Environmental and Social Safeguards Compliance Audit (and Corrective Action Plan)

November 2011

PRC: Municipal Water Distribution Infrastructure Development Project

Changsha (China Water Affairs) Company Limited

Prepared by China Water Affairs Group Limited for the Asian Development Bank (ADB)

This report has been submitted to ADB by China Water Affairs Group Limited and is made publicly available in accordance with ADB’s public communications policy (2005). It does not necessarily reflect the views of ADB. Changsha (China Water Affairs) Company Limited

November 2011

Environmental and Social Safeguards Compliance Audit (and Corrective Action Plan)

China Water Affairs Group Limited 1

ESMS AUDIT REPORT Document Number: ESMS/NINGXIANG/BP-AP/V1.0/01112011 Topic: Environmental and Social Safeguards Compliance Audit (And Corrective Action Plan)

Written and Prepared by ESMS Supervisor: Wen, Wei

Verified and Approved by ESMS Manager: Li, Xingping

Approved by Executive General Manager: Liu, Yong

ESMS Committee Representative: Chan, Jacky

Contact Persons: Li, Xing Ping (ESMS Manager/ Deputy General Manager) Email: [email protected] Fax: +86 0755 33362493 (Office) Telephone: +86 0755 33360255 (Office)

2

ABBREVIATIONS

ADB – Asian Development Bank AP – Affected People by the Project CAP – Corrective Action Plan abbreviations CWA – China Water Affairs Group Limited WP – Water Plant DRC – Development and Reform Commission EIA – Environmental Impact Assessment EPB – Environment Protection Bureau IPS – Intermediate Pressure Station IR – Involuntary Settlement IP – Indigenous People LA – Land Acquisition MWR – Ministry of Water Resource LRB – Land Resource Bureau PRC – People’s Republic of China RMB – The lawful currency of the PRC RWEP – Raw Water Extraction Point SPS – ADB’s Safeguards Policy Statement (2009) SR – ADB’s Safeguard Requirements SSD – Shanghai Silver Dragon Investment Limited

3

CONTENTS

I. INTRODUCTION ...... 4 A. Project Overviews ...... 4 B. Objectives of the Report ...... 6 C. Methodology ...... 6

II. AUDIT FINDINGS ...... 7 A. Past and Present Related Safeguards Issues ...... 7 i. Environment...... 7 ii. Involuntary Resettlement ...... 9 iii. The Indigenous Peoples ...... 15 B. Other Social Matters...... 15 i. Sustainable Development ...... 15 ii. Gender and Employment ...... 16 iii. Labor and Community Health and Safety ...... 17

III. CONCLUSION AND RECOMMENDATIONS ...... 18 A. Conclusion ...... 18 B. Recommendations and Corrective Action Plan ...... 19

ANNEX Annex 1………………………………………………………………………...….20 Annex 2………..………………………………………………………….……….22 Annex 3…..……………….……………………………………………………….23 Annex 4…..……………………………………………………………….……….25 Annex 5……………………………………………………………………………28

4

I. INTRODUCTION A. Project Overviews

i. Changsha (China Water Affairs) Company Limited (“Project Company”), a subsidiary China Water Affairs Group Ltd. (“CWA”), was acquired by CWA in February of the 2009 from Ming Xing Waterworks Holdings Ltd.1.The proposed New Project, located in the Ningxiang County, City of Changsha in Hunan Province (Figure_1), is being controlled by the CWA as CWA owns 90% shares of the Project Company.

Figure 1 - Project Location (Ningxiang County) on the Map of China

ii. Background and New Project Necessity: the Ningxiang County, located in the center of Hunan Province, has a population over 200,000 and covers land areas approximate 20km2. (a) Prior to 2009, it has 4 water plants (“WPs”) including the No.1, 2, 3 and Phase I of the No. 4 WP. The No.1 and No.2 WPs were constructed in the early 1980th has a total water distribution capacity of 11,000m3/day. Since the underground water, which were heavily contaminated in last decade, was the only channel used to provide raw water to No.1 and No.2 WPs, making two WPs no longer capable to provide reliable tap water. Thus both of them were abandoned in the year of 1998

1 Ming Xing Waterworks Holdings Ltd. – the former investor who privatized Ningxiang Water Supply Authority- a division under Municipal Ministry of Water Resource.

5

and 2000 respectively. The WP’s that currently under operation are the No.3 WP, built in 1997, has distribution capacity of 40,000m3/day, as well as No.4 WP (Phase I), built in 2006, that has capacity of 40,000m3/day. Besides, 2 intermediate pressure stations (“IPS”) with total handling capacity of 15,000m3/day, were built in 1995 and 1998 for boosting distribution pressure in water supplies system.

(b) Under accelerated development in the Ningxiang County, especially the rapid expansion of its development zones (Economic Development Zone and Jinzhou Development Zone) in recent years, issues associated with the water distribution such as inadequate water volume and pressure have been arisen more frequently. According to “Ningxiang County General Planning for2000-2020”, It presents that water demand in Ningxiang County would reach 120,000m3/day by 2012 and over 200,000m3/day by 2020.

(c) To overcome such issues presented, the Project Company has submitted a project application to government authorities in 2009, requesting to develop No.4 WP (Phase II) construction for doubling the daily distribution capacity of No.4 WP to 80,000 m3/day (additional 40,000m3/day on top of Phase I) as well as to construct new IPS’s for raising pressure in distribution system.

(d) Institute of Changsha Environmental Science Research was hired by Project Company and composed “Environmental Impact Assessment for No.4 Water Plant in the Ningxiang County”, which has been approved by Changsha Municipal Environment Protection Bureau subsequently. Consulting Division from University of Hunan Province was hired to do “Feasibility Study regarding No.4 Water Plant and Associate Distribution Pipeline Construction in Ningxiang County, which has been approved by Changsha Municipal Development Reform Commission. Related construction was started in the early 2010. iii. New Project Breakdown: (a) No.4 WP Phase II construction would raise distribution capacity of No.4 WP from 40,000m3/day to 80,000m3/day, involving facility constructions of flocculation/ sedimentation tank, clarification tank, and filtration tank.

(b) For further water quality improvement, the Project Company plan to construct a deep disinfection processing compartment, utilizing cutting-edge technologies such as ozone and activated carbon disinfection methodologies.

(c) The new IPS construction, with capacity of 50,000m3/day, would provide extra pressure into water distribution system.

6

Figure 2 - Project Site (No.3 and No.4 Water Plants) iv. Percentage of New Project’s Accomplishment: Until December 2011, construction of No.4 WP Phase II and new ISP are approaching the final inspection stage; the construction of deep disinfection processing compartment will be started promptly upon the confirmation of the ADB’s funding (Annex1). The Project Company decides to apply the ADB facility, accounted for approximate 68.4% of the total investment, for settling the rest of the payables including partial unsettled payment for recent completed construction as well as the new construction of the deep processing compartment.

B. Objectives of the Report: i. This Compliance Audit Report is being prepared to comply with the 2009 ADB’s SPS, including Safeguards Requirement and aims to identify past and present concerns from the production and business activities of Project Company that related to impacts on environment, involuntary resettlement (physical or economic displacement) and ethnic/ indigenous people, determines whether actions were in accordance with ADB’s SR1, SR2, SR3 principals, requirements and prepare a Corrective Action Plan (“CAP”) containing necessary remedial actions, approximate budget and time frame for resolution of any noncompliance.

C. Methodology Four (4) experts from the ESMS committee from the Shenzhen China head-office of CWA have been sent to cooperate along with colleagues in local Project Company and conducted a series of investigation and verification, specific methodologies including: i. Review of documents which shall all conform to “the Environmental Protection Law of the People’s Republic of China”, and other relevant documents: (a) “Feasibility Study for No.4 Water Plant and Associate Distribution Pipeline Construction for

7

Ningxiang County” prepared by Consulting Division from University of Hunan Province in February 2009; (b)“Environmental Impact Assessment for No.4 Water Plant in Ningxiang County” prepared by Institute of Changsha Environmental Science Research Jiangxi in February 2009; (c) “Approval of Feasibility Study for No.4 Water Plant and Associate Distribution Pipeline Construction for Ningxiang County” issued by Changsha Municipal Development Reform Commission in 2009; (d) “Approval of Environmental Impact Assessment for No.4 Water Plant in Ningxiang County” issued by Changsha Municipal Environment Protection Bureau in 2009; (e) “Land Acquisition Agreement”, signed off by Land Acquisition and Resettlement Office of Ningxiang County and Ningxiang Water Supply Authority2 in April 2003. (f) “Land Acquisition Agreement” and “Land Acquisition Supplementary Agreement”, signed off by Hunan Ningxiang Economic Technology Development Committee and Weifeng Brick Factory in 2003 and 2005. ii. Interview with persons who have involved in past and present production and activities of WP, explore health and gender issues in the community; iii. Conduct onsite assessment, interview with affected people and local government authorities who have involved in the land acquisition process; iv. Collect information from local government authorities such as municipal EPB, MWA, Construction Bureau, DRC, NLRB, and related Village Committees. Verify if any violation regarding environmental and social matter has been reported or documented against to Project Company. Enquire necessary certificates and letters of approval if necessary.

II. AUDIT FINDINGS A. Past and Present Related Safeguard Issues i. Environment a. Environmental Impact Assessment: of the Project was composed by Institute of Changsha Environmental Science Research, approved by Changsha Municipal EPB and strictly in line with “Environmental Protection Laws”, "Project Construction Environmental Protection Managing Regulations", "the PRC of Environmental Impact Assessment Laws" and other related laws and regulations. Moreover, according to “Municipal Urban Planning”, a document approved by Changsha Municipal DRC, the Project was conducted in area that was designated for water supply infrastructure construction. b. It was confirmed that the project facilities and/or related construction did/will not

2 Ningxiang Water Supply Authority: former Water Supplier, a division under Municipal Ministry of Water.

8

cross and traverse environmentally sensitive areas such as protected areas, wetlands, mangrove, estuarine, and buffer zone of protected area.

c. it was confirmed that the project and/or related construction did/will not encroach on historical/culture areas, disfiguration of landscape by road embankments, cuts, fills and quarries.

d. Environmental Impacts vs. Projects Construction: Project Company has always devoted to mitigate such environmental impacts by strict maintaining its routine of measures on: (i) noise control: to apply low-noise devices and limit operation hours from 8:00 to 20:00, in order to reduce noise from construction and transportation. (ii) Dust control: sprinklers would frequently water construction site throughout, preventing dusts from spreading. (iii) Isolation fences and construction signs would be equipped, prohibiting pedestrians from trespassing restricted site and avoiding potential hazards. (iv)Vegetation: for any construction that may damage the city vegetation coverage, Local Landscaping Authority, the only parties authorized to handle city’s landscaping property, would be informed initially. Professionals would transplant the affected trees and lawns prior to the construction and restore them back accordingly upon the completion. All associate expenses would eligible for reimbursement and paid by Project Company. For No.4 WP’s Landscape Design, overall vegetation coverage of 35% was needed. It was confirmed by our auditing team that such requirement has been fulfilled. (v) As a result of strict implementation of above routine of mitigation measures, environmental related complaint or warning associated with project construction, has never been received by Project Company from surrounding neighbors and local authorities until this moment.

e. Environmental Impact vs. Water Plant Operation: Major concerns related to WP operation are mainly from the following aspects: (i) noise: from operating equipments onsite. Since all equipments are indoor devices with proper enclosure, which attenuate majority of noise through such insulation. Municipal EPB has conducted acoustic test around WP boundary (refer to Table 2).Based on the results of monitoring, noise level from WP operation was classified as Level III according “Urban Environmental Noise Standard” and approved to be no effects to surrounding areas. Moreover, no noise related complaint has arisen from neighbors until this present. (ii) Wastewater comes from the backwashing process of flocculation/sedimentation tanks and to be directed into the city sewage system after settlement. Since discharged over-turbidity wastewater with suspended solids would be considered to have negative impacts to environment, therefore, sludge treatment facility upgrades will be necessary, as corresponding corrective action plan will be provided subsequently. (iii) Chlorine Dioxide is used for water disinfection purposes. The procurement/ delivery of chlorine related materials (sodium chlorate and hydrochloric acid) are carried out in strict application procedures set forth by the local authorities, such as Administration of Work Safety, Ningxiang Police Department, and Administration of Transportation, with clear and detailed records according to the

9

“High Toxic Chemical’s Procurement and Transportation License Management”, issued by Ministry of Public Security in August 1st, 2005. Shipment and logistics have to be handled by qualified transportation company, Zhuzhou XinDa Transportation Ltd., who is licensed with the “Toxic Chemicals Road Transport Permit”. Chlorine leakage detectors, alarm, collection/absorption devices were installed in chlorine storage and other applicable areas. Furthermore, automatic detection and alarm system will shut chlorine generation process down once leakage is being detected. In the meantime, chlorine collection and absorption units would be initiated, preventing chlorine from spreading. It was confirmed by our auditing team that the recent inspection records shown all chlorine equipments used in plants were properly maintained and in good condition. No chlorine leakage accident since the day Water Plant has been put into production.

Table 1 – Statistics of Environmental Noise Monitoring

Statistics Leq L10 L50 L90 Monitoring points and period 1. RWEP Pumping Station Daytime 62.4 59.6 58.8 58.0 At night 48.2 44.0 43.5 43.0 2. WP East Corner Daytime 58.9 56.6 54.6 52.0 At night 48.6 45.6 42.4 41.8 3. WP South Corner Daytime 57.0 55.2 53.8 51.2 At night 47.7 45.7 43.0 42.6 4. WP West Corner Daytime 65.5 61.5 60.4 59.8 At night 52.7 49.5 48.2 47.5 4. WP North Corner Daytime 56.0 54.2 53.9 51.8 At night 46.0 45.5 45.2 44.8 6. WP distributing Pump House Daytime 61.0 59.2 57.8 55.8 At night 51.7 50.7 49.5 47.9

f. To sum up, Project construction and operation are carried out consistent with related national, provincial, and municipal laws and regulations, Project Company will keep paying adequate attention on environmental safeguards and stick closely into existing mitigation measures. In addition, the 24-hour customer service hotline, 152-0793-0020, could also be used for collecting and filing inquiries and issues regarding water plant construction and daily operation. Until now, no complaint regarding environment prospective has been arisen. However, for the noncompliance regarding wastewater discharging, corresponding CAP will be prepared subsequently in this report. ii. Involuntary Resettlement a. Status and scope of Land Acquisition: The Project has involved in the following land acquisitions: (i) the entire land of the No.4 WP, including land for Phase II construction, was acquired in the April, 2003 by the Ningxiang Land Acquisition and Resettlement Affairs Office, a division under

10

municipal NLRB, and then transferred to the state owned Ningxiang County Water Supply Authority for constructing No.4 WP facility. Land Certificate has issued to Project Company in 2009 (Annex2). (ii) The Land of new IPS was originally owned by Weifeng Brick Factory. The process of land acquisition has been conducted in 2002 by the authority of the Hunan Ningxiang Economic and Technology Development Zone (“NETDZ”). The Land Acquisition Agreement and its Supplementary Agreement have been signed off respectively in year of 2002 and 2005. After that, NETDZ has transferred the land to Ningxiang Water Supply Authority for ISP construction. The application of Land Certificate is being processed.

11

Table 2 – General information of Land Acquisition

Item Number Involved Facility Acquired Area Time Related Documents 1 No.4 WP 32,867.20m2 Apr. 2003 i. “Land Acquisition Related Compensation Agreement” ( Phase I and II) Aug. 2009 ii. “Land Certificate” (Annex2) 2 Intermediate Pressure Station 20,001.00m2 Sep. 2002 i. “IPS Land Acquisition Agreement” (Annex4); and (“IPS”) Sep. 2005 ii “IPS Land Acquisition Supplementary Agreement” (Annex5) In Process iii. “Land Certificate”

Table 3 – Details of Land Acquisition (Units: m2) Residential (R)/ Land Occupation Type Facility/ Activity Total Dry Land Paddy Field Water Surface others Industrial (I)

Pipeline from water source to plant ROW 0 0 0 0 ROW

No. 4 Water Plant 32,867.20 (i) WP Phase I & II; (i) 2560.04 593.36 24,630.79 4,766.91 2876.14 (R) 0 (ii) Sludge treatment Compartment; (ii) 2300.00 Permanent Occupation (iii) Deep disinfection compartment. (ii) 4946.48 Distribution Pipeline ROW 0 0 0 0 ROW (plant to distribution line) IPS (Intermediate Pressure Station) 20,001.00 0 0 0 20,001.00 (I) 0 Access Roads 0 0 0 0 0 0 Pipeline excavation ROW 0 0 0 0 ROW Temporary Occupation Temporary construction facilities ROW 0 0 0 0 ROW Total Land Acquired 52868.20 m2

12 b. Compensation Mechanism: Land acquisition activities mentioned above were government actions. It was confirmed that related acquisition procedures were executed fully consistent with “Land Administration Law of the PRC” (“the LAL”) and “Regulations on Land Acquisition, Compensation and Resettlement of the Municipal of Changsha” [2000] (“the Regulation [2000]”, further revised in 2008); all agreements were entered maturely by parties under adequate consideration. The Regulations [2000] is strictly in line with the LAL, but tailored and made specifically for land acquisition cases in the Changsha District; comparing with the LAL, which has provided a general conception, The Regulations [2000] stated land acquisition procedure and compensation methodologies such as compensation standards, necessary resettlement assistance and subsidies, serving as a guidance during the treaty making stage. The objectives of “the Regulations”[2000] are to minimize the social impacts being resulted by Land Acquisition activities, to enhance the livelihoods of all Affected Peoples and to improve the standards of living of the displaced poors and other vulnerable groups. It fully complies with the LAL as well as the SP2 of the ADB SPS (2009). Through the audit, it was confirmed as all APs associate with No.4 WP land acquisition have been settled properly in 2003 (Annex 3). The Project Company has paid sufficient attention for life restoration of APs over last eight years. On the other hand, construction and operation of the new water plant offer villagers plenty of job opportunities with better salary, so that the younger generation no longer needs to work far from their families. Furthermore, under the rapid urbanization process in the Ningxiang district, majority farmers have given up on farming over alternative works such as house rental, convince store which has better remuneration, making farming contributes as little as 5% to their annual household incomes. Therefore, all APs involved were satisfied with the settlement and no dispute has been reported. Land Certificated was granted to Project Company in 2009. • For The Land Acquisition of No.4 Water Plant: The 32,867.20m2 of land consists of the cultivated land and the residential land, they were collective land that originally owned the Zheng Village Collective Economic Organization (“CEO”) and used to be allocated equally to villagers for farming and residential purposes. The compensation could be broke down into four (4) aspects: (i) Land Acquisition Compensation, which could further split into the payments to (a) the CEO of Zheng Village, (b) potential AP’s and, and (c) compensation for existing agriculture products attached on acquired cultivated land. (Table 4)

13

Table 4 - Standard for Land Acquisition Compensation

(a) (b) (c) Land Type to CEO To AP’s For Agriculture Products (Unit: RMB/mu) Unit: RMB/mu Unit: RMB/mu Dry Field 9975.0/mu 11400.0/mu 713.0/mu Cultivated Land Paddy Field 6982.5/mu 7980.0/mu 498.8/mu

Water Surface 9975.0/mu 7125.0/mu 1425.0/mu

Residential Land 9975.0/mu 7125.0/mu --

(a) Compensation to CEO of Zheng Village (RMB/mu), the funding would be utilized for redistributing new cultivated land and residential lots, developing irrigation and water conservancy projects in the Zheng Village. It was compensated at the six (6) to ten (10) times of the AAOV during previous three (3) years prior to acquisition.

(b) Compensation to Affected Person’s (AP’s) (RMB/person), the funding will be allocated to all potential affected individuals in the Zheng Village, compensating for their loss of income or livelihood source at full replacement cost, including related transitional support and restoration costs. It was compensated at four (4) to six (6) times of the AAOV during previous three (3) years prior to acquisition.

(c) Compensation for Existing Agriculture Products, (RMB/mu), also referred as “Greenery Compensation”, the 50% of the AAOV during the last three years prior to acquisition would be compensated for the agriculture products with less than one year of growing season; for those with more than one year of growing season, the 100% of the AAOV during the last three years prior to acquisition would be compensated.

(ii) Land Attachments Compensation (non-agricultural and non-residential):

(a) Grave: RMB 600/unit;

(b) Septic tanks: RMB 40 /m3;

(c) Farmers’ non-residential structure: RMB 120/m3;

(d) Temporary sewer: RMB 40/m;

(e) Fishery (non-profit activities) in paddy field: RMB 712/mu;

(f) Water surface reconstruction: RMB 7.5/m3.

(iii) Residential House Demolition, Relocation and Reconstruction Fee as there were five (5) houses being relocated during land acquisition (Table 5). According to “The Regulation [2003]”, through sufficient research and negotiation with 5

14

families, in addition to the compensation mentioned in Part (i).(a)&(b) above, RMB 694,753.42 was compensated for houses’ demolition and relocation and RMB 481,400.00 was paid for new houses reconstruction. The amount of the compensation to displaced households was determined with the consideration of market value of adjacent land, ensuring displace families could re-establish their life in better condition. The Project Company also agreed to run water, sewer, and utility services for new houses of AP’s for free of charge.

Table 5 – Displaced Households Household Household Members 1 Hu, Siqing 4 2 Lan, Shuzhi 6 3 Wang, Zhongwei 4 4 Lan, Zhengbing 3 5 Lan, Shulin 8

(iv) Taxes, Interests and Other Expenses. All related charges, for instance, taxes, interests will be compensated accordingly, ensuring smooth transitions during land acquisition period. • For the Land Acquisition of the Intermediate Pressure Station (IPS): the acquired land for construction of the ISP is located at the west of the Chuangye Ave. in the Ningxiang Economic and Technology Development Zone. The land was Collective Land and the right of use used to belong to the Weifeng Brick Factory (“WBF”). In 2004, the local authority of the NETDZ decided to take the right of land use back from WBF for purpose of the future urban planning. Through negotiation, both parties had made such agreements: (a) Land Acquisition Agreement (Annex3) signed in 2002, NETDZ agreed to pay total amount of RMB 1,811,168.00 to WBF for compensating its losses; besides, provided additional 5mu land to the original owners of the WBF for starting new business. However, the land price has soared significantly, due to the rapid urbanization process in this district, making owners of the WBF being hesitant to enter the deal signed initially. To resolve the dispute, NETDZ decided to re-negotiate the terms, so that the Land Acquisition Agreement Supplementary (Annex4) was formed subsequently in 2005 and stated that:

(b) NETDZ agreed to raise the total compensation amount to RMB 2,618,000.0 from the original RMB 1,811,168.00 that had agreed in the Land Acquisition Agreement of 2002. Moreover, extra 50mu of land would be assigned to the owners of the WBF at a considerable low rate of RMB 60,000/mu, letting them to start new business.

(c) At the present, the original owners of the WBF have successfully established their commercial concrete business under the assistance provided by the local authority

15

of NETDZ. As a monopolistic local concrete provider, the WBF has grown dramatically since 2005, as its 2010 annual revenue was approximate RMB 6,000,000.00, comparing with RMB 400,000 in year of 2005. c. Consultation, Information Disclosure and Grievance Redress: the Project Company has constantly devoted to disclose information in timely manner via various media channels, making the Project operation transparent; Compensation Affairs Office, established by the Project Company, actively gathers opinions from affected communities and consults individuals if necessary, trying to ease the concerns in early stage and achieving bilateral consensus if possible. On the other hand, the affected people also entitle to file an appeal to the People’s Court in corresponding level, according to “Civil Laws of the PRC”, getting their legitimate interests protected. So far, no land acquisition related dispute has been arisen from society disputing against the Project. iii. The Indigenous Peoples

There are few ethnic minorities in Ningxiang District and approximate 99.98% of the population is Han. The minorities have adopted life style of the Han’s over the years and do not self-identify themselves as a distinct indigenous cultural group. Furthermore, the No.4 WP land acquisition does not involve any ethnic. Therefore, no safeguards issue associate with ethnic minority and indigenous people in this Project.

B. Other Social Matters i. Sustainable Development. a. Based on the latest statistics, the current water tariff of the Ningxiang County is RMB 1.53/m3, as the monthly volume of water consumption per person is approximate 8.0m3, making RMB 12.24 expenditure per capita for accessing tap water. It only accounts for 0.86% of the total disposable incomes of Ningxiang population, which is far lower the global average of 4%. Therefore, the water tariff of Ningxiang County is considered in the affordable range that has minor influence to residents’ daily life. b. Water Tariff Mechanism: Request of tariff hike shall be proposed by the Project Company and submitted to municipal authorities for reviewing. Project Company would disclose all related information to general public, including the reasons and the amount of the price adjustment, by participating series of conferences called “Public Hearings”, which is hold by Municipal Pricing Bureau. Essentially, the board of municipal government will determine whether to approve the request of such tariff hike, based on the following factors: (i) the public opinions and (ii) whether the profit of the Project Company could adequately cover necessary capital expense for future pipeline inhabitation, water plant facility upgrades and expansion; whether it could maintain reliable water distribution system so that the society of Ningxiang could achieve healthy and sustainable development. (iii) Furthermore, payment affordability of

16

vulnerable groups, such as single parent families and low-income households, must be taken into considerations: for the each low income household identified by the Ningxiang People’s Government, the Project Company has the preferential policy to waive four (4) tons of tap water usage charges from their monthly bill statement.

c. Corporate Social Responsibility. Over the last eight (8) years, the Project Company has invested a series of projects to improve the quality of the local water distribution system, it also helped to construct several rural gravel roads in the village, constructed tap water, sewage and utility access for the affected villagers without service charge. In addition, project construction and operation provided the local community with plenty of job opportunities which significantly boosted the remuneration level in Zheng Village. Furthermore, The Project Company always believes in that water resource, one of the most essential elements to human life, desired a mind of preservation from the public especially in a water stressed country like China. It has been keep promoting the ideas of water conservation in campaigns through a variety of media channels. The Company also establish temporary information booth once a year in local communities, disseminating knowledge on how to improve water usage efficiency and educating end-users directly.

ii. Gender and Employment a. Principal of Gender Equality: the Project Company currently employs 84 female staffs, accounting for 46.93% of the total (179 staffs). They are approximate equally allocated in various job categories (Table X). The Project Company adheres to the equal gender principal and do not disaggregate job description and remuneration level by sex, as all job opportunities are equally competed by all potential candidates and salary standard are determined only according to the job description and work load performed by the employees.

Table 6 - Staff Distribution (disaggregated by sex)

Job Category Number of Female Staffs Male Staffs Remarks Staffs Number (Percentage) Number (Percentage) Managerial 22 7 (31.82%) 15 (68.18%) Senior Management, Middle level Management Administrative 66 38 (57.58%) 28 (42.42%) Administration, Accounting, Human Resource, Customer Service, Secretary Technical 91 39 (42.86%) 52 (57.14%) Electrical, Mechanical, Chemical, Technician and I.T. Supports Total 179 84 (46.93%) 95 (53.07%) --

17

b. Protection of Female’s Rights: the Project Company always pays adequate attention to the rights of female staff by maintaining their beneficiary policies, for instance, the four (4) months maternity leave with 100% wage and welfares, as well as the voluntary breast-feeding leave with the 90% wage and 50% welfare. Company also provides annual gynecological examination to female employees. iii. Labor and Community Health and Safety a. In full compliance with national policies, regulations and laws, such as “the Labor Contract law” (2008), “Trade Union Law” (1992), “Labor Law” (1995), “the Production Safety Law” (2002) and “the Provisions on Collective Contracts” (2004), (i) pension premium, unemployment insurance, industrial injury insurance, medical insurance, maternity insurance and housing accumulation fund would be paid by the Company on behalf of its employees. (ii) The maximum of forty (40) working hours per week and eight (8) hours per day was strictly enforced. In case that overtime working cannot be avoided, the employer should always obtain consent from employee and provide overtime salary and leaves accordingly. (iii) A transparent and consistent remuneration policy is maintained by corporate human resource department, assuring staffs the equal compensation for equivalent workload. (iv) The Project Company had established the Labor Union, which the board was elected by the members (the employees). It acts as a bridge between the company and the staffs, not only represents the company to conduct the employee consultation, making sure everyone fully understand corporate policies, but also represents the staffs, negotiating with the senior management team over the typical issues covered in a labor contract, such as working hours, wages, benefits, working conditions, and the rules of the workplace. The Union had played a significant role over the years, in addition to providing an effective channel for disputes; it has successfully protected the collective interests of the employees.

b. Health and Social Safety Policies: The Project Company has the reputation of maintaining a healthy and safe working environment with composition of series regulations and policies regarding health and social issues, such as “Occupational Safety Management Procedures”, “Occupational Health Management Programs”, and “Hazardous Levels of Chemical Safety Management Procedures” etc.. Safeguard routines set forth in above-mentioned polices for major hazardous, such as explosion, chorine leakage, will be practiced regularly, affirming proper reaction to be delivered under specific circumstances. No safety incident has been reported and/or recorded since the No. 1, 2, 3 and 4 Water Plants put into operation as well as no injury and/or death has ever occurred.

c. “Contingency Plans for Failure of Water Distribution” was prepared in 2009 and approved by the Administration of Construction. It provides specific solution and procedure for situations, such as emergency water resource pollution, nature disaster, chlorine product leakage, equipment failure, major urban pipeline broken etc. The Contingency plan would be reviewed quarterly and revised as needed.

18

III. CONCLUSION AND RECOMMENDATIONS A. Conclusion The Project, No.4 WP Phase II with associated IPS Construction, is considered as a necessity project that improves life quality of residence in the Ningxiang County by providing more reliable water distribution system that not only has a larger volume of water supplies with a higher distributing pressure, but also more purified water through cutting-edge disinfection technologies. Despite the proposed New Project gained the fully support from the local municipal administration, related feasibility studies and EIA, prepared strictly consistent with related regulations and policies, were approved by Municipal DRC in prompt manner. All construction contracts were granted through public biddings which made the process transparent and legally binding. i. Environment: based on the Audit Findings of environmental sector, no involvement of environmental complaint raised during the construction as a result of adequate mitigating measures have been carried out constantly; however, No.4 WP daily operation do have issue on discharging excessive wastewater. The over turbidity wastewater from flocculation and backwashing process used to be directed into urban swage system which has potential influence on the environment. Therefore, construction of wastewater and sludge treatment processing is necessary for eliminating possible associated environmental impacts. CAP is prepared as below in section B. ii. Involuntary Resettlement: as previously mentioned in the Audit Findings, it has confirmed that APs from village division III and division IV were satisfied with the terms regarding compensation agreement; as well as WFB, its commercial concrete business has achieved dramatic successful since 2005, proofing no effect was caused by related land acquisition. Therefore, no CAP required. iii. Indigenous People: pursuant to the Audit Findings of IP sector, shown that no minority and indigenous people were identified in related areas so that no CAP is required. iv. Other Social Dimensions: the Project Company committed for providing quality drinking water at an affordable rate and disseminating idea of water conservation to the general public; it also assured its employees a gender equal, healthy and safe working environment; moreover, as an earlier promise made to the Ningxiang municipal government, the Project Company would always allocate adequate capex to water supply infrastructure along with urban advancement and assist Ningxiang to establish a sustainable development society.

19

Recommendations (Corrective Action Plan) i. Regarding the potential negative environmental influence caused by discharging wastewater to city sewage system in No.4 WP, investment for wastewater/sludge treatment processing is necessary. Since the land reserve of No.4 WP’s is adequate for building such facility, no land acquisition will be needed (Annex1). The investment break down is estimated as follow:

Table 7 – Proposed Investment on Water/sludge Treatment Compartment

Estimated Investment (in RMB 1,000) Item Project Number Name Construction Installation Equipment Other Total cost cost cost cost cost Settlement 1 238.1 51.8 125.9 0.00 415.8 Tank Sludge 2 De-watering 300.6 48.3 139.2 0.00 488.2 Tank Sludge 3 148.8 17.4 49.5 0.00 215.8 Storage Tank Sum 1,119.8

ii. The Project Planning Division of Project Company has proposed above facility upgrading project to the senior management team of CWA. Mr. Liu, Executive General Manager of CWA, has approved the proposal. Thus, the wastewater/sludge treatment compartment will be constructed after the accomplishment of the current Project and expects to be completed by 2013. Upon the completion, contaminated water would be treated and separated from the sludge after the process and recycled by mixing with the raw water, re-entering the purification cycle. This new compartment ensures zero pollutant discharging from water plant daily operation; essentially, it will successfully eliminate possible influences to the environment. Approximate 80 tons of dewatered sludge will be produced annually, 20% of them could be reused for landscaping purposes in early construction stage of No.4 WP; the excessive portion will be delivered to Yinhuaqiao Waste Treatment Center in Ningxiang and land-filled by city’s Sanitation Department. Yinhuaqiao Waste Treatment Centre has daily garbage treatment capacity over 1000 tons, the landfill site is relative new, with occupation only about 10%.

20

Annex1_No.4 WP Phase II Construction

Newly constructed flocculation/sedimentation tank

Newly constructed pump house

21

Reserved land

Newly constructed IPS

22

Annex2_No.4 WP Land Certification (Original and Translation)

Right of land usage Changsha (China Water Affairs) Company Limited assigned to Location Ningxiang County, Baima Town, Zheng Village (Dongyi Ave.) Land No. Zheng Village-04 Drawing No. 3125.40-504.50 Purpose of Usage Utilities Price Category Type of usage Assignment Date of termination 2019.08.25 Total Area 32867.20m2 Exclusive use area

Notes: Under the "Constitution", "PRC of Land Administration Law" and "PRC on Urban Real Estate Administration Law" and other related laws and regulations, for the protection of the legitimate interests and the land use right and for registration of the evidence listed in the land rights certificates of the authorized party, the registration is approved through examined and verified, hereby the issuance of this permit.

County People's Government (Chapter) Sept. 07th, 2009

23

Annex3_Letter of Certification from CEO of Zheng Village (Original)

Pictures of reconstructed houses for selected displaced families

24

Annex3_Letter of Certification from CEO of Zheng Village (Translation)

Letter of Certificate

To whom it may concern:

We issue this letter for confirmation the following matters: Due to the requirement of construction for No.4 Water Plant, 32,867.20 square meters of land in my village were acquired (as land certification has been issued). All affected persons have been resettled with satisfaction. The land acquisition process was strictly complied with related National, Provincial and local regulation, the compensation standard was determined by both Ningxiang Land Acquisition and Resettlement Affairs Office and affected villagers through adequate research and negotiation. Firstly, through reserve land reclamation, same quality and quantity of cultivated land has rearranged to affected villagers (38 persons) during land acquisition in 2003. In addition, villagers also compensated with full restoration compensation for transition and livelihood recovery. Since Zheng Village is located nearby urban area of Ningxiang, primary income resource was from same business, labor works in urban area, house rental etc., as the proportion of agriculture related incomes relatively low comparing with other type of incomes, therefore, the overall impact due to the land acquisition was not considered significant to Zheng Village. Secondly, five (5) displaced houses were compensated for land acquisition, house demolition, relocation and reconstruction, the compensation standard was based on the research of land market price in 2003 and strictly complied with related regulations. Five household has already moved into the new constructed house, comparing with pre-acquisition, the life standard and living condition was improved significantly. Over the past decade after the land acquisition, the Ningxiang Water Supply Company has always paid attention about the production life of the affected villagers: it helped to constructed underground water distribution and sewer pipeline, power distribution line as well as several rural roads for free of charge which greatly improved the infrastructure in Zheng Village. In addition, new plant construction and operation provided tremendous job opportunities for villager in Zheng Village and significantly increased the average income level compare with pre-acquisition. The Affected Residents in Zheng Village all very satisfied about resettlement, and has never filed any complaint to Zheng Village Residential Committee, Ningxiang Land Acquisition Affair Office and the Project Company.

Ningxiang County Zheng Village Residential Committee (Seal) 2012.01.28

25

Annex4_IPS Land Acquisition Agreement (Original)

26

Annex4_IPS Land Acquisition Agreement (Translation) Acquisition Agreement on Weifeng Brick Company Party A: Hunan Ningxiang Economic and Technological Development Zone Party B: Weifeng Brick Company

After the construction completion of Chuangye Ave in Economic and Technological Development Zone in Ningxiang, Hunan, in order to expand industrial land reserve to attract more investors into the Zone, Party A decided to acquire land of Weifeng Brick Factory. Through several negotiations with manger team of Party B, agreement established as follows:

I. Party A acquires total land area of 41.0867mu from Party B. Party B to provide all related Land Certificates, redline boundary diagram with all necessary documents for transferring Right of Land Usage to Party A.

II. Total compensation amounted to RMB 1,811,168.00 including land acquisition fee, all relocating fee for all facilities, equipments and attachments, and resettlement fee.

III. Method of payment for compensation fee: Party A will pay Party B with three (3) installments: (i) RMB 200,000.00 will be paid to Party A within two (2) days after signing this agreement upon necessary documents being provided by Party B; (ii) RMB 700,000.00 will be paid to Party B by Nov.30th, 2002; (iii) the rest of RMB 911,168.00 will be paid to Party B up on completion of relocation.

IV. Other matters: (i) After land acquisition process, any ownership identification and lease contract of this factory with the local township, village, group, the villagers all the credit and debt problems which were established before acquisition process, will be handled by Party B, Party A shall not responsible for any historical disputes. (ii) Five (5) days after signing, all Part B’s projects shall be relocated and cleared from land and ready for use of Party A, for further construction convenience, the rest of land shall be cleared in 6 month for use of Party A. (iii) After land acquisition, Party A agrees to assign approximate 5mu land to Party B for future projects, at a rate as low as RMB 40,000/mu at Division Weifeng Dam New Village. No further infrastructure expense will be charged. Meanwhile, Party A will work on land transfer application. (iv) Party B’s new projects must be comply with related planning regulation of Party A through necessary audition, Party B do enjoy all incentives and services from Party A. (v) Signature makes this agreement legal binding and enforceable, cannot be violate. Any violation of Party A will be charged 3‰/day penalty (except application for land certificate). Violation of Party B will be charged 3‰/day penalty. (vi) Any unsettled matter shall be resolved through negotiation. (vii) Tax related to resettlement and Right of Usage transfer shall be paid by Party A.

27

Original copy of this agreement will be distributed to Party A, Party B, and Government the person in charge of both parties signed and sealed into effect.

Party A: (Seal) Representative: (Signature) Party B: (Seal) Representative: (Signature)

Monitoring and Certificate parties: (Seal) Representative: (Signature)

September 26, 2002

28

Annex5_IPS Land Agreement Supplementary Agreement (Original)

29

Annex5_IPS Land Acquisition Supplementary Agreement (Translation) Supplementary Agreement

Party A: Hunan Ningxiang Economic and Technological Development Zone Party B: Ningxiang County Weifeng Brick Company

Due to the project construction needs of Party A, Party B, in 2002 reached land compensation agreement. Due to multiple reasons, Parties A and B sides repeated consultations, reached on the following additional agreement. I. Both Parties agreed that the original signed agreement imposed on Weifeng brick Company, and willing to abide by. II. Based on RMB 1,811,168.00 compensation agreed on original compensation agreement in 2002, Party A and Party B decided to increase compensation to Weifeng Brick Factory for amount of RMB 2,618,000.0 (additional RMB 800,000.0) for future new project establishment. Furthermore, corresponding interests from subsequent installments RMB 600,000.0 and RMB 200,000.0 will be calculated making total additional compensation RMB 806,832,000.0 even. No further disputes will be allowed. III. Party A agreed to assign land at intersection of 1st Ring Rd. and Chuangye Ave. to Weifeng Brick Factory for its new Weifeng Plastic Manufacture Company with price and area have agreed in agreement. Party A agreed to provide assistance on application of related Land Certificate. IV. Upon signing this Pact, Party A will pay RMB 1,600,000.0 acquisition fee for Weijia and Weifeng company (both belongs to Party B, RMB 900,000.00 for Weijia, RMB 700,000.00 for Weifeng) before Oct. 31st, 2005, the rest will be paid upon new project application from Party B at a rate RMB 60,000/mu up to 50mu for use of industry purposes including factory plant construction and project pre-approved by Party A. V. Party A will assign the land at side of Zhangqian rd., 3rd Ring rd. and 2nd Ring rd. upon the completion of road construction, Land Certificate will be provided. (land will be provide Party B no later than June 31st, 2006) VI. New project of Party B cannot change the Purpose of Land Usage, and could only used by Party B. VII. All related Tax payment and/or receipts encountered during land usage transfer must be provided by Party B for reimbursement by Party A. VIII. Obligation: no any violation/breach up on signing of the pact.

Party A: (signature)

Party B: (signature)

September 8, 2005