Completion Report

Project Number: 33439-013 Loan Number: 2082 June 2013

People’s Republic of China: Fujian Soil Conservation and Rural Development II Project

CURRENCY EQUIVALENTS

Currency Unit – yuan (CNY)

At Appraisal At Midterm At Project Completion 31 January 2004 31 December 2009 31 August 2012 CNY1.00 = $0.12 $0.15 $0.16 $1.00 = CNY8.28 CNY6.83 CNY6.35

ABBREVIATIONS

ADB – Asian Development Bank EAF – environmental assessment framework EIRR – economic internal rate of return EMP – environmental management plan FFD – Fujian Finance Department FIRR – financial internal rate of return FPG – Fujian provincial government IEE – initial environmental examination NVA – net value added PBME – performance benefit monitoring and evaluation PMO – project management office PRC – People’s Republic of China

WEIGHTS AND MEASURES ha – hectare km – kilometer m2 – square meter m3 – cubic meter t – metric ton

NOTE

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

Vice President S. Groff, Operations 2 Director General R. Wihtol, East Asia Department (EARD) Country Director H. Sharif, PRC Resident Mission (PRCM), EARD

Team leader X. Shen, Senior Project Officer (Natural Resources and Agriculture), PRCM, EARD Team members Y. Gao, Project Analyst, PRCM, EARD X. Jiang, Operations Assistant, PRCM, EARD F. Wang, Senior Project Officer (Financial Management), PRCM, EARD W. Zhu, Senior Safeguards Officer (Resettlement), PRCM, EARD

In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.

CONTENTS

Page

BASIC DATA i I. PROJECT DESCRIPTION 1 II. EVALUATION OF DESIGN AND IMPLEMENTATION 1 A. Relevance of Design and Formulation 1 B. Project Outputs 2 C. Project Costs 4 D. Disbursements 4 E. Project Schedule 5 F. Implementation Arrangements 5 G. Conditions and Covenants 6 H. Consultant Recruitment and Procurement 6 I. Performance of Consultants, Contractors, and Suppliers 6 J. Performance of the Borrower and the Executing Agency 7 K. Performance of the Asian Development Bank 7 III. EVALUATION OF PERFORMANCE 7 A. Relevance 7 B. Effectiveness in Achieving Outcome 8 C. Efficiency in Achieving Outcome and Outputs 8 D. Preliminary Assessment of Sustainability 9 E. Impact 10 IV. OVERALL ASSESSMENT AND RECOMMENDATIONS 12 A. Overall Assessment 12 B. Lessons 13 C. Recommendations 13 APPENDIXES 1. Distribution of Subprojects 14 2. Design and Monitoring Framework 16 3. Chronology of Major Events 21 4. Project Costs and Financing Plan 22 5. Projected and Actual Contract Awards and Disbursements 24 6. Appraisal and Actual Implementation Schedule 25 7. Organization Chart 27 8. Status of Compliance with Loan Covenants 28 9. Financial and Economic Reevaluation 39 10. Assessment of Social Impacts and Poverty Reduction 45 11. Evaluation of Land Acquisition and Resettlement Activities 51

BASIC DATA

A. Loan Identification

1. Country People’s Republic of China 2. Loan Number 2082 3. Project Title Fujian Soil Conservation and Rural Development II Project 4. Borrower People’s Republic of China 5. Executing Agency Fujian provincial government 6. Amount of Loan $80 million 7. Project Completion Report Number PCR: PRC 1391

B. Loan Data

1. Appraisal – Date Started 16 July 2003 – Date Completed 21 July 2003

2. Loan Negotiations – Date Started 11 February 2004 – Date Completed 13 February 2004

3. Date of Board Approval 28 April 2004

4. Date of Loan Agreement 26 October 2004

5. Date of Loan Effectiveness – In Loan Agreement 25 January 2005 – Actual 18 March 2005 – Number of Extensions 1

6. Closing Date – In Loan Agreement 31 December 2010 – Actual 1 September 2012 – Number of Extensions 1

7. Terms of Loan – Interest Rate London interbank offered rate (LIBOR) based – Maturity 25 years – Grace Period 6 years

8. Terms of Relending – Interest Rate London interbank offered rate (LIBOR) based – Maturity 25 years – Grace Period 6 years

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9. Disbursements a. Dates Initial Disbursement Final Disbursement Time Interval

15 September 2005 3 August 2012 83 months

Effective Date Original Closing Date Time Interval

18 March 2005 31 December 2010 69 months b. Amount ($ million) Original Last Revised Amount Net Amount Amount Category Allocation Allocation Canceled Available Disbursed 01A Civil Works (conservation farming 6.6 5.2 0.0 5.2 5.2 and orchard rehabilitation) 01B Civil Works (aquaculture, agro- 6.0 3.7 0.0 3.7 3.7 processing) 01C Civil Works (livestock) 2.4 2.0 0.0 2.0 2.0 01D Civil Works (markets, roads, 17.2 23.1 0.0 23.1 23.1 water supply) 01E Civil Works (hydropower) 6.5 5.1 0.0 5.1 5.1 02A Equipment (conservation farming 0.9 5.5 0.0 5.5 5.5 and orchard rehabilitation) 02B Equipment (aquaculture) 1.2 1.9 0.0 1.9 1.9 02C Equipment (agro-processing, 6.9 11.4 0.0 11.4 11.4 livestock) 02D Equipment (markets, 11.3 5.5 0.0 5.5 5.5 hydropower) 02E Equipment (water supply) 4.8 9.6 0.0 9.6 9.6 02F Equipment (other materials) 2.4 2.8 0.0 2.8 2.8 03A Interest and Commitment Charge 12.8 4.0 0.0 4.0 4.0 03B Front-End Fees 0.8 0.0 0.0 0.0 0.0 03C PPTA Recovery 0.2 0.2 0.0 0.2 0.2 Total 80.0 80.0 0.0 80.0 80.0 PPTA = project preparatory technical assistance. Source: Asian Development Bank.

C. Project Data 1. Project Cost ($ million) Cost Appraisal Estimate Actual Foreign Exchange Cost 80.0 80.0 Local Currency Cost 206.0 237.7 Total 286.0 317.7 2. Financing Plan ($ million)

Cost Appraisal Estimate Actual Implementation Costs Borrower Financed 206.0 236.2 ADB Financed 66.2 75.8 Total 272.2 312.0 Financial Charges Borrower Financed 0.0 1.5 ADB Financed 13.8 4.2 Total 286.0 317.7 ADB = Asian Development Bank. Sources: Asian Development Bank and Fujian Commission of Rural Affairs. iii

3. Cost Breakdown by Project Component ($ million)

Component Appraisal Estimate Actual A. Soil Conservation and Integrated Agriculture 145.9 140.2 B. Rural Infrastructure 115.8 160.5 C. Project Support Services and Management 10.5 11.3 D. Financial Charges 13.8 5.7 Total 286.0 317.7 Sources: Asian Development Bank and Fujian Commission of Rural Affairs.

4. Project Schedule Item Appraisal Actual Estimate A. Soil Conservation and Integrated Agriculture 1. Conservation Farming and Orchard Rehabilitation and Forestation Date of Start July 2004 September 2005 Date of Completion June 2010 December 2011 2. Aquaculture Date of Start July 2004 March 2006 Date of Completion June 2010 December 2011 3. Agro-processing Date of Start July 2004 September 2005 Date of Completion June 2007 December 2011 4. Integrated Livestock Farming Date of Start July 2004 March 2005 Date of Completion June 2009 December 2011 B. Rural Infrastructure 1. Agriculture Markets Date of Start July 2004 January 2007 Date of Completion June 2010 December 2011 2. Rehabilitation and Development of Rural Infrastructure Date of Start July 2004 October 2004 Date of Completion June 2009 December 2011 3. Rehabilitation and Development of Hydropower Schemes Date of Start July 2004 October 2004 Date of Completion June 2009 December 2009 4. Rehabilitation and Development of Rural Water Supply Date of Start July 2004 October 2004 Date of Completion November 2008 December 2011 C. Project Management Date of Start July 2004 October 2004 Date of Completion June 2010 June 2012 Sources: Asian Development Bank and Fujian Commission of Rural Affairs.

5. Project Performance Report Ratings Ratings Development Implementation Implementation Period Objectives Progress From 28 Apr 2004 to 1 Sep 2012 Satisfactory Satisfactory Source: Asian Development Bank.

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D. Data on Asian Development Bank Missions No. of No. of Specialization of Name of Mission Date Persons Person-Days Membersa Fact-Finding 13 Jun–9 Jul 2002 7 135 a, b, c, d, e Pre-appraisal 9–23 Dec 2002 9 74 a, b, c, d, e, f, g, h, i Pre-appraisal Follow-Up Mission 17–27 Feb 2003 2 20 a, e Appraisal 16–21 Jul 2003 3 15 a, c, f Compliance Mission 11–13 Aug 2003 1 2 c Loan Negotiation Mission 11–13 Feb 2004 3 9 a, f, i Inception Mission 6–10 Dec 2004 2 8 a, d Review Mission 1 19–23 Sep 2005 2 8 d, j Review Mission 2 31 Oct–7 Nov 2006 3 17 d, k, m Review Mission 3 26 Nov–3 Dec 2007 5 32 d, l, n, o, p Review Mission 4 19–25 Nov 2008 2 12 d, l, Midterm Review Mission 19–29 Jan 2010 4 30 d, j, l, o Review Mission 5 14–20 Dec 2010 1 6 d Review Mission 6 19–23 Dec 2011 2 8 d, e Project Completion Review 4–13 Dec 2012 4 26 d, l, n, q aa = principal natural resources specialist, b = poverty reduction coordinator, c = environment specialist, d = project officer, e = staff consultant, f = rural development specialist, g = economist, h = resettlement specialist, i = counsel, j = control officer, k = project assistant, l = project analyst, m = country director, n = resettlement officer, o = environment officer, p = portfolio management unit head, q = financial management officer. Source: Asian Development Bank.

I. PROJECT DESCRIPTION

1. Fujian Province in the People’s Republic of China (PRC) is a coastal province with hilly to mountainous terrain accounting for more than 80% of its land area. Although Fujian has undergone rapid economic growth in recent decades, the standard of living among rural households remains much lower than that of the province’s urban population. Most poor rural households are located in hilly or mountainous areas, with some in the coastal region. The poor households in these areas have limited access to income opportunities, infrastructure, and support services. Land in these areas is prone to severe soil erosion and degradation resulting from unsustainable land management practices. Medium- to long-term financial resources to support agricultural and rural development have been severely limited, which posed a major challenge for the Fujian provincial government (FPG).

2. The principal objective of the Fujian Soil Conservation and Rural Development II Project was to narrow the income disparity between urban and rural households in Fujian by improving and diversifying income opportunities of these rural households. An earlier project (Fujian Soil Conservation and Rural Development Project) financed by Asian Development Bank (ADB) was designed to cover the eastern coastal counties of Fujian Province. This project was designed to cover inland mountainous areas and a few coastal counties in the province.1 The project outputs include rehabilitated orchard farms and forest areas, developed aquaculture, established agricultural markets, improved agro-processing capacity, integrated livestock farming, developed small hydropower and water supply schemes, rehabilitated small-scale rural infrastructure, and established project management offices and provision of supporting services.

3. In total, 102 subprojects were implemented in 38 counties, including 22 FPG-designated poor counties. Appendix 1 shows distribution of subprojects. More than 730,000 rural households in Fujian benefited from the project. Most of the subprojects were identified after project approval following selection criteria set out in the project agreement. A minor change in scope was approved in June 2010, to adjust the project investment and reallocate $9.0 million of loan savings from loan charges to conservation farming and rehabilitation of rural infrastructure. An 18-month loan extension from the original closing date of 31 December 2010 was also approved. Appendix 2 shows the project framework at appraisal and the achievements at completion. Appendix 3 presents the project’s chronology.

II. EVALUATION OF DESIGN AND IMPLEMENTATION

A. Relevance of Design and Formulation

4. The project’s objective was and remains consistent with the country partnership strategy agreed between ADB and the PRC. 2 The project goal and purpose of inclusive and environmentally sustainable growth was aligned with ADB country partnership strategy, 2011– 2015, for the PRC. The emphasis on environmentally sound farming practices and environmental safeguards supported cleaner, more sustainable growth. The project improved rural water supply, transport connectivity, and other rural infrastructure in poor areas, which, in turn, boosted access to services and investment. The project also improved small and medium-

1 ADB. 1995. Report and Recommendation of the President to the Board of Directors: Proposed Loan and Technical Assistance Grants to the People’s Republic of China for Fujian Soil Conservation and Rural Development Project. Manila. 2 ADB. 2002. Country Strategy and Program Update: People’s Republic of China (2003–2005). Manila; ADB. 2012. Country Partnership Strategy: People’s Republic of China (2011–2015). Manila.

2 sized enterprises’ access to long-term financing and promoted development of agro-processing capacity in rural communities.

5. The project supports the PRC’s national economic and social development policies, including the government’s Twelfth Five-Year Plan which identifies development of modern agriculture, strengthening of rural infrastructure and public services, expansion of rural livelihood opportunities, and ecosystem protection as government priorities.3

6. The project design was generally sound. Technical assistance was approved in November 2000 to help FPG prepare the project, building upon lessons learned from the earlier Fujian Soil Conservation and Rural Development Project.4 Extensive consultations with project stakeholders and field visits were undertaken during project formulation. An investment model was adopted to incorporate conservation and poverty reduction into an integrated system of agricultural production, processing, and marketing. The project also introduced (i) livestock farming to increase manure and organic fertilizer from animal waste; and (ii) expansion of rural infrastructure including rural roads, water supply schemes, drainage, and flood levees to provide a more enabling agricultural environment. Flexible criteria for selecting subprojects made the project responsive to site-specific problems and rapidly changing markets. The intent was to tailor the project to local requirements.

B. Project Outputs

7. The project outputs were successfully delivered. In total, 102 subprojects were implemented including (i) 24 conservation farming and forestation subprojects; (ii) 5 aquaculture subprojects; (iii) 7 agricultural market subprojects; (iv)17 agro-processing subprojects; (v) 5 integrated livestock farming subprojects; (vi) 9 rehabilitation and development of small hydropower subprojects; (vii)17 rehabilitation and development of rural water supply subprojects; and (viii) 18 rehabilitation and development of rural infrastructure subprojects.

8. Conservation farming and forestation. At completion, the project had rehabilitated and developed 12,066 hectares (ha) of existing upland orchards and farms which were prone to soil erosion or other land degradation impacts. This area comprised 3,900 ha of tea, 4,000 ha of bamboo, 2,270 ha of vegetable gardens, 1,300 ha of orchards, and 596 ha of other economic forest land. The main activities included (i) rehabilitating and improving terraces, constructing access tracks, water tanks, and simple storage facilities; (ii) promoting high-quality plant varieties; (iii) improving utilization of manure and/or compost and fertilizers based on soil testing; (vi) planting grasses and cover crops on terraces and hill slopes to reduce soil erosion; (v) reducing pesticide application; and (vi) improving field maintenance.

9. At the start of project activities, the Fujian project management office (PMO) received few applications for the forestation subproject although opportunities were offered to enterprises and rural economic cooperatives, because the investment per hectare was underestimated and ADB financing percentages established during project appraisal were low. To increase applications and to extend sustainable land use and management, adjustments were made during the midterm review to increase ADB financing and reduce the planting targets. The changes included reduction in the (i) windbreak target from 1,000 ha to 200 ha, (ii) protection forest target from 7,000 ha to 3,000 ha, and (iii) conservation farming target from 15,000 ha to

3 Government of the PRC. 2011. The Outline of the Twelfth Five-Year Plan for National Economic and Social Development of the People’s Republic of China. Beijing. 4 ADB. 2000. Technical Assistance to PRC for Preparing Fujian Soil Conservation and Rural Development II Project. Manila.

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12,000 ha. The project eventually supported 3,000 ha of forest protection on upper slopes and hilltops for soil and water conservation, as well as 205 ha of windbreak forest to protect orchards and farms.

10. Aquaculture. The project developed 300 ha of sea shellfish culture, 120 ha of seaweed, and 1,000 net cages for marine fish culture in less-developed costal townships. Although farmland per capita in Fujian coastal areas stands at 39% of the inland average, the coastal environment provides low-income coastal communities with a unique opportunity to develop marine culture. The project supported environmentally friendly aquaculture practices such as seaweed farming to increase carbon sequestration and polyculture to cut nutrient loading and improve production efficiency. Abalone and oyster culture, as well as freshwater fish growing subprojects were dropped during the midterm review because these activities involved high capital investments and great project risks such as typhoon and freshwater pollution.

11. Agricultural markets. The project supported the establishment, expansion, and modernization of three large wholesale markets and four small to medium-sized markets totaling 97,000 square meters. These markets were built in strategic locations in line with provincial and/or prefecture development plans. The market designs incorporated such environmentally friendly features as (i) wastewater disposal systems, (ii) stormwater drainage, (iii) separate wholesale and retail areas, (iv) toilet facilities, and (v) green areas. Several markets have introduced market information systems and quality-testing features to improve trade efficiency and transparency. It is estimated that about 209,000 households benefited from the markets. While this is fewer than households targeted at appraisal, the actual loan utilization was also less than allocated at appraisal by 26%.

12. Agro-processing. The project increased the processing capacity of project areas with agriculture, aquaculture, and livestock achieving combined incremental annual outputs of 70,620 tons. Incremental production of manufactured bamboo and wooden products reached 196,000 cubic meters annually. The subprojects ranged from primary processing (e.g., preservation, classification, and packaging of vegetables) to intensive processing (e.g., of clam powder seasoning and honey wine). The advances in processing reduced postharvest losses, expanded market opportunities, promoted extension of agricultural technologies and food quality improvement, increased farm gate prices, and provided off-farm employment. Some subprojects converted waste or low-value materials, such as clam shells, into profit-making commodities. About 89,800 households benefited from selling their produce to these enterprises, and approximately 3,750 full-time jobs and 8,180 seasonal jobs providing income to local farmers were created.

13. Integrated livestock farming. The project assisted five established enterprises to expand their beef, swine, goat, chicken, and duck rearing and breeding capacities. These subprojects were integrated with the enterprises’ feed mills, breeding stock, slaughterhouses, and processing facilities. All farms included waste treatment facilities and biogas digesters as sustainable energy alternatives. About 8,200 farmers benefited from advanced animal husbandry. These farms also generated about 1,090 well-paid, full-time local jobs.

14. Rehabilitation and development of small hydropower schemes. The project rehabilitated and developed nine small hydropower schemes with installed generation capacity of 47,870 kilowatts. The total 245 gigawatt-hours of electricity generated by these schemes in 2011 benefited more than 125,400 rural households and about 210 rural industrial units. This additional renewable energy supply offered rural households more stable access to electricity and reduced fuel wood collection. The number of hydropower schemes was reduced during the

4 midterm review as most of those subprojects originally identified were already completed or underway when the loan became effective in March 2005.

15. Rehabilitation and development of rural water supply. The project rehabilitated and developed 17 water supply plants, water transmission mains, and distribution networks. The total water supply capacity under the project reached 249,000 cubic meters per day, covering 28 townships. Most of the water supply schemes used quality surface water as their source and were designed to utilize gravity for water transmission. The lower operating cost together with preferential water tariffs for poor households ensured the affordability for domestic users while ensuring cost recovery. Centralized water processing systems with pipelines reaching nearby townships enabled dynamic reallocation among service areas and enhanced water treatment. The output indicator was therefore revised at midterm review from 25 small water supply schemes to water supply schemes covering 25 townships.

16. Rehabilitation and development of rural infrastructure. The project helped to rehabilitate, improve, and develop existing rural infrastructure facilities, such as roads, flood levees, drainage, and street lighting. In total 301 kilometers of rural roads, 4 kilometers of flood levees, and 7 small rural infrastructure units were improved, benefiting more than 152,100 households. Improved connectivity and living conditions also attracted local investment and promoted tourism development.

17. Project management. One provincial PMO, seven prefecture PMOs, and 36 county PMOs were established under the Fujian Commission of Rural Affairs to implement the project. Training was provided to 41,520 participants who attended 1,030 short courses. These included 100 training workshops on subproject selection, procurement, disbursement, environmental and resettlement safeguard policy and monitoring, project financial management, project performance monitoring, project auditing, and project completion review. More than 900 technical training courses were delivered either by technicians from agriculture and aquaculture technology promotion centers or by project enterprises. The project provided long-term financing to about 30 private enterprises and rural cooperatives to address market gaps for agro-processing, livestock farming, aquaculture, and development of production bases.

C. Project Costs

18. The actual project cost was $317.7 million, compared to $286.0 million estimated at appraisal. This 11.1% increase in the US dollar cost was due in large part to the yuan’s appreciation. ADB financing remained at $80.0 million. ADB financing covered 25.2% of the project at completion, down from the 28.0% envisioned at appraisal. The balance of $237.7 million was financed by enterprises, FPG, local governments, beneficiaries, rural cooperatives, and local banks. Enterprise investment was higher in comparison to the appraisal estimate and accounted for 38.6% of total cost. Savings allowed for reallocating $9.5 million in ADB financing from loan charges to conservation farming and rehabilitation of rural infrastructure. About 82.1% of the ADB loan supported subprojects which are in hilly or mountainous areas, while about 51.8% of ADB investment was targeted to FPG-designated poverty counties and villages in the province. Detailed project costs by component and the summary financing plan are in Appendix 4.

D. Disbursements

19. The loan of $80.0 million was fully utilized and disbursed from 15 September 2005 to 3 August 2012. Loan proceeds were withdrawn in accordance with ADB’s standard disbursement

5 procedures. The projected and actual disbursements are presented in Appendix 5. Although the imprest account was opened in May 2005 by Fujian Finance Department (FFD), disbursements during the first two project years (2005–2006) were lower than expected. This underachievement was mainly because of the extended time taken for FPG to reach internal consensus on preconditions for onlending to loan end users and the time spent in signing onlending agreements. The initial advance of $3.0 million from the loan was made to the imprest account in June 2006.

20. The annualized turnover ratio of the imprest account ranged from 1.1 to 3.3 during 2006–2012. The average turnover ratio of 2.2 exceeded the targeted ratio of 2.0, and was well above the ADB-wide average ratio of 1.4–1.8 over the period. This was achieved through joint efforts of FFD and the Fujian PMO. Timely replenishment of imprest funds from ADB and prompt disbursement resulted in efficient utilization of imprest funds. Withdrawal applications averaged about $0.7 million, while the imprest account ceiling was $3.0 to $8.0 million over the project period.

21. The statement of expenditure procedure was widely used for reimbursement or liquidation of imprest advances for individual payments less than $100,000 because of the large number of small expenditures and force account works involved. ADB fielded a statement of expenditure review mission in October 2008 and checked the supporting documents of sample statements of expenditure. The relevant records were audited annually as part of the regular audit of FPG project accounts to ensure proper financial management and eligibility of expenditures.

E. Project Schedule

22. The project loan was approved on 28 April 2004 and became effective on 18 March 2005. The project made a delayed start after the signing of onlending agreements in April 2006. The delay resulted from an FFD decision to take a more prudent approach in onlending to agricultural enterprises to minimize loan repayment risk. A mortgage contract with a designated commercial bank was requested as a precondition for onlending of the loan. The first batch of subloans was approved in April 2006. The physical completion date of the project was 30 June 2012, with an extension of 18 months from the original loan closing date. Extension was needed to complete the implementation of existing subprojects and additional subprojects were financed by savings to maximize project impact. The substantial time taken to evaluate the large number of subproject proposals was also attributed to delays in implementation. Appraisal and actual project implementation schedules are shown in Appendix 6.

F. Implementation Arrangements

23. Generally, the project implementation was satisfactory and followed the arrangements set out during appraisal. FPG, acting through Fujian Commission of Rural Affairs, was the project executing agency. Prefecture and county governments were the implementing agencies for all subprojects. The Fujian PMO was in charge of overall coordination and supervision of day-to-day implementation activities. Prefecture PMOs and County PMOs were established for daily implementation and administration of loan subprojects. An administration unit was also established within FFD to administer the loan from a financial management perspective with two designated personnel. Agricultural enterprises, shareholding companies, rural infrastructure companies, and rural economic cooperatives were involved in subproject implementation. Appendix 7 presents the organizational chart, including reporting lines and the system of internal control.

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24. Subproject application and selection followed a bottom-up approach: (i) Fujian PMO trained implementing agencies in subproject selection and the latter disseminated subproject opportunities and requirements to the public; (ii) implementing agencies called for proposals from enterprises; (iii) county PMOs and financial bureaus screened candidate subprojects (based mainly upon financial viability and sustainability for enterprise subprojects, and local development plans and priorities for infrastructure subprojects); (iv) prefecture PMOs and financial bureaus recommended candidate subprojects (considering borrowing capacity, priority industry and area of prefecture); and (v) Fujian PMO and FFD assessed the proposed subprojects and selected the most feasible ones on behalf of FPG. The selected subprojects met public needs, FPG priorities, and ADB requirements.

G. Conditions and Covenants

25. Most loan covenants as set out in Appendix 8 have been met except for (i) rental rates for agricultural markets, and (ii) performance benefit monitoring and evaluation (PBME). The project agreement called for setting rental rates for agricultural markets at levels to ensure recovery of investment plus operation and maintenance costs and to provide a reasonable return on investment made in subprojects. Some market subprojects could not achieve investment recovery, as the markets were regarded as public service provision institutions and entitled to government subsidy. As maximizing profit was not FPG’s primary objective, low rental rates were charged for subproject market trading stalls. Low rent contributed to low financial internal rates of return (FIRRs) on the investments (para. 35). Economic internal rates of return (EIRRs) were generally higher than 20% for agricultural market subprojects, indicating significant economic return. Although Fujian PMO developed a PBME system that included comprehensive monitoring of environmental, social, and economic impacts, the PBME system never achieved full operation because of the significant volume of data required for each subproject that could not be fully collected during project implementation.

H. Consultant Recruitment and Procurement

26. Consulting services were financed by the executing agency out of its resources as agreed during appraisal. National experts were recruited to assist the Fujian PMO in subproject proposal and feasibility review. Research institutes were engaged to conduct external monitoring and prepare evaluation reports. For procuring goods and works financed from loan proceeds, national competitive bidding, shopping, and force account were used. Works contracts between $100,000 and $5,000,000 were procured through national competitive bidding. A large number of small works contracts of $100,000 equivalent or less were implemented through force account or community participation to ensure sustainability and to achieve the project’s social objectives. All contract packages financed by ADB were procured in accordance with ADB’s Guidelines for Procurement (February 1999, as amended from time to time).

I. Performance of Consultants, Contractors, and Suppliers

27. The national consultants, contractors, and suppliers generally performed satisfactorily. All contractors and suppliers fulfilled their contractual responsibilities. Civil works were completed according to design and specifications, and equipment suppliers ensured timely delivery and installation. The national consultants provided technical and financial advice on the viability of subprojects. The design institutes prepared technical designs, and certified agencies conducted environmental assessments.

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J. Performance of the Borrower and the Executing Agency

28. The performance of the borrower and FPG was satisfactory. FPG provided strong support as envisaged at appraisal. The project management framework established using existing government structure and staff was appropriate. Different roles were assigned to provincial, prefecture, and county level management to maximize their strengths and allow for stronger project ownership. The Fujian PMO had been established during the Fujian Soil Conservation and Rural Development Project and had prior experience with ADB-financed projects. The PMO collaborated with and delivered training to local PMOs and end borrowers of the loan. The monitoring and reporting capacity of Fujian PMO however required strengthening. While great efforts were made by the PMO in subproject selection, more attention should have been paid to periodic monitoring of environmental, social, and poverty impacts.

29. A unit was established within FFD responsible for financial management of the project. Assistance from a commercial bank was sought on mortgage administration, and detailed documentation for onlending and repayment status was introduced to improve loan performance under the project. These measures, combined with stricter screening of end borrowers, helped to achieve timely repayments.

K. Performance of the Asian Development Bank

30. ADB performance during implementation was satisfactory. ADB conducted nine project review missions over the 94-month implementation period. Subproject approval procedures were streamlined in 2008 to reduce the transaction burden for the executing agency and to emphasize the social impacts during subproject selection. For subprojects subject to ex post facto ADB approval, the English version of feasibility study reports and environmental impact reports was no longer required, although environmental management plans had to be submitted in English. An English subproject summary sheet was introduced to summarize subproject features, and to reinforce the subproject selection criteria and the targets set in the design and monitoring framework. The Fujian PMO needed to confirm compliance with selection criteria and to report expected social benefit. ADB inspected subprojects during review missions to check the conformity and monitor implementation progress.

III. EVALUATION OF PERFORMANCE

A. Relevance

31. The project was and remains relevant to the PRC government’s development strategy and ADB’s past and present country partnership strategies. The project incorporated soil and water conservation and poverty reduction into integrated agricultural systems of production, processing, and marketing, all of which are facilitated by improved rural infrastructure and institutional support. This approach was consistent with the country partnership strategy’s emphasis on inclusive and environmentally sustainable growth. Project design was generally sound and adequate. The minor change made following the midterm review responded to changing social and economic environments, emerging FPG priorities, and the needs of enterprises and rural households.

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B. Effectiveness in Achieving Outcome

32. The project was rated highly effective in increasing and diversifying income opportunities of rural households in the mountainous and coastal areas of Fujian. About 739,000 rural households with incomes below the average rural income levels of the project prefectures benefited from the project. Poor households accounted for about 15% of project beneficiaries and about 52% of the ADB loan financed subprojects in FPG-designated poverty counties and villages. In total, about 80,500 job opportunities were generated under the project, including 16,322 full-time jobs. Based on the sample household survey, the per capita income at project completion was 2.6–2.7 times that prior to the project. There was about a CNY4,000 (or $630) increase for households benefitting from integrated farming and agro-processing subprojects. The project contributed around 25% to 31% of the gain in household income among beneficiaries. Rural infrastructure subprojects focused on providing rural electricity and water supply, improving rural roads and small infrastructure, and enhancing market connections in disadvantaged areas. These activities removed obstacles to investment and technical support while reducing transport costs and agricultural production losses. All this indirectly increased and diversified income opportunities in the project areas.

C. Efficiency in Achieving Outcome and Outputs

33. Based upon the financial and economic reevaluation in Appendix 9 and evaluation of the efficiency of the implementation process, the project was rated efficient.

1. Efficiency of Investment

34. Conservation farming, integrated agriculture, and forestation. FIRRs and EIRRs were reevaluated for 19 representative subprojects. Recalculated FIRRs of subprojects in the conservation farming and orchard rehabilitation subcomponent ranged from 17% to 33%. Farm produce grown organically or following internationally recognized quality standards registered higher FIRR due to higher market prices. Recalculated FIRRs for aquaculture subprojects ranged from 12% to 18%. Recalculated FIRRs for agro-processing subprojects ranged from 18% to 36%. The higher FIRR range occurred because these subprojects contributed to the capacity expansion of established enterprises whose capital investments were made prior to project commencement. Recalculated FIRRs of subprojects in the integrated livestock farming subcomponent ranged from 12% to 20%. According to the reevaluation results, subprojects were financially sound and economically cost-effective when FIRRs were greater than 10% and EIRRs ranged from 12% to 37%.

35. Rural infrastructure. Reevaluation was conducted for 14 representative subprojects. FIRRs were recalculated for revenue-generating subcomponents, and EIRRs were recalculated for all subcomponents. The recalculated FIRRs of agricultural market subprojects ranged from 3% to 11%, compared to the weighted average cost of capital of 5% for the subcomponent. The lower FIRRs were because of lower rental revenues and higher capital costs. The revenues were sufficient to cover the operating and maintenance expenses, but full recovery of investment costs was unlikely for some subprojects. Recalculated EIRRs, however, were generally higher than 20%, indicating substantial economic return. Maximizing profit was not the primary objective, and local governments generally regarded the markets as a public service that should receive government subsidies rather than achieving full cost recovery. Emphasis was put on (i) promoting larger and active agricultural markets; (ii) improving trade transparency and fairness through an electronic transaction settlement system, real-time trading information systems, quality testing, and price advisory services; and (iii) better hygiene and service

9 environments. The recalculated FIRRs for small hydropower schemes ranged from 7% to 11%. For most schemes, the tariffs were adequate for the recovery of capital expenditures and operating and maintenance costs. The recalculated EIRRs for hydropower subprojects were from 15% to 24%. For rural water supply subprojects, the recalculated FIRRs ranged from 10% to 14%. The favorable FIRRs were mainly due to the high raw water quality and gravity-fed water transmission and distribution. The recalculated EIRRs for water supply subprojects were 18% to 26%. For rural road subprojects, which are not revenue-generating, EIRRs ranged from 18% to 25%. These included economic benefits of vehicle operating cost savings and net benefits of economic activities generated as a result of road upgrading. Overall, the rural infrastructure component demonstrated satisfactory economic performance.

2. Efficiency of Process

36. Given the logistical challenges of project implementation and the complex nature of agricultural and rural development projects, implementation was considered efficient. Although there was a delay in the signing of onlending agreements, project implementation was generally on schedule. The time from loan signing to effectiveness was 4.8 months, which was slightly longer than the 4.1-month average for the PRC portfolio in 2005.

D. Preliminary Assessment of Sustainability

37. The project is rated as likely sustainable considering (i) the results of the sensitivity analysis, (ii) the likelihood and management of subloan repayment, and (iii) the sustainability of the development model.

38. Sensitivity analysis. Livestock subprojects proved to be highly sensitive to changes in output pricing and increases in operating costs. Feed costs and animal diseases were among the main concerns. Orchard subprojects were sensitive to market fluctuations. Diversification of products from orchards, livestock, and aquaculture, however, reduced the probability of simultaneous price declines. Products corresponding to internationally recognized quality standards proved to be more resistant to market price fluctuations. It has been widely recognized that the agro-processing companies financed by the project have established stable local or international market channels and were resilient to changes in market demand. These companies have entered into contract arrangements with individual farmers or through rural associations and cooperatives for the long-term supply of agricultural products. Sensitivity analysis of the infrastructure component indicated that water supply and hydropower subprojects will remain viable even under the worst-case scenario because water tariffs are adequate, demand is stable, and operating costs are relatively low. The main risk factor is climate change, which may affect the volume of source water or water flow available. The sustainability of rural roads will depend on the effectiveness of regular and periodic maintenance, and responsibilities have been clearly assigned to counties, townships, and villages for their respective roads. The agriculture market subprojects will rely on the specialization and industrialization of farm products in the affected region.

39. Subloan repayment. FFD reports that all repayments due have been made on time by subproject borrowers. FFD’s approach proved to be effective, given the project’s repayment performance compared to the earlier Fujian Soil Conservation and Rural Development Project. Assisted by local finance bureaus, FFD has rigorously monitored all subloans.

40. Sustainability of the development model. The project investment model incorporated soil and water conservation and poverty reduction into an integrated agriculture system of

10 production, processing, and marketing, all of which is facilitated by appropriate rural infrastructure and institutional support. Introducing ecologically sustainable farming practices reduced land degradation to ensure long-term agricultural productivity. The use of trees as forest cover for hilltops and upslope protection or as windbreaks provide an additional incentive for enterprises and farming households to practice soil and water conservation. The backward and forward linkages established by private enterprises benefited the poor farmers who previously lacked access to market information. Private enterprises provided credit, technical assistance, and price guarantees for farm products. Waste-to-energy and waste-to-product features minimized production-related pollution and yielded additional financial returns.

E. Impact

1. Social Impact and Poverty Reduction

41. The project goal was to narrow the income disparity between urban and rural households in fragile environments of Fujian. The project addressed the core causes of disparity and rural poverty by (i) generating incomes and creating jobs in conservation farming, orchard rehabilitation, aquaculture, livestock farming, and agro-processing; (ii) improving access to financial and technical capital through training and extension support and stronger vertical linkages to agro-processing and markets; (iii) enhancing access to rural roads and dedicated agricultural markets; and (iv) providing needed energy and water supply. Through its demonstration effect and influence, the project has contributed directly to growth of rural incomes in the project areas. The rural per capita net income in project prefectures increased by 86% to 122% from 2004 to 2011. The statistics show that the urban–rural income ratio in the project area began to trend favorably from 2007 onwards, diminishing from 2.63 to 2.51 in 2011. The ratio of urban-rural per capita income in the project area appears likely to come down significantly by 2020 compared with that prior to the project’s implementation in 2004.

42. About 739,000 rural households with incomes below the average rural income levels of the project prefectures benefited from the project. Poor households accounted for about 15% of project beneficiaries and about 52% of the ADB loan financed subprojects in FPG-designated poverty counties and villages. About 80,500 job opportunities were generated under the project and about 52% went to women. Based on the sample household survey, the per capita income at project completion was 2.6–2.7 times that prior to the project. There was about a CNY4,000 (or $630) increase for households benefitting from integrated farming and agro-processing subprojects. The project contributed around 25% to 31% of the gain in household income among beneficiaries.

43. The local job opportunities provided incomes comparable to those of migrant workers, and also reunited families by removing the incentive for employment migration. The benefits to families include (i) the return to households of primary breadwinners, (ii) enhanced child supervision and education, (iii) improved care for the elderly, and (iv) substantial savings in travel expenses. Part-time and/or seasonal jobs provided women with a chance to contribute to family income. Enterprises leveraged project funding to deliver social benefits at the community level, such as (i) free shuttle bus transport from villages to work sites, (ii) scholarships for students, and (iii) residential care for the elderly. A detailed evaluation of social impact and poverty reduction is presented in Appendix 10.

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2. Environmental Impacts

44. The project was classified as environmental category B. An overall initial environmental examination (IEE) report was prepared to summarize the findings of the project’s IEE, to analyze the generic environmental benefits and adverse impacts, and to recommend mitigation and monitoring measures for each component. The overall IEE showed that no significant adverse environmental impacts were anticipated from project components. In addition, two sample IEEs were prepared for the two most environmentally sensitive subprojects to demonstrate how to prepare IEEs during project implementation. An environmental assessment framework was also prepared at appraisal to guide such assessment of subprojects for each subcomponent and to facilitate compliance during implementation with environmental requirements of ADB, the PRC government, and FPG.

45. During implementation, environmental impact analysis for each subproject was conducted by a certified institute for environmental impact assessment in Fujian. The institute followed procedures set in the environmental assessment framework. An environmental management plan (EMP) was prepared and included in the environmental impact report for each category B subproject prior to the subproject’s approval by the Fujian PMO and ADB. The environmental impact reports for all small hydropower subprojects and subprojects over $1.5 million were submitted to ADB for review and approval 6 weeks before implementation. Nine monitoring reports were submitted by the Fujian PMO reporting on the implementation status of EMPs for all subprojects, and one report was uploaded. A PBME system was developed and operated by the Fujian PMO, but did not sustain. The Fujian PMO ensured that local PMOs and environmental protection bureaus strengthened management and supervision at lower levels to comply with the EMP. Soil and water conservation and socio-economic impacts were monitored by professional institutes and reported in PMO’s reports. The implementation of EMPs for subprojects has been effective and no noticeable environmental damage has resulted from construction and/or operation of subproject facilities.

46. The project created positive environmental benefits in terms of soil conservation, carbon sequestration, reduction of greenhouse gas emissions, and improved resource efficiency. The conservation farming and orchard rehabilitation subcomponent introduced ecologically sustainable farming practices to reduce soil erosion and conserve land productivity. Seaweed farming increased carbon sequestration, while polyculture of shrimp and clams cut nutrient loading and improved production efficiency. The livestock farming subcomponents converted animal waste to biogas and organic fertilizer and contributed to reducing use of chemical fertilizers and pesticides. The agro-processing subcomponents reduced postharvest loss and boosted efficient use of resources. The small hydropower subcomponent provided clean energy and solved the firewood problem for more than 100,000 farmers. It is estimated that more than 20,000 ha per annum of forest area were conserved by reducing firewood consumption. The rural water supply subcomponent provided safe drinking water to less-developed rural areas. Equally important were training sessions which promoted economic efficiency and enhanced awareness of environmentally sustainable development among private enterprise managers, government officials, and participating villages.

3. Land Acquisition and Resettlement

47. According to the resettlement plans, a total 12.54 ha of land was to be permanently acquired for five subprojects, affecting 181 people. A total 21.25 ha was to be temporarily used for construction purposes. No houses were demolished for any of the five subprojects. Land acquisition and resettlement commenced in 2005 and was completed in 2008. A total 13.77 ha

12 of lands were permanently acquired, which was 9.8% more than estimated in the resettlement plans. Given that the increased land acquired consisted of wastelands, the number of affected people remained the same as planned. The actual cost of land acquisition and resettlement was CNY3,845,943, which was 12.7% higher than the CNY3,412,398 estimated in the resettlement plans. The variation in land acquisition and resettlement costs was mainly due to higher compensation rates than those estimated in the resettlement plans for the Tingzhou and Dongxi subprojects. For the Suicheng water supply scheme, costs were higher due to greater land area being acquired. Fujian’s She ethnic minority which lives predominately in mountainous areas, is assimilated with the Han majority. The ethnic minority population was not adversely affected by the project and has benefitted equally.

48. The project land acquisition and resettlement were implemented according to ADB’s approved resettlement policy framework, resettlement plans, ADB’s Involuntary Resettlement Policy (1995), the PRC Land Administration Law (1998), Implementation Measures of the PRC Land Administration Law in Fujian Province (2000), and related local regulations. All persons affected by the project received compensation and assistance. Compensation rates for permanent land acquisition, including land compensation, resettlement subsidy, and young crops compensation were formulated on the basis of average annual output values and in consultation with affected communities. Compensation rates for temporary land occupation were calculated using average annual output value and were based on the duration of the resettlement impact. All compensation rates paid to affected persons were equal to or higher than those set out in the resettlement plans. Land acquisition and resettlement activities were implemented smoothly, with all persons affected by the project receiving appropriate compensation and assistance. The final external resettlement monitoring and evaluation report concluded that the incomes of affected households were restored.

IV. OVERALL ASSESSMENT AND RECOMMENDATIONS

A. Overall Assessment

49. The project was assessed as successful. It was rated (i) relevant to the PRC government’s and ADB’s development strategies, (ii) highly effective in achieving outcomes, (iii) efficient in achieving the project outcomes and outputs, and (iv) likely sustainable. Overall, the project was implemented as envisaged.

50. The project improved the socioeconomic status of underdeveloped rural areas of Fujian Province. It increased and diversified local income opportunities by promoting environmentally sustainable farming and production, enhancing government support for rural infrastructure, fostering specialized markets, and increasing private sector participation. By reducing low productivity, land degradation, and lack of access to credit, the project resulted in more sustainable development and socioeconomic well-being of rural people in the region. All outcome and output indicators were either achieved or exceeded.

51. With the commitment of FPG and the implementing agencies, the project was implemented using existing institutional arrangements. Despite the challenge of implementing a multisector project with wide geographic coverage, various levels of local government played an important role in subproject selection and implementation to achieve sustainable development and reduce income disparities.

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B. Lessons

52. Successful subproject selection. Subproject selection criteria guided the selection, but FPG’s active role in subproject selection contributed to the project’s success. Most subprojects made significant progress during project implementation despite the global financial crisis in 2008.

53. Private sector involvement. Private enterprises played an important role in advancing the agriculture sector through branding and marketing of farm produce, introducing quality standards and technology, investing to improve farm infrastructure, and providing extension services. Farmers also benefited from advice on agricultural inputs, credit services, and increased farm gate prices.

54. Focused geographic coverage. The holistic approach for rural development was not sufficiently emphasized in the project document. The original project design involved a large number of subprojects across 50 counties. This may have overextended loan resources. Reduced geographic coverage would have eased project management pressure at the provincial level and amplified the effect of this holistic approach.

C. Recommendation

1. Project Related

55. Monitoring of Subloan Repayment. The finance bureaus at the provincial, municipal, and county levels should continue monitoring and recording the status of subloan repayment in accordance with the onlending agreements. This will have to be undertaken with the assistance of a centralized financial information monitoring system to record all financial transactions.

56. Timing of the Project Performance Evaluation Report. It is recommended that the project performance evaluation can be prepared in 2015 when more updated financial data are available to conduct reassessment of the FIRR.

2. General

57. Project performance monitoring system. For similar projects in the future, it is recommended that a project performance monitoring system be established during project preparation. Baseline data for project performance monitoring indicators should be collected at the same time as project preparation. Few projects were able to establish such a system within the first 6 months of project implementation as implementing agencies focused on other activities such as procurement and disbursement. Substantial efforts required for the system’s development and data collection discouraged implementing agencies from timely monitoring of project performance during implementation.

DISTRIBUTION OF SUBPROJECTS 14

Location Project Component 1 Appendix Conservation Small Rehabilitation Farming and Live- Aqua- Agro- Agriculture Water No. Prefecture County/District Hydro- of Rural Total Orchard stock culture processing Market Supply power Infrastructure Rehabilitation 1 Jiaocheng District 1 2 1 4 2 Shouning Countya 2 2 3 Ningde Zherong Countya 2 1 3 6 4 Xiapu Countya 1 1 2 5 Pingnan Countya 1 1 2 6 Xianyou Countya 3 2 1 6 7 Hanjiang District 2 3 1 6 Putian 8 Chengxiang District 1 1 9 Xiuyu District 2 1 1 4 10 Anxi Countya 2 1 1 4 Quanzhou 11 Dehua County 1 1 12 Hua'an Countya 1 1 2 4 13 Longhai City 1 1 2 14 Zhangpu County 1 1 1 3 Zhangzhou 15 Zhaoan Countya 1 1 16 Pinghe Countya 1 1 17 Nanjing County 1 1 18 Xinluo District 1 1 2 19 Yongding County 1 1 20 Wuping Countya 1 1 Longyan 21 Liancheng Countya 2 5 7 22 Changting Countya 1 1 1 3 23 Zhangping City 2 1 3 24 Yongan City 1 3b 3 1 8 25 Mingxi Countya 1 1 2 26 Jianning Countya 1 1 1 3 27 Sanming Taining Countya 1 2 3 28 Datian Countya 1 1 29 Shaxian County 1 2 1 4 30 Youxi County 2 1 2 5

Location Project Component Conservation Small Rehabilitation Farming and Live- Aqua- Agro- Agriculture Water No. Prefecture County/District Hydro- of Rural Total Orchard stock culture processing Market Supply power Infrastructure Rehabilitation 31 Yanping District 1 1 32 Shunchang Countya 1 1 2 33 Jianyang County 2 2 Nanping 34 Guangze Countya 1 1 35 Songxi Countya 1 1 2 36 Zhenghe Countya 1 1 Total 24 5 5 17 7 17 9 18 102 a Poverty countries designated by Fujian provincial government in 1998 and 2011. b Demonstration farms for duck rearing under Huarong Poultry Breeding and Rearing Subproject were also in Qingliu and Ninghua counties, which are poverty counties. Source: Fujian Commission of Rural Affairs.

Appendix 1 Appendix 15

16 DESIGN AND MONITORING FRAMEWORK Appendix 2 Appendix

Design Performance Indicators/Targets Summary Appraisal Midterm Actual 1. Impact

Narrowed income By 2020: By 2020: disparity between z Reduce the urban–rural income z The urban–rural income ratio was z The urban–rural income ratio was 2.84 urban and rural ratio from 2.0 to 1.5 reduced from the 2004 level of 2.7. as of 2011 for Fujian Province versus the households in fragile 2004 level of 2.73, while the ratio for environments of project areas was 2.51 as of 2011 and Fujian 2.45 as of 2004. It is likely to decline from the 2004 level by 2020.

z Increase income of rural z Increase income of rural z The provincial per capita net income of households by 30% households by 30% rural households grew by 115%, from CNY4,089 in 2004 to CNY8,779 in 2011.

z Reduce poverty incidence of the z Reduce poverty incidence of the z Due to significant increase in the poverty province from estimated 3% to province from estimated 3.9% to line in 2011, no comparable data is 2% (or from 780,000 poor people 2.6% available, and no other data source down to about 520,000) permits an interpolationa

2. Outcome

Increased and By the end of the project: By the end of the project: By the end of the project: diversified income z Net value added (NVA) of fruits, z Annual per capita net income will z Annual per capita net income increased opportunities of rural vegetables, and other cash crops increase by about CNY1,000 for by about CNY4,000 for project households in would have increased by 30%. project beneficiaries in the soil beneficiaries in the soil conservation and mountainous and conservation and integrated integrated agriculture component. coastal areas of z NVA of aquaculture production agriculture component. Fujian would have increased by 25%. z For every CNY1 million investment z For every CNY1 million investment in z NVA of livestock production in the rural infrastructure the rural infrastructure component an would have increased by 30%. component an average of about average of 600 households benefitted. 700 households will benefit. z NVA of agro-processed

Design Performance Indicators/Targets Summary Appraisal Midterm Actual production would have increased z 730,000 households will have z About 739,000 households benefited by 30%. benefited from the project. from the project.

z Turnover of commercial z 15% of project beneficiaries will be z 15% of project beneficiaries were poor. production of agriculture, poor. aquaculture, livestock, and agro- processed production in markets would have increased by 50%. 3. Output

3.1 Implemented soil By end of the project: By end of the project: By end of the project: conservation and z About 23,000 ha of sloping lands z About 15,200 ha of sloping lands z About 15,271 ha of sloping lands of 7°– integrated of 7°– 25° are rehabilitated of 7°–25° are rehabilitated and/or 25° were rehabilitated and/or developed agricultural and/or developed with contour developed with contour terraces with contour terraces and planted with development terraces and planted with fruit and planted with fruit orchards, fruit orchards, bamboo plantations, and activities orchards, bamboo plantations, bamboo plantations, tea gardens, tea gardens. Integrated agricultural and tea gardens. Integrated etc. Integrated agricultural enterprises, including integrated agricultural enterprises, including enterprises, including integrated livestock farms, aquaculture farms, and integrated livestock farms, livestock farms, aquaculture agro-processing units, were established aquaculture farms, and agro- farms, and agro-processing units, and operational. processing units, are established are established and operational. and operational.

3.1.1 Rehabilitated z About 15,000 ha of orchards, z About 12,000 ha of tea, orchards, z 12,066 ha of orchards, tea, and bamboo orchard farms tea, and bamboo are bamboo, etc. are rehabilitated. were rehabilitated. rehabilitated. z About 26,800 households will z 26,835 households directly benefited z About 33,500 households will directly benefit from this from this component. directly benefit from this component. component.

3.1.2 Rehabilitated z About 1,000 ha of windbreak z About 200 ha of windbreak z 205 ha of windbreak protection forest

forest areas protection forest are planted. protection forest are planted. were planted. 2 Appendix z About 7,000 ha of protection z About 3,000 ha of protection forest z 3,000 ha of protection forest over 25° forest over 25° slope are planted. over 25° slope are planted. slope were planted.

3.2 Developed and z The following are developed: z 300 ha of sea shellfish culture are z 300 ha of sea shellfish culture were 17 improved z 550 ha of oyster culture, developed. developed. aquaculture z 120 ha of kelp culture, z 120 ha of seaweed culture are z 120 ha of seaweed culture were

Design Performance Indicators/Targets 18 Summary Appraisal Midterm Actual

activities z 40 marine fish net cages, developed. developed. 2 Appendix z 6 units of abalone cage z 1,000 marine fish small net cages z 1,000 marine fish small net cages were culture, and are developed. developed. z 10 freshwater fish net cages.

z Over 4,000 households directly z Over 2,000 households directly z 1,998 households directly benefited. benefit. benefit.

3.3 Established z Several large wholesale markets z Several large wholesale markets z Three large wholesale markets (11,000– agricultural (11,000–15,000 square meters (11,000–20,000 m2 and small to 20,000 m2) and 4 small to medium-sized markets [m2]) and small to medium-sized medium-sized markets (3,000– markets (3,000–11,000 m2) were built at markets (3,500–7,000 m2) are 11,000 m2) are built at strategic strategic locations, with provision for built at strategic locations, with locations, with provision for equipment, communication facilities, and provision for equipment, equipment, communication market information systems. communication facilities, and facilities, and market information market information systems. systems. z About 240,000 households z About 240,000 households z About 208,850 households benefited. benefit. benefit.

3.4 Developed and z About 11 core subprojects are z Over 15 core subprojects are z 17 subprojects were implemented to improved agro- implemented to process implemented to process process agricultural, forest, aquaculture, processing agricultural, aquaculture, and agricultural, forest, aquaculture, and livestock produce, as well as other activities livestock produce. The and livestock produce. livestock and aquatic products, plus subprojects will include bamboo and wood processed products. enterprises that process frozen food, lotus seeds and roots, bamboo shoots, fruits and vegetables, fresh tea, sweet Chinese olives, and herbal medicine. z About 3,800 full-time jobs are z About 3,800 full-time jobs are z 3,750 full-time jobs were created. created. created. z About 88,000 households benefit z About 88,000 households benefit z About 89,760 households benefited by by selling their produce to these by selling their produce to these selling their produce to these enterprises. enterprises. enterprises.

3.5 Developed and z Nine livestock (chicken, pig, z Six livestock (poultry, pig, beef, z Five livestock (chicken, duck, pig, beef improved dairy cattle, beef, and goat) and goat) farms with biogas cattle, and goat) farms with biogas integrated farms with biogas digesters are digesters are developed. digesters were developed.

Design Performance Indicators/Targets Summary Appraisal Midterm Actual livestock farming developed. activities z Livestock farms help about 9,400 z Livestock farms help about 8,000 z Livestock farms helped about 8,180 farmers rear animals. farmers rear animals. farmers rear animals. z About 1,120 full-time jobs are z About 1,120 full-time jobs are z About 1,090 full-time jobs were created. created. created.

3.6 Rehabilitated z About 21 small hydropower z About 9 small hydropower z 9 small hydropower schemes with power and developed schemes with power generation schemes with power generation generation capacities of 16–175 million small capacities of 2–38 kilowatt- capacities of 2–200 million kilowatt-hours/year were built and/or hydropower hours/year are built and/or kilowatt-hours/year are built and/or rehabilitated, benefiting over 125,400 schemes rehabilitated, benefiting over rehabilitated, benefiting over rural households and 213 rural industrial 125,000 rural households and 125,000 rural households and units. about 200 rural industrial units. about 200 rural industrial units. z About 600 full-time jobs are z About 200 full-time jobs are z 183 full-time jobs were created. created. created.

3.7 Rehabilitated z About 25 small water supply z Small and medium-sized water z Small and medium-sized water supply and developed schemes, with a supply capacity supply schemes (supply capacity schemes (supply capacity of 3,000 to rural water of 5,000 to over 10,000 tons/day of 3,000 to over 30,000 tons/day) 30,000 tons/day) were built or supply schemes are built and/or rehabilitated. are built and/or rehabilitated, rehabilitated, covering 28 townships. covering at least 25 townships. z About 125,000 rural households z About 125,000 rural households in z About 125,720 rural households in poor in poor areas benefit. poor areas benefit. areas benefited. z About 1,300 full-time jobs are z About 400 full-time jobs are z 392 full-time jobs were created. created. created. z About 900 seasonal jobs are z About 1,200 seasonal jobs were created. created.

3.8 Rehabilitated z About 120 kilometers (km) of z About 200 km of rural roads will z 301 km of rural roads were rehabilitated. and developed rural roads and 25 km of flood- be rehabilitated. small-scale rural control levees are rehabilitated, z About 3.5 km of flood-control z 3.7 km of flood-control levees were

infrastructure and 5 small rural infrastructure levees are rehabilitated. rehabilitated. 2 Appendix units improved. z Over 7 small rural infrastructure z 7 small rural infrastructure units were units will be improved. improved. z Over 100,000 households z Over 120,000 households benefit. z Over 152,100 households benefited. benefit. 19

Design Performance Indicators/Targets 20 Summary Appraisal Midterm Actual

3.9 Established z 1 Provincial PMO established z 1 Provincial PMO established z 1 Provincial PMO was established. 2 Appendix provincial project z Municipality and county PMOs z 7 municipality PMOs established z 7 municipality PMOs were established. management established in each of the 50 z 40 county PMOs established z 36 county PMOs were established. office and counties

municipality and county project management offices(PMOs)

3.10 Established extension, z 1,000 courses are held to train z 1,000 courses are held to train z 1,030 courses were held to train 41,520 communication, about 40,000 participants. about 40,000 participants. participants. and training activities

a In 2001, the poverty incidence was 3.9% with the provincial poverty line at CNY1,000. In 2011, the provincial poverty line was lifted to CNY3,000 and the poverty incidence rebounded to 10.8%. The setback was due to a jump in the national poverty line. The national poverty line leapt by about 81% from CNY1,274 in 2010 to CNY2,300 in 2011, and similar adjustment was made in the Fujian provincial poverty line. No data permit an interpolation of poverty incidence at the previous level within the current poverty line. Sources: Fujian Commission of Rural Affairs and Asian Development Bank.

Appendix 3 21

CHRONOLOGY OF MAJOR EVENTS

Date Events 24 November 2000 Approval of project preparatory technical assistance (Preparing the Soil Conservation and Rural Development II Project) 13 June–9 July 2002 ADB fact-finding mission 21 November 2002 First management review meeting held 9–23 December 2002 ADB pre-appraisal mission 17–27 February 2003 ADB pre-appraisal follow-up mission 16–21 July 2003 ADB appraisal mission 11–13 August 2003 ADB compliance mission 13 August 2003 Second management review meeting held 11–13 February 2004 Loan negotiations 28 April 2004 ADB Board approval 26 October 2004 Signing of loan agreement 8 December 2004 Project administration delegated to resident mission 18 March 2005 ADB loan effectiveness 6–10 December 2004 ADB inception and handover mission 30 March 2005 First livestock subproject approved by ADB 29 April 2005 First water supply subproject approved by ADB 10 June 2005 First small hydropower subproject approved by ADB 28 June 2005 First rural infrastructure and rehabilitation subproject approved by ADB 19–23 September 2005 ADB review mission, approval of first agro-processing subproject and first aquaculture subproject 30 October 2006 First batch of goods contracts awarded 15 November 2006 First batch of construction contracts awarded 6 January 2009 First agriculture market subproject approved by ADB 30 March 2009 First conservation farming and orchard rehabilitation subproject approved by ADB on an ex post facto basis 19–29 January 2010 ADB midterm review 10 June 2010 First minor change in project scope and first extension of loan closing date from 31 December 2010 to 30 June 2012 approved 30 December 2010 Original loan closing date 16 April 2012 First reallocation of loan proceeds approved 1 September 2012 Loan account closed 4–13 December 2012 ADB completion review mission ADB = Asian Development Bank. Source: Asian Development Bank.

PROJECT COSTS AND FINANCING PLAN 22 Table A4.1: Project Costs ($ million) 4 Appendix

At Appraisal Midterm Review At Completion Item Foreign Local Total Foreign Local Total Foreign Local Total A. Soil Conservation and Integrated Agriculture 1. Conservation Farming and Orchard Rehabilitation 7.3 37.3 44.6 9.8 34.0 43.8 11.0 42.5 53.5 2. Soil Conservation and Forestation 0.1 4.7 4.8 1.1 3.8 4.9 1.1 4.2 5.3 3. Aquaculture 4.0 15.4 19.5 2.8 8.4 11.2 2.9 9.5 12.4 4. Agro-processing 10.2 35.8 46.0 10.8 38.6 49.4 10.6 37.7 48.3 5. Integrated Livestock Farming 4.7 9.5 14.2 5.3 13.9 19.2 5.3 15.5 20.8 Subtotal (A) 26.3 102.7 129.0 29.8 98.6 128.5 30.8 109.4 140.2 B. Rural Infrastructure 1. Agriculture Markets 9.9 13.7 23.6 7.6 21.1 28.7 7.3 22.6 29.9 2. Rehabilitation and Development of Rural 7.8 14.3 22.1 14.1 22.2 36.3 15.6 28.5 44.2

Infrastructure 3. Rehabilitation and Development of Small 14.0 17.0 31.0 7.7 29.9 37.6 7.5 33.1 40.7

Hydropower Schemes 4. Rehabilitation and Development of Rural Water 8.2 17.7 25.9 13.8 18.3 32.1 14.5 31.2 45.7

Supply Subtotal (B) 39.9 62.6 102.5 43.2 91.6 134.7 45.0 115.5 160.5 C. Project Support Services and Management 1. Project Support Services a. Extension, communication, and training 0.0 3.3 3.3 0.0 4.0 4.0 0.0 4.6 4.6 b. Financing agricultural enterprises 0.0 0.9 0.9 0.0 1.1 1.1 0.0 1.5 1.5 Subtotal (C1) 0.0 4.2 4.2 0.0 5.1 5.1 0.0 6.1 6.0 2. Project Management a. Project management 0.0 3.0 3.0 0.0 3.6 3.6 0.0 2.6 2.6 b. Consulting services 0.0 0.3 0.3 0.0 0.4 0.4 0.0 0.6 0.6 c. Environmental assessment and monitoring 0.0 1.0 1.0 0.0 1.2 1.2 0.0 1.3 1.3 d. Land acquisition and resettlement 0.0 0.8 0.8 0.0 1.0 1.0 0.0 0.7 0.7 Subtotal (C2) 0.0 5.1 5.1 0.0 6.2 6.2 0.0 5.2 5.3 Subtotal (C) 0.0 9.3 9.3 0.0 11.3 11.3 0.0 11.3 11.3

Total Baseline Costs 66.2 174.5 240.8 73.0 201.5 274.5 75.8 236.2 312.0 Physical contingencies 3.3 8.7 12.0 2.3 2.5 4.8 0.0 0.0 0.0 Price contingencies 4.5 14.9 19.4 0.0 0.9 0.9 0.0 0.0 0.0 Total Project Costs 74.1 198.2 272.2 75.3 204.9 280.2 75.8 236.2 312.0

At Appraisal Midterm Review At Completion Item Foreign Local Total Foreign Local Total Foreign Local Total IDC and commitment charges 12.8 0.0 12.8 4.7 0.0 4.7 4.0 1.5 5.5 Front-end fees 0.8 0.0 0.8 0.0 0.0 0.0 0.0 0.0 0.0 PPTA cost recovery 0.2 0.0 0.2 0.2 0.0 0.0 0.2 0.0 0.2 Total Costs to be Financed 87.8 198.2 286.0 80.0 204.9 284.9 80.0 237.7 317.7 Adjustment for Contingencies Contingencies on foreign exchange costs (7.8) 7.8 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total 80.0 206.0 286.0 80.0 204.9 284.9 80.0 237.7 317.7 IDC = interest during construction, PPTA = project preparatory technical assistance. Sources: Asian Development Bank and Fujian Commission of Rural Affairs.

Table A4.2: Financing Plan ($ million)

At Appraisal Midterm Review At Completion Source Foreign Local Total Foreign Local Total Foreign Local Total Asian Development Bank 80.0 0.0 80.0 80.0 0.0 80.0 80.0 0.0 80.0 Government 0.0 76.1 76.1 0.0 58.1 58.1 0.0 57.7 57.7 Local borrowing 0.0 22.9 22.9 0.0 14.2 14.2 0.0 26.1 26.1 Equity/enterprises 0.0 68.1 68.1 0.0 103.7 103.7 0.0 122.6 122.6 Cooperatives/beneficiaries 0.0 38.9 38.9 0.0 28.9 28.9 0.0 31.3 31.3 Total 80.0 206.0 286.0 80.0 204.9 284.9 80.0 237.7 317.7 Sources: Asian Development Bank and Fujian Commission of Rural Affairs.

Appendix 4 Appendix 23

24 Appendix 5

PROJECTED AND ACTUAL CONTRACT AWARDS AND DISBURSEMENTS

Table A5: Projected and Actual Contract Awards and Disbursements ($ million) Contract Awards Disbursement Year Projected a Actual Projected a Actual 2005 5.5 0.0 4.5 0.1 2006 8.7 1.6 6.5 5.1 2007 16.7 18.2 16.5 19.2 2008 31.7 28.6 30.5 31.2 2009 46.7 44.8 50.5 53.7 2010 62.7 59.9 69.6 69.7 2011 70.7 72.3 78.6 79.4 2012 75.4 75.8 80.0 80.0 Total 75.4 75.8 80.0 80.0 a Projected contract awards do not include the amount of loan interest during construction. Source: Asian Development Bank.

Figure A5.1: Projected and Actual Contract Awards 80 70 60 50 40 30 Amount ($ million) 20 10 0 2005 2006 2007 2008 2009 2010 2011 2012 Year Projected Actual Source: Asian Development Bank.

Figure A5.2: Projected and Actual Disbursement 90 80 70 60 50 40 Amount ($ million) 30 20 10 0 2005 2006 2007 2008 2009 2010 2011 2012 Year Projected Actual Disbursements Source: Asian Development Bank.

APPRAISAL AND ACTUAL IMPLEMENTATION SCHEDULE

Components and Activities 2004 2005 2006 2007 2008 2009 2010 2011 2012 A. Soil Conservation and Integrated Agriculture 1. Conservation Farming and Orchard Rehabilitation and Forestation a. Site selection and preparation

b. Beneficiary training

c. Orchards and farms rehabilitation, forestation and soil conservation

2. Aquaculture a. Beneficiary training

b. Aquaculture development

3. Agro-processing a. Establish appraisal committee

b. Appraisal and ADB approval of proposals

c. Construction of processing units

4. Integrated Livestock Farming a. Appraisal and ADB approval of proposals

b. Establishment of Dragonhead farms

c. Identity and establish participating groups or individuals

d. Establishment of farmers’ enterprises

6 Appendix B. Rural Infrastructure 1. Agriculture Markets a. Site selection and preparation

25 b. Detailed engineering design

26 Components and Activities 2004 2005 2006 2007 2008 2009 2010 2011 2012 c. Market construction

6 Appendix d. Market information system

2. Rehabilitation and Development of Rural Infrastructure a. Site survey and investigation

b. Detailed engineering design

c. Construction

3. Rehabilitation and Development of Hydropower Schemes a. Site survey and investigation

b. Detailed engineering design

c. Approval by Dam Safety Panel and Construction

4. Rehabilitation and Development of Rural Water Supply a. Site survey and investigation

b. Detailed engineering design

c. Approval by Dam Safety Panel and construction

C. Project Management 1. Extension and training

2. Monitoring and evaluation

3. Project management, including PMOs

4. Consultancy services

Appraisal Actual ADB = Asian Development Bank, PMO = project management office. Sources: Asian Development Bank and Fujian Commission of Rural Affairs.

Appendix 7 27

ORGANIZATION CHART

Fujian Provincial Government MOF ADB

Leading Group

Fujian Finance Provincial PMO Department

Municipal PMO Municipal Finance Bureau

County County County PMO County Finance SWCB FB Government Bureau WCHB

Water Public RECs or RECs or Dragon- Market Power Enterprises Supply Infrastructure Dragon- Dragon- head Entities Entities Entities Entities head head Enterprises Enterprises Enterprises G H E C F D A B

Farmers Fisher-folk Farmers

ADB = Asian Development Bank, FB = Fishery Bureau, MOF = Ministry of Finance, PMO = project management office, REC = rural economic cooperative, SWCB = Soil and Water Conservation Bureau, WCHB = Water Conservancy and Hydropower Bureau

Activity A = Soil Conservation and Integrated Agriculture Activity B = Aquaculture Activity C = Agriculture Market Activity D = Agro-processing Activity E = Integrated Livestock Farming Activity F = Rehabilitation and Development of Hydropower Schemes Activity G = Rehabilitation and Development of Rural Water Supply Activity H = Rehabilitation and Development of Rural Infrastructure

Command Line Coordination Flow of Funds

Source: Fujian Commission of Rural Affairs.

28 Appendix 8

STATUS OF COMPLIANCE WITH LOAN COVENANTS

Covenants Reference Compliance Status

Counterpart Funds

Without limiting the generality of Section 4.02 of this Loan LA, Complied with. Agreement, the Borrower shall cause FPG and the Schedule 6, Implementing Agencies to ensure that (i) all local and para. 2 Counterpart financing foreign currency counterpart financing necessary for the PA, was provided on time. Project, including equity contributions and cash Schedule, advances, is provided in time to enable completion of para. 15 project activities; and (ii) additional counterpart funding will be provided for any shortfall of funds or cost overruns, including without limitation, those shortfalls or overruns resulting from price and/or physical contingencies.

Without limiting the generality of the foregoing, during the PA, Complied with. Project implementation period, FPG shall furnish to ADB Section semiannual progress reports on the execution of the 2.08 para. b Submission of Project and on the operation and management of the progress reports was project facilities. Such reports shall be submitted in such often delayed. form and in such detail and within such a period as ADB shall reasonably request, and shall indicate, among other things, progress made and problems encountered during the quarter under review, steps taken or proposed to be taken to remedy these problems, and proposed program of activities and expected progress during the following semiannual period.

Promptly after physical completion of the Project, but in PA, Complied with. any event not later than six (6) months thereafter or such Section later date as ADB may agree for this purpose, FPG shall 2.08 para. c Project completion prepare and furnish to ADB a report, in such form and in report was submitted such detail as ADB shall reasonably request, on the in April 2013. execution and initial operation of the Project, including its cost, the performance of FPG of its obligations under this Project Agreement and the accomplishment of the purposes of the Loan.

FPG shall (i) maintain separate accounts for the Project; PA, Complied with. (ii) have such accounts and related financial statements Section (balance sheet, statement of income and expenses, and 2.09 para. a Audit reports were related statements) audited annually, in accordance with submitted on time and appropriate auditing standards consistently applied, by issued unqualified external third-party auditors whose qualifications, opinions. experience and terms of reference are acceptable to ADB; and (iii) furnish to ADB, promptly after their preparation but in any event not later than nine (9) months after the close of the fiscal year to which they

Appendix 8 29

Covenants Reference Compliance Status relate, certified copies of such audited accounts and financial statements and the report of the auditors relating thereto (including the auditors’ opinion on the use of the Loan proceeds and compliance with the covenants of the Loan Agreement as well as on the use of the procedures for imprest account and statement of expenditures), all in the English language. FPG shall furnish to ADB such further information concerning such accounts and financial statements and the audit thereof as ADB shall from time to time reasonably request.

Implementation Arrangements

FPG shall be the Project Executing Agency, and shall PA, Complied with. coordinate and supervise all implementation activities Schedule through the Leading Group chaired by the Vice-Governor para. 1 Leading group was in charge of agriculture, and Heads of the Fujian the same as for Fujian Agriculture Commission, the Fujian Finance Bureau, the Soil Conservation and Fujian Planning Committee, heads of the provincial line Rural Development relevant agencies of the Agriculture Bureau, Forestry Project. Bureau, Fisheries Bureau, Water Conservancy and Hydropower Bureau, and the Fujian Environmental Protection Bureau as members.

The Project Management Office (PMO) established by PA, Complied with. FPG, together with the ADB Fund Administration of the Schedule The Fujian PMO Fujian Finance Bureau, will coordinate and be para. 2 established for Fujian responsible for overseeing all implementation activities Soil Conservation and on a day-to-day basis. Its major tasks shall include (i) Rural Development overseeing preparation and implementation of all Project continued its subproject proposals and feasibility studies; (ii) drawing role for this project. up annual work program and budget; (iii) undertaking The ADB Fund procurement under international competitive bidding and Administration Unit international shopping, and facilitating local competitive was established bidding procedures; (iv) maintaining consolidated especially for financial accounts, including development of a financial management of the information monitoring system to track all financial project. transactions with End Users; (v) preparing and submitting to ADB withdrawal applications through the Finance Bureau; (vi) monitoring physical and financial progress and submitting reports to FPG and ADB; and (vii) maintaining liaison with FPG, the Ministry of Finance and ADB.

Financing Arrangements The Barrower shall cause FPG to onlend the proceeds of LA, Complied with. the Loan to the Implementing Agencies under Onlending Schedule 6, Agreements upon terms and conditions satisfactory to Para. 1 Due to relatively high ADB. Except as ADB may otherwise agree, the terms of transaction cost for

30 Appendix 8

Covenants Reference Compliance Status each Onlending Agreement shall include (i) interest and end users, subloan other charges at the same rate as that of the Loan, and charges were set just (ii) a repayment period including a grace period identical to recover the loan with those of the Loan. FPG of the Implementing charges and costs. Agencies, as the case may be, shall bear the foreign exchange and interest variation risks for all Subprojects, other than those components of the Project relating to Agro-processing, Integrated Livestock Farming, Agriculture Markets and Rehabilitation and Development of Small Hydropower Schemes, whereby the foreign exchange and interest variation risks may be borne by the End Users in connection with such Subprojects. The Borrower shall also cause FPG to ensure that the Implementing Agencies onlend the proceeds of the Loan to End Users under the Financing Agreements upon terms and conditions satisfactory to ADB, including interest and repayment periods determined by commercially based market rates and periods.

Subproject Selection

FPG shall ensure that Subprojects are selected based on PA, the following general and Project components specific Schedule criteria: para. 5 a. General Criteria Complied with. (i) The proposed subproject shall be financially sound PA, and economically cost-effective with a minimum FIRR of Schedule Training was 10%, except for social infrastructure components where a para. 5 (a) organized in 2005 by minimum EIRR of 12% shall be required; Fujian PMO to inform (ii) The proposed subproject shall have been subject to implementing an environmental examination carried out in accordance agencies about the with PRC regulations, ADB’s Environmental Assessment selection criteria. Guidelines 2003, and the EAF, and that the IEE is Fujian PMO screened approved by appropriate authorities with FPG and ADB in proposals based on accordance with the EAF; general criteria for (iii) The proposed subproject shall be environmentally further assessment by sound and shall be located at a reasonable distance from project evaluation population centers and environmentally sensitive areas; committee. (iv) The proposed subproject shall meet the national and provincial environmental standards, not generate waste or result in any adverse environmental impacts that cannot be mitigated, and provide for environmental mitigation as an integral part of the design with cost of mitigation included in the cost estimates; (v) The proposed subproject shall have a social impact assessment prepared in accordance with ADB’s social safeguard policies; (vi) The proposed subproject shall avoid displacement of

Appendix 8 31

Covenants Reference Compliance Status people, and any people affected by land acquisition shall be adequately compensated and rehabilitated in line with a Resettlement Plan prepared in accordance with the RF; (vii) The proposed intervention shall support poverty reduction efforts of the national government and provincial government; (viii) Water rights or land rights, as the case may be, shall be owned or leased, and operated, by the participating beneficiaries for project supported activities; (ix) The subprojects or components or subcomponents involving rehabilitation or social infrastructure (rural roads, water supply schemes, etc.) shall take place within the existing rights-of-way and any temporary losses shall be compensated; (x) The poor households shall have been identified and selected by local village leaders, and rural poverty alleviation offices, and other existing community based organizations; and (xi) Women shall be given preference in participation and employment opportunities.

b. Subcomponent-specific Criteria

Soil Conservation and Integrated Agriculture Complied with.

(i) The size of each subproject unit shall not be less than PA, A summary sheet 20 ha at any particular site to ensure cost-effectiveness; Schedule template was (ii) The landholding of each participating households shall para. 5 (b) developed for each range from 0.33 to 0.67 ha for fruit, 0.53 to 1.00 ha for subcomponent bamboo and 0.27 to 0.53 ha for tea garden to ensure a including a checklist maximum number of households participants in the comprising these subprojects; selection criteria. ADB (iii) The proposed component shall target the poor areas reviewed summary and all participating poor households willing to participate sheets prepared by would be included in the subproject; and Fujian PMO to confirm (iv) All participating farmers (including women) shall be compliance. willing to attend technical training course on relevant field crop/s management.

Forestation and Soil Conservation Complied with.

(i) The area selected shall be over 25 degrees slope A summary sheet (except for windbreaks) and in a degraded condition as template was certified by appropriate authorities at the county level, developed for each and the density of the existing vegetation shall be less subcomponent than 60%; including a checklist (ii) The species to be planted shall be ecologically comprising these appropriate and shall have a commercial value to ensure selection criteria. ADB

32 Appendix 8

Covenants Reference Compliance Status an adequate return on investment; preference should be reviewed summary given to soil binding and multiple use species such as sheets prepared by bamboo (producing bamboo shoots and bamboo poles); Fujian PMO to confirm Eucalyptus shall not be planted under any circumstances; compliance. (iii) Windbreak shall be established by farmers to protect their orchards in areas exposed to strong winds; and (iv) Rehabilitation of access roads within forest areas shall ensure adequate side drainage, cross drainage, check dams, water retention pits, and other soil conservation measures as appropriate

Conservation Farming and Orchard Rehabilitation Complied with.

(i) The intervention shall be carried out only on existing Fujian PMO screened orchards and establishment of new orchards should not subprojects according be included; to the selection (ii) Irrigation systems shall only be included if the market criteria. value of fruit crops produced would be enhanced and that if such fruit crops cannot be produced under rainfed conditions.

Aquaculture Development Complied with.

(i) Each subproject shall cover an area ranging from a A summary sheet minimum of 10 ha to a maximum of 100 ha at one site; template was (ii) The size of the aquaculture subprojects of developed for each participating households shall be set at 2 to 20 cages for subcomponent marine culture (depending on the cage size), 0.5 to 2.0 including a checklist ha for oyster and kelp farm, and 2 to 20 cages for comprising these freshwater culture in order to ensure that more selection criteria. ADB households participate in the subprojects; reviewed summary (iii) All participating households shall have water use sheets prepared by rights for their farms; Fujian PMO to confirm (iv) The proposed component shall be targeted at poor compliance. areas and all poor households willing to participate would be included in the subproject; and (v) All participating households (including women) shall be willing to attend technical training course/s on aquaculture.

Agriculture Markets Partially complied with. (i) The proposed agriculture markets shall be located in areas that facilitate marketing of commodities produced Some markets were by poor farm households; taking due account of future subsidized by local growth in population, urbanization, and relevant provincial governments aiming development plans; to improve public (ii) Rental rates of the facilities at each project-financed services and promote agricultural market are subject to periodic review by the industries’

Appendix 8 33

Covenants Reference Compliance Status provincial government to ensure recovery of investment development. costs and operation and maintenance expenses, and a reasonable return on investment, consistent with the users’ ability to pay and sound utility practices; (iii) The design of each market shall provide for maintenance of proper hygienic conditions by separating the wholesale and retail areas and provide facilities for collecting and disposing of garbage; (iv) Existing markets shall not currently adequately serve the area; (v) Markets shall give priority to accommodate locally produced farm production; and (vi) Poor farmers, farmer’s groups, women’s organization shall be accorded priority in leasing wholesale and retail spaces.

Agro-processing Complied with.

(i) An assured of raw materials shall be available at a A summary sheet reasonable distance from the processing facility; template was (ii) The proposed enterprises shall be willing to be developed for each allocated near the poor areas to promote their economic subcomponent growth; including a checklist (iii) Priority shall be provided to farmers in poor areas to comprising these grow the raw materials needed by the processing selection criteria. ADB facilities; reviewed summary (iv) The design of the interventions shall include full sheets prepared by utilization of the waste generated through recycling, and Fujian PMO to confirm treatment; compliance. (v) The site shall be located outside the main population center (residential area); (vi) Majority of labor employed shall be local; and (vii) The processing enterprises shall be willing to have a minimum of 30% equity and shall have demonstrated administrative and financial capacity and environment awareness.

Integrated Livestock Farming Complied with.

(i) The subproject shall be at least 5 km away from the A summary sheet population centers (residential areas); template was (ii) The subproject shall have disposal/waste treatment developed for each facilities and the operation of project farms should not subcomponent result in any adverse impact to the environment; including a checklist (iii) The proposed component targets poor areas and all comprising these poor households willing to participate would be included selection criteria. ADB in the subproject; and reviewed summary (iv) All participating households (including women) shall sheets prepared by be willing to attend the technical training course on Fujian PMO to confirm

34 Appendix 8

Covenants Reference Compliance Status animal husbandry. compliance.

Rehabilitation and Development of Hydropower Complied with. Schemes

(i) The proposed scheme shall not result in any adverse A summary sheet environmental impacts that cannot be easily mitigated; template was (ii) Where feasible, the proposed hydropower schemes developed for each shall be located in poor townships; subcomponent (iii) Lack of electricity shall be hampering the including a checklist socioeconomic development in the selected area; comprising these (iv) Potential beneficiaries shall have irregular power selection criteria. ADB supply; reviewed summary (v) Local farm workers and farmers shall be given priority sheets prepared by when hiring temporary workers; Fujian PMO to confirm (vi) The site selected does not require displacement of compliance. people, and minimal loss of productive land, assets or income (either collectively or individually owned); (vii) The PMO shall have established a Dam Safety Panel, acceptable to ADB, comprising at least three recognized professionals of the People’s Republic of China in the relevant fields of expertise. The Dam Safety Panel shall be responsible for review and approval of the design and construction parameters of the dams under the subproject; (viii) No new dam to be constructed in connection with a scheme shall have a height of 10 meters or higher, and all subprojects shall not seek to replace any natural ecosystems; (ix) The subproject proposers/shareholders/implementing agency shall have adequate capacity and financial standing to undertake implementation of the subproject; and (x) The power supply company shall have private investors (company) as major shareholders. In case such shareholders are not available, the government would make all efforts to ensure that more than 50% shares are held by the private sector within two years after commencement of the power supply by the plant.

Rehabilitation and Development of Rural Water Complied with. Supply

(i) The proposed water supply schemes shall be located A summary sheet in areas where a large number of poor villagers do not template was have access to potable water supply; developed for each (ii) Local farm workers and farmers shall be given priority subcomponent when hiring temporary workers; including a checklist

Appendix 8 35

Covenants Reference Compliance Status

(iii) Water connection fees and tariffs shall be set in comprising these consultation with consumers, and these rates take into selection criteria. ADB consideration their ability to pay for the services; reviewed summary (iv) For new water supply development schemes, waste sheets prepared by water disposal shall be connected to environmentally Fujian PMO to confirm sound drainage systems and in conformity with national compliance. and provincial standards; (v) The subproject interventions shall benefit a minimum number of 500 households, including towns and villages; and all households in the townships shall have access to the subproject; (vi) Source of water (natural reservoir) shall be adequate and available for the target population; (vii) Water quality at the source shall be safe to drink, as certified by the appropriate government institution; (viii) The dams to be built shall be safe and not exceed 10 meters in height, shall not involve cutting trees or resettlement of people; and (ix) Potential beneficiaries shall be willing to pay an appropriate price (tariff) for the supply; and water tariffs shall be adequate to cover the investment cost, operations and maintenance, and a reasonable profit by the water utilities company to ensure sustainability of the subproject.

Rehabilitation and Development of Rural Complied with. Infrastructure

(i) The proposed component shall benefit the majority of A summary sheet poor people; template was (ii) Economic development of the selected sites hindered developed for each by poor infrastructure facilities; subcomponent (iii) Local farm workers and farmers shall be given priority including a checklist when hiring temporary workers; comprising these (iv) The sites and alignments selected shall not require selection criteria. ADB displacement of people, and minimal loss of productive reviewed summary land, assets or income (either collectively or individually sheets prepared by owned); Fujian PMO to confirm (v) Rehabilitation shall be limited to improvement of minor compliance. water supply, flood protection, improvement of drainage, and rural access roads; (vi) For rural access roads, the subprojects shall only include the rehabilitation/upgrading of existing roads, and the roads shall follow existing alignment (rights of way) and provide adequate drainages; and (vii) Rehabilitation of roads shall not involve any cutting of trees or clearing of forest; and the roads shall connect to major markets and at least 1000 rural households directly benefit from the subproject at each site.

36 Appendix 8

Covenants Reference Compliance Status

Prior ADB approval of a proposed subproject shall be PA, required if it (i) is a small hydropower scheme or (ii) Schedule requires preparation of an RP pursuant to the RF or (iii) Para. 6 has a total cost of $1.5 million equivalent or more. In any such case, the PMO shall submit the feasibility study to ADB (including the RP and/or environmental impact report prepared under PRC environmental laws and regulations, ADB’s Environmental Assessment Guidelines 2003, and be required for the first proposed subprojects in the aquaculture, agro-processing, integrated livestock farming and water supply subcomponents. Feasibility studies for all other subprojects shall be submitted on a post facto ADB approval basis.

Environmental Issues

FPG shall ensure that all Project activities will be carried PA, Complied with. out in accordance with applicable PRC environmental Schedule laws, regulations, procedures, guidelines and standards, Para. 7 All subprojects as well as ADB’s Environmental Assessment Guidelines obtained domestic 2003. IEEs shall be prepared in accordance with approval. IEEs applicable PRC laws and regulations, ADB’s including EMPs were Environmental Assessment Guidelines 2003 and the prepared for each EAF, and shall be approved by FPG or ADB (as required subproject. in accordance with paragraph 6 above) prior to inclusion of a proposed subproject in the Project. FPG shall ensure that any environmental mitigation measures set forth in an IEE are implemented in accordance with the relevant PRC laws and regulation, ADB’s Environmental Assessment Guidelines 2003 and the EAF.

With specific reference to the environment, the Fujian PA, Complied with. Environmental Protection Bureau and its subordinate Schedule offices at the county and township levels shall undertake Para. 8 Submission of reports monitoring of environmental mitigation measures as was often delayed. detailed in the Environmental Management Plans for various components. The PMO shall also be provided additional expertise for regular environmental monitoring and reporting during implementation.

Resettlement

FPG shall implement the Project in accordance with the PA, Complied with. RF and the individual resettlement plans for Subprojects. Schedule FPG shall ensure that (i) all land and rights-of-way Para. 9 Resettlement plans required by the Project are made available in a timely were prepared by the manner, in accordance with all applicable laws and executing agency and

Appendix 8 37

Covenants Reference Compliance Status regulations of the Borrower and ADB’s Policy on approved by ADB. Involuntary Resettlement (ii) counterpart funds for land External monitoring requisitions and resettlement activities are provided on a reports were timely basis and it meets any obligations in excess of submitted. budget estimates, (iii) RPs are prepared for other Subprojects with land acquisition impacts and submitted to ADB for approval prior to land acquisition or impacts on people, (iv) it submits regular monitoring reports to ADB, including reporting by an external monitor, and (v) civil works contractors’ specifications include requirements to comply with the RPs.

Power and Water Tariffs

Within six (6) months from the Effective Data, FPG shall PA, Complied with. submit to ADB a time-bound action plan for adjustment of Schedule the power and water tariffs, if required, on a periodic Para. 10 Recovery of basis, to ensure recovery of all investment costs and investment costs and operation expenses for the hydropower plants and rural operation expenses water supply schemes under the Project. was met.

Agriculture Markets-Rental Rates Partially complied with. FPG shall periodically review the rental rates of the PA, Some markets were agriculture markets under the Project and shall take Schedule subsidized by local measures as required, to ensure recovery of investment Para. 11 governments aiming and operation and maintenance costs, as well as a to improve public reasonable return on investment. Such measures shall services and promote take into consideration the users’ ability to pay and sound industries’ utility practices. development.

Ownership of Agro-processing Enterprises

Neither FPG nor any of the prefecture, municipal or PA, Complied with. country governments, nor any of their respective Schedule corporations, shall at any time hold more than forty-nine Para. 12 All subprojects (49) percent of the shares of any agro-processing unit followed this supported under the Project. requirement.

Financial Information Monitoring System

For the purposes of identifying means to ensure timely PA, Complied with. repayments of the loans made under the Financing Schedule Agreements and Onlending Agreements, FPG shall Para. 13 FFD kept good track cause the PMO established at the provincial level and the of onlending, Financing Bureaus at the provincial, municipal and disbursement, and county levels to establish within six (6) months of the repayment info in their Effective Date a financial information monitoring system file system. It had for all financial transactions including the loans made been monitoring

38 Appendix 8

Covenants Reference Compliance Status under such Financing Agreements and Onlending subloan status closely Agreements, and the status of their repayment to track and all due disbursements and facilitate auditing. FPG shall also repayments were identify and analyze other possible measures to ensure made on time. A timely repayment, including possible changes in the financial information repayment schedules and onlending terms. The results of monitoring system and specific recommendations arising from such analysis was developed by shall be jointly reviewed and discussed by FPG and ADB PMO staff, but data within the first year of Project implementation for adoption were not continually from the second year of Project implementation. updated.

Performance Benefit Monitoring and Evaluation

Within one year of the Effective Date, FPG shall develop PA, Partially complied a performance and benefit monitoring and evaluation Schedule with. (PBME) system to establish the benchmark indicators for Para. 14 assessing the Project impact. The PBME shall include A PBME system was indicators for evaluating the impact of soil conservation developed by PMO activities by Fujian Soil and Water Conservation Center. staff, but it was not The center shall undertake annual field studies on updated after changes in land use, vegetative cover, runoff, and soil retirement of the erosion. The PBME shall also include an evaluation of person in charge. the credit provided to End Users and the status of its recovery. In addition, PBME shall include indicators for tracking and assessing the impact on farm productivity and socioeconomic impacts on beneficiaries disaggregated by gender with special attention to She minorities. Surveys based on rapid appraisal and household interviews shall be undertaken for monitoring farmer response to recommended agronomic practices and soil conservation measures, access to extension services and agricultural inputs, farm incomes, and off- farm employment. Two surveys shall be conducted during implementation, one in the third year prior to the midterm review and the other in the fifth year, with data being made available for the evaluation of benefits and impacts after Project completion.

ADB = Asian Development Bank, EAF = environmental assessment framework, EIRR = economical internal rate of return, EMP = environment management plan, FFD = Fujian Financial Department, FIRR = financial internal rate of return, FPG = Fujian Provincial Government, IEE = initial environmental examination, LA = loan agreement, PA = project agreement, PBME = performance and benefit monitoring and evaluation, PRC = People’s Republic of China, RF = resettlement framework, RP = resettlement plan. Source: Asian Development Bank and Fujian Project Management Office.

Appendix 9 39

FINANCIAL AND ECONOMIC REEVALUATION

A. General Approach

1. The project output at completion comprises (i) a soil conservation and integrated agriculture component including 24 conservation farming, orchard rehabilitation, and forestation subprojects, 5 aquaculture subprojects, 17 agro-processing subprojects, and 5 integrated livestock farming subprojects; as well as (ii) a rural infrastructure component including 7 agricultural markets subprojects, 18 rehabilitation and development of rural infrastructure subprojects, 9 rehabilitation and development of small hydropower scheme subprojects, and 17 rehabilitation and development of rural water supply subprojects. The total number of subprojects was 102 at completion, covering 38 counties in Fujian Province.

2. Financial and economic reevaluation is undertaken component by component, on the basis of which the overall project performance is assessed. Due to the large number of subprojects, 33 representative subprojects were selected for detailed analysis. The selection followed the principles of (i) encompassing all major species or types of products for orchard, aquaculture, agro-processing, and livestock components; (ii) covering all representative design capacities for the infrastructure components (large, medium, and small-scale rural water supply, hydropower, and agriculture market subprojects); and (iii) including in particular those relatively weak subprojects to confirm the robustness of the conclusion. The analysis was based on “with” and “without” project incremental revenues as well as on incremental costs. Subproject life is consistent with the term of the subloan to the end user,1 including grace period. Financial revenues and costs are expressed in 2012 constant prices. An economic reevaluation was likewise carried out for each representative subproject. Because subprojects for rehabilitation and development of rural infrastructure are for constructing rural roads and village community facilities and do not generate revenues, only economic reevaluation is conducted for this component. Financial sustainability of the project is assessed through sensitivity analysis and by identifying major potential risks and mitigation measures affecting long-term sustainability.

B. Major Assumptions

3. The main assumptions used in the financial and economic analyses are the following: (i) All the subprojects utilized loan proceeds through an onlending agreement or financing agreement. The soil conservation and integrated agriculture component utilized a term of 10 years, including a 3-year grace period; agriculture market and rural water supply subcomponents utilized a term of 15 years, including a 4- year grace period; and the rural infrastructure and rural water supply subcomponent utilized a term of 20 years, including a 5-year grace period. (ii) Subloans to end users carried the same interest rate as that of the ADB loan, which was determined in accordance with ADB’s London interbank offered rate (LIBOR)-based lending facility. This differed from the appraisal’s anticipation that the interest rate and repayment period would be determined by commercially based market rates and periods.2

1 Loan Agreement. 2004. “End users” means those enterprises or implementing agencies which were subborrowers under an onlending or financing agreement in connection with a specific subproject. Due to relatively high transaction cost for end users, during implementation subloan charges were set just to recover the loan charges and costs. 2 ADB. 2004. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the People’s Republic of China for the Fujian Soil Conservation and Rural Development II Project. Manila. Para. 58

40 Appendix 9

(iii) Capital costs were based on actual values which included labor, construction materials, equipment, training, and other related costs. Sources of capital included ADB loan proceeds, government financing, equity inputs of participating enterprises, domestic loans, and inputs from rural economic cooperatives and beneficiaries. (iv) ADB loan proceeds comprised different proportions in financing for individual subprojects: 20.6% (ranging from 12.7% to 26.3%) for conservation farming and orchard rehabilitation subprojects, 23.0% (10.5%–29.7%) for aquaculture subprojects, 21.9% (12.6%–27.6%) for agro-processing subprojects, 25.6% (19.9%–29.0%) for livestock farming subprojects, 24.4% (19.2%–28.8%) for agricultural markets subprojects, 35.4% (30.0%–43.2%) for rural infrastructure subprojects, 18.5% (12.0%–35.7%) for small hydropower schemes, and 31.7% (19.2%–47.6%) for rural water supply subprojects. (v) For farming and livestock subprojects, operating costs included expenditures for labor costs along with such production materials as feedstuffs, medicine, fertilizer, agrochemicals, irrigation, and replacement of animals. (vi) For rural infrastructure subprojects, actual and projected operating costs were provided by the respective participating enterprises. (vii) Financial analysis was carried out on a post-tax basis. Agro-processing enterprises are subject to sales, value-added, and income taxes. Hydropower and water supply enterprises are subject to value-added and income taxes. (viii) The after-tax weighted average cost of capital was recalculated for each component based on the actual capital mix and costs for various sources of financing. The costs of financing components were as follow: LIBOR 10-year fixed swap rate plus a spread of 0.4% for ADB loan, actual interest rate of 6.8% for domestic loan, and 12% for cost of equity investment.3 (ix) The opportunity cost of capital was set at 12%, which also serves as the minimum economic internal rate of return (EIRR) for a subproject to be considered economically feasible. The standard conversion factor for adjusting nominal input prices to economic prices was 0.93. The conversion factor for labor was 0.80, and 1.00 for subproject output. All values were calculated in yuan at constant 2012 prices. An opportunity cost of land was considered for agriculture market and agro-processing components. All taxes and subsidies were excluded in evaluating the economic performance of the subprojects.

C. Financial Reevaluation

1. Soil Conservation and Integrated Agriculture

a. Conservation Farming and Orchard Rehabilitation

4. The land actually rehabilitated totaled to 12,066 hectares with annual incremental production of 22,500 metric tons (t) of tea, 13,500 t of sweet potato, 30,000 t of vegetables, 9,500 t of bamboo shoots, and 1,000 t of camellia oil. Average orchard yield increased by 20%– 30% due to the orchard rehabilitation. The gains are attributed to improved irrigation facilities, using better seedlings and seeds, and improved farming practices promoted by training and technical services provided during implementation.

states the following: “Finance bureaus will lend to agricultural enterprises at 0.5–2.0% interest on top of the cost of loan funds. This results in interest rates comparable with commercial market rates.” 3 The 12% cost of equity reflects the relatively high risk associated with the project activities.

Appendix 9 41

5. Recalculated financial internal rates of return (FIRRs) ranged from about 17.0% (bamboo shoots) to 33.0% (organic tea), compared with appraisal estimates of 16.1% (citrus) to 18.8% (litchi). Organic tea and vegetables generated higher FIRRs due to higher prices attributed to organic production and following such internationally recognized quality standards as Hazard Analysis and Critical Control Point, Good Agricultural Practices, and Sanitation Standard Operating Procedures.

b. Aquaculture

6. Annual incremental yields under this subcomponent include 1,200 t of clams, 60 t of prawns, 2,310 t of kelp, 750 t of yellow croakers, and 10,000 t of seaweed. Recalculated FIRRs ranged from about 12.0% (clams) to 18.0% (kelp), which are close to the appraisal estimates of 13.9% to 18.2%.

c. Agro-processing

7. Seventeen subprojects were implemented involving enterprises that process frozen vegetables, tea, bamboo shoots, fruits, beef, sweet potato, bamboo products, aquaculture products, and other livestock products. Recalculated FIRR values range from about 18.0% (bamboo shoots) to 36.0% (dried sweet potato), compared with the appraisal estimates of 14.6% to 16.7%. The higher FIRRs are attributed to the fact that these enterprises were all previously established and so most subprojects were for expanding their processing capacities or establishing storage or logistic facilities to be integrated into their existing capacities. In such cases, the majority of capital costs already had been undertaken and were not taken into account in the reevaluation. The expanded processing capacities are often operated by existing workforce, which also reduced the unit costs.

d. Integrated Livestock Farming

8. This subcomponent supported 5 livestock farms which yield annually 78,530 commodity pigs, 3,250 breeder pigs, 24 million young chickens, and 4 million meat ducks. Recalculated FIRR values range from about 11.7 % (chicken farm) to 20.0% (pig farm), compared with the appraisal estimates of 15.0% (beef and pig farms). The current production of the chicken farm has not reached the design capacity and the anticipated main production of young chickens is considered to be unprofitable in the current market situation. Significant increases in feed costs also add to the difficulty of its operation. The higher FIRR for the pig farm is mainly due to the favorable price of pork in recent years.

2. Rural Infrastructure

a. Agricultural Markets

9. Seven agricultural markets were established, of which 3 are large markets with areas of 11,000 square meters (m2) to 20,000 m2, and 4 are small to medium-sized markets with areas of 3,000 m2 to 11,000 m2. These markets facilitate trade in agricultural products valued at CNY3 billion annually. Rental and service fees are the main revenue sources. The recalculated FIRRs are from 3.0% to 11.0%, which is lower than the appraisal estimates of 13.1% to 21.4%, mainly because capital costs are higher than anticipated and rental revenues lower. While several of these markets are operated and maintained by government agencies, at appraisal it was

42 Appendix 9 anticipated that the markets would be constructed, operated, and maintained by or as shareholding corporations.

b. Rehabilitation and Development of Small Hydropower Schemes

10. The component involves 9 hydropower schemes. These have capacities of 1,600 to 20,000 kilowatts and the combined capacity of these schemes comes to 47,870 kilowatts. The actual electricity generated by these schemes in 2011 reached 245 gigawatt-hours. The recalculated FIRRs for representative subprojects range from 7.2% to 11.4%, which is much lower than the appraisal estimate of 12.0%–19.9%. It should be noted, however, that the schemes actually implemented are not the same as those identified at appraisal.4 Electricity tariffs range from CNY0.26 to CNY0.38 per kilowatt-hour, and for most schemes the tariff is adequate for recovery of capital expenditure as well as operating and maintenance costs.

c. Rehabilitation and Development of Rural Water Supply Subprojects

11. The component involves 17 subprojects covering 12 counties and 28 townships with total incremental capacity of 275,000 cubic meters (m3) per day. The designed capacities of these water supply schemes range from 5,000 m3 per day to 30,000 m3 per day, and the service populations range from 5,000 to 150,000 persons. The tariffs applied in these water plants range from CNY0.70 to CNY2.0 per m3. The recalculated FIRRs for representative subprojects range from 10.4% to 14.0%, while the appraisal estimates were 11.2%–14.2%. The favorable FIRRs mainly resulted from the high quality of the raw water and the fact that the water transmission and distribution are gravity-fed, which significantly reduces the operating cost.

12. The recalculated FIRRs and weighted average costs of capital are shown in Table A9.1 with comparison to the appraisal estimates.

Table A9.1: Summary of Financial Internal Rates of Return (%) At Appraisal At Completion Component (FIRR) (FIRR) (WACC) Conservation Farming and Orchard Rehabilitation 16.1–18.8 17.0–33.0 5.3 Aquaculture 13.9–18.2 12.0–18.0 5.3 Agro-processing 14.6–16.7 18.0–36.0 4.8 Integrated Livestock Farming 15.0 11.7–20.0 4.9 Agricultural Markets 13.1–21.4 3.0–11.0 5.1 Rehabilitation and Development of Small Hydropower Schemes 12.0–19.9 7.2–11.4 5.3 Rehabilitation and Development of Rural Water Supply 11.2–14.2 10.4–14.0 4.1 FIRR = financial internal rate of return, WACC = weighted average cost of capital. Source: ADB estimates.

D. Economic Reevaluation

13. Economic reevaluation was undertaken for the orchards, aquaculture, agro-processing, and integrated livestock components. The recalculated EIRR for bamboo shoots is 22.3%; organic tea, 36.3%; clams, 12.3%; kelp, 19.0%; and dried sweet potato, 19.2%. EIRRs for agro-

4 Most of the originally identified subprojects had been completed or started when the loan became effective in March 2005.

Appendix 9 43 processing are 22.3% for bamboo shoots, 27.9% for bamboo products, 25.5% for frozen vegetables, and 36.9% for tea. For integrated livestock farming, EIRR is 22.7% for swine and 20.0% for meat ducks. Some subprojects indicate EIRRs lower than the corresponding FIRR, mainly because the opportunity cost of land is significantly higher than its financial cost.

14. The rural infrastructure component demonstrated satisfactory economic performance. EIRRs are 14.9% to 23.8% for hydropower schemes and 17.5% to 25.8% for the water supply subprojects. The economic benefits of rural road subprojects consist mainly in vehicle operating cost savings and such net gains in economic activities derived from upgrading roads as increased agricultural production and tourism development. Those EIRRs range from 18.4% to 24.9%. For agricultural market subprojects, EIRRs generally exceed 20.0%.

Table A9.2: Summary of Economic Internal Rates of Return (%) At Appraisal At Completion Component (EIRR) (EIRR) Conservation Farming and Orchard Rehabilitation 16.3–19.2 19.4–36.3 Aquaculture 20.9–25.2 12.3–19.0 Agroprocessing 21.6–25.0 22.3–36.9 Integrated Livestock Farming 15.5–19.2 20.0–22.7 Agriculture Markets 14.3–22.5 20.0–27.7 Rehabilitation and Development of Small Hydropower 15.2–20.6 14.9–23.8 Schemes Rehabilitation and Development of Rural Water Supply … 17.5–25.8 Rural Road … 18.5–24.9 EIRR = economic internal rate of return, … = not available. Source: ADB estimates.

E. Other Economic Benefits

15. In addition to the economic benefits that are quantified in the EIRR calculation, the project has generated significant other benefits. It benefited 26,835 households of forest and crop farmers, 1,998 households of aquaculture scheme participants, 8,180 households of livestock farmers, and 89,760 households of suppliers and employees of agro-processing enterprises. The annual per capita income was raised by an average CNY4,015 (or 163%) by the end of 2011. These households included an estimated 538,490 people. They were mainly disadvantaged households having incomes below average for the project area, and 32% of them were poor people. About 612,070 households benefited from infrastructure improvements in water and electricity supply, agriculture markets, and rural roads. In total, 738,843 households benefitted. They take in more than 3 million people and account for about 8% of the Fujian population.

F. Sensitivity Analysis

16. Sensitivities of individual subprojects were examined to evaluate the impacts of decrease in revenues, increase in operation and maintenance costs, and other risk factors. The results indicate that livestock subprojects are highly sensitive to changes in output prices and rise in operating costs, with feed costs and animal disease among the main concerns. Orchard subprojects are sensitive to market fluctuation. Diversifying production across orchard, livestock, and aquaculture reduces the probability of simultaneous adverse price changes. Products that apply internationally recognized quality standards are more robust in withstanding market

44 Appendix 9 fluctuation. Moreover, it has been widely observed that the agro-processing companies financed by the project have established stable local or international market channels and are responsive to changing market demand. These companies also have established stable relationships with individual farmers for supply of raw farm products through contract arrangements or through rural economic cooperatives.

17. For the infrastructure component, the results indicate that water supply and hydropower subprojects will remain viable even in the worst-case scenario. This is mainly because receipt of water tariffs is secure, demand is adequate, and operating costs are relatively low. The main risk factor is climate change, which may affect the volume of available source water or water flow. The sustainability of rural roads rests with the sustainability of the maintenance arrangement. The agricultural market subprojects rely upon the specialization and industrialization of farm production in the project region.

Appendix 10 45

ASSESSMENT OF SOCIAL IMPACTS AND POVERTY REDUCTION

A. Introduction

1. During the project preparation, a summary poverty reduction and social strategy and a poverty impact assessment matrix were prepared to assess the project’s impacts on poverty reduction and social dimensions. Accordingly, the project was classified as poverty intervention to address the core causes of income poverty by generating income and creating jobs in farming, fishing, upland forestry development, and livestock raising. It was to (i) improve access to financial and technical capital through training and extension support plus stronger vertical linkage with agricultural markets and agro-processing; and (ii) facilitate access to agricultural markets, rural roads, and productivity-enhancing infrastructure (hydropower supply, flood protection, improved drainage, and small water supply schemes). Consequently, poverty will be reduced by (i) increasing the productivity of poor farm households and agro-enterprises, (ii) diversifying rural income and job opportunities, and (iii) improving access of the poor to vital productive, market, and rural-based infrastructure as well as extension support.

B. Socioeconomic Growth in the Project Area

2. The project implementation has greatly promoted agriculture sector development, enhanced the relative secondary and service sector, and consequently contributed to regional economic growth in the project area. Statistics show that socioeconomic conditions in the area have improved rapidly in recent years (Table A10.1). The per capita GDP of the project area increased by approximately 146%–284% from 2004 to 2011, and the per capita budgetary revenue of the local government grew by about 259%–482% over the period.

Table A10.1: Growth of GDP and Government Revenue in Project Areas (CNY/person) Project Per Capita Per Capita Area Year GDP Growth Government Revenue Growth Putian 2004 11,112 337 2011 37,896 241% 1,961 482% Sanming 2004 14,307 648 2011 49,149 244% 2,364 265% Quanzhou 2004 21,260 882 2011 52,245 146% 4,310 389% Zhangzhou 2004 15,058 442 2011 36,533 143% 2,340 430% Nanping 2004 11,209 433 2011 33,921 203% 1,555 259% Longyan 2004 12,792 592 2011 49,250 285% 2,857 383% Ningde 2004 10,166 300 2011 33,064 225% 1,597 432% Source: Fujian Provincial Statistic Yearbooks for 2005 and 2012.

C. Increased Rural Income to Narrow Disparity between Urban and Rural

3. Through demonstration effects and other influence, the project’s implementation has contributed directly to growth in rural people’s incomes in the project areas by creating jobs, providing public services, and delivering technical training and support. The average rural per capita net income in seven prefectures rose by 86% to 122% from 2004 to 2011 (Table A10.2).

46 Appendix 10

Table A10.2: Increased Rural Income in the Project Area (CNY/person) Project Per Capita Rural Growth Project Per Capita Rural Growth Area Year Net Income Rate Area Year Net Income Rate Putian 2004 4,093 Nanping 2004 3,756 2011 9,066 122% 2011 7,861 109% Sanming 2004 3,886 Longyan 2004 3,769 2011 8,205 111% 2011 8,234 118% Quanzhou 2004 5,680 Ningde 2004 3,517 2011 10,578 86% 2011 7,756 121% Zhangzhou 2004 4,320 2011 9,128 111% Source: Fujian Provincial Statistic Yearbooks for 2005 and 2012.

4. The project was designed to contribute to narrowing the income disparity between urban and rural households. Unfortunately, the statistic shows that the urban–rural per capita income ratio in the project area grew slightly from 2.45 in 2004 to 2.51 in 2011. However, the data in Table A10.3 indicate a positive trend evidenced by the appearance of an obvious inflection point in 2007 (Figure A10.1). Nevertheless, the ratio of urban–rural per capita income in the project area appears likely to come down significantly by 2020 compared with that prior to the project’s implementation in 2004.

Table A10.3 Urban–Rural Income Ratio in the Project Area (CNY/person) Year 2004 2005 2006 2007 2008 2009 2010 2011 Urban 9,727 10,592 11,791 14,019 15,856 16,757 18,557 21,470 Rural 3,971 4,335 4,716 5,336 6,070 6,554 7,288 8,539 Ratio 2.45 2.44 2.50 2.63 2.61 2.56 2.55 2.51 Source: Fujian Provincial Statistic Yearbooks for 2005–2012.

Figure A10.1: Urban–Rural Income Ratio in the Project Area

2.65 2.6 2.55 2.5 2.45 2.4 2.35 2.3 2004 2005 2006 2007 2008 2009 2010 2011

Source: Fujian Provincial Statistic Yearbooks for 2005–2012.

Appendix 10 47

D. Achievement of Project Target Beneficiaries

5. The originally targeted number of beneficiary households was estimated at project appraisal to be 724,900. During midterm review, ADB approved a change in the project scope and the total number of target beneficiary households was adjusted upward to 734,800. According to information from the provincial project management office (PMO), a total of 738,843 households had benefited from the project’s implementation by the end of 2011. That is 101% of the new target from the midterm review. Table A10.4 provides details.

Table A10.4: Achievement of Project Target Beneficiaries (Households) Target at Adjustment Actual at Project at Midterm Project Achievement Component Appraisal Review Completion Rate A. Soil Conservation and Integrated 134,900 124,800 126,773 102% Agriculture Fruit and Tea Garden Improvement 33,500 26,800 26,835 100% Aquaculture 4,000 2,000 1,998 100% Integrated Livestock Farming 9,400 8,000 8,180 102% Agro-processing 88,000 88,000 89,760 102% B. Infrastructure Construction 590,000 610,000 612,070 100% Agricultural Markets 240,000 240,000 208,850 87% Rural Small Hydropower Schemes 125,000 125,000 125,400 100% Rural Water Supply 125,000 125,000 125,720 100% Rural Infrastructure 100,000 120,000 152,100 127% Total 724,900 734,800 738,843 101% Source: Executing agency’s project completion report.

E. Poverty Reduction in the Project Area

6. The project gave priority to poor or underdeveloped areas encompassing poor households. It benefited 22 government-designated poor counties and 102 key poor villages in the province. While the target for poor beneficiary households had been set at 110,204 in the updated design and monitoring framework, the project benefits reached about 738,843 households by project completion and 111,004 of those were poor.

7. The project’s implementation has directly raised income of beneficiaries, and particularly for the poor. Project benefits are specifically visible in the forms of (i) contracts between farmers and enterprises to secure an acceptable price no less than that of the market while reducing stocks and spoilage; (ii) technical training or improved breeding offered by enterprises to improve quality and increase output of agriculture products while reducing forage or fertilizer inputs; (iii) incremental income through participation in project construction and operation; (iv) increased sales of farm products and byproducts; (v) enhanced collaboration among farmers to achieve sizable production and specialization; (vi) improved management with better facilities for irrigation, warehousing, and administration; and (vii) declining risk from pests.

8. Toward reducing poverty, the Fujian provincial government also implemented specific poverty reduction programs. These included support to key poor villages. Since 2002, CNY1.9 billion was raised for 656 key village construction projects. The leadership and authorities concerned have been held accountable for supporting measures to promote the development of these key villages. Support with small-grant loans has also been provided. The financial authorities offered small-grant credit funds of CNY2.5 billion from 2001 to 2010 to help low- income farmers to develop production. A so-called “Benefit Project” was also created, helping 600,000 farmers enjoy safer, more convenient, and easier lives. The provincial government

48 Appendix 10 programs also included technical training for the poor and technical support for agricultural production, as well as support to poverty-reduction enterprises. Implementation of these poverty reduction programs has contributed to income growth among poor households in the area.

9. The provincial PMO and subproject PMOs conducted an incomes survey among beneficiaries under component A during January and February 2013. A total of 860 sample beneficiary households were interviewed, including 450 households under the agro-processing subcomponent, 250 households under fruit and tea garden improvement, 80 households for integrated livestock farming, and 80 from aquaculture (Table A10.5). Another 60 non-beneficiary households were surveyed as a control group. The survey indicates that (i) the project beneficiaries were mainly poor people whose incomes are lower than the average in the project area (Table A10.2); (ii) beneficiaries’ incomes grew in the range of 155% to 171%, exceeding the gains of 98% to 131% for the control group (Table A10.6); and (iii) the project contributed around 25% to 31% of the income growth accruing to the beneficiary households (Table A10.7).

Table A10.5: Income Improvement of Sampled Beneficiaries

Sampling Total Income (CNY/year) Income from the Project (CNY/year)

House- Popu- Component Before After Growth Beforea After Growth holds lation Agro-processing 450 1,922 4,818,380 12,524,430 7,706,050 1,428,664 3,354,692 1,926,028

Fruit and Tea Garden 250 1,037 2,484,030 6,724,640 4,240,610 780,150 1,966,815 1,186,665 Improvement Integrated Livestock 80 349 850,885 2,227,710 1,376,825 253,950 638,249 384,299 Farming Aquaculture 80 345 865,570 2,207,880 1,342,310 259,470 672,466 412,996 Total 860 3,653 9,018,865 23,684,660 14,665,795 2,722,234 6,632,222 3,909,988 a Income from similar activities prior to the project intervention. Source: Executing agency’s project completion report.

Table A10.6: Per Capita Income of Beneficiaries and Control Group

Sampling Per Capita Income (CNY/year) a Component Households Population Before After Growth A. With the Project Agro-processing 450 1,922 2,507 6,516 160% Fruit and Tea Garden Improvement 250 1,037 2,395 6,485 171% Integrated Livestock Farming 80 349 2,438 6,383 162% Aquaculture 80 345 2,509 6,400 155% Total/Average 860 3,653 2,469 6,484 163% B. Control Group Agro-processing 20 89 2,750 6,241 127% Fruit and Tea Garden Improvement 20 87 2,828 5,592 98% Integrated Livestock Farming 10 44 2,690 6,206 131% Aquaculture 10 42 3,054 6,265 105% Total/Average 60 262 2,814 6,024 114% a Income from similar activities prior to the project intervention. Source: Executing agency’s project completion report.

Appendix 10 49

Table A10.7: Project Contribution to Income Growth

Increased Income

Sampling (CNY/person) Income from the Project Component Households Population Total Project Contribution Agro-processing 450 1,922 4,009 1,002 25% Fruit and Tea Garden Improvement 250 1,037 4,089 1,144 28% Integrated Livestock Farming 80 349 3,945 1,101 28% Aquaculture 80 345 3,891 1,197 31% Total/Average 860 3,653 4,015 1,070 27% Source: Executing agency’s project completion report.

F. Labor and Employment

10. A large number of job opportunities were created during the project’s construction and operating periods. The target had been to create 65,087 jobs, including 18,680 year-round jobs and seasonal work for 46,407. In fact, the project provided in total 80,526 jobs, including 16,322 year-round positions and 64,204 seasonal jobs. Thus, the target was fulfilled by 124%. Women accounted for 52% of that employment and poor laborers accounted for 19% (Table A10.8).

Table A10.8: Job Opportunities Created by the Project (number)

Actual Planned (2004) Actual ( by 2011) vs. Full- Full- Plan Component Time Seasonal Total Time Seasonal Total (%) A. Soil Conservation and Integrated Agriculture 16,480 37,957 54,437 15,089 51,944 67,033 123 Fruit and Tea Garden Improvement 9,560 22,610 32,170 9,224 32,188 41,412 129 Aquaculture 2,000 1,080 3,080 1025 2,950 3,975 129 Integrated Livestock Farming 1,120 8,637 9,757 1090 8,625 9,715 100 Agro-processing 3,800 5,630 9,430 3750 8,181 11,931 127 B. Infrastructure Construction 2,200 8,450 10,650 1,233 12,260 13,493 127 Agricultural Markets 1,500 2,410 3,910 560 5,620 6,180 158 Rural Small Hydropower Schemes 200 1,040 1,240 183 1271 1,454 117 Rural Water Supply 400 900 1,300 392 1200 1,592 122 Rural Infrastructure 100 4,100 4,200 98 4,169 4,267 102 Total 18,680 46,407 65,087 16,322 64,204 80,526 124 Source: Executing agency’s project completion report.

G. Gender Development

11. In the project-affected areas, women are primarily responsible for household work and farming activities, while many male laborers mainly work off the farm as migrant laborers. In general, women who remain in the villages have actively participated in the soil conservation agriculture components, and women account for 52% of total beneficiary laborers. With the project implementation, more than 85% of women laborers have attended project training, thereby improving their skills, income, and also social status. New job opportunities also have enabled women to gain skills and income. Having an additional income earner in families may

50 Appendix 10 lift many households out of poverty and increase women’s status within their households and communities.

H. Ethnic Minority Development

12. The main ethnic minority of Fujian is She, which people are scattered in mountainous areas of Ningde, Nanping, and Sanming cities. She people have become largely assimilated with the Han, living with them in equality and harmony. According to the survey, project villages inhabited by She people include three natural villages in Ningde and Longyan. They were not adversely impacted by the project, and they have benefited from agriculture, livestock farming, and processing subprojects. In the She natural village in Jiaocheng District, Ningde, over 400 households raise more than 60 pigs on average under the leadership of Ningde Nanyang Industrial Co., Ltd.

I. Conclusions and Lessons

13. The project has contributed greatly to sustainable socioeconomic development and poverty reduction in the project area of Fujian Province, because (i) the project was clearly targeted to the poor in rural areas and addressed continued land degradation and key constraints on rural development by promoting market mechanisms that incorporate conservation and poverty reduction into integrated agricultural systems of production, processing, and marketing, all of which is facilitated by rural infrastructure and institutional support; (ii) participatory project management enhanced farmers’ ownership of the project and promoted efficiency and transparency; and (iii) timely adjustment of project scope and subcomponents based on the varied market meant the project was implemented in line with the region’s rapid socioeconomic development. Given the complex project design and large number of subprojects, however, the benefits monitoring and evaluation should have been conducted on a regular basis during implementation to provide timely feedback for better project administration.

Appendix 11 51

EVALUATION OF LAND ACQUISITION AND RESETTLEMENT ACTIVITIES

A. Scope of Land Acquisition and Resettlement

1. A resettlement policy framework for the project and 11 short resettlement plans for small hydropower subprojects starting in the first year of the project were prepared by Fujian provincial agriculture department and approved by Asian Development Bank (ADB) during project preparation in 2003. Given the delayed project implementation and changes in project scope, most of those subprojects with approved short resettlement plans were no longer included in the ADB- financed project. During implementation, five short resettlement plans were prepared in accordance with the approved resettlement policy framework and submitted to ADB from 2005 to 2007. Subsequently, ADB reviewed and approved those five resettlement plans for Gaotun hydropower subproject; Tingzhou hydropower subproject; and the Suicheng, Meizhou, and Dongxi water supply subprojects.

2. According to the resettlement plans, a total of 12.54 ha of lands would be permanently acquired for five subprojects, which affected 181 local people, and a total of 21.25 ha of lands would be temporally used for the purposes of construction. No houses were demolished for any of the five subprojects. Land acquisition and resettlement commenced in 2005 and was completed in 2008. A total of 13.77 ha of lands were permanently acquired, which was 10% more than estimated in the resettlement plans. Given that the increased land acquisition was of wastelands, the number of affected people remained the same as planned. Land acquisition and resettlement impacts are provided in Table A11.1.

Table A11.1: Land Acquisition and Resettlement Impacts

Permanent Land Acquisition Temporary Land Use (ha) (ha) Affected People Variation Variation Subproject RP Actual (%) RP Actual (%) RP Actual Gaotun Hydropower 2.62 2.80 7 0.35 0.42 21 116 116 Tingzhou Hydropower 6.91 6.91 0 1.87 1.81 (3) 34 34 Suicheng WSS 1.33 2.42 82 2.98 2.84 (5) 0 0 Meizhou WSS 0.80 0.80 0 1.60 1.60 0 0 0 Dongxi WSS 0.88 0.85 (4) 14.45 14.49 0 31 31 Total 12.54 13.77 10 21.25 21.16 (0.4) 181 181 ha = hectare, RP = resettlement plan. () = negative. Sources: Resettlement plans and the executing agency’s resettlement completion report.

B. Resettlement Policy and Compensation Rates

3. The project land acquisition and resettlement was implemented according to the approved resettlement policy framework, resettlement plans, ADB’s Involuntary Resettlement Policy (1995), the PRC Land Administration Law (1998), Implementation Measures of the PRC Land Administration Law in Fujian Province (2000), and related local regulations. All persons affected by the project were eligible for compensation and assistance. The compensation rates for permanent land acquisition, including land compensation, resettlement subsidy, and young crops compensation, were formulated on the basis of average annual output value of the various lands and consultation with affected communities. Compensation for the land occupied temporarily was

52 Appendix 11 based on the duration of impacts times average annual output value. In general, all the compensation rates paid for the affected persons were the same or higher than those in the resettlement plans. Table A11.2 and Table A11.3 show the detailed comparison between the actual and planned compensation rates.

Table A11.2: Compensation Rates for Permanent Land Acquisition (CNY/mu)a Tingzhou Suicheng Meizhou Dongxi Land Type Item Gaotun Hydropower Hydropower WSS WSS WSS Dry land RP – 19,200 – 28,000 22,000 Actual – 26,000 – 28,000 28,000 Variation – 6,800 – 0 6,000 Paddy land RP 13,090 24,000 – – – Actual 13,090 26,000 – – – Variation 0 2,000 – – – Forest land RP 7,560 8,000 – – – Actual 7,560 8,000 – – – Variation 0 0 – – – Wasteland RP – – 10,500 – 15,000 Actual – – 10,500 – 20,000 Variation – – 0 – 5,000 RP = resettlement plan, WSS = water supply subproject. – = Not applicable. aA mu is a Chinese unit of land measurement (1 mu = 666.67 m2). Sources: Resettlement plans and the executing agency’s resettlement completion report.

Table A11.3: Compensation Rates for Temporary Land Use (CNY/mu)a Gaotun Tingzhou Suicheng Meizhou Dongxi Land Type Item hydropower Hydropower WSS WSS WSS Dry land RP 2,685 – 2,200 1,250 2,200 Actual 2,685 – 2,200 1,250 2200 Variation 0 – 0 0 0 Paddy land RP – 5,250 3,000 – 3,000 Actual – 5,250 3,000 – 3,000 Variation – 0 0 – 0 Forest land RP – 1,500 – – 1,500 Actual – 2,500 – – 1,500 Variation – 1,000 – – 0 Vegetable RP – – 3,000 – – land Actual – – 3,000 – – Variation – – 0 – – RP = resettlement plan, WSS = water supply subproject. – = Not applicable. aA mu is a Chinese unit of land measurement (1 mu = 666.67 m2). Sources: Resettlement plans and the executing agency’s resettlement completion report.

Appendix 11 53

C. Resettlement Measures and Income Restoration

4. Given that land acquisition and resettlement impacts were minor, the affected villages and households were provided cash compensation. An external monitor conducted a survey on compensation delivery for both permanent land acquisition and temporary land use, concluding that all affected households received full compensation in a timely manner. In addition, local governments and project implementing agencies took various measures to assist affected households in income restoration, particularly through temporary employment opportunities during the project construction and regular jobs during project operation. For example, 40 people in 18 affected households worked on the construction site of Tingzhou subproject as casual workers, and 3 regular jobs as operation and maintenance workers of the hydropower station were offered to 3 affected households whose paddy lands were partially inundated by the project. The external monitor conducted a survey on income variation of affected households that included permanent and temporary impacts and concluded that the incomes of affected households have been increased compared with those before land acquisition. See Table A11.4.

Table A11.4: Income Restoration of Affected Households (CNY/mu)a Average Annual Income

Subproject Before Land Acquisition After Land Acquisition 2011 Gaotun Hydropower 2,566 3,566 4,866 Tingzhou Hydropower 3,565 4,050 5,960 Suicheng water supply subproject 3,080 3,190 6,310 Meizhou water supply subproject 2,850 4,410 7,205 Dongxi water supply subproject 3,380 3,910 6,590 aA mu is a Chinese unit of land measurement (1 mu = 666.67 m2). Source: Executing agency’s resettlement completion report.

D. Land Acquisition and Resettlement Cost

5. The total actual cost of land acquisition and resettlement was CNY3,845,943, which was 12.7% greater than the CNY3,412,398 estimated in the resettlement plans. The variation in land acquisition and resettlement costs was mainly due to higher compensation rates as implemented compared to those in resettlement plans for the Tingzhou and Dongxi subprojects. In the case of the Suicheng subproject, this was mainly due to a larger amount of land being acquired. Table A11.5 provides land acquisition and resettlement costs for each subproject.

Table 11.5: Land Acquisition and Resettlement Cost (CNY) Subproject Resettlement Plan Actual Variation (%) Gaotun Hydropower 416,288 481,737 15.7 Tingzhou Hydropower 1,315,290 1,345,470 2.3 Suicheng water supply subproject 344,820 505,966 46.7 Meizhou water supply subproject 366,000 366,000 0.0 Dongxi water supply subproject 970,000 1,146,770 18.2 Total 3,412,398 3,845,943 12.7 Sources: Resettlement plans and executing agency’s project completion report.

54 Appendix 11

E. Institutional Arrangements

6. The project management office (PMO) under Fujian provincial agriculture commission was responsible for overall supervision of land acquisition and resettlement implementation. Subproject county PMOs established under county agriculture commissions were responsible to supervise resettlement implementation for the subprojects in each county. The subproject implementing agencies set up resettlement work teams to take primary responsibility for the resettlement implementation activities, including consultation with affected communities and households, signing agreements, raising funds, delivery of compensation, etc. In addition, to ensure that PMOs and implementing agencies could properly and smoothly handle the land acquisition and resettlement implementation, a resettlement training workshop was held for local officials.

F. Participation and Consultation

7. During the preparation of resettlement plans and implementation of land acquisition and resettlement, affected households were informed and consulted on the land acquisition impacts, compensation policies, and compensation rates. The affected households signed the compensation agreements with implementing agencies on a voluntary basis. Affected households were also advised of temporary and permanent employment opportunities offered by project implementing agencies, and they enjoyed first priority in recruitment.

8. The implementing agencies at each level set up an appeal system to ensure a transparent and effective channel for project preparation and implementation. Complaint channels were established and disclosed to the affected people during project preparation and implementation for those subprojects involving land acquisition and resettlement impacts. Since the process of resettlement planning and implementation was transparent and participatory, no major complaints or appeals were received during the implementation of land acquisition and resettlement.

G. Resettlement Monitoring and Evaluation

9. Internal resettlement monitoring was conducted by staff of the provincial PMO, and the resettlement work team of each subproject kept records on land acquisition and resettlement activities. Fujian Academy of Agriculture Sciences was engaged by the provincial PMO to conduct external resettlement monitoring and evaluation on the implementation of land acquisition and resettlement. Two external resettlement monitoring reports were prepared and submitted to ADB in 2009 and 2012, respectively, due to delayed recruitment. These reports concluded that compensation was paid in full to affected households and that their incomes have been restored.

H. Conclusions and Lessons

10. Land acquisition and resettlement activities were implemented smoothly, and the incomes of affected households have been restored according to the resettlement external monitoring report. The impacts of land acquisition and resettlement were minimized by strictly following the criteria for selecting subprojects. The lesson learned from the project’s resettlement implementation is how successfully to apply the resettlement policy framework. Given the large number of small subprojects and frequent changes in project scope, the key requirements in the resettlement policy framework were critical to effectively provide guidance on selecting subprojects, minimizing land acquisition and resettlement impacts, and preparing the resettlement plans for subprojects approved during project implementation.