contract for the distillery to supply 1,200 tons of spirit, and at the China Spring and Autumn Export Commodities Fair the distillery secured contracts for over 2,500 tons. Local demand is 1,000 tons. The management,therefore, believes, with justification, that there will be no difficulty in selling 5,000 tons per year. The investment cost is Y 10.7 million. -166- ANNEXll

Wenxi Dehydrated Fruit and VegetableFactory

5. The factory started in August 1992 with a capacity of 400 tons per year of dehydrated products. In November 1993 this was doubled to 800 tons per year, although the factory is still workingup to full capacityand will probablyproduce about 700 tons this year. With the present production, drying is by hot air blowers. The main products are dehydrated Chinese onion, garlic slices, carrots, Chinese cabbage and other vegetables. These are mainly sold to South Korea, Japan, Singapore and Taiwan. The factory is a township enterprise managed as a collective. In 1993, the factory broke even and in 1994 expectsto make about Y 500,000profit. The feasibilityreport was prepared by the Shanxi Agro and Animal Husbandry Design Institute.

6. The plan is to expand the facilities on a I ha site next to the existing factory. A new buildingwill be constructedand equipmentinstalled to allow an annual productionof 220 tons of vacuumdehydrated vegetables and 500 tons of fruit and vegetablecrisps. The investmentcost is estimated at YI 1.6 million. The factory anticipates selling all its production for export. A contract has already been signed with a South Korean company to supply them with 3,000 tons of dehydrated vegetables over a three-year period.

Jishan Date Processing

7. The Company was establishedin March 1990 as a township collective enterprise. At present, the factory producesabout 500 tons of date products annually,composed of 100 tons of ginseng-soaked date, and 200 tons each of honeyed date and sweetened date slices.

8. The factory will be extended on the existing 18 mu (1.2 ha) with 4,500 m2 of existing buildings by construction of a further 3,260 m consisting of processing area, workshops, cellars, a boiler room and an electrical power distribution room. Total cost is estimated at Y6.5 million (US$0.80 million). Production will increase by 2,300 tons to 2,800 tons. For this level of production the intake quantity of dates will increase to around 4,600 tons per year.

9. The factory has an agent in Guangdong and has good export links. The Jiangmen company in Guangdongand other companiesin Guangzhouand Zhejiangwant to obtain a further3,000 tons of date products. Managementexpects exports to increaseto 1,000-1,500tons. Domestically,the factory has developeda good marketnetwork and sells in sevenprovinces. Main marketsare the cities of Beijing, Taiyuan, Dalian and Xian and the corporationis having considerablesuccess sellingits products.in railway stations and to airlines. The estimatedcost is Y 6.5 million.

Jiangxian Hawthorn Processing

10. The companywas set up in July 1989. The present factory has a design capacityof 250 tons of hawthornproducts, mainly hawthornjuice and some candiedhawthom. However, poor performanceof the equipmentand lack of workingcapital limit productionof about 180tons. Raw material is more readily available,and processedhaw fruit has a good market Plantinghawthom trees was encouragedby the county govemmentwhich had a policy for each householdto have I mu (0.07 ha) of hawthom trees. By 1993production of haw fruit in the county reached 6,000 -167- ANNEX 11 tons and the price which had been Y3.6 per kg in 1987 fell steadily to only around YO.4 per kg by 1993. As a result, there is strong pressure from farmers to increase processing capacity.

11. For the extension, the factory would move to a 10 mu (0.67 ha) new site about 0.6 km away from the present location. A 30-year lease has been signed for the site, that is next to the road with piped water and electricity readily available. The new factory would have a capacity of 1,200 tons per year of a variety of haw fruit products. Total investment cost is estimated at Y6 million.

Wanrong Dehydrated Vegetable Factory

12. The factory, set up in December 1993, has the capacity to produce 300 tons of dried vegetables per year. Up to September 1994 the plant had produced 75 tons of dehydrated vegetables, mainly sold to South Korea and Taiwan. The plan is to establish a slaughter and beef dehydration facility adjacent to the existing vegetable dehydration operation. It is proposed that the beef dehydration unit will have an annual production capacity of around 100 tons from processing 440 tons live weight from 1,100 beasts. In addition, the extension will allow the vegetable dehydration capacity to increase by a third to 400 tons per year. The cost of the extension is estimated at Y7.5 million. The feasibility study was prepared by the Shanxi Food Industry Institute.

Guanghua Food Processing Factory

13. The factory, in Guanghua township of Wanrong County, was set up in 1990. It has developed an excellnt reputation for candied fruiits. Annual production is 500 tons and the plan is to expand this to 400 tons of dates, 300 tons of apples, 400 tons of haws, and 300 tons of apricot. New equipment will be installed on a vacant site near the plant. The estimated cost is Y 3.7 million. The feasibility study was prepared by the Shanxi Food Industry Institute.

Yuanqu SiLkReeling

14. The mnillwas set up in 1981 as a township enterprise and is under the Yuanqu Silk and Cocoon Corporation which both assist households to produce silk cocoons and operates the mill. Present output of the mill is 30 tons of white reeled silk per year on a single shift, which could be doubled by introducing a second shift. About 300 households with one million mu (67,000 ha) of mulberries supply cocoons to the mill, which also buys cocoons from other areas.

15. The planned expansion has a number of components. Additional silk reeling equipment will be installed with an annual capacity of 14 tons of white silk per year. This together with the existing silk reeling equipment and introduction of a second shift will enable the reeling mills production to increase to 70 tons per year. Machinery will be installed to produce silk cloth including 24 looms for production of crepe de chine, 24 looms to produce other types of silk fabric, and associated equipment. These will have a combined capacity of 60 million m2 of silk cloth (equivalent to 56tons of silk) per year. The remaining 14 tons will be sold as reeled silk. In addition, 55 sets of equipment for the manufacture of silk clothing. Finally, there the mill will assist specialist silk- producing households. This will total Y1.5 million and include Yl million for purchase of mulberry seedlings, silkworm eggs and tools, Y40,000 for improvement to the -168 - ANNEX II

SericultureService Centre and Y100,000for trainingprograms. Total cost is estimatedat Y10.2 million. The feasibilitystudy was preparedby the ShanxiLight Industry Design Institute.

XiaxianFeedmill

16. The company was set up by the Xia county Animal HusbandryBureau in 1992. The company operates commerciallyand assumes sole responsibilityfor profit or loss. The present businessis keeping60,000 meat chicken(broilers) parent generationbreeding stock, which in 1992 produced11.2 nillion eggs,about a third of which werekept for hatchingto provide day-oldchicks for local farmers and the balance sold to Guangzou. The companyhas a small existingfeedmill which produces 1,750tons of chickenfeed per year (0.5-0.75tons per hour, or 5 tons per day); this is inadequatefor present feed needs of 2,160 tons annually. The business is housed in disused policebarracks transferred to the localgovemment.

17. A 30,000 ton animalfeed annual capacitymill (100 tons per day) will be constructedon a site adjacentto the existingpoultry farm and mill. The plan is to produce 10,000tons of chicken concentratefeed, 10,000 tons of chicken compoundfeeds, and 5,000 tons each of pig and cattle compound feeds. There are 14 small feed mills in the whole of Yunchengprefecture with a total productionof 29,000 tons, which is about 5 percentof the prefecture'sdemand. Thereare no large mills in the area, the closestbeing in Taiyuanand Xian. Constructionof the mill will be part of an overall plan for large scale broiler production. Total cost of the investmentis estimatedat Y5.3 million. The feasibilitystudy was preparedby the Shanxi ConstructionDesign Institute of the ShanxiFeed Station.

18. Wuhan, Sanmenxiaand ChaoyangDistrict have signed a contractwith Xia county for the supply of 2 million broilers annually. About one-thirdof the eggs producedby the companywill be used to produce around 2.5 million chicks. These will be suppliedto 10,000households for rearing and fattening. The companywill supplypoultry feed totalling 12,000and will collect and sell the finished birds. This operationand the company'sown poultry farm will, therefore,require about almost half the new mills feed output. The balance of about 6,000 tons of poultry feed and all the pig and cattle feed will be sold within the Yunchengprefecture. At present there are reportedto be about 20,000 chickenproducing households in Xiaxian.

19. Marketing plans for the balance of poultry feed and pig and cattle feed are yet to be developed,but given the reported scarcity of processedanimal feed in Yunchengprefecture this shouldnot prove a problem,so long as qualityand price are acceptableto farmers. Raw materials such as maize, oilseed cake, bran and bone meal are all readily available in Xia county and surroundingcounties.

Xiaxian Flour Mill

20. The existingmill is long established,starting in 1964,and is the responsibilityof the Grain Bureau. Since 1989the mill has followeda commnercialand market-orientedsystem of operation, but profits have fallen in recent years due to old equipment,outdated technology, market demands for high grade flour, and competitionfrom a number of small new privatemills. Productionwas 9,000 tons of flour in 1992,but breakdownsand lack of demandfor a poor qualityproduct has -169 - ANNEX 11 causedoutput to fall to 5,000 tons. The presentmill buildingwill be rebuilt to house a flour mill with a 14,000ton annualcapacity producing a range of qualityflours. The flour producedwill be sold within the county prefectureand province. The feasibilitystudy has been prepared by the ZhengzhouGrain Institute. The mill, as a long establishedbusiness under the GrainBureau, should have no problemto marketthe outputor to secureadequate supplies of wheat.Xia countyproduces 90,000tons of wheatannually. Total cost is estimatedat Y8.3 million.

Wenxi Biscuit Factory

21. The Wenxi YichengBiscuit Factorywas establishedin September1992 and produces 22 kinds of biscuit products. The factory is a Lingxidongtownship enterpriseand the finance to construct and start the company is reportedto have been collectedby private individuals. At present the factory buys around 1,500 tons of flour and produces about the same weight of biscuits.

22. The factory will move to a new site and be expanded by adding a mill with a 60 ton per day capacity (in three shifts) milling 15,000tons of wheat per year and producing 9,500 tons of special flour for biscuit production. Initially, the company plans to sell the flour but anticipates that in five years its own biscuit production will absorb the mill's output. Total cost is estimated at Y2.5 million. The feasibility study was prepared by the Shanxi Food Industry Institute.

Xinjiang Dehydrated Vegetables

23. The factory is located in Nanzhuang village of Hengqiao Township, and is in an area where the farmers specialize in vegetables. Its annual production is 400 tons of dehydrated tumips, onions, cabbage, garlic and other vegetables. It has customers in Korea, Japan, Europe and the USA. The plan is to expand production to 1,600 tons. Buildings and new equipment will be installed on vacant land next to the factory. The investment cost is Y 4.7 million.

Yuncheng Flour Mill

24. The mill, in the western suburb of Yuncheng City, began production in 1990.In 1994 it processed 3,000 tons of wheat and produced 1,800 tons of specialized flours. Markets are well-established in Taiyuan, Beijing, Shanghai and other cities. The plan is to expand production to 12,000 tons of wheat, and 9,000 tons of flours. New equipment will be instalWledon a site close to the plant. The estimated cost is Y 6.5 million.

Pinglu Fruit Packing

25. . The enterprise was set up in 1993 to pack apples for markets in Guangzhou and other cities in China. It draws on local production of high quality apples, especially the Fuji variety which is in demind in the domestic and export markets. In 1994, over 1,000 tons of beeswax coated apples were sold. The plan is to expand annual capacity to 5,000 tons of wax-coated Fuji apples. New grading, washing, coating and packing machinery, and temperature-controlled storage will be installed on a site next to the existing factory. -170 - ANNEX 11

Luliang Prefecture

Linxian Paperboard Mill

26. The mill commencedoperation in 1989, financed by a govermnentinvestment of Y2.3 million, of which Y1.20 million was as a poverty alleviationloan and YO.9 million from the provincialSPC. It is the responsibilityof the LinxianTownship Enterprise Administration Bureau. Presentdesign capacityis 1,000tons annuallyof corrugatedpaper, about half used for production of 500,000 m' of boxes and the balancesold. In 1993,the mill is reportedto have produced935 tons of corrugatedpaper, of which400 tons were sold as paper and 475,000m 2 of boxes.

27. Main raw materials are wastepaper,wheatstraw and purchasedwood pulp. The mill has signed agreements for purchasing waste paper from surrounding counties. Total supply is estimatedat 5,000 tons - of whichthe mill will need about 36 percent,or 1,800tons. Present price of com stalks and wheatstraw, delivered to the mill,are respectivelyY40 and Y80 per ton. Around 100 tons of wood pulp will be required. Presentprice is Y3,200per ton (UJS$368per ton). At present,the mill can only make roughkraft suitablefor the comugatedcore and buys better quality kraft paper for facing. The plan is to expandcapacity of kraft box paper by 1,400tons per year and increasecorrugated cardboard for box making by 2.5 millionm2, to a total of 2,400 tons and 3.0 million m2 respectively. Total cost is estimated at Yll.0 miUlion. The feasibility study was preparedby the ShanxiLight Industry Design Institute.

28. The present demandfor boxes in Linxian is 7-8 million m2 The Linxianmill is the only significantmanufacturer of boxesin Luliangprefecture, which has a numberof smallplants with a combinedoutput of only 0.5 millionmr.

Fangshan Oil Mill (NewEnterprise)

29. A number of oilseed crops are producedin Fangshancounty, including rape seed, linseed, mustard,sunflower and soybean.In 1993,3,300 ha of oil seeds producedabout 4,000 tons. The countyplans to plant an additional2,000-2,700 ha to oilseedsand raise productionto around6,500 tons. Simple local processingby around 20 small simple, low technologymills consumesabout 1,500 tons of the county's production. The balance of around 2,000 tons is presently sold for processingin other areas. The qualityof oil producedis poor.

30. The plan is to establish a new mill in Madihui village. The mill will have an annual capacityof 4,000 tons of oilseeds. Througha processof expelling,followed by solventextraction and oil refining,the factory aims to produce,1,135 tons of cooking oil and 2,000 tons of oilseed meal.Totalinvestrnent costs are estimatedat Y 4.4 million. The feasibilitystudy was preparedby the ShanxiLight IndustryDesign Institute.

Shilou LeatherFactory

31. The factory was establishedclose to Shilou county town in 1991 to process goat hides, which are readily availablein the surroundingarea. The plan is to expandoutput of leather and to produceleather clothing. New equipmentwill be purchasedand set up in new buildingsadjacent to -171- ANNEX 11 the existing facilities, together with a treatment plant for effluents. The estimated investment cost is Y 2.4 million.

Xingxian Cereal Processing Factory (New Enterprise)

32. This is a new enterprise, to be set up 7 km from Xingxian county town, to produce 2,000 tons of cowpea and grade and pack 1,000 tons of mung bean, 800 tons of red bean, and 200 tons of other beans. It will be built on the site of an abandoned silkworm farm. Farmers in the area specialize in these crops, but lack of a nearby processing plant depresses prices. There is a good demand for the output of the plant in Taiyuan and other cities throughout China. The estimated investment cost is Y 2.7 million.

Linyu Distillery

33. The distillery, a township enterprise established in 1985, produces about 1,000 tons per year of white spirit from sorghum, wheat bran, millet husk and other materials. Present production is purchased by the larger and well-established Xinhuachun Fenjiu Distillery. Under a contract signed in 1993, the latter will purchase up to 600 tons of distilled spirit in bulk each year. Last year the distillery was awarded the Superior Quality Liquor designation by the Shanxi Province Township Industries Bureau and demand exceeds production.

34. The present location of the distillery is in a remote hilly area where water quality is good and there is no other industry. The plan is to extend the facilities on an adjoining site of 2.6 ha to enable the distillery to produce 1,000 tons more spirit and to bottle and package 40 percent of the incremental production. A further 160 workers will be employed bringing the total staffing to 225. The feasibility study was prepared by the Shanxi Light Industry Design Institute.

35. The present contract with Feniu is attractive to the distillery because it enables them to sell in bulk and they have no proper bottling plant. The addition of a bottling plant will make it possible to bottle the balance of the incremental production (400 tons) and presumably the existing production, also of around 400 tons. Since the product is of good quality and the market appears buoyant, this will help to increase the distilleries independence and allow it to develop its own lines.

Shilou Feed Mill

36. The mill started in 1984 as a township enterprise with an annual design capacity of 800-1,000 tons of animal feed. In the last three years production has been around 1,000 tons mainly chicken and pig feed. Annual sales value has been about YI million and net profit of Y50,000. The mill will be expanded on its existing site. A 2.5 ton per hour mill will be installed to produce 6,000 tons of feed per year working 300 days and 8 hours per day.

37. Total investment is estimated at Y 2.96 million ($340,000), including incremental working capital of Y 415,000 ($48,000). Total staffing of the mill will increase from the present 11 to 25, mainly through employment of additional workers, clerical and maintenance staff. The feasibility study was prepared by the Shanxi Light Industry Design Institute. -172 - ANNEX I1

Liulin Date Processing Factory (New Enterprise)

38. Chinese date production in Liulin in 1993 was around 3,000 tons and is increasing each year. According to the feasibility report, about 8,000 tons were spoilt last year by mildew and rot before they could be sold. Wild dates are also readily available in the area (around 340 tons) and at present there is little processing capacity in the area.

39. In 1993, the Liulin Date Developing Company (LDDC) and the Sanjiao Township Enterprise Company (STEC) of Liulin county set up a joint stock company. So far the enterprise has functioned mainly as a trading company. The company buys about 1,300 tons of date and sells about half through three outlets, in North-East China, Zhejiang and Guangzhou. In addition, LDDC has some experience in date extract and date juice manufacture. STEC has some experience of smashed dates, candied dates and rudimentary packaging using a very traditional workshop.

40. With their existing finance, the company has acquired a site and three buildings with a total ground plan area of 1,000 m2 which are close to completion. The plan is to construct and equip additional buildings with an of 2,000 m The factory will produce 1,000 tons of graded dried (25-30 percent moisture) and packed dates and 1,000 tons of wild Chinese date juice. The dried dates will be tunnel dried and packed in plastic bags. The feasibility study was prepared by the Shanxi Light Industry Design Institute.

41. The main export markets are Japan, Korea, Malaysia and Singapore. Soft drink production nationally is reported to be 4.5 million tons and is projected to reach 6 million in 1995 and 10 rnillion by the Year 2000. Production of soft drinks in Shanxi is about 5 percent of the national total and drinks are imported from other provinces.

Lishi Date Processing Factory (New Enterprise)

42. The proposed new enterprise will be a joint stock company under the general corporation of township enterprises of Lishi county. A board of directors is to be formed with five members who will appoint a factory manager. The feasibility study was prepared by the Shanxi Light Industry Design Institute. The factory will be housed partly in a disused slaughterhouse 7 km north of Lishi and partly in new buildings to be constructed on the same site. Most of the old slaughterhouse buildings will be demolished to allow construction of the new workshops but the offices, cold stores, dormitory accommodation and service buildings will be retained.

43. The expected annual production will be 400 tons of Chinese date (jujube) and a similar quantity of jujube coffee. These two products have been developed by the Food Processing Department of Luliang College. The products have attracted interest of both foreign and Chinese food industry specialists and a patent has been obtained on the process. About 2.3 tons of date coffee has been produced on a pilot basis for test marketing and as samples. At the Xianen Economic Negotiation in July this year, the Zhenfa Private Limited Company from Singapore signed a letter of intent to purchase 1,000 tons of jujube at a price of Y 30,000 ($3,450) per ton. Total cost of the enterprise is estimated at Y 6.6 million. -173 - ANNEX 11

Financial Analysis

44. A financial cash flow analysis based on a 17-year period has been undertaken for all agroprocessing plants in the project (Table 2). The weighted average financial rate of return is 28 percent and ranges from 18 percent for the Xiaxian Flour Mill to 45 percent for the Wenxi Biscuit Factory. Most of the factories break even between Year 6 and Year 8.

45. Three sensitivity scenarios have been modelled for each factory: (a) a drop in the sales prices of 5 percent; (b) a drop in prices of 10 percent; and (c) a reduction in the production capacity by 20 percent. The financial parameters of some of the factories are sensitive to a drop in the sales prices. Particularly those factories with a low fixed costs and high turnovers that operate with small margins. However, these type of enterprises would generally compensate by paying lower prices to their suppliers of raw material. All of the factories would still be financially viable under a reduced capacity of 20 percent. However, the Xiaxian Flour Mill would be just at the margin with a FIRR of 12 percent. Most other factories could economically operate even at lower capacity rates.

46. An expansion of the agroprocessing activities in the project area shows a number of important economic benefits. Processing generally doubles or triples the value of agricultural raw materials and a large share of this additional value would be kept within the region in the form of employment and income. Processing of perishable agricultural raw materials such as fruits and vegetables close to the place of production reduces significantly post-harvest storage and transportation losses. For all products, transportation requirments are reduced and become less time-bound. This is an important factor China where the transportation system is under pressure. Table 1: AGROPROCESSINGINVESTMENT COST SUMMARY (Values in Yuan Million)

Investment Costs lincl contingencies) Buildings Equipment Working IDC Other Yuncheng a/ bi Capital c/ di Total Jishan GuangongDistillery 4.83 3.94 1.91 1.33 0.59 12.60 Wenxi DehydratedVegetable Factory 2.63 6.48 1.84 1.45 1.07 13.48 Jishan Date Company 2.07 2.73 1.32 0.67. 1.05 7.84 Jiangxian Xinxing Food ProductsFactory 2.35 1.89 0.89 0.66 0.78 6.57 Wanrong DehydratedVegetable Factory 2.09 3.80 0.3 0.95 1.37 9.03 GuanghuaFood ProcessingFactory 1.63 2.35 0.55 0.57 0.29 5.39 Yuanqu Silk ReelingPlant 4.97 3.72 2.92 1.32 2.13 15.07 Xiaxian FeedMill 2.21 2.94 3.66 0.64 0.68 10.12 Xiaxian Flour Mill 2.14 4.44 1.03 1.17 0.85 9.62 Wenxi Biscuit Factory 1.31 1.31 0.44 0.42 0.41 3.89 Xingliang DehydratedVegetable 1.07 2.43 1.02 0.54 0.64 5.70 YunchengFlour Mill 1.22 4.58 0.67 0.97 0.74 8.18 Pinglu Fruit Packing 2.32 1.07 0.22 0.20 0.51 4.32 Sub-TotalYuncheng 30.84 41.68 17.30 10.90 11.11 111.83 Lullang Linxian PaperBoard Mill 3.13 7.40 0.97 0.60 0.59 12.68 FangshanCooking Oil Refinery 1.66 3.22.1 2.20 0.24 0.19 7.41 Xinxian CerealsProcessing Mill 1.03 2.12 1.50 0.16 0.17 4.98 Shilou Leather Factory 0.53 1.97 0.65 0.15 0.21 3.51 Liulin Liuyu Distillery 4.78 3.85 0.52 0.47 0.25 9.87 Shilou FeedMill. 1.51 1.44 0.56 0.11 0.07 3.69 Liulin Date ProcessingFactory 2.55 3.82 1.63 0.34 0.27 8.60 Lishi Date ProcessingFactory 3.10 3.13 2.96 0.26 0.24 9.69 Sub-Totd Lullng 18.18 26.95 10.99 2.32 2.00 60.45 Total Project - 49.02 68.63 28.29 13.23 13.11 172.28 a/Inldin Land. bI kiciing tr,uportaton equipmentand costs for isat.Uiton. c/ InterestDuNn Construction di Mawagement.Supervisn anddesign lees. Table 2: ACROPrOCFSSINCFINANCIAL ANALYSIS SUMMARY la (NPV in Yuan Million)

Serlsilivity Scenarios BaselineScenario sahesPrices *ow ReducedCapacity Btak Even by 6 % by 10% by 20 % BreakEven Yunchong FIRA NPV In Yer FIRR NPV FIRR NPV FIRR NPV at Jishan Guangong Distillery 25% 9.44 8 21% 6.35 17% 3.26 19% 4.92 60% Wenxi Dehydrated Vegetable Factory 25% 11.61 8 22% 8.18 18% 4.75 17% 4.23 70% Jishan Date Company 41% 7.75 5 20% 2.28 1% -3.18 19% 2.09 75% Jlangxian Xinxing Food Products Factory 25% 5.96 8 19% 3.17 13% 0.37 17% 2.06 70% Wanrong Dehydrated Vegetable Factory 29% 7.66 6 26% 6.15 22% 4.63 21% 3.86 60% GuanghuaFood ProcessingFactory 23% 3.63 9 19% 2.21 15% 0.78 17% 1.48 65% Yuanqu Silk leeling Plant 27% 11.44 8 22% 7.46 17% 3.47 19% 5.46 65% Xiaxian Feed Mill 37% 10.20 6 24% 4.29 7% -1.63 31% 7.27 30% Xiaxian Flour Mill 18% 1.64 12 3% -2.03 -5.70 12% -0.12 80% Wonxl Biscuit Factory 45% 10.01 6 35% 6.76 24% 3.50 35% 6.42 45% u1 Xingjiang DehydratedVegetable 25% 5.25 8 14% 0.57 -4.10 15% 1.11 75% YunchengFlourMill 28% 7.32 7 21% 4.14 14% 0.96 18% 2.63 65% Pinglu Fruit Packing 39% 6.36 5 -5.01 -16.39 18% 1.25 75% Sub-Total Yunch.ng 28% 104.19 7 20% 47.62 10% -8.94 19% 42.80 Luliang Linxian Paper Board Mill 26% 9.10 7 23% 7.39 21% 5.67 20% 4.85 55% Fangshan Cooking Oil Refinery 32% 9.60 6 27% 7.13 22% 4.66 23% 5.38 55% Xinxian CerealsProcessing Mill 31% 6.12 6. 20% 2.76 10% -0.61 22% 3.10 60% Shilou Leather Factory 22% 2.06 9 19% . 1.49 16% 0.92 15% 0.68 70% Uulin Liuyu Distillery 21% 4.23 9 18% 2.94 16% 1.65 14% 0.80 75% Shilou Food Mill 26% 2.82 7 20% 1.66 15% 0.50 19% 1.48 55% Liulin Date ProcessingFactory 28% 8.16 7 23% 5.57 18% 2.99 20% 4.20 60% Ushi Date ProcessingFactory 29% 12.18 7 23% 7.50 16% 2.82 21% 6.08 60% Sub-Total Lulang 27.% 54.28 7 22% 36.45 17% 18.62 20% 26.56 Total Project 28% 158.47 7 21% 84.07 13% 9.68 19% 69.45

Al Basedon I7yo cashflw. -176 - ANNEX 12

ANNEX 12: SOCIAL ASSESSMENT

Poverty Alleviation Programs in Shanxi Province

1. In 1990, 50 countiesin Shanxi were included in the national poverty program- Help the Poor Fund. This programwas renamed the "Eight-SevenPoverty Alleviation Plan" which commencedin 1994 and aims to solve poverty alleviation for 80 million people in seven years (by 2000). In 1992,the national criterionwas set at 400 yuan per capitaand the provincialcriterion to 500 yuanper capita.

2. Shanxi is one of the poorestprovinces in China. For isolatedtownships that lack good infirtructure, the outlook for poverty alleviation is vezy bleak without outside assistance. The poverty alleviation strategy of the Shanxi Government focuses on improvement of cultivated land, rural infiastructure,developing ural enterprises, and diversifyingagricultural production with orchards,livestock breeding and forestry.

3. In LuliangPrefecture, 9 of 13 countieswere includedin the program in 1990 and they have receivedYuan 418.6million as of 1993. In 1991,5 of 13 countiesin Yuncheng Prefecturewere also addedto the programand they have receivedYuan 44.3 million as of 1993.

4. RelatedPrograms Being Implemented in the ProjectAreas with ForeignAssistance:

- World Food Programme,Project No. 3923, aimed at poor areas in Luliang Prefecture.

* WHOand UnicefHealth Program for healthand hygieneeducation.

* World Bank Loess Plateau Project for agriculturaldevelopment and soil conservation.

* WorldBank Primary Education Project for schools,curriculum development and teachertraining.

5. ChinesePrograms Being Implemented in ShanxiProvince:

* Chen Poverty AlleviationProject, which includes adult literacy, skills training, health and hygieneeducation, and reductionof drop out rates in schools.

* ProjectHope, an educationprogram for school drop outs in povertystricken areas. -177 - ANNEX 12

* Green Certificate Training Program to teach farmers modem scientific methods.

* Various development and training programs undertaken by the All China Women's Federation.

Project Components and Benefits

6. Figure 1 sunmmarizesthe project strategy and logic for alleviating poverty in the project areas-Yuncheng Prefecture and Luliang Prefecture. There are many factors that are both the causes and symptoms of poverty. The IDA supported Project focuses on addressing poverty related issues directly with investments in three areas:

(a) agricultural development;

(b) rural water supply and roads; and

(c) agro-processing enterprises.

7. There will be no investment in social services such as education or health because there sectors are covered by existing programs; however, an indirect benefit is anticipated because higher incomes can lead to a dramatic improvement in living standards, housing, nutrition, health care and education. In this manner, the project should help to alleviate poverty by directly raising incomes and imnprovingliving standards, and by ii,directly benefiting social services which have been targeted by other programs. So rather than be designed as a fully integrated project targeted at specific villages, this project aims to augment an existing sector program for poverty alleviation that has identified subprojects that can greatly benefit a large number of poor people.

8. The project components for Yuncheng Prefecture include:

(a) rehabilitation of the Langdian, Xiaofan and Zuncun pumping schemes and upgraded irrigation system for 123,000 ha, which will benefit 750,000 people in four counties;

(b) improvement of river beachland areas through investment in 1,250 tube wells, land levelling for 13,000 ha, power supply and road construction, which will benefit 450,000 people;

(c) orchard developments covering 71,400 ha of cultivated land, which will benefit 400,000 people;

(d) livestock breeding of 39,000 cows and improved pastures for 130,000 sheep in the mountainous areas, which will benefit 9,500 households;

(e) 78 rural water supply schemes for 516 natural villages, which will benefit 621,500 people and 118,000 livestock; -178 - ANNEX 12

(f) upgradingof six rural roads with a combinedlength of 202 Ian, which will improveaccess for 185,000people;

(g) aquaculturedevelopment for 533 ha of fish ponds, which will benefit6,150 people;

(h) investment in 13 agro-processingfactories, which will employ 2,000 workers;and

(i) supportfor technicaltraining and agriculturalextension services.

9. The projectcomponents for LuliangPrefecture include:

(a) landterracing for 13,400ha of slopeland,which will benefit100,000 people;

(b) constructionof 56 check dams to prevent soil erosion, which can benefit localfarmers directly and reducesedimentation and floodingin downstream sectionsof the YellowRiver;

(c) plantingof 4,200ha of foreststo protectagainst soil erosion;

(d) orchard developmentscovering 21,300 ha of cultivated land, which will benefit 120,000people;

(e) raisingof 12,400cows and grasslandseed nursery,which will benefit3,100 households; (f) 204 village water supply schemes,which will benefit 63,900 people and 5,560livestock; (g) upgradingof five rural roadswith a combinedlength of 118 km, which will improveaccess for 132,000people;

(h) investment in eight agro-processingfactories, which will employ 1000 workers;and

(i) supportfor technicaltraining and agriculturalextension services.

Baseline SocioeconomicConditions

10. Table 1 shows a comparison of the baseline socio-economicconditions in the Yunchengand Luliangproject areas. The Yunchengarea has better agriculturalland and greater agriculturaloutput, but it is spread over a populationwhich is twice as large as the Luliang project area. Since the Yunchengproject area encompassesthe entire prefecture, the statisticsare improvedby rural industryand economicactivity around YunchengCity. However,the mountainousparts of Yunchenghave severepoverty conditions. -179 - ANNEX 12

11. The Luliang project area is targeted at the poorest counties in a poor prefecture. The poverty conditions relate to poor natural conditions, including serious soil erosion, drought conditions, cold winters and lack of water resources. The population density is lower than in Yuncheng but the poverty conditions in Luliang are widespread. This part of Luliang Prefecture does not possess abundant rural industry; any of the large mines are State owned.

Rural Incomes in Yuncheng Prefecture

12. The average annual net income for the rural population was 480 yuan per capita in 1992. This ranged from a low of 379 yuan in Pinglu County to a high of 574 yuan in Yongji County. The higher incomes tend to reflect proximity to urban centers or mining districts. Map la shows the distribution of rural per capita incomes at the township level in 1992. In 1993, income levels rose by an average rate of 22.1 percent, although the real increase after inflation was only 8.0 percent. This was considered a good crop year because the rain came at the right time; yields were 27 percent higher than in 1992. In 1994, incomes rose again by an average rate of 28.5 percent, but since inflation was very high, the real increase was only 4.1 percent. Fortunately, the farmers benefited from significant increases to crop prices which enabled them to keep pace with the general cost of living. In real terms (1992 prices), the 1994 per capita rural net income for Yuncheng was 540 yuan and ranged from 415 yuan in Yuanqu County to 636 yuan in Yongji City.

13. Table 2 shows the distribution of rural income groups in 1992. Only 2.4 percent of rural households had a net income less than 200 yuan per capita but 9.9 percent were between 200 and 300 yuan and 57.5 percent were between 300 and 500 yuan. 30.1 percent of households earned more than 500 yuan although most of them earned less than 800 yuan per capita. In 1993, one of the best years for crop output, almost 60 percent of the households earned more than 500 yuan per capita. Map la shows that in 1992, 86 townships (41 percent of the 211 townships) were below the national poverty line and 140 townships (66 percent) were below the provincial poverty line. Map l b shows 1994 income levels expressed in terms of 1992 price indices. In 1994, 41 townships (19 percent) of townships were below the national poverty line and 99 townships (47 percent) were below the provincial poverty line. Therefore, there was an improvement in income levels between 1992 and 1994 which is attributable to good weather, crop yields and grain prices; however, a large number of rural people are still below the poverty line. In a year with a serious drought, an estimated 70 percent to 80 percent of the townships and as many as 80 percent to 85 percent of rural households could fall below 500 yuan per capita.

Rural Incomes in Luliang Prefecture Project Area

14. The average annual net income for the rural population was 318 yuan per capita in 1992. This ranged from a low of 272 yuan in Xingxian County to 372 yuan in Liulin County. Map 2a shows the distribution of rural per capita incomes at the township level in 1992. 104 townships (89 percent of the 117 townships) had net incomes below the national poverty level of 400 yuan per capita. -180 - ANNEX 12

15. In 1993, incomelevels rose by an averagerate of 23.9 percentbut the real increase was 10.2 percent. In 1994, incomelevels rose another 44.5 percent due to higher grin prices. In real terms (1992 prices), the 1994 per capita rural net income for the Luliang projectarea was 398 yuan and rangedfrom 316 yuan in the four projecttownships of Lishi City to 435 yuan in Liulin County. Althoughthis is an impressive25 percentreal increase since 1992,there were still 82 townships(70 percent)below the national poverty line and 108 townships 92 percent) were below the provincialpoverty line, based on 1992 prices (see Map 2b). Significantincreases were made in the counties of Lanxian (56 percent increase) and Xingxian (52 percent increase),both situated in the northern part of the prefecture.In a bad year, 95 percentof the townshipsare likely to fall below the national povertyline.

16. Table 3 showsthe distributionof rural incomegroups in 1992. Only 6.9 percentof rural householdshad a net income less than 200 yuan per capita but 32.3 percent were between200 and 300 yuan and 52.6 percentwere between300 and 500 yuan. Roughly70 percent of the householdsfell below the poverty line (400 yuan per capita). Only 8.2 percent of householdsearned more than 500 yuan. When incomesrose by 24 percent in 1993,82 percentof the householdsstill earnedless than 500 yuanper capita.

SocioeconomicIssues

17. The followingissues were identifiedand resolvedafter discussionswith the PMOs.

(a) measurement of incomes (village statistics versus actual household incomes);

(b) target groupsfor projectinvestment/benefits;

(c) farmer'slabour inputs forthe project;

(d) projectbenefits and impactson women;

(e) inclusionor exclusionof socialinfrastructure in project;

(f) public consultation and participation in project decisions and implementation;

(g) equitableallocation of projectbenefits (selection, operation);

(h) cost recoveryfrom rural beneficiariesfor each projectcomponent;

(i) surplus male labour in rural areas and seasonalityof labour requirements; and

(j) fundingfor trainingand agriculturalextension services. -181- ANNEX 12

18. The following paragraphs indicate the status of public awareness, public consultation, community participation and involvement of women.

Public Awareness

19. Since the Poverty Alleviation Office has already been financing projects for ten years in Luliang Prefecture and four years in five counties of Yuncheng Prefecture, many rurl people are quite aware of the poverty alleviation program. During the process of project preparation, four World Bank/FAO missions and two years of continuous investigation by the PMOs have created widespread awareness for the project. The township offices have been active in identifying candidate villages and households.

20. Local television and newspapers have reported project activities on a regular basis. The environmental assessment team has conducted a opinion survey of farmers, administrators, technicians and intellectuals (refer to the EIA report). As of March 1995, the social assessment team had conducted pilot surveys of 130 villages in Yuncheng and 70 villages in Luliang. The Yuncheng team had also done a pilot survey covering 156 households. Since then, larger surveys have been carried out to provide an extensive database of baseline conditions for the project areas. Consequently, the level of awareness is very high and the people are anxious to see the start of the project.

Public Consultation

21. The Poverty Alleviation Office has involved all relevant line departments and local government in formulating the project. In addition, they have had extensive consultations with the general public. In March 1994, the World Bank mission participated in an informal symposium with heads from local democratic political parties, intellectual societies, and the ACWF. Although the purpose was to bring diverse groups together to become involved with the project, it became clear that all groups had already been consulted during the past two years and strongly supported the project.

22. At the village level, public consultation has been underway for two years. Ongoing consultation is required for the final selection of target households, and for project implementation. Most farmers understand and accept that they will have to repay loans. Careful consideration must be given to ensure that the beneficiaries include a wide spectrum of households, while focusing on poverty alleviation. Also, the project will target women as well as men for household schemes, particularly livestock and horticulture.

Community Participation

23. Proper mobilization, motivation and organization is necessary to ensure high quality construction and a feeling of ownership in the project. For the livelihood schemes, a broader community approach will be taken although there may be few target households in each village. This approach will provide learning opportunities for other villagers which prepares the ground for future investments with local funds from savings or loans from the Agricultural Bank of China. In China, the household responsibility system has developed -182 - ANNEX 12 more individual attitudesamongst the farmers. Now, some blending of entrepreneurial initiativeand collectivesupport is requiredfor poverty alleviationto achieve maximum benefitsto the greatestnumber of people.

24. In villages,it will be beneficialto target womenwho traditionallywork collectively on famiing and sidelineactivities. Thereis a women'srepresentative in each village who is responsiblefor awareness,organizing, and motivatingthe women. Through the ACWF, access can be gained to training and demonstrationprograms and to small amounts of credit.

The All ChinaWomen's Federation

25. The PovertyAlleviation Office has yearsof experienceworking in conjunctionwith the ACWF and training institutes, which can allocated responsibilities for project implementation. For this project,the ACWF will be directly involvedin implementation. This will be done in an numbera ways, such as:

(a) targetingvillages where the ACWFis currentlyworking,

(b) allocatingfunds to ACWFto organizeand conducttraining of womenin the villages,

(c) secondingsome ACWFstaff to be attachedto the countyPMOs,

(d) channelingsome fundsto the ACWFfor on-lendingto women,and

(e) providingfollow-up training in literacy,hygiene, and occupationalskills that complimentthe initiallivelihood component.

ProjectBeneficiary Selection Criteria

26. The main criteriaused to identifythe investmentcomponents and projectareas were as follows:

(a) per capitaincome levels of prefecturesand counties,

(b) excludeareas withexisting internationally financed projects,

(c) componentsaimed at improvingagricultural incomes and sidelineincomes,

(d) componentsthat enhancethe socio-environmentalland capacity,

(e) componentsthat have goodprospects for cost recovery,and

(f) componentsbenefiting the greatest number of people per unit investment cost. -183 - ANNEX 12

Table 2 shows the selection for villages and households, by project component.

Monitoring And Evaluation System

27. In order to evaluate the success of the Shanxi Poverty Alleviation Project, certain criteria need to be monitored during implementation and after project completion. From the socio-economic viewpoint, the following criteria and indices have been adopted:

(a) Per capita rural incomes:

(i) real increase in net incomes,

(ii) percentage of households above the poverty line, and

(iii) sources of income (income stability).

(b) Rural employment:

(i) number of days and wages for locals during construction, and

(ii) number of people employed in enterprises and salaries, (the indices should include a gender breakdown),

(c) Rural living standards:

(i) quality of housing and new house construction,

(ii) household assets (farm machinery and consumer items),

(iii) percentage of households with adequate potable water supply, and

(iv) people with improved access to towns (via new roads).

(d) Specialized households:

(i) household equity and repayment of loans, and

(ii) number of failures or additional loans and subsidies.

(e) Local economic growth:

(i) new enterprises and rural employment,

(ii) wage income (full-time, part-time), and

(iii) local investment in social infastucture (schools, clinics). -184- ANNEX 12

28. In addition to these socio-economiccriteria, there will be project implementation criteria such as irrigatedarea, new orchard area, new livestock,terraced area, new water schemes,new roads,etc. For each component,the status of projectimplementation should be measuredin terms of percentcomplete, cost, quality, and numberof peoplebenefited.

Monitoring and Evaluation System

29. The Shanxi Provincial PMO and the prefecture PMO's will have overall responsibility for socio-economic monitoring and evaluation. Baseline data have been collected and entered in database management systems by the Yuncheng and Luliang PMOs. Income statistics and agricultural data have been collected at the county and township levels. General statistics on income, living standards, health, education, and agricultural production by crop have been compiled for each county. These data will be updated annually by the Bureau of Statistics.

30. A significant amount of data have been, and will be, collected and maintained by the prefecture PMOs. The dBase software program is being used to manage the survey data and generateannual reportsat the prefecturelevel. The baselinestatistics at the countyand township levels have been entered into Excel spreadsheets. These are adequate but provisionshould be madeto link statisticswithin each database.The systemshould remain simple and user friendlyto ensure transparencyand accessby the projectsupervisory staff. The reporting formats should be simple and clear to assist the World Bank to review progress during project evaluation missions.

Recommendations

31. Project Design

(a) Encourage and support non-farm activities in rural areas.

(b) Coordinate project with existing health and education programs.

(c) Select poor townships for components that have no fixed location.

(d) Promote activities that generate labour requirements as well as incomes.

(e) Encourage activities the spread labour requirements throughout the year.

(f) Vary the financial and cost recovery requirements by income group.

32. Project Implementation

(a) Continue to improve the level of public consultation and participation.

(b) New labour requirements should be allocated equitably between men and women. -185 - ANNEX12

(c) Developprograms for technicaltraining and adult education.

(d) Villages should be encouragedto set up a fund to financethe local inputs for projectimplementation.

33. Monitoringand Evaluation

(a) Maintain the monitoring and evaluation system by updating data each year.

34. Special Issues (a) Target the poorestvillages in Luliang.

(b) Ensure equitable allocation of project benefits. For the operationof schemes,benefits should be allocatedon the basis on ability to pay, with an overall objectiveof full cost recovery.

(c) Set higher targets and localfinancing in Yuncheng. -186- ANNEX 12

Table 1: COMPARISONOF SOCIOECONOMICCHARACTERISTICS IN THE Two PROJECTAREAs-1993

Characteristics Yuncheng Luliang

Total Population 4,436,620 1,113,770 Natural GrowthRate 1.14 % 1.10 % Rural Population 3,846,390 1,036,800 (87 %) (93 %) Rural PopulationDensity per km2 275 110 CultivatedLand (ha) 609,200 250,900 - percent of land area 43.6 % 26.8 % Irrigated Land as a percentof CultivatedLand 49 % 4 % Mature OrchardLand (ha) 39,538 25,120 Farmland per Capita (ha) .0.17 0.27 Livestock(head) 704,900 95,700 Frost Free Days per Year 188- 238 150 - 170 Annual Precipitation(mm) 472 - 603 485 - 523 1992 AverageRural Net Income per Capita (Yuan) 480 318 Percent of Rural PopulationBelow the PovertyLine 70 % 85 % Total Rural OutputValue (millionYuan) 8,800 976 - of which Industrial Output 65 % 47% AgriculturalOutput Value per Capita (thousandYuan) 806 501 -187- ANNEX 12

Table 2: SELECTION OF PROJEcT TOWNSHIPS, VILLAGES AND HOUSEHOLDS

Thefollowing sections describe the criteria used to targetbeneficiary villages and households for livestockfarms, horticulture, land terracing, rural roadsand rural watersupply.

LivestockFarms Yuncheng - Ist,select all townshipsin fivepoverty counties (S3 townships); - 2nd,select poor townships in othercounties (66 townships); - 3rd,select poor villages in othertownships (45 townships); - 4th,select villages that possess good natural resources (e.g., 20 to 40ha of naturalpasture and 5 hafor herbage;or adequatefarm residue and fodder). Withinthese villages, between 2 and10 households will beidentified on the basis of thosethat: - arepoor (below 500 yuan per capita); - agreeto participatein theprogran; - havea young adult who completed junior middle school; and - arecapable of goodanimal husbandry management skills butpresentdy have no livestock. Lulig Everytownship will identify20 to 30 poorhouseholds for animalhusbandry farms because all sevenproject counties, and 112 of the 117townships, are below the poverty line. - villagesthat presently have no or few cattle; - villagesthat have adequate domestic water supply; - villagesthat have natural pasture or suitable land for improvedpasture; - householdsthat have young adults with junior middle school education; householdsthat are capable of goodanimal husbandry management skills but presentlyhave no livestock;and - householdsthat agree to participatein theprogram. EconomicTree Yunchenz - i st,select all townshipsin five povertycounties (83 townships); - 2nd,select poor townships in othercounties (66 townships); - 3rd,select poor villages in othertownships (43 townships); - 4th,select villages with suitable gullies and wasteland; . 5th,select villages with lessthan 0.02 ha orchard per capita (i.e., less than 5 percentof farmlandexcept for specializedorchard areas). Lulianz - all sevenproject counties and 112 of the 117townships are below the poverty line; - all townshipshave abundant slopeland and gullies suitable for plantingorchards; - villagesnot having more than 0.03 ha orchard per capita; - villageswith goodhousehold candidates. In Yunchengand Luliang, the selection of householdsis basedon: - a contracton suitable slopeland, or cultivated land that will beintercropped; - a youngadult who has completed junior middle school; - possiblysome scattered fruit reesbut no orchard land; - goodhousehold enterprise management skills; and - agreeto participatein program. LandTerracing in Luliang - dispersedwidely to Ill of the II7 townshipsin Luliang; - villagesagreeing to repaythe capital investment; - maximizethe number of villagesto benefitfrom mechanized terracing, subject to a minimum terracedarea of 2 ha;and - a preferenceto villageswith no village roads, yet accessible by bulldozer. Rural DrinkingWater Supply Yuncheng - clustersof villagesin dry areasthat could access groundwater from a deeptube well anda distributionnetwork serving all villages; - smallisolated villages whose needs could be satisfied by nearby streams or springsusing gravityschemes; and - mostof thevillages were selected from the hilly ormountainous areas where access to water is limited,far fromvillages, and/or expensive to exploit Lulianc - 20to 40 schemeswithin each of theseven counties; - Sof the7 countieshave allocated water supply schemes to everytownship, ranging from I to S schemesper township; and - eachvillage is servedby a singlewater supply scheme. -188 - ANNEX 13

ANNEX 13: STATUS OF ENVIRONMENTAL IMPACT ASSESSMENT

Status of Environmental Impact Assessment

1. The Shanxi Poverty Alleviation Project consists of a number of subcomponents covering a range of rural development, agricultural, and agro-industrial development initiatives. Environmental screening has been completed for all project subcomponents. For environmental assessment purposes the project is considered a "B" project. This ranking was based on the observation that environmental effects associated with the project are local in nature and pose no long term negative impacts. Furthermore the project is considered to promote improved land management in poverty stricken rural areas. Proactive programs on the proper use of agricultural chemicals and improved animal husbandry, among others, will create opportunities for improving environmental conditions in a number of areas.

2. An environmental impact assessment (EIA) has been prepared by the China Institute for Radiation Protection (CIRP) on behalf of the project management office (PMO). The EIA considered a number of issues including the legal and regulatory framework for environmental pollution control, the baseline physical conditions in the project areas, potential process impacts from agroprocessing facilities and other project investments, environmental costlbenefits assessment, and environmental management and monitoring program. The report describes the main environmental concerns associated with each subcomponent and outlines an appropriate mitigation strategy where required. Maps showing the locations of all proposed activities have also been provided separately from the main EIA report. Costs for implementing the environmental monitoring program are provided in supplemental tables presented during appraisal. English translations of the EIA report have been reviewed by ASTEN staff and their comments have been satisfactorily incorporated into subsequent drafts of the EA report prepared by CIRP.

3. The main conclusion of the ETA is that the project wiUlhave minimal adverse impacts while simultaneously promoting a number of environmentally positive initiatives. The findings and recommendations of the EIA were evaluated and endorsed by Chinese experts during a recent (May 1995) provincial review meeting involving technical specialists from the Shanxi Provincial EPB, the National Environmental Protection Agency (NEPA) and number technical design institutes. The recommendations contained within the EIA have been reviewed and accepted by the Project Management Office. The EIA has been submitted to NEPA and approved. - 189 - ANNEX 13

Summary of Environmental Impacts and Proposed Mitigation Measures

4. Agro-processing Facilities. Adverse impacts of the project are, for the most part, confined to the 21 agro-processing facilities which will be expanded or newly established under the project. Of these facilities only three are considered to be potentially significant polluters: the Linxian Paperboard Factory, the Shilou Tannery, and the Fangshan Edible Oils Factory. The main environmental concems associated with these facilities are process impacts such as air pollution generated from the operation of coal fires furnaces, disposal of solid wastes, treatment and disposal of liquid effluents, control of dust and noise associated with plant operation, and provisions for adequate workplace safety.

5. For each of these sub-projects these issues have been reviewed and appropriate environmental mitigation and monitoring measures have been recommended by CIRP. The pollution impacts are considered to be of local concem and assuming pollution control is carried out in a manner consistent with the EIA recommendationsthey should not pose any significant incremental pollution problems All agricultural processing facilities financed under this project will be required to meet or exceed relevant national and provincial poHlutioncontrol standards. In addition, the approval, licensing, and siting of these facilities will follow National, Provincial and Prefecture environmental review and approval regulations. -

6. In principle, the adverse impacts associated with the agro-processing facilities can be mitigated through the use of readily available treatment technologies, waste management procedures, and a careful analysis of alternative sites for new facilities. The mitigation measures have been designed to ensure that sub-projectsmeet all relevant national and local standards and that compliance is assured throughout the project implementation period. Brief descriptions of recommended measures are provided in the main EIA report.

7. Agro-processing facilities involving coal fired furnaces are required to meet standards described in the National "Standard for Air Pollutant Discharge of Boilers (GB13271-91)" and the "Air Environmental Quality Standard (GB3095-82). For these facilities the principal air pollution control technologies will involve the installation and operation of cyclone precipitators or water membrane scrubbers. According to the EIA report, boilers with rated evaporation less than 4 t/h cyclone precipitators will be furnished. For boilers with evaporation greater than 4 t/h water-membrane scrubbers will be installed. Chimney stack heights as prescribed National Standard GB13271-91 (Air Pollution Discharge for Boilers) will be provided. Tree planting has also been recommended at each site as a means of reducing visual impact and of filtering airbome dust and particulate matter.

8. Waste water generated by processing plants will be required to meet the national "Environmental Quality Standard for Surface Water (GB3838-88) ". In addition industry specific standards for tanneries (GB3549-83) and paper making (GB3544-92) will apply. The Linxian Paperboard Mill, Fangshan Refined Oil Factory, Shilou Tannery and the Wanquan Dehydrated Vegetable Factories will be provided with comprehensive waste -190 - ANNEX 13 water treatment plants for water treatment. Proposed waste water treatment for the Shilou Tannery and the Linxian Paperboard factory are described in schematic diagrams in the EIA report.

9. In facilities where dust levels are likely to be high dust bag filter systems will be provided. Management of solid wastes will involve use of ash debris in road construction, recycling of organic waste materials (use of fruit peels, vegetable leaves as fodder, use of jujube pit in traditional medicines). Unusable solid wastes will be buried in designated landfills. Financial allocation for equipment installation and operating costs have been incorporated in the cost estimates for expansion or establishment of each plant.

Environmental Management and Monitoring

10. Overall responsibility for ensuring project compliance with environmental regulations and project objectives will rest with the project PMO. An environmental monitoring unit (EMU) will be established within the central PMO and, where appropriate, at the prefecture and county PMO levels. The central PMO unit will comprise a small staff of technical specialists and will report to the provincial project leading group on environmental performance in the project areas. In addition this group will provide technical assistance and guidance on monitoring matters to the prefecture and county level implementing units. The PMO-EMU will, to a great extent, rely on support from other agencies involved with routine data collection such as the Provincial Environmental Protection Bureau (EPB) at prefecture and county levels as well as relevant meteorological, water conservancy, and public health departments at all levels (see Figure 1 SPAPO Environment organization and management).

11. The finalization of an appropriate strategy for monitoring environmental conditions in the project area will be the task of the PMO-EMU. A framework for project environmental monitoring has been proposed (Table l). Approximately 2.77 million Yuan has been allocated for these purposes.

12. A more detailed monitoring plan will be developed for the agroprocessing subcomponents. For example, the monitoring plan calls for monitoring of process waste water only once a year in the Shilou Tannery and the Linxian Paperboard Factory. Reports documenting the level of environmental compliance achieved by each would be issued on a much more regular basis (perhaps monthly) to the local EPB and to the PMO on a quarterly basis. As a minimum each report would document performance in the following areas: air emissions, solid waste management, liquid effluents, dust, and workplace safety.

13. The frequency of sampling would be established on the basis of the variability of the parameters at each site and can be modified according to actual operational experience. Therefore each facility will need to refine its sampling methodology in collaboration with EPB and the PMO. The main concerns associated with agroprocessing will include tracking and monitoring fuel source utilization rates (including quality and quantity), air emissions, liquid effluents volumes and quality, dust, noise, worker (and workplace) health -191- ANNEX 13 and safety shall be the responsibility of the individual plant. Routine checks will be carried out by the local environmental monitoring stations of the Shanxi EPB. They will also assist each plant in situations where specialized monitoring activities are required. The PMO will also establish an environmental unit who will be responsible for periodic inspections of facilities, management of overall pollution database for the project facilities, and other environmental oversight tasks (see Terms of Reference for environmental unit) .

14. A person(s) responsible for ensuring environmental compliance would also be established within each factory. The agroprocessing facilities with the most significant impacts (i.e., the Linxian Paperboard Factory, Fangshan Edible Oils, Shilou Tannery) have already proposed internal management responsibilities for the operation and maintenance of environmental mitigation measures. The other processing facilities will establish units or designate responsible individuals before any construction activities are undertaken. Depending on the size and complexity of the facility most agroprocessing facilities will require from I to 3 staff responsible for ensuring compliance with environmental regulations. Staff with relevant environmental engineering or pollution control experience for these positions should be recruited. Where necessary, the PMO-EMU will ensure that environmental staff of each facility are provided additional specific training to ensure they are familiar with technical and administrative procedures. -192 - ANNEX 13

Terms of Reference for Environmental Monitoring Unit in Project Management Office

1. The Shanxi Poverty Alleviation Project is a multicomponent rural development project whose objective is to raise incomes within some of the poorest counties in Shanxi Province. The objectives will be achieved through an investment program which aims at diversifying agricultural activities in the project counties and through the provision of critical rural infrastructure for irrigation, transportation, and drinking water supply. Many of the project components are explicitly designed to reverse negative trends in natural resource utilization (e.g. reduce reliance on groundwater extraction, promote in-situ soil conservation, improve land management).

2. As a result it is considered important that environmental conditions in the project area be monitored closely as part of a comprehensive project monitoring and evaluation plan to ensure that these positive objectives are being achieved. To carry out the environmental monitoring tasks an environmental monitoring unit will be established within the central project management office (PMO) to oversee the environmental aspects of the project. The environment unit will coordinate all monitoring activities to be carried out in association with the construction and operation of agroprocessing facilities, the development of the Langdian pumping complex and related development in the three irrigation zones, the development of river beach lands in Yuncheng prefecture, the construction and rehabilitation of rural roads, and the development agricultural lands.

3. The unit will comprise a small core staff (1-3 people) to coordinate monitoring activities to be carried out by implementing bodies and supporting documentation from environmental protection bureaus at the provincial and prefecture levels. The core team should comprise, or have access to, technical specialists in the field of environmental engineering, pollution control, groundwater hydrology, and rural /agricultural land use management. The unit will function as part of the overall monitoring and evaluation function of the PMO and will report directly to the PMO director. The role and function of the EMU should be continuously evaluated in order to ensure the work of the unit is relevant and useful to the PMO director.

4. The main tasks of the EMU will be to organize and implement the project environmental monitoring program. Specifically, the EMU will:

(a) Develop and implement a detailed environmental monitoring plan for each project component. The core team will provide guidance to field monitoring units on the data gathering and reporting formats to be used. Advising facilities managers as to their responsibilities for environmental reporting under the project. -193 - ANNEX 13

(b) Ensure that all agro-processing facilities to be supported under the project meet or exceed relevant national pollution standards. The EU will ensure that facilities installed and procedures established for the purposes of air pollution control, wastewater treatment, and solid waste air operated and maintained in accordance with design standards.

(c) Maintain written documentation on the performance of all project components relating to environmental aspects. Maintain an environmental fact sheet and /or databases on each project component. The fact sheet should include a brief description the component; base line conditions prior to the project; predicted or expected impacts; mitigation measures proposed; status of compliance with Chinese regulations; provisions for workplace health and safety; training activities related to environmental monitoring and management. These fact sheets will form the basis of supervision reports to be presented to Bank supervision teams.

(d) Carry out information gathering and organize periodic training seminars for technical staff of agro-processingunits related to environmental best practice in factory operations. Research and seminars might include topics such as low cost pollution control technology, new approaches to waste minimization, waste recovery, pollution prevention, energy conservation, and worker health and safety.

(e) Carry out random "on-the-spot" checks of project facilities and activities supported by the project to ensure compliance with existing regulations, to ensure the safety of workplaces supported by the project etc.

(f) Advise the PMO on any remedial or disciplinary actions which may be required as a result of unanticipated environmental impacts of the project.

(g) Coordinate with provincial and prefecture EPB and other providers of baseline data. -194 - ANNEX 13

Table 1: ENVIRONMENTALMONITORING FRAMEWORK

Project Sub-component Areaof concern EnvironmentalObjective Whatwill bemonitored? Frequencyof monitoring.

1. Agro-processing- Air pollutionfrom boiler - Eachplant shall meet or exceedindustry - AmbientAir Quality - asper current collection of facilities stacks(compliance) specificnational pollution control EPB standards - Stackemissions - quarterlyreports precipitatorefficiency

- Waterpollution (compliance) - Each plant shall meet or exceedindustry Water quality in receiving- quarterlyreports; specificnational standards for wastewater waters pollution EffluenL

e.g.specific to each industrybut may include pH,temp, SS, BOD, COD, sulphite,chloride ion, CR, oils

- Solidwaste management - Eachfacility shall meet or exceed- -quarterlyreports (compliance) relevantstandards for solidwaste management

Effectivenessof technical Eachfacility shall maintain and operate operationrates, efficiency - quarterlyreports operations(compliance) pollutioncontrol equipment in accordanceof pollution control with recommendationsfrom CIRP equipment,inspections

2. LangdianPumping - Surfacewater quantity and - Toensure that water delivered to - watertemperature, pH, - annualreporting on Complex quality(compliance / trends) irrigatedfarmiands meets or exceeds BOD,COD, non-ionic conditionsin projectarea qualitystandard for agriculture ammonia,N02, Hg,Cr, volatilephenol, crynide, totalcolon bacillus

- Environmental - Toensure that aquifers in theirrigated - operatingstatus of hydro-geology areasare used sustainable i.e. control andmechanized wells in reducethe current groundwater extracion region; raues

To establisha monitoringsystem serious - chemicalconstituents of impactson groundwater availability and groundwater(pH, hardness, qualityare identified well in advance; nitrite,bacteria etc.)

degreeof mineralization, salinity,

- Groundwater recharge volume estimatesof (trends) aquiferin Langdian Irrigationzones -195 - ANNEX 13

Table 1 (Cont'd)

Project Sub- component Area of Concem Environmental Objective What will be monitored? Frequency of monitoring

3. Rural drinking Groundwater quality - To ensure that groundwater used for - pH, total hardness, sulfite,- monthly reports water supply (compliance/ trends) village drinking water meets or exceeds bacteria, fluoride, total relevant national standards colon bacillus etc.

4. Livestock and n/a n/a n/a n/a pasture development

5. Rural road - noise, dust, waste disposal - To minimize or reduce undue - routine visual observation construction associated with road disturbance to local communities in construction activities proximity of construction sites - random spot checks (compliance)

6. River beach - Protection of wild fowl - To construct and operate a sanctuary for Quarterly report on progress o development breeding habitat (performance) nesting and breeding water fowl in project sanctuary construction area

7. Promotion of - Proper use, storage disposal - Promote best practice in applications, - incidence of pests, plant - conditions in project rea horticulture, of pesticides, fungicides and storage of agricultural chemicals; disease, weeds during growing season; aquaculture and other fertilizers in project area agricultural activities (performance) (terracing etc.)

- Dam safety (compliance) - To ensure appropriate steps are taken to - visual assessment 2-3 times minimizc or eliminate public safety risk - soil moisture content, during flood season associatedwith large silt control structuresdam failure resistance indicators,

- Effectiveness of soil water - To quantify soil and water conservation conservation measures benefits from planned investments (performance).

- run-oft sediment discharge 8. Baseline and - to ascertain prevailing - to track trends throughout project area to - General climatic vaiables- monthly reports based on physical trends environmental conditions determine impacts of climate and / or (precipitation, run-off, continuous recording analysis throughout the region other environmental factors which may temperature, humidity) influence performance of project

- Soil conditions in project - twice during project area (e.g. organize matter implementation period content, alkaline / salinity, -196 - ANNEX 14

ANNEX 14: SUPERVISION SCHEDULE

Datt Scope of Mission Experdse

Ist Supervision May 1996 ProjectLaunch Workshop - ProjectScheduler - Review - Civil Engineer(irrigation, wate supply,roads) - Plansand Designs - Monitoring Specialist - Procurement - Procurement/Disbursement - Monitoring - Economist - Appointmentof consultants - HorticultureSpecialist - Nurseries - LivestockSpecialist

2nd Supervision Oct 1996 Review - Economist - Training Program - Specialist - Procurement - AgroprocessingSpecialist ProgressReport Format - Civil Engineer (irrigation, roads,water supply) - Monitoring - AgricultureSpecialist Livestock

3rd Supervision Jul. 1997 Review - PhysicalPrgress - Sociologist - Progressin Trainingof farmners - Training Specialist - Designprogress - IrrigationEngineer - Monitoring - HorticultureSpecialist

4th Supervision Apr. 1998 - Reviewof PhysicalProgress - Economist - Scheduleof Changes - Civil Engineer - Reviewof IncomeLevels - Soil ConservationSpecialist - LivestockSpecialist

5th Supervision Jun. 1999 Mid-termReview - Socio-Economist - PhysicalProgress - IrrigationSpecialist - CostEstimates - HorticultureSpecialist - IncomeLevels Realized - Soil andWater Conservation Specialist - ProjectSchedule - EnvironmentalSpecialist - Environment,etc. - LivestockSpecialist

6th Supervision Annually - Reviewof PhysicalProgress -197 - ANNEX 15

ANNEX 15: PROJECT PLANNING MATRIX, INDICATORS AND IMPLEMENTATION SCHEDULES

Table 1: PROJECT PLANNINGMATRIX

Isues/Prblesms Oblectlvess Project Direct lndlrtct Targets Components Irpacts Impacts

I& lnvsutI

- 0_':- 5fror~~~~~~~~~~ipo nm 1hm_sy LV A4,,ccw EC3nemCAaQ6- Oryu~m. -igs n I ORDUd e~~~~~~~~~~~~~~~~~~~~~~~~~~iP-ia o nxE Ykklo - 10 M4dn

_ _ I~~~~~~~~~~~~~~~~~~~~~ - I oo eafwd-en |PoorSocial Inlristniturtur ImprovoInifni1ur: C ConstiudIntastruVue ImproedInflutruiun we

lngSjM8 W StO0 - . RwalWNv.Sw.. .--.--. Vi-l-W-rSaD - - --. Reloci.W rSail

PoAAcr. F CominRoam 1---- - TowwunaWRo0 IwowNWi * |UR ReGue |

LowGuay Ed6Yon ----- SdwsScfioa | ; n-

mwed a. tPooUmnoojCondlntedl

swuummcei Nmhad _law OuatyNimqi NwH . hnsdoowdinfrsdol_ie 4npwsd s a1 a _ Wr

_Poor SaeWon ---- - b

FewPers5 AU ---- - I i~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~Polw'- As OeS-VM iv iotim in gioe amIE

| v~wdgi inen_ (ilnWM[ arto rpou_irv* in iw

hidLamimik imsi

LO ho mll _

Lbavid uiil (hi OWN PM" o mmflu

XlomwUllr> of -198 - ANNEX 15

Table 2: KEY PERFORMANCE INDICATORS

Main Goal: Poverty Alleviation in 20 of the poorest counties in Shanxi Province Key Full Project Performance Baseline Mid-term ICR Impact Objectives Indicators 1994 1998 2001 2002

Rural Real Net Income per capita (yuan) 480 650 700 730 Per Capita Households below the poverty line (%/o) 70 50 40 30 Income Income stabilitv (% annual fluctuation) 70 60 50 40 Increased Average Gfain Output per capita (kg) 320 380 400 400

Project Construction Rural Temporarv Jobs(number) I M 200,000 50,000 25,000 Emplovment People emploved in enterprises Increased Males (number) 0 2,000 2,500 2,500 Salaries (in 1994 vuan/day) 15 20 25 25 Female (number) 0 2,000 2,500 2,300 Salanes (in 1994 vuan/dav) 12 17 20 20

Average Per Capita Area for Housing (m2) 20 25 30 30 Rural Living Average Age of Village Housing (years) 25 20 18 1S Standards Household Assets (farmung & consumer) Improved Small Tractors (% of households) 5 10 12 15 Draught Animals (% of households) S 1S 18 20 Household Appliances (number per household) 2 4 4 4 Labor Activity-Time Spent on subsistence income generation Males (hours) 4,400 3,500 3,200 3,000 Females (hours) 4,000 3,300 3,100 3,000 Safe Rural Water Supply Coverage (%) 65 80 90 90 Distance to Rural Roads for Villagers (km) 4.1 1.5 1.0 1.0

No. of SpecN ized Number of Households in Village (%) 10 30 35 40 Households Cost Recovery-Repavment of Loans (%) 50 70 80 80 Increased .

Local New Enterpnses in Villages & Townships (% of Economic province average) 40 60 65 70 Growth Local Investment in social infrastructure Strengthened (e.g.. schools and clinics) (% of province average) 30 50 55 60 Project ImplementationSchedule

Luliang Prefecture

1996 1997 1998 1999 2000 2001 Component Jan. Jun. Jan. Jun. Jan. Jun. Jan. Jun. Jan. Jun. Jan. Jun. Project . 1.Water & saolconservaUon _ a.Teracs b. Warpig dam . . c. Foresy 2. Watersupply ___ : . 3.hA M h ______4. Ruralroad a. c" -Qoagou _ _ b. Sw#ao Quyu- c. Xlcun- Wely ou _ d. Dongcun- Uaniazua_ . . a. Jhouhi.- Zhanglata - _ S. Agrooducts procesing . a.LJnudn pwper board ml b. X dancereals processin mE c. Fansh coeldngd ree _ ._ d. Shilouleah pocessin _ *. Lkdniuriu disilwey _ _._. C.Shlou eedm- g. Lk*n datesprocs _ h. UsI datepoceing _ 6.PMOs prefecture and counties

ProvincialSupport Servics .

1. Provincil frozensemen ceer - . 2. PMO _ _ _ . .___

Fie:M:aea2agdivWshl_dsbi2.doc Project Implementation Schedule

YunchengPrefecture

1996 1997 1998 1999 2000 2001 Component Jan. Jun. Jan. Jun. Jun. Jun. Jan. JunL Jan. Jun. Jan. Jun. project______1. Wa_ conseivny a.k sch.meon b. Rwerbeach dereopmei __.. c. Water l__ d. AuLure 2. Fnis andni 3. A rnIahusny . 4. Rural rod

a.qMgo _ b. XIOn - O_ . . c. Tongang - Xhong _ _ o

d. Mal - Y ua_p g - a. Phipu - Gua _. - Xhihm __ _ __w g.Zaehang - G gmwngb 5.A _*Vaductsprcesg_ a. Sheu Guuigong dsley _ _ b. Wered foodproducmon mll _ _ c. Jkeu date procesI______d. Jradmn * Vgfood prcn _

a. War dd*died vegaebbfatry -__ . . fWWur G wghusfood p ng _

g.Yu.qu sk ree lacory _ _ >

h. XIan cone_raled proin feedmll _Z _ 1.Xdan a prceings mil _ Z - WWdfood mill _ X k. Yunchn pvier mg _ _

1.Jnadan dd-n wgt cloty _ _ m. Piga hibs procestig ml . 6.Prefectue andcounUs PMOs _

._ ._ . .. _ _,_.._._ ._._._ ._ .__.._ _ . _ _ _ _ - 201 - ANNEX 15

ANNEX 16: DISBURSEMENT PROFILE

CREDITDISBURSEMENT SCHEDULE

IBRD Disbursement Fiscal Year/Semester Semestral Cumulative Project Cumulative Profile la ------$ million------(%) (%)

1997 1st 8.0 8.0 8 30 2nd 10.0 18.0 18 38

1998 1st 12.0 30.0 30 46 2nd 13.0 43.0 43 54

1999 1st 13.0 56.0 56 66 2nd 12.0 68.0 68 74

2000 1st 8.0 76.0 76 82 2nd 7.0 83.0 83 90

2001 1st 6.0 89.0 89 94 2nd 6.0 95.0 95 98

2002 1st 5.0 100.0 100 98

Za Disbursement profile - Bank standard disbursement profile for agricultural sector in China.

Completion date: December 31, 2001 Closing date: December 31, 2002 -202 - ANNEX 17

ANNEX 17: SELECTED DOCUMENTS AND DATA AVAILABLE IN THE PROJECT FILE

Reports and Studies

1. Shanxi Poverty Alleviation Project: Preparation, Main Report, Annexes 1-6, February 13, 1995.

2. Shanxi Provincial Poverty Alleviation Development Project: Feasibility Study Report, October 1994.

3. Shanxi Poverty Alleviation Project Implementation Plan (Draft), March 1995.

4. Poverty Alleviation and Agricultural Development in Luliang Prefecture, Shanxi Province: A Feasibility Study Report, February 1995.

Appendix 1: Terracing

Appendix 2: Check-Dam Construction

Appendix 3: Drinking Water Supply

Appendix 4: Forestry Development

Appendix 5: Livestock and Pasture Production

Appendix 6: Road Reconstruction (from Caijiaya to Weijiatan in Cai-qing Line in Xingxian County)

Appendix 7: Road Reconstruction (from Liujiahui to Xiaojiatou in Sanjiao-Quyu Line in Linxian County)

Appendix 8: Road Reconstruction (from Xuecun to Xiabao in Xue-wei Line in Liulin County)

Appendix 9: Road Reconstruction (from Qijiazhuang to Liangjiazhuang in Dongcun-Liangjiazhuang line in Lanxian County)

Appendix 10: Road Reconstruction (from Shizhantou to Zhangjiata in Gezhang Line in Fangshan County)

Appendix 11: Fangshan Cooking Oil Refinery - 203 - ANNEX 17

Appendix 12: Extension of Linxian Paperboard Mill

Appendix 13: Reconstruction of Liuyu Distillery in Liulin County

Appendix 14: Reconstruction of Feed Processing Mill of Shilou County

Appendix 15: Data Processing Factory of Liulin County

Appendix 16: Reconstruction of Leather Factory of Shilou County

Appendix 17: Lishi Healthy Jujube Products Factory

Appendix 18: Cereals Processing Mill of Xingxian County

Appendix 19: Supporting Service System

Appendix 21: Report of Social Economic Formation

5. Report on Preparations of Luliang Poverty Alleviation Subproject, October 1994.

6. Explanation of Readjustment and Items in The Memorandum of World Bank Mission, October 1994.

7. Report on All China Women Federation Luliang Prefecture Poverty Alleviation Program to Target Women in Village with Small Credit Program.

8. Feasibility Study Report of Poverty Alleviation Exploitation Project (Yuncheng Prefecture), March 1995.

Annex 1: Langdian Water Complex and the Conveyance System

Annex 2: Drinking Water Supply Project

Annex 3: Economic Forest Engineering

Annex 4: Pasture and Livestock Development

Annex 5: Road Improvement Engineering in Mountainous Area

Annex 6: Yellow River Beach land Development Engineering

Annex 7: Aquaculture Engineering

Annex 8: Low Degree St. Guan Alcohol Production Line Extension

Annex 9: Wenxi Food Mill Extension with Dehydrated Vegetable and Fruit Crisp Production Lines - 204 - ANNEX 17

Annex 10: 2800t Date Products Line Extension

Annex 11: Nutritious Haw Products Mill Extension

Annex 12: Xinjiang Vegetable Dehydration Mill Extension

Annex 13: Yuncheng Flour Mill Extension

Annex 14: Wanrong Vegetable Dehydration Factory Extension with the Construction of a Dried Beef Production Line

Annex 15: 1,500t Candied Fruits Production Line Extension

Annex 1I Cocoon Production Base & Silk Reeling Mill Extension

Annex 17: Xiaxian Concentrated-Protein Feed Factory Extension

Annex 18: Xia County Special Flour Production Line Extension

Annex 19: Wenxi Special Food Mill Extension

Annex 20: Pinglu Fruits Storage Works Construction

9. Yuncheng Prefecture Mountainous Area Road Improvement Feasibility Study Report.

Annex I: Pinglu-Guanyao Road Extension

Annex II: Moli-Yuanzhiping Road Extension

Annex III: Laoyaotou-Xiahua Road Extension

Annex IV: Xia County-Qijiahe Road Extension

Annex V: Tongshan-Xihonghong Road Extension

Annex VI: Zezhang-Guanwangmiao Road Extension

10. Feasibility Study on Extension of Shanxi Livestock Frozen Semen Center, March 1995.

11. A General Introduction of the Project of Zun Village Station of Channel-Water-to-Irrigation-Fields along the Yellow River, Yuncheng, Shanxi, December 10, 1993.

12. Supplementary Materials: Agroprocessing Mills, March 15, 1995.

13. Crop Area and Yields Situation in Xiaofan Irrigation Zone. -205 - ANNEX 17

14. Crop Area and Yields Situation in Jiamakou Irrigation Zone.

15. Crop Area and Yields Situation in Zuncun Irrigation Zone.

16. Irrigation Benefit Sketch Map of 5th Branch Canal in Jiamakou Irrigation Zone.

17. Irrigation Benefit Sketch Map of North Main 6th Branch Canal in Xiaofan Irrigation Zone.

18. Irrigation Benefit Sketch Map of 7th Branch 5th Main Canal in Zuncun Irrigation Zone.

19. Maps for Yuncheng Prefecture Subprojects:

* Langdian Water Complex and the Conveyance System

* Economic Forest Engineering

* Aquaculture Engineering

* Road Improvement Engineering

* Yellow River Beach Land Development Engineering

* Pasture and Livestock Development

* Agroprocessing Mills

* Drinking Water Supply in Yuncheng CHINA SHANXIPOVERTY ALLEVIATION PROJECT PARTICIPATINGPREFECTURES

"00SFq_0 l)FCt NEIMONGOL

) OWflC-AltrexNf V {Tnran

MIOIWE oArIESi( MEN 0t/ 82 )1 A ' E-q ql.B nj-u GE*WMWG.nnW HG G. qli

IiA.

Sn~~~Y

it/t g 1 XmJFoo(

Non1 2Wurho, , HHEBE! E E I

toIz (\ Kela (- * /- i _AYUN Limi 990

0~~~~~~~~~~~1

Si

XigxionJ- / \ JnglJ,aXflhfl *iofl

YLJ WJ Yoonqt $4 &, TY .X W 0- SI,, L.nynl o io,gongi>\ G~~~~~~~6,f''° Tile ;a8

\- u_hn \lIU< luna a -- Pnfbg Yogj Pi"n'gluoi :

ftuLkh .ng^t Yc\~>_ Xyn ji. :~ ~ ~ . 6-tu,n o i HvEN A N NXrt n s ob i.i r' r...i. RUSA

0.* . t O A 1 .lE ; . gI I

H E N A N IBRD27655 CHINA SHANXIPOVERTY ALLEVIATION PROJECT APPROXIMATESITE OF PROJECTACTIVITIES LIULANGPREFECTURE

p - / ~~XingxionXingxian 0I 15t 30I> 45I 60I

Linxion9 ) ii u

X -38 I <> Jiaocheng O

Liulin

| ) LONG FenyIng NZHO Z I

SHiOU4 _ouangr,. Xiaoyir||h cvlo S ,X, fi Ji~aokou\~llgAI~A

PARTICIPATBNGCOT ES | | r| o

< G ~~~~AGROPROCESSING FACIUTIES i W 7 ,NZHLN

\ v ~~~DRINKINGWATERSUPPLY

| i GRASSLAND , NAN

HORTICULTURE Th. b-.dd.6ri-, c.lor.,

SILTIUARRESTINGDAMS n hismpd o s,z >.N4

COUNTY BOUNDARIES LTh. W-dd8.n oQ,4UN G,vp, NA PREFECTUREBOUNDARIES oo on,f-y t.oL,-y,

) - PROVINCEBOUNDARIES oon.of c _

JANUARY 1996 CHINA SHANXIPOVERTY ALLEVIATION PROJECT APPROXIMATESITE OF PROJECTACTIVITIES

LINFEN YUNCHENGPREFECTURE LANGDIAN COMMAND AREA EXISTINGPUMPING STATiONS PARTICIPATINGCOUNTIES

0- n RURALROAD UPGRADE COUNTYBOUNDARIES

4HeIin\9o~ ;iangijiX 0 AGROPROCESING FACIOUES PRCTUE BNDARIES I \ g\26s +/ < @ ~~~~~~~~~~~~~~~~AOUACULTUREMPROVEENT POIC OJDRE _ j ~~~~~~Heiin . DRINJNG WATER SUPPY

2 t} } F ~~J ish an HORTCULTUREx .-- - / 1 .j -zit >)/' X '' + ~~~~~Jian?gxfon *WM LAGDAS TST)t

if) <) WHESErIgR BEAG SITES

a Rujcn !iengli /~~y

N /~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~fh .1 dpl, ,; 0 15 10 ., t, k~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ond, t\r OTRS - E H AN

~~~~~~~~~~~~~~~~~~~ocnypendcea! nuh v ~ ~ ~ ~ ~~~~~~~~~~~~~~~~~~~~~~~~~~or <7 <~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~0 IMAGOING

Report No: 15079 CHA Type: SAR