Document of The World Bank Public Disclosure Authorized

Report No: 20204-CHA Public Disclosure Authorized

PROJECT APPRAISAL DOCUMENT

ON A

PROPOSED LOAN

IN THE AMOUNT OF US$210 MILLION

TO THE

PEOPLE'S REPUBLIC OF CHINA Public Disclosure Authorized FOR THE

YANGTZE DIKE STRENGTHENING PROJECT

May 31, 2000 Public Disclosure Authorized

Rural Development & Natural Resources Sector Unit East Asia and Pacific Region CURRENCY EQUIVALENTS

(Exchange Rate Effective January, 2000)

Currency Unit = Renminbi (RMB) or Yuan (Y) Y 1.00 = US$ 0.12 US$ 1.00 = Y 8.3

FISCAL YEAR January 1 - December 31

ABBREVIATIONSAND ACRONYMS bcm billion cubic meters mu 0.667 hectare (ha) or 0.164 acres mcm million cubic meters CAS Country Assistance Strategy MOF Ministry of Finance CC Construction Contractor MWR Ministry of Water Resources C/EMO Overall Environmental Coordinator NCB National Competitive Bidding CIDA Canadian International Development Agency NPV Net Present Value COL Collaboration O & M Operation & Maintenance CON Consultation PAP Project Affected People CPCO Central Project Coordination Office PFB Provincial Financial Bureau CWRC Changjiang Water Resources Commission PIP Project Implementation Plan CWRCDI Changjiang Water Resources Commission Design Institute PLG Project Leading Group ECI Environmental Construction Inspector PMO Project Management Office EIA Environmental Impact Assessment POE Panel of Experts EMO Environmental Management Office PPLG Provincial Project Leading Group EMP Environmental Management Plan PPMO Provincial Project Management Office EPM Environmental Protection Measures PRC People's Republic of China ERR Econornic Rate of Return RAP Resettlement Action Plan FMS Financial Management System RC Reinforced Concrete FY Fiscal Year RO Resettlement Office GIWP General Institute Water Resources SDPC State Development & Planning Planning and Design Comnmrission IBRD International Bank for Reconstruction & Development TGP Three Gorges Project ICB International Competitive Bidding VEO Village Environmental Office ICR Implementation Completion Report WB World Bank IDA International Development Association WBD World Bank Division IS Information Sharing WCB Water Conservancy Bureau LPLG Local Project Leading Group WCBHB Water Conservancy Bureau Hubei LPMO Local Project Management Office WR Water Resources

Vice President: Jemal-ud-din-Kassum, EAPVP Country Director: Yukon Huang, EACCF Sector Director: Geoffrey Fox, EASRD Task Team Leader: Daniel Gunaratnam, EACCF CHINA YANGTZE DIKE STRENGTHENINGPROJECT

CONTENTS

A. Project DevelopmentObjective Page

1. Project developmentobjective 2 2. Key performanceindicators 2

B. Strategic Context

1. Sector-relatedCountry Assistance Strategy (CAS) goal supported by the project 2 2. Main sector issues and Government strategy 3 3. Sector issues to be addressedby the project and strategic choices 5

C. Project Description Summary

1. Project components 7 2. Key policy and institutionalreforms supported by the project 10 3. Benefits and target population 11 4. Institutionaland implementationarrangements 11

D. Project Rationale

1. Project alternativesconsidered and reasons for rejection 13 2. Major related projects financed by the Bank and other developmentagencies 14 3. Lessons learned and reflected in proposed project design 15 4. Indicationsof borrowercommitment and ownership 16 5. Value added of Bank support in this project 16

E. Summary Project Analysis

I. Economic 176 2. Financial 17 3. Technical 19 4. Institutional 22 5. Environment 23 6. Social 25 7. SafeguardPolicies 28

F. Sustainabilityand Risks

1. Sustainability 29 2. Critical risks 29 3. Possible controversial aspects 30 G. Main Loan Conditions

1. EffectivenessCondition 2. Other 30 30 H. Readiness for Implementation 33 I. Compliancewith Bank Policies 34

Annexes

Annex 1: Project Design Summary 35 Annex 2: Project Description 38 Annex 3: EstimatedProject Costs 50 Annex 4: Cost Benefit Analysis Summary 55 Annex 5: Financial Summary 72 Annex 6: Procurementand Disbursement Arrangements 74 Annex 7: Project Processing Schedule 88 Annex 8: Documents in the Project File 89 Annex 9: Statementof Loans and Credits 91 Annex 10:Country at a Glance 96 Annex 11: EnvironmentalImpact Assessment 98 Annex 12:Resettlement Action Plan 118 Annex 13: Financial Management 139

MAP(S) IBRD 30696 IBRD 30697 CHINA Yangtze Dike StrengtheningProject Project Appraisal Document

East Asia and Pacific Region EACCF Date: May31, 2000 Team Leader: Daniel J. Gunaratnam Country Manager/Director:Yukon Huang Sector Manager/Director: Geoffrey B. Fox Project ID: P064730 Sector(s): Al - Irrigation & Drainage LendingInstrument: SpecificInvestment Loan (SIL) Theme(s): Water Poverty Targeted Intervention: N ProjectFinancing Data [ Loan C Credit El Grant Cl Guarantee L Other (Specify) For Loans/Credits/Others: Amount(US$m): 210 ProposedTerms: Variable Spread & Rate Single Currency Loan (VSCL) Graceperiod (years): 5 Yearsto maturity:20 Commitrnentfee: 0.75% Frontend fee on Bankloan: 1.00% Fi.,--' n ---'Surc '&~at'or~i~-- .. GOVERNMENT 328.11 7.40 335.51 IBRD 0.00 210.00 210.00 Total: 328.11 217.40 545.51 Borrower:PRC Responsibleagency: MWR/CHANGJIANGWR COMMISSION,HUBEI AND HRUNANPROVINCES ProvincialFinance Bureau, Hubei Province Address: No 8 ZhongbeiRoad,Wuchang, Wuhan, 430071, Hubei Province, PRC Contact Person: Vice Governor Tel: 86-27-87824427 Fax: 86-27-87849682 Email: Other Agency(ies): Finance Bureau, Hunan Province Address: No 1 West Cheng'nan Road, Changsha City, 410015, Hunan Province, PRC ContactPerson: Vice Governor Tel: 86-731-5165180 Fax: 86-731-5165184 Email: Ministry of Water Resources Address: No 2 Baiguanglu Ertiao, Xuanwu District, Beijing, 100053, PRC Contact Person: Vice Minister Tel. 86-10-63202821 Fax: 86-10-63548037 Estimateddisbursements (Bank FYIUS$M): 20( 0i 2003 20 Annual 45.0 65.0 52.0 48.0 Cumulative 45.0 110.0 162.0 210.0 Projectimplementation period: 4.0 years Expectedeffectiveness date: 09/01/2000 Expectedclosing date: 12/31/2004 OCS PAD Fo., Rov Maro, 2D) A. Project DevelopmentObjective

1. Project development objective: (see Annex 1) The main Projectdevelopment objective is to enhancethe protection of the river bank against erosion and to improve critical sections of existing main dikes along the banks of the mid-Yangtze River in Hunan and Hubei Provinces, thus protecting the properties and lives behind the dikes against floods. The Project will also support institutional reforms aimed at enhancing the existing dike operation and maintenance organizations,both organizationallyand technically. The objectivewill be achieved by: (i) strengthening the river bank and existing flood protection dikes along the Yangtze River to lower the risk of dike breaches that could lead to catastrophic damage; (ii) rehabilitatingthe flood gates and cross dike structures along the dikes to discharge flows from tributariesand curtail flood flows behind the dikes; (iii) providing flood controlfacilities for dike operation and maintenanceorganizations; (iv) expanding dike monitoring systems and developing an emergency preparednesssystem to reduce flood damage and loss of lives; (v) developing autonomousinstitutions at provincial and municipal levels based on the existing organizationsfor O&M of the dikes; and (vi) enhancing self-financing through flood levy collection from the beneficiaries for operationand maintenanceof dikes.

2. Key performanceindicators: (see Annex 1) The Project will be monitored through a set of indicators that takes into account the key elements of a sustainabledevelopment strategy for flood control:(i) reduction in flood damage through structuraland non structural measures; and (ii) establishment of self financing institutional systems to operate and maintain flood control facilities. Specifically,Project staff will monitor flood damage reduction, enforcement of policies on introducingflood protectionfees and settingup institutionalsystems for flood management.Key performance indicators will be: (i) setting up dike inspection programs; (ii) processing and evaluation of inspection results; (iii) formulation of annual maintenance programs and the funding thereof; (iv) the projected and actual cost of annual maintenanceprograms; and (v) damage occurring from floods. Project performance will be assessed for each dike section by monitoring key indicators as listed in the PIP (see also Annex 1). The indicatorswill be comparedwith: (i) benchmark parameters on maintenance costs and flood damage prior to Project implementation;and (ii) projections made for future maintenance operations.

B. Strategic Context 1. Sector-relatedCountry Assistance Strategy (CAS) goal supported by the project: (see Annex 1) Documentnumber: R 98-107 Dateof latestCAS discussion: 05/28/98 CAS document #: 16321-CHIA,February 25, 1997. Date of latest CAS discussion. March 18, 1997. CAS Progress Report #: R98-107 of May 6, 1998 discussed May 28, 1998.

The Project will support Government's strategies endorsed in the CAS to: (i) promote agricultural developmentand the rural economy by incorporatingmajor water storage, transfer, irrigation drainage and flood control programs into future projects, that include institutional reform and user participation as integral components;(ii) improve cost recovery; (iii) focus on the reconstruction of essential infrastructure and reduce infrastructure bottlenecks; (iv) improve rural employment and incomes; and (v) alleviate poverty.

-2 - 2. Main sector issues and Governmentstrategy: China's rivers and floodplainshave been the focus of human settlementsince the dawn of civilization.The rivers were the natural transportationroutes and the floodplains offered vast tracts of fertile land. Today, the floodplains provide a home to the bulk of the China's population, most of its industry, and the vast tracts of farmland that feed a population of 1.2 billion people. Unfortunately,this vastly productive area is vulnerable to flooding. The 1998 floods in the Northeast and along the Yangtze River caused the governmentto refocus on the flood mitigationmeasures especially along the Yangtze River. The 1998 flood on the Yangtze coincided with torrential rain over the middle and lower reaches and affected principallythe provinces of Hubei, Hunan and Jiangxi. The flood affected some 21 million people in the three provinces and displaced permanently 4.0 million people. In addition, a total of 3.3 million houses, factories and commercial centers were affected, of which 1.3 million were destroyed. The damage was estimated at Yuan 158 billion (close to US$20 billion). After these floods many weaknesses (piping through the dike foundation, leakage through the dikes, bank erosion, nearly overtopping)were discovered along the dikes and the river banks that need to be addressed to ensure that main dikes will not breach in the future. The 1954 flood on the Yangtze, one of the worst in history, caused widespread damage and loss of lives (some 30,000 people) that would have been much worse without the newly completed dikes. After this flood a masterplan for flood control was drawn up in which improvementsof dikes and detention basins were the main consideration.The Yangtze River has caused other historic floods, such as the 1931 event where 3.3 million ha were flooded and 140,000people died. The 1935 flood in the Han and Lishui tributaries led to losses of a similar magnitude.Flood damage overall in China in the 1990shas been exceptionallyhigh. On average it has been US$15 billion per year with a low in 1990 of US$5 billion and a high of US$36 billion in 1998. Dikes to protect land from the annual floods date back centuries and in some places more than 2,000 years. Since the creation of the People's Republic of China, the incomplete and poorly maintained dikes have been strengthenedand extended. At the same time, there has been rapid growth in the value of assets protected by the dikes and this demandsmuch higher levels of protection against floods. In the past, a breach of a dike would destroy low-value field crops and inundate houses and public buildings. But now, properties at risk include modem factories, processing plants, and high-value commercial real estate. In addition, potential crop losses range from $1,500 per ha for field crops to several times that figure for vegetablegardens and orchards.

The Government's strategy for addressing the flood problem has evolved over the years. Its main elementsare describedbelow: * Constructionof dikes and protection of riverbanksagainst erosion. Over 200,000 kilometers (km) of new and rehabilitated dikes have been completed in China, protecting some 32 million ha of cultivated land (33 percent of the total), and about 316 million people, although the protection standards are not ideal. Of the dikes built, 56,000 km are along major rivers protecting some 21 million ha of cultivated land and about 216 million people in agricultural areas, cities and small towns, and industrial centers. Construction of a dike requires that it is high enough to protect against an extreme flood. The difference in height between a dike designed for a 50-year flood and a 1,000 year recurrenceflood is relatively small on most rivers and the higher level is justified by the potential losses if the dike is overtopped. Dikes are normally found on the natural riverbank some distance from the river. A common problem is seepage through the foundationmaterial. This is known as "piping",and it can lead to a loss of dike foundation material and, then the collapse of the riverbank and dikes. This happened at the site of the only breach of the Yangtze dikes in the 1998'flood. This problem can usually be treated by adding materialto the inside (land side) face of the dike at places where seepage appears. River bank erosion can cause bank collapse and threaten the dikes. On the Yangtze, rock aprons are placed to protect the river bank. On the Yellow River, rock spurs are built to deflect the flow from vulnerableriver bank sections.

- 3 - * Urban flood protection.Dikes also need to be constructed around cities to protect them from floods. There are presently 16,000 km of dikes around cities. About 530 out of 660 cities in the country need additional protection of key urban and industrial sites from floods. Most of the cities that are already protected need to be protected to higher levels. It is internationallyrecognized that, as a minimum,key cities need to be protected from floods of a 100-yearrecurrence period. However, 80 percent of the cities in China are protected from floods of a 50-year recurrence period and less and 65 percent are of a 20-year recurrence period or less. Almost 65 percent of the US$130 billion of flood damage that occurred during 1990-98was in city and township areas that had low levels of flood protection or were unprotected.In 1996, the Government embarkedon a major program of upgrading and investingin new urban flood protection measures. * Creation of flood detention areas for temporary storage of flood waters. Detention areas can be natural lakes or low-lying areas designated for temporary flood storage. The Dongting Lake on the Yangtze serves as a natural detention area but its capacity has declined over the years because of siltation and land reclamation. For most rivers, the artificial detention areas contain high-value farmland and other valuable assets. The use of a detention basin is, therefore, a last resort to prevent much more severe losses that would be incurred by flooding the basin. About 98 localities have been designated as flood diversion areas, providing off-stream flood storage for the major rivers, particularly in the Yangtze, Huai, Hai and Yellow river basins. These areas have a total capacity of 97 billion cubic meters (bcm) and are capable of raising flood protection standards,typically from floods of a 20-year recurrence period to 50 or 60-year. However, at present there are 16 million people living in these detention basins, who are cultivating 2 million ha of farmland. The Government has embarked on a major programto safeguardthe people living in these basins and to resettle some of them. * Dredging of river channels and removal of polder development in the channel areas. The natural river channels often have inadequate conveyance capacity. Part of the reduction in capacity is due to siltation and part due to the building of polders and structures within the river channel. Dredging to enlarge channels can lead to significant increases in capacity and lower flood levels. This has been particularly successful in the lower reaches of the Huai River. In addition to desilting, the Government is removing the polders within the river channels and natural detention areas, such as Dongting Lake. In some countriesthis is called giving "space to the rivers". * Constructionof dams on the rivers to regulate downstreamflows. Over 84,000 reservoirs, with a total storage capacity of 450 bcm, have been built in China, most having multipurpose functions including flood protection. Some 374 large reservoirs with a total capacity of 325 bcm, and 2,562 medium-size reservoirs with a capacity of 70 bcm have been built in the seven major river basins to regulate and mitigate flood flows. The function of dams on the main rivers and tributaries is to interceptfloodwaters and thereby reduce peak flows and flood volumes. Although there are many dams on the tributaries and main stem of rivers and there is significant flood storage that could be used, about one third of the dams are considered unsafe. The dams that were built between 1949 and 1957 were generally of reasonable quality but the spillway and outlet capacity were grossly undersized due to lack of hydrological information. Between 1957 and 1975, the quality of dams was poor due to inadequatedesigns and constructionmethods. Dams built after 1975 are generally of good quality. The Government has proposed a Yuan 330 billion program to upgrade and rehabilitate unsafe dams. CIDA has provided a Can$8.0 million program to assist in developing a pilot rehabilitation program for ten (10) major dams and to set up institutional arrangements for large-scale dam rehabilitation programs. * Improved drainage systems behind the dikes to mitigate flooding caused by direct rainfall.Heavy rain behind the dikes can cause floodingif high river levels impede drainage. Drainage systems must be designed to move the water out as quickly as possible after the river levels recede. Pumps are needed to drain the land when river levels are high, but it is seldom economicallyjustified to design for more than a 10-yearstorm.

-4 - * Soil and water conservation in the drainage basins of the rivers. The flood problem can be aggravated by sediment accumulation in riverbeds and in the lakes connected to the rivers. In the Yellow River, the riverbed in the lower reach is rising at a rate of nearly 1 meter every 10 years. Measures to curb the sediment runoff that causes this problem in the Yellow River include the constructionof sediment check dans, afforestation,and terracing of severely sloped lands. This has led to a marked decline in sediment flow in some large tributaries of the Yellow River. An IDA-financed project in the Loess Plateau, in the Yellow River Basin, has shown that soil and water conservation measures can be made compatible with profitable forestry and crop production, and result in a marked improvementin farm incomes. Sediment buildup is also present in the main rivers in the Hai and the Huai river basins. On the Yangtze, sediment buildup has reduced the capacity of Dongting Lake to function as a natural flood control reservoir. Since the 1998 flood, the Government has ordered a reduction in logging and it has plans to speed up soil and water conservationprograms in the tributary basins of the Yangtze and other major rivers.

3. Sector issues to be addressed by the project and strategicchoices: The main sector issues in flood control in the Yangtze River Basin are the following:

* The existingflood control standards of the Yangtze River are of a very low level. This is not in line with the social and economic status of the region. The Yangtze River Basin is a region with a relatively well developed economy, but the flood protection is for less than a 40-year recurrence period. The Jingjiang stretch is the main focus of flood protection, but can only safely pass a peak flow of 80,000 cubic meters per second (m'/s) under the condition of using the Jingjiang detention basins. This is approximately equivalent to a 40-year frequency. The flood control standard without using the Jingjiang detention is only a 10-yearreturn period. The flood control standard for the middle reaches of the Yangtze, which the Project's focus is on, is generally only a 10- to 20-year return period and the flood control standards in the middle and lower reaches of the major Yangtze tributaries in Sichuan Province only reach a 5- to 10-yearreturn period. * The flood control standards of some major cities along the river are not adequate. Some of the cities have no flood protection measures. A large number of cities along the river have suffered economic losses of various extent due to flooding. * Flood detention basins are heavily populated and poorly protected. Detention basin facilities could be improvedto protect people in the event that these basins need to be used. There is no flood-proofng of buildings in the detention basins and there is a lack of main roads to evacuate people when needed. The safety of people in the basins cannot be guaranteedwhen the flood detention areas need to be used. Consequentlymany detention basins are hardly usable during serious flooding. For example, one of the difficultiesof using the Jingjiang detention basin during the 1998 Yangtze flood was that the safety of people living in the basin could not be assured. Finally when it was ascertained that the basins had to be used and 300,000 people had to be moved, it was estimatedthat this would cost Yuan 2.4 billion. * Some existingflood control levees have been poorly designed, constructed and maintained and dikes are unsafe. Some levees were constructed on thick permeable foundation layers. Long-durationhigh water levels cause leakage and piping, which then result in the failure of the foundationsof the levees. For example,breaches, piping and slope slides in many dikes occurred during the 1998 flood.

Yangtze Basin Flood Control Master Plan. After the 1954 flood, a serious attempt was made to masterplan the basin for flood control. This included the establishment of 16 detention basins for flood control purposes. In the 1970s and 1980s, the master plan was updated several times. However, the complete basin master plan was approved only in 1990 after the TGP was approved for construction.This "new" 1990 master plan calls for the rehabilitationof the dikes to provide protection against floods with a

- 5 - 20-year recurrence period. Prior to TGP construction the dikes were already designed for the protectionof floods with a 20-year recurrence period. Together with the detention basins the dikes would give a protection for the 100-year recurrence period. To provide protection for the 100-year recurrence period flood at least 15 bcm is needed to be stored in the detention basins. After TGP is constructed this facility together with the improved dikes will be able to protect against 100-year recurrence period flood. The detention basins will no longer be used for floods of a 100-yearrecurrence period after the TGP becomes operational.Since there are 6.6 million people living in the detention basins, it is desirable not to use them for flood water storage unless absolutely needed. However,floods in excess of 100-yearrecurrence and up to 1000-year recurrence, the dikes, TGP and the detention basins will all need to be used to contain the floods. The main masterplanfeatures are indicatedin Table 1 below. The masterplan details were verified for the 1998 flood and no major changes to the plan were made after evaluation of the verificationfindings. It is unnecessary to get involved in any further master plan studies, because the 1990 masterplan is comprehensiveand there is a good understandingof what needs to be put in place under the Yangtze Basin Flood Control Plan.

Table 1: Flood Control Master Plan Before and After TGP

Flood Refore TGP Afte GTPis Frequency is Colted Completed

Dike G trg X Detetion Die TGr:storage ; Detention lused NA0 useybasin in se in br bainuse in* WkW_,',5!p : o 3 : ben f ater of water bermof water stordorere stored

1/20 Fully used NA 0 Fully used 0

1/50(1998) Fullyused NA 7.5 Fully used 7.5 -

1/100(1954) Fullyused NA 15.0 Fullyused 15.0

1/1000 (1870) Fully used NA 50.0 Fully used 22.0 28.0

The masterplan studies determined the optimum detention basin and reservoir storage requirements. The optimization reveals that there should be a provision of about 50 bcm of storage: 22 bcm from TGP and 28 bem from the detention basins. The use of detention basins will depend on the river section flow capacity and actual flows that cannot be sustained. Generally, the constricted portion of the Jingjiang section of the river is from where the Jingjiang detention basin will be used. For the river section flowing passed the Dongting Lake the Honghu detention basin will be used. There are clear operating rules for the use of the detention basins.

The Yangtze Basin Flood Control Master Plan calls for a number of actions to be taken, including the following:

* the dikes are the main works to provide protection against floods and have to be designed to the flood levels of the 1954 storm; * the TGP will be the main flood control structureand will provide 22 bcm of flood storage, with supplemental control from reservoirs upstream and on tributaries (15 reservoirs with

- 6 - a total flood storage capacity of 19.1 bcm); * construction of detention basins (63.3 bcm storage) to store flood water in the event the 1870 flood levels occur; * river training, soil and water conservationmeasures in the upper Yangtze basin to reduce soil erosion,especially in the tributariesand sediment in the lakes; * enhancing the capacity of lakes and floodways by removing flood-resistancepolders and return lake-side farmlands to lake areas for better flood regulation; and * a combination of engineering and non-engineeringmeasures such as flood-proofing of low-lying areas, voluntary resettlement of people from flood-prone area.

All the above measures are being implementedto various degrees. Dikes form the first line of defense for floods of low to medium peaks up to the 20-year recurrence period. Before TGP is completed, all other floods larger than 20-year recurrence are to be mitigated by using the dikes and detention basins. After TGP is completed,the floods larger than 20-year will be handled by TGP and the detention basin will be used. The dikes are independentof whatever else is built in the river basin to control floods since they form the first line of defense.

C. Project DescriptionSummary 1. Project components (see Annex 2 for a detailed description and Annex 3 for a detailed cost breakdown): Project Area

Hunan Province. In Hunan Province, the Yangtze river is 163 km long and forms the northern border with Hubei Province. The 99.5 km section upstream of Chenglingji is the Jingjiang reach, and the 63.5 km section downstream of Chenglingji is the Yueyang reach. The main Yangtze dike in Hunan is 140.5 km long, of which 50 percent is close to the river and threatened by bank erosion. The dike protects over 2,000 km of land, including 90,000 ha of intensivelycultivated farmland, a populationof 1.6 million, the Beijing Guangzhourailway, and National Highway 107. A notable feature of the Yangtze in Hunan is Dongting Lake. Three channels of the Yangtze break away from the main channel near the city of Zicheng. About one third of the flow of the river in high flood enters Dongting Lake from these channels and then returns to the river at Chenglingji. Four tributaries of the Yangtze flow into Dongting Lake: the Li Shui, Yuan Jiang, Zi Shui and the Xiang Jiang. Sometimes, as in 1998, early floods in these four rivers fill the Lake and this reduces the storage available when the Yangtze goes into flood. Over the years, the capacity of Dongting Lake has been depleted by natural sediment deposition and by polders that have been created for settlementand agriculture.During the 1998 flood, 110 polders out of a total of 248 were flooded.

Hubei Province. In Hubei Province, the Yangtze river is 1,061 km long. This includes the 163 km of the river shared with Hunan, and the 70 km shared with Jiangxi. The main Yangtze dikes in Hubei, with a length of 1,557 km, protect the city of Wuhan and other large cities, 43 counties, a population of 30 million, 2 million ha of farrnland,and many large industries includingthe Wuhan Iron and Steel Company and the Jianghanoilfield. There are numerouslakes in the lands bordering the river. Channels link the lakes to the Yangtze, and these are controlled by gates and drainage pumping stations. These lakes serve to absorb rainfall runoff that would otherwise flood farmland.Normally the water level in the lakes is lower than high-flood levels in the Yangtze, but they would only be used to store floodwaters if a breach of the main dike appeared imminent. The Honghu is designatedas a flood detention basin, as also is the Jingjiang area north of Dongting Lake.

-7 - The Projectconsists of the followingcomponents: Component 1: River Bank and Dike Foundation Seepage Protection (US$103.4 million) River bankprotection works, over a length of 132.7 km (82.4 km in Hubei and 50.3 km in Hunan), will be undertaken by Changjiang Water Resources Commission (CWRC) with full support from the Central Government. The proposed river bank protectionmeasures under this component include the following:

* Gabion rockfill, large pre-cast concreteblocks and dumped rip-rap protection for the underwaterportion of the bank, including dike toe and with a filter layer of geo-textileor other filter material;and * 0.1 to 0.3 m thick pre-cast concrete slabs or hand placed rip-rap protection for the above-waterportion of the bank; * Where piping is evident,treatment of the foundationmaterial that underliesthe dike by an impermeableblanket or a grout curtain.

Component 2: Dike Strengtheningfor Hubei and Hunan Provinces (US$264.5 million) (i) Dike rehabilitation and seepage control of 558.8 km of Class I and RIdikes (442.8 km in Hubei and 116.0 km in Hunan). The main measures of the dike strengtheningcomponent include the following:

* Raise the height of the dikes to provide an adequate margin (freeboard) above the design flood level; * Protect the face of the dike at vulnerable locations with dumped or hand-placed stone, or concreteblocks (revetment)and plant trees on the berms for wave protection; * Treat the main body of the dike, where necessary, by a grout curtain (injection of clay slurry) or by placing geo-synthetics * Repair/upgrade culverts and gates through the dike; * Slope protectionwith grass covers inside of the dikes; and * Upgrade and pave dike roads and install lighting.

(ii) Cross-dike structures rehabilitation and replacement. Typical cross-dike structures include culverts, sluices, pumping stations and traffic passes with flood control gates. On average, there are two cross-dikestructures per kilometer length. The outdated structures,most of which were built in the 1970's and are of poor quality materials, require foundationtreatment for seepage control. Also, snail traps, nets and isolation ponds will be installed for containing the spread of schistosomiasisprevalent in the area. The length of most structures will be extended to meet the cross-sectionalprofiles of the rehabilitated dikes. Foundationtreatment for the cross-dike structures includes concrete cutoff walls, jet grouting, and cement mixed piles. In addition, a total of 70 cross structures will be rehabilitated and upgraded Component 3: Dike Monitoring and River Modeling (US$22.1 million) (i) Dike Monitoring (US$2.0 million) Under the Project Hubei will setup a computerized system to monitor the seepage through the dike and settlement/deformationof the dike. The system will consist of placing piezometers at regular and critical locations inside and outside the dike to monitor possible flows through the dike body and foundations. A real time data acquisition system will be established for all the piezometers measurements, dike deformation and water levels along the dike. These measurements will provide advanced warning for possible weaknesses in the dikes during high water levels so that advanced protection measures can be taken to prevent dike breaches.

-8 - (ii) River Modeling (US$20.1 million) In addition the Project will support CWRC in the developmentof a physical model of the middle Yangtze River reach covering the middle part of the lower reach. The model will predict the sediment and water flows from Yichengto Hukou. It will also predictthe movementof the river channel in time and therefore give CWRC advance waming for river bank protection and provide informationon Lake Dongtinghusedimentation and its capacity to retain flood storage volume. It will also provide information for flood mitigationstrategies into the future. Component 4: Equipmentfor Dike Maintenance (US$6.1 million) At present, dike maintenance,which is mainly carried out during the dry season from Septemberto May, relies mainly on a large labor force with basic handtools and outdated equipment. This method is inefficientand the work carried out is of poor quality. This componentwill provide modem equipmentfor dike maintenance, which will increase the organizationalcapacity to carry out regular maintenance. The equipment will include wheel loaders, bulldozers,excavators, dump trucks, light vehicles and boats. Office equipment, such as computers, fax machines and printers, to improve further the efficiency of the maintenanceorganizations will also be provided. Component 5: Resettlement (US$96.9 million) Under the Project the ResettlementAction Plan (RAP), which has been prepared in accordance with OD 4.30, will be implemented.This includes the resettlementof 47,992 (10,958 families) people. The Project will affect 33,750 mu or 2,250 ha of land of which 21,906 mu or 1,460 ha is cultivated, 1.52 million m of housing, and 0.24 million m2 of industrial and commercial units. Independent resettlement supervision teams will be will be employed by the provincial PMOs to supervise the implementationof the RAP. The Resettlement Program consists of various housing and economic restoration measures, which have been developed to: (a) minimize disturbance to resettlers by providing local resettlement options, family production/incomerestoration alternatives and necessary support in the period of transition; (b) be acceptable to both resettlers and host populations; and (c) maintain or improve income levels and standards of living of people in the affected areas. The mechanismsfor restoration of enterprises, infrastructureand utilities affectedby the Project will be fully covered (see Annex 12). Component 6: Environmental Management (US$1.9 million) An Environment Impact Assessment of the Project (EILA)has been prepared, which includes an Environmental Management Plan (EMP) to be implemented under the Project. The EMP details environmental protection measures. including mitigation, offsetting and enhancement measures. The Project will establish an international Panel of Environmental Experts to provide guidance and monitor implementationof the EMP. An Environmental Management Office (EMO) will be established in each province,which will carry out environmentalmonitoring and trainingprograms. Component 7: Engineering and Project Management (US$19.2 million) The engineering and Project management component provides for the preparation of final designs and bidding documentationof the Project works and construction supervisionthereof. In additionto the normal engineering and Project management arrangements the component also provides for a design and construction standards review panel and consultants to assist the provinces with supervising the constructionof works, with particular focus on quality control. Component 8: Institutional Development and Flood Prevention and Disaster Mitigation (US$5.6 million) (i) Institutional Development The Project will provide for technical assistance, training programs and study tours in China and other countries for MWR/CWRC, Hubei and Hunan Provinces.

-9- These activities will help the Project address institutional constraints in such critical areas as: (i) dike maintenance;(ii) review of standards for flood control and design of dikes; (iii) resolving complex design and construction issues; (iv) adoption of modem constructiontechnologies; and (v) ensure financial and physical sustainability of the infrastructurefacilities. (ii) Flood Prevention and Disaster Mitigation Flood prevention and disaster mitigation technical assistance will be located in MWR's Technical Research Center. The assistance will be provided for: (a) review and recommendation of changes of flood control standards, regulations and emergency response and disaster relief procedures; (b) training and design in geo-technical investigationof dikes for Provincial Design Institutes; (c) training of flood fighting staff; and (d) the setting up of a technical help desk for solving specific problems in flood control in the provincesand river basin.

River Bank Protection - CWRC Engineering 93.56 17.2 0.00 0.0 FoundationSeepage Control - CWRC Engineering 9.82 1.8 0.00 0.0 Dike Rehabilitation- Hubei Engineering 215.77 39.6 158.44 75.4 Dike Rehabilitation- Hunan Engineering 48.75 8.9 27.60 13.1 Dike Monitoring/RiverModeling Irrigation & 22.07 4.0 11.78 5.6 Drainage Equipmentfor Dike Maintenance Engineering 6.08 1.1 5.15 2.5 Resettlement Resettlement 96.92 17.8 0.00 0.0 EnvironmentalManagement Environment 1.87 0.3 0.61 0.3 Adjustment Engineeringand ProjectManagement Engineering 19.17 3.5 0.00 0.0 InstitutionalDevelopment Institutional 5.63 1.0 4.32 2.1 Development 0.0 0.0 0.0 0.0 Total Project Costs 519.64 95.3 207.90 99.0 Interest during construction 23.77 4.4 0.00 0.0 Front-endfee 2.10 0.4 2.10 1.0 Total FinancingRequired 545.51 100.0 210.00 100.0

2. Key policy and institutional reforms supported by the project: The Project supports China's efforts to: (a) ensure a more rational and standardized approach for the improvement of the flood control infrastructurefacilities along the Yangtze river; (b) introduce modem technology for the slope protection (revetments) of river banks and dikes; (c) improve the physical and financial sustainability of flood protection works, through introducing improved safety assessments and maintenanceprograms and innovative mechanisms for funding of these programs; (d) ensure that there is good coordinationfor Project implementationbetween Changjiang Water Resources Commission and the two provinces; and (e) protect and improve the quality of the environment and establish a transparent approachto planning and implementingthe resettlementand environmentalmanagement plans.

- 10- 3. Benefits and target population: The Yangtze river and its floodplains provide a home to over 100 million people representing about 9 percent of China's population, its industries, and vast tracts of farmland. The region is one of the most economicallydeveloped in China with gross output value of industry and agriculture of about Yuan 500 billion or approximately 16 percent of the nation's total output. Unfortunately,this vastly productive area is also vulnerable to flooding. The dikes along the Yangtze in the two provinces participating in the Project provide protection to about 75 million people. Dikes to protect land from the annual ravages of floods date back centuries and in some places more than 2000 years. The Yangtze floodplain was heavily settled between the 9th and 13th centuries when an agriculturalshift from dry land fanning in the north to paddy production in the south, accompaniedby a shift in the distribution of population, occurred. Over these four centuries, living standards rose 30% whilst the population doubled. Since the creation of the People's Republic 50 years ago, the dikes have been strengthenedand extended to some extent, but they remain incompleteand poorly maintained. Due to inadequateprotection from dikes, the people living in the floodplains continue to be affected during the flood season. The primary aim of the Project is to reduce flood losses in the future. Thus, the primary category of benefits to be evaluated is the expectedvalue of the reduction of flood losses in future years. Losses in the past have been substantial:the 1954 flood affected nearly 19 million people, of which more than 30,000 died, 4.3 million houses were destroyed and more than 200,000 hectares of farm land were flooded. The 1998 flood involved, in some instances,an even higher water level and resulted in losses valued at nearly US$4 billion in Hunan alone. Floods on the Yangtze create crisis conditions at many places along the dikes that call for vast inputs of manual labor, most of it unpaid. In the 1998 flood, over half a million people were employed for nearly two months to construct temporary floodwalls of sandbags to contain bank erosion and to deal with dangerous seepage through the foundations of the dikes. The costs of these activities were estimated at about US$400 million. Evacuation of 0.3 million people from flood-prone areas such as the Jingjiang detention basin has a high economic cost (forgone production),financial cost (loss of earnings) and social cost (disruption of family life, interruptionof education, etc.). Further benefits include the expected reduction in flood fighting costs; at present, the costs of strengtheningweak points in a dike during a flood and of emergency dike raising are substantial. Strengtheningand raising the dikes will reduce the frequency with which such actions are needed. The effects upon navigation and tourism have also been assessed: both are estimated to be small but positive, in particular in the case of navigation.Even a very conservativeestimate of benefits indicates a high economic rate of return for this Project of 40% or higher.

4. Institutionaland implementationarrangements: CentralGovernment level The Yangtze Dike StrengtheningProject is a Central Government undertaking to be implementedby the Chiangjiang Water Resources Commission (CWRC), Hubei and Hunan provinces. A Central Project Steering Committee (CPSC), headed by a representative of the Ministry of Water Resources with representatives from SDPC, MOF and the Project Provinces as members, have been set up in Beijing to oversee Project implementation and provide policy guidance to the CWRC and the two provinces. A Project CoordinationOffice (PCO) has been established by MWR, which will coordinate: (i) the planning and implementationof the river bank protection works and selected foundationtreatment works by CWRC and the dike strengthening works by Hubei and Hunan; and (ii) the adoption of adequate quality control assurance measures under the Project. The PCO will be headed by a senior official of MWR and assisted by qualifiedstaff in adequate numbers assigned from MWR, CWRC, and Hubei and Hunan provinces.A Panel of Experts (POE) specialized in design and constructionof major river dikes and embankmentswill be retained by the PCO not later than October 15, 2000. The POE will convene periodically and as required during Project preparation and implementationto review design and constructionprograms and provide advice. The PCO will also retain a POE to review the implementation of the Environmental

-11 - Management and Resettlement Action Plans. Both panels will comprise of international and national experts and the cost of both panels will be borne by the participating provinces. The main roles of the CWRC will be to implement the river bank protection and critical dike foundation treatment works or "underwaterworks" and to ensure on behalf of the Central Government that: (i) all standards and criteria for design and constructionof river dikes are applied as detailed in the Yangtze Basin Master Plan; and (ii) adequate quality control assurance and control measures are put in place, to meet the technical specificationsfor constructionof works. To achieve this, a "constructionsite quality oversight group" will be set up in each province as required by MWR regulations.

CWRC level CWRC has in place adequate organizational arrangements for the irnplementation of the river bank protection and selected dike foundation treatment works in close consultation with Hubei and Hunan. CWRC has set up a River Bank ConstructionBureau for the planning and implementationof the physical model for the middle reach of the Yangtze river.

ProvincialGovernment level Project Leading Groups (PLG) have been established in the two provinces to provide policy guidance and coordination between provincial agencies. Each province has set up a Provincial Project Management Office (PPMO), which will be responsible for overall project planning, financial management, technical affairs, preparation of annual work plans, procurement, coordination between the PMOs at local Government levels and through them between the implementationagencies, and assuring counterpart funding.

Local Governmentlevel Local Project Leading Groups (LPLG) with similar structures and functions as the provincial PLGs have been set up in each of the Cities, Municipalitiesand Counties participatingin the Project. They will also set up Local Project Management Offices (LPMO). Each local government PMO will be responsible for Project planning, financial management, technical affairs, preparation of annual work plans, coordination between Government organizationsand the implementationagencies, and assuring counterpartfunding.

Planning, design, implementation and constructionsupervision The river bank protection works and selected dike foundation treatment works will be implemented by CWRC without Bank financing. CWRC will also be responsible for the river modeling program. The implementationof other Project works will be entrusted to owner organizationsat local government levels, such as Dike Management Offices or Water Conservancy Bureaus. The structure and staffing of the Project implementationoffices will be adjusted to match the Project scope and the technical complexityof contracts to be implemented.Local governments will establish additional implementationunits as needed. CWRC's Design Institute (CWRCDI) has assisted the Provincial and Local GovermmentWater ConservancyBureaus and Dike Management Offices since 1998 with Project formulation, the preparation of feasibility studies and the planning and design of Project works. To ensure continuity the implementationagencies will retain the same organizationsto prepare final designs of the major Project works includingconstruction drawings, technical specificationsand bill of quantities for the bid documents. They will also be retained to carry out design changes during Project implementation.Technical specialists will be contracted as required to assist with resolving complex design or construction issues. Local government organizations will retain, through a competitive process, nationally recognized "Grade A" organizationsto act for the owners as the "Engineer"for the constructionof works.

- 12 - Monitoring and evaluation A qualified organization recognized by the central government will be employed by the implementation agencies to supervise the implementationof the EnvironmentalManagement Plan (EMP)as detailed in the EIA report. The PPMO on behalf of the implementationagencies will also employ a qualified independent external agency to monitor and evaluate the implementationof the ResettlementAction Plan (RAP) and the EMP. The PPMO will carry out regular technical inspections in the Project areas and be responsible for bi-annualreporting of physical and financial progress of Project implementation.The provincial report will draw on information provided by the LPMOs and the implementation agencies. This will include monitoring and evaluation of construction quality of Project works, Project costs, compliance with the World Bank's procurementprocedures and key performance indicators. Major issues will be summarized in the progress reports. These reports are to be submitted to the Bank by October 15 of each year covering the preceding March to August period, and by April 15 for the preceding Septemberto February period. A mid-term review will be undertaken by July 15, 2002. Prior to that, the PPMO will prepare a mid-term report that will summarize the results of monitoring and evaluation, identify problems encountered during implementation, revise Project costs, and discuss measures to complete the Project as scheduled. The Borrower's Implementation CompletionReport (ICR) for the Project will be prepared and furnished to the Bank within six months of Project completion Quality oversight units in CWRC and the provinces will establish joint teams to carry out site inspections to assess the effectiveness of the construction quality assurance system. This will be carried out in accordance with central government regulations for key national projects.

Key PerformanceIndicators Key performance indicatorswill be: (i) introductionof systematicdike inspection programs; (ii) evaluation of inspection results, in particular the number and extent of defects detected; (iii) formulation of annual maintenance programs and the funding thereof; (iv) the cost of annual maintenance programs; and (v) damage and problems caused by floods. Standardized inspection and reporting routines are therefore essential to evaluating the performance of the Project and to programming the maintenance activities necessary to ensure Project sustainability.Project performance will be assessed for each dike section by monitoring key indicators as given in Annex 1. The indicators will be compared with: (i) benchmark parameters on maintenance costs and flood damage prior to Project implementation;and (ii) projections made for future maintenanceoperations.

D. Project Rationale 1. Project alternativesconsidered and reasons for rejection: The Projectfocuses on the rehabilitationand strengtheningof Yangtze river embankrnentsand dikes in two provinces. There is no realistic alternative to strengthening the river banks and main dikes. Due to inadequateprotection by dikes, the people living in the floodplainscontinue to be affected by floods during the rainy season. Most notable flood causing widespread damage and loss of life occurred in 1954. The impact due to the flood would have been much worse without the then newly completed dikes. More recently during the 1998 flood (1:50 year), only one breach occurred in the dike, but numerous weaknesses were revealed requiring costly emergency measures. The flood, which affected the Hubei, Hunan and Jiangxi provinces, killed 1,562 and affectedabout 21 million people, and permanently displaced 4.0 million people. In addition, 3.3 million houses, factories and commercial centers were flooded of which 1.3 million were destroyed. The total damage due to flooding combined with torrential rain over the middle and lower reaches of the Yangtze was estirnated at Yuan 158 billion (about US$20 billion). As an immediate result of the 1998 flood the 1990 flood master plan for the Yangtze River Basin was updated in the event of

- 13- another extreme flood. Apart from dike strengthening the plan includes measures to lower the risk for flooding of people living in the flood detention areas and in the vulnerable polders by moving them to higher ground and providing refuge platforms. An alternativethat is not applicable to most rivers in China is to realign or eliminate the dikes in order to allow the rivers to flow unconfined. The argument is made that the cost of confiningthe rivers far exceeds the benefits. However,this overlooks the fact that the dikes are mainly justified by preventingannual floods (not just the extreme floods) to reach the farmlands,cities, and industriesof the floodplains.The option of allowingthe rivers more freedom (giving them more space) was foreclosed centuries ago when the floodplainswere first settled.

2. Major related projects financedby the Bank and/or other development agencies(completed, ongoing and planned).

Implementaton Development Bank-financed Progress(IP) Objective(DO) - Strengtheningthe structural measures Taihu Basin Flood Control S S and managementof flood control in the (FY93, US$200 million) Taihu Lake basin. - Restoration of roads, water supply, Yangtze Flood Emergency S S schools, hospitals, clinics, and Rehabilitation (FY99, US$80 irrigation systems ravaged by the 1998 million) Yangtze floods, for 54 counties in Hubei, Hunan and Jiangxi. - Flood and sediment control for the Xiaolangdi Multipurpose HS S lower reach of Yellow River to reduce (FY94, US$460 million) damageresulted from extreme floods and alleviatethe sedimentationof river channel. - Resettlementof 200,000 people from XiaolangdiResettlement S S Xiaolangdi MultipurposeProject, incl. (FY94, US$110 million) livelihood& productiondevelopment. - Sedimentcontrol to reduce sediment Loess Plateau Watershed S HS inflow from the Loess Plateau region Rehabilitation intothe Yellow River, which has the (FY94, US$150 million) highest silt content. - Rehabilitationand constructionof Yangtze Basin Water S S irrigation and drainage systems and a Resources (FY95, US$210 flood control dam, plus setting up million) self-financingirrigation and drainage districts and a river basin management organization.

- 14- - Flood and sedimentcontrol for the XiaolangdiMultipurpose II HS S lower reach of Yellow River to reduce (FY97, US$430 million) damage resulted from extreme floods and alleviatethe sedimentationof river channel, and support for institutional development. Otherdevelopment agencies Asian DevelopmentBank - Dike North East and YellowRiver strengtheningand urban flood control Flood Control (FY01, US$300 l million) - under preparation

IP/DORatings: HS (HighlySatisfactory), S (Satisfactory),U (Unsatisfactory),HU (HighlyUnsatisfactory)

3. Lessons learnedand reflected in the project design: Since 1982, the Bank has assisted China in more than 50 water resources related operations. The majority of these projects have been implementedefficiently, and time and cost overruns have not been excessive despite periods of sharp price increases. The key lessons learned from previous Bank supported water resources projects include:

L detailed organizational and staff arrangements should be fornulated and agreed before Project implementationstarts; * intemational consultants and technical panels can make substantial contributions to improving the designs, economic impact assessment,and resettlementplanning and design; 3 counterpart funding should be committed before implementation,based on an accurate and realistic year-by-year Project financing plan, prepared and approved by the provincial planning commission and finance bureau; * to avoid delays and cost overruns the bidding process for major civil works should start early in the Projectcycle, so that bid award will correspond with the date of loan effectiveness; * implementationsupport to the executing agency should include a competent construction supervisory organizationsuitably reinforcedwith intemationalconsultants; * adequate cost recovery should be sought from the beneficiariesof flood protection measures to make the Project sustainable; * projects should include institutional development support for the strengthening of the Project implementationand management organizations,including transfer of know-how and technology from abroad; * active participation of beneficiaries from the initial project formulation stages into the operation and maintenancestages would increase effectivenessof Project implementationand performance; * baseline data of key performance indicators should be established for all components before or at appraisal; and * the project launch workshop and/or initial Bank supervision missions should focus first on resolving procurementand disbursement issues.

The above lessons leamt, together with the key success factors identified by the Bank such as strong govermnent commitment and ownership, beneficiary participation, adoption of a realistic O&M plan, introductionof water charges, financial autonomy of Project entity, have been reflected where appropriate in the Project design.

- 15 - 4. Indicationsof borrower commitmentand ownership: The two provinces have prepared feasibility and other reports in Chinese and English in an efficient and timely manner and put in place adequate arrangements for Project preparation and implementation. Generally, central government agencies and the provinces were cooperative and responsive in providing data and information needed for efficient and timely processing of the Project. Central and provincial governmentsare giving very high priority to this Project, especially after the occurrence of a major flood in the Yangtze Basin in 1998. The State DevelopmentPlanning Commission formally approved this Project in May 1999. The Central Government has allocated a large budget for flood mitigation programs (which includes this Project) to the upper and middle Yangtze reaches for next three years (1999-2001) covering the followingmajor activities:

* Dike/embankmentrehabilitation Yuan 76.7 billion * Detention basin rehabilitation Yuan 21.9 billion * Lake and floodway desilting Yuan 4.2 billion * River training Yuan 3.6 billion * Soil and water conservation Yuan 87.4 billion Total Yuan 193.8 billion (about US$23 billion)

The Central Government has already invested Yuan 3-4 billion this year on Yangtze dike repairs to ensure that they were safe for the 1999 flood season (July-October) and is committed to provide the necessary funds to completethe entire Project in three years.

5. Value added of Bank support in this project: The experience in China is that Bank fnancing of large civil works leads to a more structured approachto planning, design, procurementof goods and works and construction,than is customary in locally financed projects. For example, design review procedures are established and procurement packages are generally larger and attract wider competition.Bank involvement and the use of Bank procurement procedures and documents have often resulted in cost savings of as much as 20 to 25 percent. The quality of works is normally of higher standard, because of better construction supervision. Counterpart funds are generally provided by the various levels of government as stipulated in the agreed Project financing plan. Organizationalarrangements for Project implementationare more transparent and driven by technical and economic judgments rather than political. Bank involvement will help the development of autonomous institutions at provincial and local government levels as well as promote self-financingof annual operation and maintenance programs. Bank support tends also to promote knowledge management exchanges between national and foreign experts. Bank involvement in the preparation of this Project has convinced central and provincial agencies of the value to pay more attentionto economical and financial analysis and to pay closer attention to achieve financial sustainability of dike maintenance organizations and to the resettlementand environmentalaspects under the Project.

E. Summary Project Analysis (Detailed assessmentsare in the project file, see Annex 8) 1. Economic (see Annex 4): * Cost benefit NPV=US$1440 million; ERR = 49.2 % (see Annex.4) O Costeffectiveness O Other(specify)

- 16 - Province NPV (US$ million) B/C ratio ERR

Hubei 1,128.0 4.3 53.1%

Hunan 312.0 2.3 25.0%

Overall, the Project in the two Provinces was found to have Net Present Values (NPV) which are robustly positive. The indicators of economic efficiency and the economic internal rate of return (ERR) for the Project in each Province are good (see above). The economic benefits arise from: (i) avoidance of losses due to a reduced risk of breaches in the main Yangtze dikes; (ii) avoidance of having to resort to the flood detention areas except when extreme floods occur; (iii) lower cost for emergencyoperations during floods; and (iv) reduced maintenance costs. In the past 40 years a number of high floods have occurred that could have caused breaches at weak sections of the dikes. A discountrate of 12% and a planning horizon of 50 years were used in preparingthe benefit-costanalyses.

The principaleconomic benefit from the Project's investments is a reduction in the expectedvalue of future flood losses. These losses were estimated per unit area, based upon detailed surveys of the losses during past floods and estimates of land areas flooded by events of different return periods. Together, these two sets of data enabledthe constructionof the loss-probabilitycurves. The flood loss figures were checked in part by reference to the levels of compensationset out in the Resettlement Action Plan (RAP), a summary of flood losses in China in the 1980s, and the losses as a proportion of the assets at risk found in other countries that have good loss data. Because the Project involvesdike strengtheningas well as dike raising, estimates of the probabilityof a breach as a function of the return period of the flood have been made. The assessment takes into account the impact of the Three Gorges Project (TGP) when it comes on stream in 2007 as well as the use of detention basins. In Hubei, the Three Gorges Project is projected to have a major effect upon the flood losses; while its impact on the flood losses in Hunan is less predictable.The use of the detention basins reduces the probability of downstream breaches, but also involves: (i) a substantial cost for evacuating the population inhabiting the detention basins; and (ii) flood damages to assets within the detention basin. Up to eight sets of breach probabilities have been used in the analyses. A further stream of benefits included is the potential reduction in flood fighting costs. At present, the costs of strengthening weak points in a dike during a flood and of emergency dike raising are substantial. Strengtheningand raising the dikes will reduce the need and frequency of such actions. The effects upon navigation and tourism were investigated; both are estimated to be small but positive in the case of navigation.

Future Operation and Maintenance (O&M) costs have been taken into account in the analyses. Inadequate maintenance of dike systems contribute to premature failures, which is the case with the current dike systems in all three provinces. It is estimated that the future O&M cost for the improved dikes and associatedinfrastructure, will be less than the cost of maintaining the present system of poorly constructed dikes. In addition flood fighting cost, which may be considered part of the O&M costs, are likely to be lower with well constructed and maintained dikes resulting from the Project. Therefore, there will be economic benefits from reduced O&M costs.

2. Financial (see Annex 5): NPV=US$ -582 million; FRR = % (see Annex4) Financial Management Proceduresfor management of Bank funds will be improved in accordancewith OP/BP 10.02. Because of past Bank Group supported projects, the Finance Bureaus in both provinces (PFBs) are familiar with

- 17 - financial management requirements of the Ministry of Finance (MOF) and the Bank. World Bank funds will be channeled through MOF as a grant since this is a Central Government Project. MOF has issued instructions and guidelines for the introduction of adequate financial control of Bank financed projects, which meet Bank requirements. The Project's Financial Management System (FMS) aspects (budgeting, accounting, internal control, auditing and reporting), staffing and equipment requirements have been analyzed. Plans, procedures,guidelines and reportingand staffing requirements for an improved FMS to be adopted under the Project have been confirmed by all parties concerned. To facilitate and clarify withdrawal and reimbursement procedures and ensure efficient financial control, PFBs have also issued regulations and instructionsproviding: (i) details of supportingdocumentation required for withdrawal and reimbursementapplications from Bank loans; (ii) withdrawal and reimbursement procedures applicableto PMOs; and (iii) formats of withdrawal applications and financial statements. Detailed guidelines for the introductionof the improvedFMS are provided in the BorroweresProject ImplementationPlan (PIP). They include plans for strengtheningfinancial managementcapacities of the Provincial, City and District/County Finance Bureaus, and of the Provincial and Local PMOs, including staff training. MOF issued "Accounting Procedures for World Bank-Financed Projects" in January 2000 aimed at strengthening accounting methods under Bank supported projects. The Bank participated in the preparation of this document,which covers accounting principles, general ledger accounts and accounting statements,and in development of accounting software for the use by PMOs. Project accounting will use double entry bookkeepingon an accrual basis. The accountingstatements applicableto the Project will include balance sheet and statements on; (i) sources and uses of funds; (ii) Loan Agreement implementation;and (iii) the Special Account (SA). Reporting formats are given in the PIP. Separate general ledgers, subsidiary accounts, cash and bank deposit journals have already been established by the PMOs for accounting of funds received and expenditures made. Each PMO will prepare its own accounting statements. The PPMO will be responsible for consolidatingthe accounting statements provided by the LPMOs. Special Account (SA) for the Bank funds will be kept in Ministry of Finance (MOF). MOF has managed Bank supported projects in the past and the staff is familiar with the processing of withdrawal applicationsand disbursementof funds. The PPMOs will review disbursementrequests from the LPMOs, make changes, if necessary. These will be forwarded to MOF through PFBs for review and, if found to be correct, withdrawals will be made from the Special Account and the funds transferred. MOF will also process requests from the PFBs for direct payments to suppliers from the Special Account. Financial management and control systems for the Project, includingtabular formats for financial reporting have been confirmed. CWRC's PMO will submit their disbursementrequests through MWR to MOF.

Audit The review of the status of compliance by the Borrower and Project implementing entities with audit covenants in on-going Bank-financed projects revealed financial management weaknesses in Hubei Province. These weaknesses were discussed during appraisal of the Project and Hubei agreed to take appropriate corrective measures to minimize the risk for reoccurrence of the financial management weaknesses under the Project or under any other Bank financed operation. Project records and accounts, including the SA, for each fiscal year will be audited, and the annual audit report will be submitted by MOF to the Bank by each July 1 of the following year. The National Audit Office will be retained as the auditors for the Project. At the provincial level the Hubei and Hunan Audit Administrationswill carry out audits under the Project.

For a detailed assessmentof the financialmanagement reviews carried out see Annex 13:

* Review of Financial ManagementSystem for the assessment of the adequacy of the Project financial management system. The results of the assessment and corresponding Action Plan to address measures needed to improve capabilities are included in Annex 13,

- 18 - Attachment 1. * Review of Financial ManagementSystem, Section V: Internal Controls. * Review of Financial Management System, Section IV: Financial and Accounting System, Section VII: Project Reporting Requirementsand Section VIII: Audit Arrangements.

Financialaspects of O&M Operation and Maintenance (O&M) of the Yangtze dike systems is currently organized at Dike ManagementOffices at three levels: Province, Prefecture/Cityand County/District. The Dike Management Offices will also be the main agencies responsiblefor implementationof project works, which will ensure a smooth transition to their O&M functions and responsibilities.In the long-term, O&M of the dikes and river banks are planned to be self-financingthrough improvedcollection of flood control and river structure maintenance fees from those benefiting from the flood protection works. During Loan Negotiations the Borrower has assured that a consolidatedplan designed to ensure the proper operation and maintenanceof all flood protectionfacilities included in the Project will be prepared by the provinces for submissionto the Bank for exchange of views by December 1, 2002, accompaniedby an adequate financing plan therefor. The plan will include the schedule of charges and timetable for its establishmentand a proposal for funding the part not covered by such charges, together with other information that the Bank may reasonably request. During the preparation of the O&M Plan, MWR and the provinces will exchange views with the Bank on the various elements of the Plan, which is to ensure financial and physical sustainabilityof the flood protection facilities improvedunder the Project. Advisory services from foreign and domestic sources will be required to prepare this O&M plan.

Fiscal Impact: The Project is a Central Government Projectbecause of its responsibilityfor flood protection of large rivers which traverse several provinces. Hence the Project is largely fmanced by the Central Government. The Central Government's share in the investments for dike strengtheningwill be 80%, with the provinces providing the remaining 20%. For the "underwater"river bank protection works the Central Government will fund 100% of the costs with implementation carried out by CWRC, a Central Government Agency and part of MWR. The Central Govermnent will provide US$225.2 million during the constructionof the Project, of which it will allocate US$112.4 million to the provinces and US$112.8 million to CWRC. In addition to that amount the Central Government will also assume responsibility for payment of Interest During Construction (IDC) on the Bank loan estimated at US$23.8 million over the entire Project implementation period and the front-end fee of US$2.1 million. The Central Government is making arrangementsto provide US$215 million (86%) from floating domestic bonds. Therefore, the immediate fiscal impact of this Project will be the IDC and front-end fee payments of US$23.8 and US$2.1 million respectively, which is relatively insignificant.The provinces will provide US$84.5 million in counterpart funding to this Project. The provision of these funds will have a fiscal impact on both Provincial Governments,although these are relatively small comparedto their provincial budgets which are in excess of US$10 billion per year (See Annex 4 for other impacts during the operation of the Project).

3. Technical: 3.1 General The provinces prepared the detailed designs for the Project works, based on the Yangtze Basin Master Plan and national codes established for such works. The Changjiang Water Resources Commission, in particular their in-house specialized institutes, and the Water Conservancy Bureaus and Design Institutes in the two provinces all have considerableknow-how and experiencein the design of river dikes and river embankment protection works. The review and approval proceduresvary depending on the classificationof the dikes. The designs of the more important dikes, such as the class I and II dikes under the Project, will have to get State DevelopmentPlanning Commission approval,while

- 1 9- other classes are approved by the MWR. Reviews are also carried out to ensure consistency in designs between the provinces. The table below lists the agencies reviewing and approvingthe designs:

Class of Dikes Design Stage Reviewing Agency Approving Authority

Class I and II Feasibility Study MWR (GIWP) SDPC

Preliminary Design MWR (GIWP) MWR

Class III and IV Feasibility Study CWRC MWR

Preliminary Design CWRC MWR

Note: SDPC - State Development and Planning Commission MWR - Ministry of Water Resources CWRC - Changjiang Water Resources Commission GIWP - General Institute Water Resources Planning and Design

Technical assessments were made of the proposed remedial solutions for the current problems and weaknesses of the river embankments,dike bodies, dike foundations and cross-dike structures experienced during major floods, with special reference to what happened during the 1998 flood. The 4ssessments revealed that China is behind in adopting new design features and in using modem materials and technologies tested and applied elsewhere in the world. Recommendationshave been made to adopt the modem materials and new technologies,which will be more cost-effective.

3.2 River embankmentprotection works With the exception of a few cases in Hubei, the proposed measures for "under-water"bank protection works include the following standard practices: (i) dumped rip-rap protection for the bank, with extra rocks specified for the toe section; and (ii) use of gabion rockfill and large blocks. For the above water portion of the embankment the standard practices are: (iii) placed rockfill and pre-cast concrete slabs protection. To protect the soil of the river bank a graded gravel filter is laid between the rocks and the bank to be protected is specified for the "above-water"portion, but not for the "under-water"portion of the river bank. Other special types of bank protection methods have been tested and are being considered for selected sites. The methods include the use of a mattress of chain-connected concrete slabs together with a geo-textile filtering sheet, as applied at the Long Wang Miao critical section, which is situatedat the confluenceof Han and Yangtze River. The mattress was laid to the toe of the slope about 20 m below the water surface. The flow velocity during the construction period of low flow was below I m/s. In the Bapu dike, where the unprotected bank receded at a rate of 100 m/year, a testing section was constructed with a combination of dumped rip-rap for the "under-water" portion and concrete-liningin the "above-water"portion. The use of geo-textilemattresses with interwoven pockets injected with concrete has also been contemplated by the local design and contracting firms in collaborationwith overseas manufacturers/suppliersand trials have been installed. In additionto the above the following methods and materials will also be tested and considered for implementation:(i) the use of gabion or wire-meshrock mattresses, in conjunctionwith the placementof a filtering layer or sheet; and (ii) the use of geo-containerand other suitable forms and materials.

3.3 Dike strengthening works The major defects and problems with the existing dikes are: (i) inadequateheight and width, slope failures, toe scours and excessive leakage; (ii) piping of the foundation; (iii) defective connection of cross-dike structures and the dike embankments; and (iv) buildings on the dikes. The proposed dike strengtheningworks are: (i) constructionof RC flood walls, normally with 4-6 m high backfill; (ii) heightening the dike with a crest width of 8 m for Class 1 or Class II dikes and repairing

- 20 - by clay grouting; (iii) foundationtreatments by concrete diaphragmand cut-off walls, includingjet grouting and cement mixed piles; (iv) constructionof down slope berms, in some cases surcharged; (v) laying of geo-textilesheets to improve drainage and minimizethe loss of material;(vi) back-fillingponds (old borrow areas) located on the land side of the dikes; and (vii) construction of relief wells. In addition to these measures a variety of seepage control techniques, such as the provision of steel sheet pile and thin-diaphragmwalls, are being analyzed and tested for possibleuse.

3.4 Cross-dike structures Most of the cross-dike structures, such as culverts, sluices, pumping stations and associated pipelines,were built before the 1970s. They are in poor operating conditionsdue to uneven settlement and due to the lack of maintenance,low design standards and sub-standardmaterial and construction. Structural cracks and leakage are common. Many structures require strengthening,extension and reconstruction, among others to meet the cross-sectionalprofiles of the heightened and broadened dikes. In addition, foundation treatment for leakage control, which calls for the provision of concrete cut-off walls, jet groutingand cement mixed piles, and installationof snail trap pools are required.

3.5 Monitoring and inspection In view of the scale and importance of the Project, a long-tenn structural monitoring system will be developed for the river dikes. Simple and low-cost instruments or gages will be installedat selected locations of the dikes and its vicinities,to monitor the performanceof the river and dike embankments,foundations, and cross-dike structures.A system has been incorporatedunder the Project to monitor the safety of the dike during the high water levels during floods, in particular the physical settlement movements in the dikes and also the movement of subsurface water through the dike and the foundation. A special task force will be forrned to formulate this long-term monitoring system for implementation under the Project. Hubei will establish a computerized data acquisition system of piezometers for monitoring seepage through the dike body and foundation and monument gauges for deformationand settlementfor critical sections of the dike body and foundation. In spite of renewed efforts to provide better bank protection and channel stabilization, there will be the continuous process of adjustmentsand movements of the river channel as a result of the dynamic fluvial processes. The shifting of the channel alignmentsis expected to be more pronounced in river sections with extensive meandering. This invariablywill require remedial measures to counter the changes in the river regime in the future. The potential degradationof the river bed resultingfrom the completionof the Three Gorges Dam will introduce further complications to the river training and bank protection program. Solutions to these longer-term issues can also be improved with the help of the continuous monitoring and surveying program of the changes in the channel regime. Coordinationand disseminationof information and exchange of experience among the provinces in the Yangtze River Basin and the various research and planning organizationsare needed to enhance the overall efficiency of the Project. Regular inspection and maintenance of the entire system of flood control dikes are of utmost importance to the success of the Project. The ultimate design objectiveswill only be achieved with adequatesupervision of works and quality control.

Progress with Project implementationwill be monitored through the preparation of semi-annual reports providing: (i) physical and financial statements; (ii) recommendations and findings of the international/nationalpanel of experts; and (iii) recommendationsfor improvement of implementation performance. The progress reports will be due not later than April 15 and October 15 of each Project implementationyear. For resettlementthe reports will present progress with: (i) constructionof houses and infrastructure;(ii) payment of private and public compensation;(iii) establishing developmentprograms for resettlers which will incorporate the results of the independent monitoring program of the RAP and the findings of the international/localpanel of resettlement/environmentalexperts. Regarding environmental managementthe reports will state progress with : (i) the implementationof the environmentalmanagement plan which will include the periodic monitoring results of the construction inspectors and the international/localpanel of resettlement/environmentalexperts. In addition to the progress monitoring

- 21 - reports a mid-term report will be prepared not later than July 15, 2002 which will summarizethe results of all the monitoring and evaluation activities carried out under the Project and measures to ensure the efficient canying out of the Project and the achievement of the objectives. Regarding Project implementationplans CWRC will provide their annual implementation.plan and required investments by October 15 of each year commencing October 15, 2000. A consolidatedplan of all other aspects of Project implementationfor the following year will be provided October 15 of each year starting October 15, 2001 but for the first Project year by December 15, 2000.

4. Institutional:

4.1 Executing agencies: The Project is a Central Govermnent undertaking, with the Changjiang Water Resources Commission (CWRC) and Hubei and Hunan provinces responsible for Project execution. CWRC will oversee the implementationof the river bank protection works and execute the river modeling studies. Hubei will assign the responsibilityfor the implementationof Project works to local govermmentagencies owning the dikes. These are either the Dike Management Offices or the Water Conservancy Bureaus at local governmentlevels (Prefecture/Cityand District/County). The structure and staffmg of these offices will be adjusted to match the Project scope and the technical complexityof contracts to be implemented. The local governments will establish additional implementationunits as needed. In Hunan all works fall under the jurisdiction of Yueyang City, which has established the Yueyang Project Implementation Office. The implementationagencies will follow instructions from central and provincial government agencies, to ensure that adequate attention is being paid to important Project implementationactions, such as adopting agreed bidding proceduresfor the contracting of constructionsupervisors, suppliers and contractors. 4.2 Project management: At Central Government level, a Central Project Steering Committee (CPSC) has been set up in Beijing, with representatives of the Ministry of Water Resources, Ministry of Finance (MOF), State Development and Planing Commission(SDPC) and the Project Provinces for oversight of Project implementationand to provide policy guidance to the CWRC and the provinces. A Project Coordination Office (PCO) has been established by MWR, which will be headed by a senior official of MWR and assisted by qualified staff in adequate numbers assigned from MWR, CWRC, and Hubei and Hunan provinces. The PCO will ensure that: (i) an integrated approach towards the implementationof river bank protection works by CWRC and dike strengtheningworks by the provinces exist; (ii) CWRC and the provinces apply the agreed procedures and national standards for design and construction of river dikes and embankments as well as for resettlement; and (iii) the adoption of adequate quality control assurance measures under the Project. Provincial Project Leading Groups (PPLG) will provide guidance to the Provincial Project Management Offices (PPMOs) responsible for Project implementation. Each province has set up Project Leading Groups (PLG) for coordination and policy guidance and Project Management Offices (PMO) for day-to-day coordinationfor Project implementationand between the PMOs at local Government levels. For the purpose of implementingthe River Modeling Studies CWRC has established a Project Leading Group (CWRCPLG). A Project Management Office under CWRCPLG (CWRCPMO) is located at Yangtze River ScientificResearch Institute. 4.3 Procurement issues: The CWRC will have responsibility for design and construction of works related to the riverbank protection and foundation treatment of Grade I and II dikes. The PPMOs will be responsible for procurementunder ICB procedures and NCB with values exceeding Yuan 35.0 million. It will oversee the procurementof remaining works implementedby the executing agencies at local government levels. The

-22 - Guidelines for procurement under IBRD Loans and IDA Credits published by the Bank in January 1995 and revised in January and August 1996, September 1997 and January 1999 will be applied to Bank financed procurement of goods and works. The Model Documents developed by the Ministry of Finance and the Bank will be adopted for all International CompetitiveBidding (ICB) and National Competitive Bidding (NCB) for civil works and goods, and the Standard Bid Evaluation Form will be used. Where Model Documents are not available the Bank's Standard Bidding Documentswill be adopted. Procurement of civil works through NCB will be managed by the PPMOs. Works procured through NCB costing in excess of Yuan 35.0 million will be processed by the PPMOs. The LPMOs will manage all other NCB contracts. Small civil works contracts and works implementedthrough force account will be procured by Dike Management Offices at the DistrictlCounty level. Major equipment will be procured through ICB, while other goods will be procured throughNCB and National Shopping. The national competitivebidding procedures are not consistent with the Bank's acceptable practices, and therefore the Borrower has agreed to modify their procedures, as set forth in the agreed supplemental letter to the legal documents as mentionedbelow. The lack of experiencewith undertakingprocurement in accordancewith Bank guidelines will be addressed as follows. First, procurementtraining will be provided to staff handling procurementat the PPMO and LPMO levels. This training will be overseen by Resident Mission procurement staff and will start during the Project Launch Workshop. Second, a strict Bank review of procurement procedures will be put in place during the early stages of Project implementation,which would include Bank review of the first three NCB contracts in each province irrespective of contract values. Third, during Loan negotiations a supplementalletter to the legal documentshas been agreed stating that the Borrower and the Provinceswill not use local bidding proceduresunacceptable to the Bank for procurement of Bank financed works, goods or services.This letter will be signed by the Borrowerand Hubei and Hunan provincesat the time of Loan signing. 4.4 Financialmanagement issues: As agreed with MOF the Project will be disbursing in accordancewith the Bank's traditional disbursement procedures and will not be using PMR-based disbursements,.The Provincial Finance Bureaus (PPFB) and the PPMOs in Hubei and Hunan Provinces all have experience with implementingBank financed projects (e.g. the Yangtze Basin Water Resources Project, the Yangtze Flood Emergency Rehabilitation Project) and are therefore familiar with the existing disbursement,procurement, financial reporting and auditing requirements.PFB has accumulated extensive experience with both the Bank and MOF's requirements in preparationand processingof withdrawal application and financial management of Bank-financed projects. However, additional training will be provided to Project staff at all levels (see Annex 13). Pending addressingthe steps outlined in the action plan (Annex 13, Attachment 1), the Project satisfiesthe Bank's financial management requirements as stipulated in OP/BP 10.02. There are no other financial managementissues. 5. Environmental: EnvironmentalCategory: A (Full Assessment) 5.1 Summarizethe steps undertaken for environmentalassessment and EMP preparation(including consultationand disclosure)and the significant issues and their treatment emerging from this analysis. 5.1.1 Environmental impact The Project has been allocated environmental Category "A". A comprehensive Environmental Impact Assessment (EIA) of the Project has been prepared by the Yangtze Research Institute for Water Resources Protection, with assistance from Design Institutes for Water and Hydropower of the participating Provinces. A summary of the EIA is attached in Annex 11. The complete EIA report is available in the Project file. The EIA addresses potential adverse environmentalimpacts satisfactorily. The EIA considers the environmentaleffects that could possibly occur as a result from the Project. Those include for the participating provinces assessments of impacts on: (i) natural physical resources; (ii) natural ecological resources; (iii) economic development;(iv) quality of life standards,including public health; and (v) global

-23 - environmnentalissues. The EIA formulates all Significant Environmental Issues (SEIs) affected by the Project, describes the potential of each SEI to cause adverse environmentaleffects if left uncontrolled,and recommends control measures defined as Environmental Protection Measures (EPMs). The SEIs of concern include environmentalaspects of resettlement,land use, impacts on aquatic species, public health, dike structural stability, downstream impacts, flood emergencyprograms, borrow areas and spoil disposal, cultural relics, impacts on Dongting Lake flood release, construction operation constraints and several other SEIs of lesser levels of significance.

5.1.2 AdditionalEnvironmental Issues In addition to the above, the overall EIA includes an evaluation of adequacy of the Project plan with respect to: (i) provisions for adequatepublic participationin Project planning an implementation;(ii) complianceof the plan with Chinese national/provincialenvironmental laws/regulations; (iii) evaluation of environmental economics (adequacyof the Project economic analysis for inclusion of environmentalimpacts and EPMs); (iv) compliance with environmental standards of the Bank (as well as the Government of China); (v) evaluation of the Project's influence on global environmental parameters (global warming and biodiversity);and (vi) enviromnentalrisk assessment. 5.2 What are the main features of the EMP and are they adequate? EnvironmentalManagement Plan An overall EnvironmentalManagement Plan (EMP), with provisions for implementingall EPMs specified in the EIA, and associated costs, has been developed as an integral part of the EIA. This requires : (i) establishment of an Environmental Management Office (EMO) in each participating province, with responsibility for implementing the EMP, including environmental monitoring; (ii) employment of an international panel of environmental (and resettlement) experts; (iii) provision of environmental staff trainingprogram. Assuranceshave been obtainedthat project works would be implementedfollowing these measures thus ensure an environmentalsound and sustainableproject. The EMP's main features include: (i) measures to lessen the magnitude of adverse impact; (ii) measures to offset any residual adverse effects not solved by mitigation;and (iii) provisions for meaningfulenvironmental monitoring as described below. In some instances,where feasible, the EIA recommendsa third kind of EMP, namely Enhancement measures, for those situationswhere a small additional investmentwould yield valuable environmentalbenefits. 5.3 For Category A and B projects, timeline and status of EA: Date of receipt of final draft: October, 1999 A supplementalEIA dated March 2000 was received by the Bank in April 2000.

5.4 How have stakeholdersbeen consultedat the stage of (a) environmentalscreening and (b) draft EA report on the environmentalimpacts and proposed environmentmanagement plan? Describe mechanisms of consultation that were used and which groups were consulted? ParticipatoryApproach About 370 stakeholderswere randomly consultedthrough surveys carried out for all people affected by the Project. A detailed response from the stakeholders is presented in the EIA Report. The stakeholders were screened at the start of Project. preparation. The draft EA was first written to determine who are stakeholders, who are affected people before Bank missions started consultations. The government undertook a wider survey for the entire dike strengthening program in 1998 and 1999. Detailed consultationswere carried out through questionnairesdeveloped by the Provinces.

-24 - 5.5 What mechanismshave been establishedto monitor and evaluatethe impact of the project on the environment? Do the indicatorsreflect the objectivesand results of the EMP? EnvironmentalMonitoring The environmentalmonitoring program to be carried out by the P/EMO includes the following:

* Recruitment and training of a EnvironmentalConstruction Inspectors (ECIs), who will be assigned to work with and through the Engineering Construction Supervisors,to check on operations of the contractors to ensure that the works are carried out in accordance with the contract specificationsincluding the application of official instructions and penalties as needed to ensure sound environmental performance. Following completion of the construction stage, the P/EMO will utilize ECIs as needed to monitor Project environmentalperformance during the operation and maintenance stage. * Arrangements for periodic monitoring of environmental performance of the resettlement program, to be carried out by ECIs of the P/EMOs, including checking of both rural and urban resettlement situations. * An international/nationalPanel of EnvironmentalExperts shall convene periodically, to evaluate the Project's overall environmental performance including the identification of shortcomingsand recommendedremedial measures, to be reported directly to Government and the Bank. This includes evaluation of performances of P/EMO and of the contractors. Assurances have been obtained during negotiations that a panel of experts will be employed by September 15, 2000 and thereafter maintained for the implementationof the EMP and monitoring of the impact of the implementation of the Project on the environment. 6. Social: 6.1 Summarizekey social issues relevantto the project objectives,and specify the project's social developmentoutcomes. 6.1.1 Social Impact This Project will help prevent the loss of lives when floods occur in the Yangtze River Basin. In addition, fighting floods calls for vast inputs of labor from all sections of society to repair damage and prevent breaches at vulnerable locations of the dikes. This has high social costs through disruption of family life, interruptionof education and, most of all, diversion of effort from more profitable work. If the dikes are strengthened,there will be fewer crisis situationsand less of a demand for emergency labor inputs. In the event of a breach, which is more likely in the absence of the Project, there would be many adverse social consequences. Public facilities, such as govermnent offices, hospitals, schools, would be taken out of service. Also, many private enterpriseswould be closed down, some of them permanently,and this would have more drastic consequences. The Project's flood protection measures will benefit a land area of over 2.1 million ha, of which about 1.0 million ha is cultivated land. Better flood protection facilities are expected to improve the quality of life of about 15.4 million people and provide improved protection to physical assets, such as houses, schools, hospital, and other public and commercial buildings in key urban and rural areas. Essential infrastructure facilities such as airports, ports, rail roads and the important national highway 107 will also be better protected against flood hazards.

6.1.2 Resettlementand Land Acquisition In accordancewith existing Chinese legislation no structures shall be erected on major dikes and within 50 m on both sides of the toes of the dikes. This legislation (Flood Control Law) stipulates that existing structures not complyingwith the law will need to be removed. In addition, the widening and raising of the

- 25 - existing dikes require acquisitionland. As a result, the Project will cause the resettlement of about 47,992 people (10,958 households) living in 22 counties,44 townships and 180 villages. Of them about 80% are engaged in agriculture. Most (over 60 percent) of the Project Affected People (PAP) will move "backward" (about 1-1.5 km) from their present locations. Similarly, 33,749 mu or 2,250 ha of land, of which 50% is cultivated, 1,519,091 m of housing, and 243,923 m' industrial and commercial units will need to be acquired. The Project will require the rebuildingor restoration of 176 km of roads, 254 km of broadcasting and TV lines, 476 km of telephone lines, 143 km of 10 kV and 20 km of 35 kV transmission lines. To mitigate the adverse impacts of the dike strengthening works, each province prepared a comprehensive Resettlement Action Plan (RAP) in accordance with OD 4.30 for the resettlement and compensation requirements of PAPs. The main objective of the RAP is that both the resettled people and the host populations receiving them, will not be adversely affected by the resettlement, nor will the Project have detrimental impact on their living standard. Their new earning potential will be at least as good as previously and income losses during the transition period will be compensated for. The Bank found the RAPs satisfactory. They adequately cover: (i) details of people and assets affected; (ii) legal framework for land acquisition and compensation; (iii) institutional arrangements; (iv) cost details and budget requirements;(v) implementationschedule; (vi) participation,consultation and grievance procedures; and (vii) monitoring and evaluation by Project agencies and an independent extemal group. Provincialagencies have already gained considerableexperience with resettlement in this area, because has already initiatedthe resettlement of about 2 million people from polder areas that were flooded in 1998. Compensation standards have been established. An independent organization will be employed by each Province to monitor the implementation of the RAPs. The monitoring will cover: (i) physical progress with resettlement implementation;(ii) PAP livelihood restoration; (iii) PAP participation in the resettlement process; (iv) grievances and effectiveness of the grievance procedures; and (v) proposed measures for improvement.The RAP is summarized in Annex 12 and the detailed RAP is available from the Project file. 6.2 ParticipatoryApproach: How are key stakeholdersparticipating in the project? Technical factors have determined the dike sections to be strengthened under the Project. There will be little change in existing dike alignments.The widening and raising of the dikes, which in many cases have been there for hundreds of years, will require the relocation of a significant number of Project Affected People (PAPs) as well as the removal of physical assets. Extensive consultations will be held with the PAPs, regarding: (i) resettlementto new locations; and (ii) levels and extent of compensation.Resettlers will also participatein the decision making regardingthe selectionof constructionteams for the building of their new homes and public buildings, such as schools, hospitals and churches. There will be public campaignsas necessary to alert people in the Project areas about possible environmental hazards caused by the dike strengtiening works under the Project. This applies in particular to concerns that the dike strengthening works may cause the spread of schistosomiasisand possibly other public health hazards. There will be active participation between the provincial Project agencies and those at lower levels of government (city, county, townships and villages) in the formulation and implementation of the Project works, in particular the dike strengtheningworks. Village communitiesare expected to actively participate in the implementationof Project works, through the provision of labor to the contractors. A detailed list of key stakeholdersand the levels of participationare indicated in the table below:

- 26 - ParticipatoryApproach IdentificationlPreparation Implementation Operation Resettler groups IS, CON and COL IS, CON and COL CON and COL People involved in dike Construction CON and COL COL COL Township government CON and COL CON and COL CON and COL County goverment CON and COL CON and COL CON and COL City governments CON and COL CON and COL CON and COL Prefecture WCB CON and COL CON CON Provincial WCB CON and COL CON and COL CON and COL Provincial government CON CON CON Chiangjiang WResource Commission CON and COL CON and COL CON and COL Note: IS = sharing information; CON = consultation; COL collaboration

6.3 How does the project involve consultations or collaboration with NGOs or other civil society organizations? Project activities involve continuous consultations with village and township leaders and PAPs throughout the resettlement and restoration processes. Women's groups, professional groups, local government groups and non-government organizations have been consulted throughout the preparation of the Resettlement Action Plans. This will continue during Project implementation. 6.4 What institutional arrangements have been provided to ensure the project achieves its social development outcomes? During Loan negotiations assurances have been obtained that Project Management Offices will be maintained throughout the implementation period of the Project. Each PMO at provincial, municipality/prefecture and county level will establish environmental management divisions with a chief and qualified staff in adequate numbers, who will be responsible for coordination and implementation of the EMP in the province. For social monitoring a resettlement monitoring office will be established at province, municipality/prefecture and county levels with a chief and qualified staff in adequate numbers who will be responsible for coordination and implementation of the RAP in the province 6.5 How will the project monitor performance in terms of social development outcomes? During Loan negotiations each Project province shall, not later than September 15, 2000, employ a independent monitoring institution and thereafter retain the institution to monitor, evaluate and report on the socio-economic progress of all persons affected by the Project as well as on all aspects of imnplementingthe agreed RAP for each province.

- 27 - 7. SafeguardPolicies: 7.1 Do any of the following safeguard policies apply to the project?

O EnvironmentalAssessment (OP 4.01, BP 4.01, GP 4.01) T2Yes D3No O Natural habitats (OP 4.04,BP 4.04,GP 4.04) 1 Yes El No El Forestry (OP 4.36, GP 4.36) _ _ Yes E No El Pest Management (OP 4.09) El Yes I No El Cultural Property (OPN 11.03) [ Yes Z No El IndigenousPeoples (OD4.20) El Yes 1 No El InvoluntaryResettlement (OD4.30) I Yes El No Ol Safety of Dams (OP4.37, BP4.37) El Yes 1 No El Projects in InternationalWaters (OP 7.50,BP 7.50, GP 7.50) El Yes [I No El Projects in Disputed Areas (OP 7.60.BP 7.60. GP 7.60) El Yes 1 No

7.2 Describe provisions made by the project to ensure compliancewith applicable safeguard policies. The Project complies with all relevant Bank policies. The policies that were examined in detail are the environmental,natural habitats, and resettlement aspects of the Project in accordance with the stipulations of OD 4.01, OP 4.04 and OD 4.30 respectively.The following steps have been taken to comply with public disclosurerequirements of OD 4.01 and OD 4.30:

- The draft ResettlementAction Plan (RAP) and Environmental Impact Assessment (EIA) were submitted to the Infoshop (EXTIN) on November 23, 1999 prior to the December 1999 appraisal of the Project; * The final RAP was submittedto the Infoshop (EXTIN) on December 6, 1999; * A summary of the EIA of the Projectwas submittedthe Bank's Board Operations Division on November 24, 1999 and distributedto the Board members on November 29, 1999; - The revised RAP of March 2000 was submitted to the Infoshop on April 3, 2000; - Supplementalreport to the EIA of April 2000 was submitted to the Infoshop on May 8, 2000; * The Final RAP of April 2000 was submitted to the Infoshop on May 31, 2000; and * The draft EIA and RAP in Chinese were made available to the public in Hubei and Hunan in December 1999 and the final versions in March 2000. The EIA also covers natural habitat issues. Television networks and provincial and local newspapers announced for three consecutive days the names and locations of the public libraries in the Project areas where the EIA and RAP were available for the public to consult.

The procurementpolicies and guidelinesas indicated in OP 11 and Financial Management requirementsas stipulated in OP/BP 10.02 have also been complied with. There are no indigenouspeople in the Project areas and therefore OD 4.20 does not apply.

- 28 - F. Sustainabilityand Risks 1. Sustainability: Project sustainabilitywill depend on: (a) effective Project management and implementationarrangements; (b) sound design and implementationstandards; (c) strong interagencycoordination at various government levels to ensure adequate funding and efficient use of funds, timely completion of procurement plans and good quality design and construction of works; and (d) the introduction of efficient and sustainable inspection and maintenance procedures and effective arrangements to assure adequate funding for inspectionand maintenanceafter Project completion. These elementshave been incorporatedin the Project design.

2. CriticalRisks (reflectingassumptions in the fourth column of Annex 1): Risk Risk Rating Risk Minimization Measure From Outputsto Objective - In additionto the Project works, steps S - Borrowerand Bank to ensure careful and will be taken to: (i) remove polder areas periodic monitoring of annual fundingand bordering the dikes; (ii) rehabilitate implementationplans for key Project works with detention basins and organize that people MWR, CWRC and provincial governments will be moved quickly to safe areas in critical situations;and (iii) properly maintain retentionlakes - Governmentwill not carry out the M - Bank to plan regular reviews with MWR and entire dike strengthening and related CWRC on the funding and implementation projects status of this large program - Adequatebudget is provided to M - Monitoringof fundingcommitments and implementall agreed measures detailed in releases; periodic review of financingplan with RAPs all level of Governments - Detailed coordinatingarrangements are M - Create awarenessof importanceof made between the Yangtze Basin coordinationin MWR and PLGs at all levels of Commissionand the provincialflood government forecasting offices - Governmentwill enforce all aspects S -MWR/CWRC and Bank to monitor the defined in the Flood Control Law implementationof the Law - Governmentwill enforce carrying out of S - Government will establish International/local all EPMs for all project development Panel of Environmentaland Resettlement stages as specified in the EIA Experts and will have continuingperiodic meetings of the Panel which will have responsibilityfor periodic environmental performance of all project participantsincluding delineationof gaps and recommendationfor needed corrections

FromComponents to Outputs - Adequateand timely provision of M - Monitor commitments and releases and counterpartfunds conduct periodic reviews of the financingplans and sources of funds with finance bureaus at all levels of government

- 29 - - Detailed designs are completed as M - Make sure that provinces retain experienced scheduled design organizations,and that their work is reviewed regularly. Mobilizedesign expert panel to address design issues and design quality -No major floods will occur during the S - Ensure that: (i) adequate stockpilingof flood Project implementationperiod fighting materials; (ii) early warning systems; and (iii) flood emergencyplans, are in place - Continued strong support for Project M - Ensure careful monitoring by the Borrower fundingand implementationfrom all and the Bank of funding and Project levels of government implementationprogress - Timely decisionmaking on key M - Bank and local governmentagencies to cany procurement actions out review processes expediently;make sure MOF/IBRDapproved model bidding documents for ICB and NCB are used

OverallRisk Rating M RiskRating - H (High Risk),S (SubstantialRisk), M (ModestRisk), N(Negligible or Low Risk)

3. Possible Controversial Aspects: There are two possible controversial aspects. The first is the association of this Project with the Three Gorges Project. As indicated in the section on Development and Strategy this Project is focused on the rehabilitationof the dikes which have been there for hundredsof years. The design elevation of the dikes have never changed since the 1950'sfollowing the 1954 flood. The TGP was approved in 1990 and the dike designs have not been changed. The dikes stand on their own as the basic first line defense for floods up to a 20-year recurrence period irrespectiveof whether TGP is built or not. The second controversialaspect is the associationof the resettlement component under the Project with the voluntary resettlement of about 2 million victims of the 1998 flood. Most of the people who lived within the river side of the main dikes have been resettled. The majority of these people had been living there for decades and have been building subsidiarydikes to protect themselves from the river floods. During the 1998 floods many of the secondary dikes breached. Many of the people living on the river side were permanently displaced,because secondary dikes were breached and the flood waters stayed around for over 9 months in some of the low-lying areas. The Central Government developed a scheme to compensate the affected people by giving them housing and land so that they could restore their livelihoods. The compensation payments for these people are different from the involuntary resettlers. The flood victims are often resettled in different places and the majority of the compensation payment was for housing. Most of them continued farming in their old places. The resettlement under the Project is quite different since it runs along the dikes and is essentially involuntary.The two schemes are different in nature and cannot be assessed as one program.

G. Main Loan Conditions 1. Effectiveness Condition Standard

2. Other [classifyaccording to covenant types used in the Legal Agreements.] The Borrower shall:

- 30 - (a) Maintain at all times during Project Implementation a Central Project Steering Committee, with representativesof the MWR, SDPC, MOF and the Project Provinces to be responsible for the oversight of Project implementation.

(b) Maintain at all times during Project implementationa Central Project Coordination Office (PCO) with terms of reference and resources acceptableto the Bank, headed by an official of MWR and assisted by qualified staff in adequate numbers assigned from MWR, CWRC and the two Project Provinces, to ensure that: (i) the national standards for design and constructionof river dikes and embankmentsas well as for resettlement are applied under the Project; and (ii) appropriate quality control assurance measures are followed.

(c) Employ no later than October 15, 2000 and maintain throughout the period of Project implementation,a panel of independent experts with terms of reference, qualifications and experience acceptable to the Bank, to assist with reviews of design and construction programs under the Project, provide technical guidance to the Borrower and Project Provinces on such programs and to monitor, evaluate and report to the Bank on the implementationof such programs.

(d) (i) Take all measures to ensure that the Enviromnentalmanagement Plan (EMP) is carried out in a manner designed to ensure that the Project is implemented in accordance with sound environmental practices and standards; and (ii) maintain policies and procedures adequate to monitor and evaluate the implementationof the EMP and the RAP and the achievementof their respective objectives and to include the results of the monitoring program in the semi- annual progress and the mid-term review reports; and (iii) ensure that any proposed revisions to the EAP and the RAP have been agreed with the Bank;

(e) Prepare through CWRC, in accordance with guidelines acceptable to the Bank, not later than December 1, 2000 and, thereafter, not later than October 1 in each subsequent year, a proposed plan for the river bank protection works and physical river model implementation, which will: (i) describe the activities proposed to be carried out under these componentsunder the Project during such period; and (ii) be accompanied by a financing plan therefor and evidence satisfactoryto the Bank that funds in adequate amounts are available for the payment of expendituresto be incurred in carrying out these components.

(f) Consolidate the implementationplan mentioned above, together with the annual implementation plans fumished by each Project province and furnish this plan to the Bank not later than December 15, 2000 and, thereafter, not later than October 15 in each subsequent year, commencing October 15, 2001. The Borrower shall give the Bank reasonableopportunity to exchange views on the plans and thereafter shall promptly take all measures necessary to ensure proper implementationtaking into account the views of the Bank.

(g) Consolidatethe plans designed to ensure the proper operation and maintenance (O & M) of flood protection facilities included under the Project furnished to it by the Project Provinces and furnish these to the Bank by December 1, 2002 accompaniedby an adequate financing plan to carry out the 0 & M. The Borrower will give the Bank a reasonable opportunity to review the plan and ensure the proper implementationof such a plan will take into account the views of the Bank.

(h) Prepare semi-annual progress reports, not later than April 15 and October 15 in each calendar year, which will: (i) summarize the results of monitoring and evaluation activities on the progress achieved with Project implementation during the preceding six months; (ii) consolidate the semi-annual reports furnished by CWRC and the Project provinces [see section (q) below] and the reports furnished by the panel of engineering experts [see section (c) above]; (iii) set forth physical and financial progress with

- 31 - Project implementation,both cumulatively, during the preceding six months; and (iv) set out additional measures recommended to ensure the efficient carrying out of the Project and the achievement of its objectivesduring the following Projectimplementation year.

(i) Canry out a mid-term review of Project implementationnot later than July 15, 2002 and prepare a mid-term report for this review which will summarizethe results of monitoring and evaluation activitieson the progress achieved in carrying out of the Projectto date; consolidate the mid-term reports furnishedto it by the Project Provinces;and set out any additional measures recommendedto ensure the efficient carrying out of the Project and the achievement of the objectivesthereof during the period following the date.

(j) Furnish each report for its review to the Bank and thereafter promptly take all measures required to ensure the efficient completion of the Project and the achievement of the objectives based on the conclusionsand recommendationsof the reports.

Provinces of Hubei and Hunan shall:

(k) Each maintain at all times throughoutthe period of Project implementationmaintain, the following offices with terms of reference, staffmg and resources acceptable to the Bank: (i) Provincial Project Leading Groups for Project oversight and guidance for policy decisions, (ii) Provincial Project Management Offices to be responsible for day-to-day execution of the Project, including procurement of goods and services and monitoring and evaluation of implementation progress; (iii) Environmental ManagementOffice at the provincial and prefectureor municipal levels to be responsiblefor coordination and supervision of the implementationof the EnvironmentalManagement Plan of the Project, as it relates to the impact of the construction works and the resettlement implementation; (iv) a Resettlement management division within the PMO each of the provincial, prefecture or municipal and county levels that will ensure that the RAP is carried in a manner acceptable to the Bank; and (v) Local Government Project ManagementOffices that will be responsiblefor the constructionof works and implementationof all other parts of the Project.

(I) Each employ, not later than September15, 2000 and thereafter at all times maintain:

(i) a monitoring institution with TOR, qualifications and experience acceptable to the Bank, to monitor, evaluate and report on the socio-economic progress of all persons covered by the respective RAPs, and

(ii) a panel of environmental and resettlement experts with TOR, qualifications and experience acceptable to the Bank, to assist in overseeing the implementationof the EMP and the RAP and monitoringthe impact of the implementationof the Project on the environment.

(m) Each carry out its Respective EMP in accordance with sound environmental practices and standards. Each Project province shall carry out its Respective RAP in a manner designed to: (i) minimize involuntary loss of shelter or productive assets or of income or means of livelihood to the extent possible due to any change in land or water use; and (ii) improve the living standards and production levels of all affected persons under the Respective Parts of the Project. In addition, each Project Province shall: (i) maintain policies and procedures to monitor and evaluate, in accordance to guidelines acceptable to the Bank, the implementationof the Respective EMPs and the RAPs; and (ii) include the results of such monitoringand evaluation activities [includingthose of the monitoring institutionin the aforementioned(i)] in each report to be prepared by it and furnishedto the Borrower, together with any revisions proposed to be introducedto such plans to achieve their objectivesas shall have been agreed with the Bank.

- 32 - (n) Each prepare, in accordance with guidelines acceptableto the Bank, and furnish to the Borrower not later than December 1, 2000 and thereafter , not later than October 1, in each subsequent year, for forwarding to the Bank, a proposed annual implementation plan for the following calendar year; (i) describing the activities which it proposes to carry out under its respective part of the Project including training programs; and (ii) be accompanied by a financing plan therefor and evidence satisfactoryto the Bank that funds are adequate to carry out the Province's Respectivepart.

(o) Each, to ensure the financial and physical sustainabilityof flood protection facilities included under the Respective Part of the Project, shall take the following measures in accordance with terms of reference acceptableto the Bank: (i) furnish to the Borrower not later than November 15, 2002 for forwardingto the Bank a plan designed to ensure the proper operation and maintenance of all facilities accompaniedby adequatefinancing plan; (ii) give the Borrower and the Bank a reasonableopportunity to review the 0 & M plan and thereafter will carry out such a plan; and (iii) in order to assist the Provinces to prepare the 0 & M plan the Project Provinces shall employ consultants with experience and qualifications acceptableto the Bank.

(p) Each in order to recover the recurrent cost of 0 & M of the flood protection facilities under the Project take the following measures: establish and collect flood protection charges to recover a substantial portion of the 0 & M facilities incurred and to finance the 0 & M costs of facilities not covered by the flood protection charges. Each Province shall prepare, on basis of guidelinesacceptable to the Bank and to furnish to the Borrower and the Bank, not later than March 31, 2002, the proposed schedule of such charges and timetable for its establishment and proposal for financing the operations and maintenance costs not covered by such charges. The Provinces shall give the Bank and the Borrower a reasonable opportunityto exchangeviews on the scheduleand time table to implementthe charges.

(q) Maintain policies and procedures to monitor and evaluate on an ongoing basis, with indicators acceptable to the Bank under TOR satisfactory to the Bank, and furnish the following reports to the Borrower, for forwarding to the Bank: (i) semi-annual progress reports, on April 1 and October 1 in each calendar year and said reports shall summarize the results of such monitoring and evaluation activities on the progress achievedand physical and financialprogress during the preceding six months and set out any additional measures recommendedto ensure the efficientcarrying out the Project; and (ii) a mid-term report not later than July 15, 2002 to summarizethe results of such monitoring and evaluation activities on the progress achieved in carrying out the Respective Parts of the Project and set out any additional measures to ensure the efficient carrying out of its Part of the Project.

H. Readinessfor Implementation 1S 1. a) The engineering design documentsfor the first year's activitiesare complete and ready for the start of project implementation. D 1. b) Not applicable.

1 2. The procurementdocuments for the first year's activities are complete and ready for the start of project implementation. 1 3. The Project ImplementationPlan has been appraisedand found to be realistic and of satisfactory quality. E] 4. The following items are lacking and are discussedunder loan conditions (Section G):

- 33 - 1. Compliancewith Bank Policies Z 1. Thisproject complies with all applicableBank policies. El 2. The followingexceptions to Bankpolicies are recommendedfor approval.The projectcomplies with all otherapplicable Bank policies.

The Projectcomplies with all relevantBank policies. The policiesthat wereexamined in detail are the environmentaland resettlementaspects of the Projectin accordancewith the stipulationsof OD 4.01 and OD 4.30 respectively.The procurementpolicies and guidelinesas indicatedin OP 11 and Financial Managementas detailedin OP/BP10.02 are compliedwith. Thereare no indigenouspeople in the Project areas andtherefore OD 4.20 does not apply.

___ _ DanielJ. Gunaratnam (o freyB. Fox YukonHuang TeamLeader SectorManager/Director CountryManager/Director

- 34 - Annex1: ProjectDesign Summary CHINA: Yangtze Dike Strengthening Project KeyPeffofmance HiWarcyof Oblecties Indicators-onito & Eoaluation Sector-related CAS Goal: Sector Indicators: Sector/ country reports: (from Goal to Bank Mission) Promote agricultural development Value of agricultural output in the Statistical data gathered by the Stable political transition and and rural economy flood-prone areas of the three Provinces maintenance of the reform provinces program

Incorporate major water storage, Key investments in flood control Review of annual provincial and Government ensures adequate transfer, irrigation, and flood projects, such as river state investment programs budget allocations for flood control projects embankment protection, dike control investments strengthening and creation of detention basins

Alleviate infrastructure Production loss in industry, cities Provincial statistical data, Project Government implements bottlenecks (through reduction of and towns due to floods; implementation data, flood programs to resettle people living flood damage), and safeguard the permanent and temporary impact data including number of on and near the dikes environment dislocation of people, and public people dislocated and public health problems health hazards

Meet environmental requirements Water, air and soil quality and As specified in EIA Specified EPMs will be as specified in the Project key social indicators of affected implemented Environment Protection Measures population monitored in Project (EPMs) in the EIA area Project Development Outcome I Impact Project reports: (from Objective to Goal) Objective: Indicators: Improve river bank protection and Eliminate flood damage for MWR's analysis report on flood A bigger than the one in 20 year strengthen dikes and thereby floods of less than I: 20 year damage flood will not occur until lower the risk of dike breaches return period until the completion of TGP during floods completion of TGP. After that protection will improve to 1: 100 year return period

Improve dike ownership Improved organizational and Monitor frequency of inspections, Government will actively pursue awareness and responsibility for funding arrangements for dike maintenance funding and quality and support implementationof the dike maintenance inspection and actual of maintenance works the " flood control" law maintenance works.

To develop a system of flood Issuance of a MWR directive for Monitor collection rates of flood State Government will approve protection charges from flood protection fee collection or protection fee from Project the flood levy or ear-marked beneficiaries, such as cities, ear-marked taxes entities and provincial agencies taxes level set by the provinces enterprises, and others or and Dike Maintenance Offices ear-marked taxes.

- 35 - Outputfrom each OutputIndicators: Projectreports: (fromOutputs to Objective) component: Improve flood protection for Reduction in flood damage Flood damage analysis reports In addition to the Project works, about 2 million people from the provinces and MWR steps will be taken to: (i) remove polder areas bordering the dikes; (ii) rehabilitate detention basins and organize that people will be moved quickly to safe areas in critical situations; and (iii) properly maintain retention lakes

Reduce the flooding in areas Reduction in flood damage Flood damage analysis reports Government will carry out the behind the dikes, through from the provinces and MWR entire the dike strengthening improved discharge into the river and related projects at low flow

Project Affected People (PAP) Pre- and post resettlement income M & E processing and reporting Adequate budget is provided to will be properly compensated in levels, restoration of living carried out by independent implement all agreed measures accordance with the agreed RAP environment and complaints organizations detailed in RAPs stipulations and/or grievances received

- 36 - ^ ' ' . .. '~~~~~~~~P6 . <..i-.5-:.'---_.,,':'---..''",,,'-';

ProjectComponents / Inputs: (budgetfor each Projectreports: (fromComponents to Sub-components: component) Outputs) River bank protection and US$103.4million Annual work programs, Adequate and timely provision of foundation treatment semi-annual progress reports and counterpart funds expert panel reports Dike strengthening for Hubei & US$264.5million Annual work plans and Detailed designs are completed as Hunan semi-annual physical and scheduled financial progress reports Dike monitoring systems & river US$22.1million Period Bank supervision missions No major floods will occur during modeling to review implementation the Project implementation period progress and exchange views with the key stakeholders in the Project

Equipment for dike maintenance US$6.1million Findings and recommendations Continued strong support for from expert panels reviewing Project funding and design and construction of implementation from all levels of complex works as well as the government implementationof RAPs and EMPs

Resettlement US$96.9million Reports from independent groups Timely decision making on key monitoring the implementationof resettlement actions RAPs Environmentalmanagement US$1.9 million Findings and recommendations of Competent EMO and panel will expert panel on environment and be established with sufficient resettlement periodic meetings as needed and timelydecision making on key inmplementationissues for environment and resettlement Engineering and Project US$19.2 million Project progress reports and Timely decision making on key management procurement audits implementation/procurement issues Institutional Development US$5.6 million (The above cost figures include price and physical contingencies)

- 37 - Annex 2: Project Description CHINA: Yangtze Dike Strengthening Project

By Component:

ProjectComponent I - US$103.38million River Bank Rehabilitation

1.1. In Hubei Province, the river can be divided into twelve sections; Shangjingjiang(upper Jingjiang), Xiajingjiang (lower Jingjiang), Yueyang, Luxikou, Paizhouwan, Jiayu, Wuhan, Tuanfeng, Huangzhou, Daijiazhou, Huangshi, Longping. Of these twelve sections, the Bank Project supports activities on the Shangjingjiang, Xiajingjiang, Wuhan, Tuanfeng and Huangzhou sections. The following describes the riverbankprotection and dike strengtheningworks. The riverbankprotection and dike foundationtreatment works will be undertaken by CWRC,with Central Government support.

(a) Jingnan Dike Section: The Jingnandike lies on the south bank of the river, beginning at Chajiayue and ending at Wumakou, with a total length of 189.3 km. There are nine critical river sections 54.3 km long requiring bank protection works. These nine selected sections are typically with steep bank slopes and relatively narrow flood plains. The most prominent vulnerable areas are Beimenkou and Tiaoguan sections:

* Beimenkou section: This section is situated in the north of Shishou. Soon after the natural straightening of the Ox-bow section at Xiangjiawanon June 11, 1994, the impact of the river flow caused a 3-km stretch of bank failure with a maximum shoreline recess of 400 m. The maximum rate of shoreline recession was 55 m/hr. The distance between the shorelineand the toe of the Shengli dike was merely 38 m. On Oct. 14, 1998, another bank failure occurred at an alarming pace of 100 m shorelinerecess within 3 hours. The water depth was close to 20 m and the riverbank was in the proximity of the toe of the dike. The critical condition was temporarilyunder control with the rescue operation of dumped rip-rap and other measures. So far, approximately 15,000 cum of rocks were dumped at the site covering 1,400 m long shoreline. As the river regime is still undergoingthe adjustment process, new development of bank failures continues.

* Tiaoguan section: This section is situated at the tip of the major river bend with a narrow river cross section, high flow velocities and deep water. Typical river bed elevation is at -18 m and the water depth reaches 60 m during the flood period. During the flood of July 13, 1989, the water level reached 38.4 m and the velocity exceeded 4.0 m/s. The protective stones embankmentwere washed away and a stretch of 50 m of the toe section of the outer dike slope was damaged. So far, the length of protected shorelineis 1.7 km and the cumulative amount of dumped rip-rap is 27,000 m.

(b) Wuhan Section The city of Wuhan is situated at the confluence of Yangtze River with its tributary the Han River. The total length of the dikes is about 279.9 km, which includes 44.6 km of flood protection walls. The total length of the dike considered by this Project is 170.2 km of which the bank protection works cover 30.6 km, comprising 18.9 km in the City area and the rest in the Suburban areas, exclusive the portion along the Hannan Dike Section which is not part of this Project. There are seventeen critical river sections with a total length of 30.6 km. These areas are characterized by narrow flood plains with severe bank failures.

- 38 - (c) Bapu Section The Bapu dike is situated on the south bank of the river where the river bends in an "S" shape fashion due to the presence of a series rocky points. The flow regime is generally stable, except for the frequent lateral shifts of scouring and deposition banks. The critical shoreline lies on the concave side of the river bend where the thalweg, or deep water line, is close to the bank. Notable critical stretches include Liutsu Xian, Zheng Jiawan, and Shuitawuto Wuzhang-gang.The total length of proposed river embankmentprotection work covers 8.0 kin, which is about 18% of the dike length.

(d) Huang-gangSection The Huang-gangdike is located along the north bank of the Yangtze River between the two tributaries Ju and Ba. The total proposed length of embankment protection works is 1.3 km.

A summary of the iocationand extent of riverbankprotection works, within the scope of the Bank supportedProject, is shown below in Table 1.1:

Table 1.1: The Extent of River Bank Protection and Dikes Strengthening Works - Hubei

River Rank Protection Dwke WrndroBnknt N-ed Word Bank Protect River Section Critical Bank . Length of Project Total Length Cross Dike (km) Locations Works (km) (km) Embankment Slope Protecion Seepage Strudur 1km) Works(kin) (kin) ~~~~~~(koo)(km) Control(kin) IN..)

Jingnan Dike, South Bank, Jingzhou 54.28 4 54.28 195.82 154.51 134.14 84.44 15 Wuhan Section 18.88 13 18.87 180.92 143.04 136.94 98.07 42 Wuchang Section, South Bank 14.74 11 14.76 60.91 6760 64.62 41.23 22 Hanyang Section, North Bank 412 2 4.12 2634 27.47 27.47 18.11 9 Hankou Sechon, North Bank - - - 9.95 4.25 1.13 Hannan SecAion,North Bank - - 43.72 43.72 43.72 38.73 11 Huanggang Section, North Bank 1.26 1 1.26 42.49 42.49 34.40 18.80 9 Bapu Dike, South Bank, Er2ho. City 19.42 9 .00 43.60 43.60 51.54 43.60 4

Total of Hubei Province 93.82 27 82.41 442.83 383.64 357.02 244.92 70

Note; ' to be implemented by CWRC

With the exception of a few trial sections, most of the proposed measures for river bank protection include the following standard practices:

* Dumped rip-rap protection for the underwater portion of the bank. Extra amount of rocks is specified for the toe section. However,there is no provision of a graded filtering layer or filter cloth between the rock and the bank soil to be protected. - Placed rockfill protection for the above water portion of the bank slope. A graded layer of gravely filtering layer between the rocks and the bank soil is specified.

Other special types of bank protection methods have been tested or are being considered at selected sites. The methods include the use of a mattress of chain-connected concrete slabs, as applied at the Longwangmiaocritical section which is situated at the confluence of the Han and Yangtze Rivers. With the help of installation boats, the mattress was laid down to the toe of the slope, about 20 m below the water level. The flow velocity during the constructionperiod of low flow was below 1 m/s. In the Bapu section, where the unprotected bank receded at a rate of 100 m/yr, a test section was constructedwith a combinationof dumped rip-rap for the underwater portion and concrete lining for the above-waterportion. The use of geo-textilemattresses with a series of interwovenpockets injected with concrete has also been contemplated by local design and construction firms in collaboration with intemational manufacturers/suppliers.The trial section is located at Hepu of the Paizhouwan dike of the Wuhan section.

- 39 - 1.2 Hunan Province There are a series of prominent meandering segments along the upper reach of the river. A major ox-bow section at the Shangchewan (across the Jincheng polder) has been straightened by training dikes in the 1970s. This resulted in an overall shortening of the river length by 21 km. The lower reach of the river is comparatively straight. However it is characterized by the presence of several river constrictions,such as Chenglingji,Ruji and Yalan, which tend to create wide river sections in between. The expansion of the river cross sections downstream of the rocky constrictions facilitates the formation of alluvial islands. The thalweg, or the deep water line, of the river is generally closer to the riverbank on the Hunan side than to the Hubei Provinces side. In spite of the repetitive applicationsof dumped rip-rap protection for the riverbanks, alarming rates of shoreline erosion were observed in various stretches of the river, as shown in Table 1.2. Typical hydrographic survey of the shoreline change before and after the 1998 flood at Xinshazhou,Hongshuigang, Jingjiangmen and Chengluo as shown in Table 1.2.

Table 1.2: Recession of Shorelines due to Bank Failures

Location Length of Length of Rate of Bank Rate of Bank Maximum Maximum Near Shoreline Bank Failure Erosion Erosion Scour Depth Shore Velocity km km Average (m/yr) Max (m/yr) m/yr m/s Xinshazhui 21.7 10.0 51.7 60.0 14.5* 2-3 Hongshuigan 20.0 9.85 26.7 80.0 12.0 2-3 Jingjianrnmen* 133.5 66.75 30.6 96.0 15.9 33-4 Chengluo 28.0 23.9 30.0 10.0 8.0 2-3 Observedin 1997

The proposed measures for river bank protection includethe following:

* rip-rap protectionof the underwaterportion of the bank, includingtoe protection; * pre-cast concrete slabs or placed rip-rap protection for the above-water portion of the bank; and * use of gabion rockfill and large blocks of concrete for underwater bank protection.

A summary of the locations and length of the proposed bank protection works is shown in Table 1.3. Protectionworks using both rock and pre-cast concrete blocks are proposed for the above-waterportion of the bank. Dumped rip-rap protection with extra toe section is proposed for the underwater portion of the river bank.

Table 1.3: The Extentof RiverBank Protection and DikesStrengthening Works - Hunan

Wnrld R-nS Prial RiverSection CriticalBank Lengthof Project Total Length CrossDike (km) Locations Works (km) (kmj) Embankmet SlopeProtection Seepage StDitures (kim) (kim) Control(kmn) __(No.

MinshengPolder Section,O OD0- 32+624 26.03 9 24.03 32.62 20.13 27.62 18.99 JianshePolderSection, 32+724 - 51+012 8.70 4 8.70 18.29 8.60 15.33 8.12 Jianxin State-Farm Section, 51+012 - 53*915 - - 2.90 - - - JushanState-Farm Section, 53+975 - 76+800 - - - 22.83 20.93 16.23 19.75 Yongji PolderSection, 78+200-86+380 8.06 2 5.48 8.18 6.28 6.18 5.93 LuchengPolderSection, 86+380 -109+110 5.40 3 5.40 22.73 20.73 20.13 19.56 JiangnanPolder Secton .109+110 -136.044 - - - 26.93 18.58 22.99 17.54 HuanggailouSlate Farm Section, 139+044- 142+055 1.40 1 1.40 7.21 1.70 5.01 1.60

Totalof Hunan Province 49.59 19 45.01 141.70 96.95 113.49 91.49

Note:^ to be Implementedby CWRC Oniv 116km Is IncludedIn the Pro/ect

-40 - Project Component 2 - US$264.52 million Dike Strengtheningand Seepage Control Works

2.1 Hubei Province In Hubei province 1,577 km of dikes on both banks of the river, are divided into nine sections: Xiabailizhou,Jingjiang, Jingnan, Jianli - Honghu, Xianning, Wuhan, Bapu, Huanggang and Yangxin. Most of the dikes were built as early as the 17th century. They have been subsequentlyraised and improvedthroughout the years. As expected, the structural conditionsare generally poor due to the inherent shortfalls of construction materials, constructionmethods and dike maintenance. This is compoundedby the variability of foundation conditions and the presence of animal/termite holes throughout the embankment. Piping and sand boils occur frequentlythroughout the dike and foundation areas whenever there is a prolonged period of high water level in the river. The dike sections under the Bank financed portion are Jingnan, Wuhan, Bapu and Huanggangdescribed below:

(a) Jingnan Section The Jingnan dike lies on the south bank of the river, beginning at Chajiayueand ends at Wumakou, with a total length of 189.3 km. Except for a stretch of 0.9 km long new embankment, the remainder of the 186.8 km dike length are to be raised and strengthened. The Project covers the heightening and strengtheningof the dike systems in Shishou, Gong-an, Jingzhou and Songzi, with a total length of 154.0km.

(b) Wuhan Section Wuhan, the capital city of Hubei Province, is situated at the confluenceof the Yangtze River with its tributary Han River. The dikes along the Yangtze River in Wuhan are 285.64 km long, of which 175.3 km is located on the left bank and 111.2 km on the right bank, including 44.6 km of flood protection walls. The dike protection system is categorized into two parts: "City" and "Suburb" front.

* The "city" portion of the dikes comprisesthree flood protection rings: Hankou (10.0 km of dikes in three segments along the Yangtze), Wuchang (59.0 km of dikes in 5 segments along the Yangtze) and Hanyang (14.2 km of dikes in three segments along the Yangtze River). * The "Suburban"portion of the dikes, with the total length of 56.7 km along the main stem of the Yangtze River, comprises six flood protection revetments: Hannan, Shiyigong, Junshan, and Wuhui.

(c) Bapu Section The Bapu dike is situated on the south bank of the river, within the territory of Erzhou City. The total length of the Bapu dike is 43.6 km excluding the stretches of natural high ground. It is the key flood control barrier for the Liangzi Lake drainage basin. Liangzi Lake is the second largest lake in Hubei, with a drainage area of 3,365 km2. Bapu dike was built almost 300 years ago in the Qing Dynasty. Over the years, it has been raised and strengthened.However, it has various deficienciesincluding poor embankmentmaterial and inadequateheight and width. As a result, incidents of piping, sand boils and slope failures are common during a major flood. During the 1998 flood, there were over 300 locations of piping, sand boil, cracks and slope failures observed. In addition, eight dike breaching cases of the subsidiarydikes occurred around the polders. The main river dike was saved from a major disasterthrough large scale emergency rescue efforts. The dike strengthening works under the Project covers the entire stretch of the Bapu dike or 43.6 km.

(d) Huanggang Section The Huanggang dike is located along the north bank of Yangtze River between the two tributaries of Ju and Ba. The total length of the dikes is 108.6 km, including40.6 km along the tributary Ba river: Laocheng and Changsun dikes. The Project covers 45.5 km of dike strengthening

- 41 - work, including a 3-km stretch of floodwalls.The dike system comprises Changcheng and Dulong dikes in the Huangzhou District and upper Dulong Dike in the Tuanfeng County. Most of the dikes were built 500 years ago. Over the years, they have been raised, widened and straightened.However, they show various deficiencies including the lack of height and width, poor embankment material, close proximity to the riverbank, and the existence of numerous ponds and open pits behind the dike. The ponds and pits were formed as a result of the excavation of constructionmaterial for building the dikes. In the past, the ponds and/or pits were within 50 m distance from the toe of the dike in certain sections.A high percentageof the drainage improvementworks and pressure relief wells have been seriously clogged. During the 1998 flood, 118 out of the total 260 relief wells malfunctioned. There are many cases of embankment cracks and termite holes.

A summary of the locations and lengths of the dike sections for strengthening,heightening and broadening is also shown in Table 1.1. The proposed remedialworks for the dikes are the following:

* Constructionof RC flood walls, normally with 4 - 6 m backfill; * Heighteningthe dike with a crest width of 8 m for Class I or Class II dikes; most of the dike will be repairedby clay grouting; * Foundationtreatments by diaphragmwalls (under CWRC's responsibility); * Constructionof berms and back-fillingthe ponds on the land side of the dike; * Constructionof relief wells; and o Dike slope protection with masonry and plant trees to protect against wave action on the riverside and grass on the landslideof the dikes; and * Upgrade and pave dike roads and provide lighting.

A variety of seepage control techniques, such as steel sheet pile wall, and thin-diaphragmwall, are being evaluated and tested.

2.2 Hunan province In Hunan province the existing main dike length is 137 km. The upper reach has four dike sections: Minsheng, Jianse, Jianxin and Junshan, with an aggregated length of 76 km. There are four dike sections in the lower reach: Yongji, Lucheng, Jiangnanand Huanggaihu,with a total length of 61 km. The major defects and problems of the dikes can be categorizedinto the following areas:

* Inadequaciesof the dike section; * Piping through the foundation; * Presenceof buildingson the dikes; and * Numerous cross-dikestructures with defective embankmentconnections.

A summary of the locations and lengths of dike sections to be strengthened,heightened and broadened is shown in Table 1.3. The proposed remedial works for the dikes are:

* Constructionof RC flood walls; * Heighteningthe dike from either upstream or downstream side of the dike, depending on the location of borrow pits, and environmentallimitations; and * Consolidationof the dike by clay grouting;

-42 - * Foundationtreatments by cutoff walls including jet grouting and cement mixed piles (under CWRC's responsibility); * Construction of down-slope berms, and back filling the ponds created in the past as borrow areas for the dike construction; * Dike slope protection by masonry outside, grass cover inside of the dikes and trees for wave protectionon the riverside berms; and * Upgrade and pave dike roads and install lightingdevices.

Cross-Dike Structures:

2.3 In Hubei Province most of the cross-dike structures, such as culverts, sluices and pumping stations, were built before the 1970s.They are in poor operating conditions due to poor maintenance,low design standards and use of sub-standard material and low construction quality. Structural cracks and leakage are common. There are many structures that require strengthening, extension and reconstruction. Some of the badly deteriorated structures, which no longer serve any significant role for providing irrigation and drainage, will be taken out of operation. Seventy (70) cross dike structures will need to be repaired, extended or reconstructedunder the Bank financed Project. Details of the cross-dikestructures in Hubei provinceto be improvedunder the Project are given in Table 1.1.

2.4 In Hunan province cross-dike structures are culverts, sluices, pumping stations and traffic passes with flood controlgates. On average, there are two cross-dike structures per kilometer length of dike. Most of the structureswere built in the 50's or 60's with poor material and outdated design. Most of these suffer from leakage and cracks due to uneven foundation settlement. These structures invariably require foundation treatment for seepage control and installation of snail trap pools. The length of most of the structureswill be extended to meet the cross-sectionalprofiles of the heightenedand broadened dikes. The foundation treatments for the cross-dike structures include concrete cutoff walls, jet grouting, and cement mixed piles. There are 3 sluices to be repaired, 29 to be lengthened and 32 to be rebuilt. In addition to improving 64 sluices one new culvert is to be built. These works will be carried out with 100% governmentfinancing.

ProjectComponent 3 - US$22.07 million (i) Dike Monitoring (US$2.0 million) and River Modeling (US$20.1million)

3.1 Dike Monitoring System. Under the Project Hubei will set up a computerized system to monitor possible seepage through the dike and settlementldeformationof the dike. The system will consist of piezometers placed at regular and critical locations on and away from the dike. This will enable the monitoringof flows through the dike body and foundations.A real time data acquisitionwill be established for all the piezometer measurements, dike deformation and water levels alongside the dike. The measurements will provide advanced waming for possible weaknesses in the dikes during periods with high water levels. This will allow taking early protection measuresto prevent dike breaches.

3.2 River Modeling Under the Project CWRC will develop a physical model of the middle reach (Yichang to Hukou) of the Yangtze River. The model will be a movable bed type used to predict the changes in the geomorphologyof the river. It will also depict the flows through Dongting and other lakes. The CWRC has not been very successfulin using mathematicalmodels, although several such models have been tried. The Yangtze River has in most parts establisheda stable river regime water course. However, there are several sections of the river which are still unstable and need to be studied using a physicalmodel. The physical model will be built with the instrumentationand equipment available to CWRC in Wuhan.

- 43 - Project Component 4 - US$6.08 million 4.1 Equipmentfor Dike Maintenance At present, dike maintenance,which is carried out during the dry season from September to May, relies mainly on a large labor force with basic tools and outdated equipment. This method is inefficientand the work carried out is of poor quality. The Project will provide modem equipmentfor dike operationand maintenance and step up the organizational capacity to carry out regular maintenance. The equipment will include wheel loaders, bulldozers, excavators, dump trucks, boats and other related equipment. Included under this procurement will also be gates and hoists for the various cross-dike structures.

Project Component 5 - US$96.92 million 4.2 Resettlement In accordance with the "Flood Control Law", no residential structure shall be erected: (i) on the dike; (ii) within 50 m from the landside of dike toe; and (iii) within 50 m from the riverside of dike toe. Existing structures not complying with this law will be removed. In addition, the construction of enlarged dike sections will require acquisition of about 16,150 mu of cultivated land. A ResettlementAction Plan (RAP) for the Government'sMid Yangtze River Flood Control Project has been prepared in accordancewith OD 4.30 to facilitatethe mitigation of adverse project impacts on the affected people. The Resettlement Program for this Project includes various housing and economic restoration measures which have been developed in order to; (i) minimize disturbance to resettlers by providing local resettlementoptions, family production/incomerestoration altematives and necessary support in the period of transition; (ii) be acceptableto both resettlers and host populations;and (iii) maintain or improve income levels and standards of living of Project Affected People (PAPs). The mechanisms for restoration of enterprisesand infrastructureand utilities affected by the Project are described below and in more detail in Annex 12. (a) Household Restoration Some 10,958 families or 47,992 people in the Project area will have to be resettled, of which 4,464 families or 19,213people come from Hunan and 6,494 families or 28,779 people from Hubei. In accordancewith the guidelinesto minimize distances to altemative resettlement sites, and considering resettler's preferences, the following resettlement altematives were developed, based on available land areas and their capacity for increasedproduction, and the viability of industrial expansion.

ResettlementType Number of 1H Numberof People InternalResettlement (resettlementof rural householdswithin the existing village area) 8,078 35,484 CollectiveResettlement (relocation to new residential areas in rural and urban sites -- as 2,890 12,508 appropriate --, urban resettlement to apartment blocks and rural safety platform sites) Total 10,958 47,992

(i) Internal Resettlement Over 70 percent of resettlers (35,484 people and 8,078 families)will be relocated within their existing village administrativeareas, minimizing disturbance to existing social and economic systems. This type of rural resettlement will require land improvementand the redistributionof village productivelands, and in eleven instances,the transfer of lands from adjacent villages to supplement lands currently available within the village. Environmentaland economic capacity investigationsidentified the 168 villages as feasible for this type of resettlement, in light of the production restoration measures

-44 - proposed. In most cases of internal resettlement,infrastructure and service displacementwill be minor, and the restoration of all impacted services is included in the resettlement program and budget. House reconstructionwill be undertaken by the villagers themselves, in accordancewith agreed standards.

(ii) Collective Resettlement Collectiveresettlement shall involve 2,880 families or 12,508 people to 22 sites. These sites consist of three types for collective resettlement:

* Towns or Communities - where new housing areas can be constructed in existing communities; * Township Blocks - where new residentialblocks will be developedfor resettlers;and * Safety Platforms - elevatedplatforms will be built nearby to villages, on top of dykes where residentialhousing will be constructed. In Hunan and Hubei, 22 residential sites will be developed for rural resettlers in towns or communities, providing for a total of 2,880 households with 12,508 people with facilities and houses. Through land re-allocation and land development, the RAP provides for the largely rural resettlers to maintain agricultural livelihoods. In Hunan, 10 residential safety platforms are proposed for the resettlement of 1,715 rural households totaling 7,331 people. In each instance, minimum housing and living space standards will be met (35 m' /person), and where adequate infrastructure and facilities including water supply and sanitation,drainage, power will be provided. (b) Production Resettlement The income and production restorationprogram described in Annex 12 was developedaccording to guidelines of: (i) providing a variety of restoration alternatives, with land as the primary means of support; (ii) utilizing local resources and development activities without adverse impact to the environment;and (iii) developmentof secondary and tertiary village run industries.Target net income per capita rates have been set by the program as a target and measure for successful implementationof the program. An analysis of the land capacity in the affected villages, examined land availability and level of development of existing lands in the identification of the selected sites where reduced land holdings, with appropriate investment an development would not compromise carrying capacity. Productionplans for each province are detailed in Annex 12 and outlined below:

Hunan Province- Improve 52,762 mu (3,517 ha) of land to support 5,077 resettlers and transfer 1,277 mu (85 ha) of "foreign" village tilled land to support 893 resettlers, among which 623 mu is irrigatedtilled land and 604 mu is non-irrigatedtilled land.

Hubei Province - Support 7,651 rural resettlers, among which 6,183 persons will be involved in improving low-output land, 342 persons in animal husbandry, and 1,126 persons in village-run enterprisesand tertiary industry.

Implementationof these programs will require an estimated investmentof Yuan 166.96 million, of which Yuan 54.6 million in Hunan and Yuan 112.34 million in Hubei, which will be provided from the land compensationand resettlementfunds. The average investmentper capita is Yuan 12,048.

(c) Occupation of Temporary Lands Total land affected by the Project has been identifiedas 12,954 mu (864 ha). Compensation will be provided based on annual output (for lost production), and to meet restoration costs. These costs are not included in the RAP as they are met by the Project construction costs.

- 45 - (d) Infrastructure and Enterprise Recovery All relocation or reconstruction of Project affected infrastructure will cost approximately Yuan 64.4 million. Affected enterprises total 247, and in many instances land acquisition will result in only*partial relocation or loss of land with minimal impact to production. Investment for their relocation and lost production is estimated at Yuan 107.25 million. In addition, a contingency of 5 percent of the housing compensationvalue has been included in the overall Project contingencyto provide a safety net fund for vulnerablegroups.

4.3 Public Consultationand Social Adjustments The resettlement program includes provisions for public consultation and social adjustments to ensure achievement of the goal that the affected parties (resettlerfamilies and the host communities)involved in the ResettlementOperation are not disadvantaged by the Project and to the extent feasible will share in the Project benefits. Preferentialpolicies specified by the Government and additional policies included in the RAP will be available to resettlers. Policies of primary importanceto resettlers include:

* Tax and levy deduction for acquired lands, and for exemptions or reductions in the associated grain quotas, thereby supportingboth the resettlers and host communities; * Industrial, agricultural and animal husbandry taxes and levies at the county and township levels will be adjusted in accordancewith the magnitude of impact in each administrative area; * The resettlementbudget includes a contingencyfor the support of vulnerablegroups if they are disadvantagedby the Project, and due to unforeseen circumstances,unable to restore their livelihoodunder the proposedRAP; and e In the year of resettlement,resettlers will be exempted from contributing annual labor to dike maintenance.

Because some resettlementhas already started agreementsmade include that:

* The PMOs comply with the compensationstandards stated in the RAP in accordance with the appropriate local and national regulations by the end 1999. In doing so, current compensation standards for all project areas will be made uniform, and supplementarycompensation to resettlers already compensated at the lower standards will be made to the RAP standards; * Disbursementwill commence a minimum of three months in advanceof demolitionto allow for house completion before demolition, thus avoiding (or at least minimizing) any need for temporaryaccommodation; * The County/Township ROs will carry out land readjustment and provide land/productivecompensation as soon as possible in accordance with the guidelines and standards specified in the RAP, which will fund land improvement and agricultural extension activities to improve the productivity of the land available to resettlers after relocation; * Project specific Resettlement Offices (ROs) will be established at all levels, with staffing in accordancewith the requirementsoutlined in the RAP; * The proposed training programs for the ROs will commence by end December 1999, and guidelineson the managementof funds will be issued to all ROs; and * Independent Monitoring and Evaluation Organizations and Supervisors for Resettlementwill be appointedby end 1999.

-46 - Project Component 6 - US$1.87 million Environmental ManagementPlan The environmental impacts of the Project are internalized through measures within the Project to offset all negative impacts. The most significant environmental impact is resettlement. In addition there is a whole host of smaller but also important impacts due to construction activities.All these impacts are internalizedthrough the followingmeasures:

* Resettlement impact is offset by a Resettlement Action Plan (RAP) which essentially replaces all that is lost by resettlerswith a packageof compensationmeasures for housing, infrastructurerestoration and livelihooddevelopment; and * Agreed compensation measures to mitigate the impact of the Project works, which are included in the technical specifications for contracts for the construction of works, to protect the environment(See table on the ConstructionConstraints Table 6.1).

The environmental management plan is therefore to supervise the construction of environmental requirements by contractors and the resettlement action plan to ensure that all the environmental requirementsare satisfied.These requirementsare summarizedas action items:

* To ensure effective implementation of the Environmental Protection Measures (EMP) specified in the EIA, including environrmentalmonitoring, Provincial EMOs are to be established in each province. The provincial EMOs are responsible for implementing environmental protection requirements in the Project final design, construction, and operation stages of the Project for both dyke constructionsareas and resettlementareas. o The P/EMOs are to be established immediately following the signing of the Loan Agreementwith the Bank. TThe P/EMOs will be responsible for handling arrangements for visits of Bank Missions and of the International Panel of Environmental Experts. On each visit the Panel will review the Environmental Performance (EP) of the Project including the roles of the C/EMOs, P/EMOs, ECIs, CCs, VEOs, EMO sub-contractors, and all participants will prepare a report on the adequacy of EP, with recommendations for improvements.This work covers all stages of Project implementationincluding preparation of final design, bid documents for construction,construction and operation. 3 The overall EMP includes provisions for: (i) training of the staff of the P/EMOs including ECIs, VEOs, and subcontractors;and (ii) study tours to foreign countries to analyze and observe how environmental aspects of flood control are managed for large rivers of sirnilarsize and problems as the Yangtze,to take advantage of lessons learned there in the comprehensive R&D program (for programs carried out in the Mississippi river basin carried out over the past half-century by the US. Corps of Engineers).

Detailed illustrative diagrams are provided in Annex 11, which show the institutional structure of a provincial EMO and its relationship with other parties included in environmental management for the Project of each province; the main work of the P/EMO, etc. The cost estimates for environmental management for Hubei is about US$1.4 million and for Hunan US$0.5 million, which are included in the Project cost.

- 47 - Table 6.1: Environmental Construction Constraints

No. ITEM CONSTRAINTS- All items must meet applicable National/Provincialstandards. 1 Wastewater Acceptable management of wastewater discharge 2 Air Pollution Control A. Acceptable management of all fuel burning machines B. Blasting and quarrying dust; C. Road dust control (wetting, paving); and D. Control of obnoxious and toxic fumes. 3 Water Use Use water as planned with care not to waste it and to obtain permission of agencies having the rights for use of waters to be utilized. 4 Workers Health A. Worker medical examination to screen out infectious virus carriers (initial and periodic) B. Provision of safe drinking water supply C. Provision of adequate wastewater treatment and management D. Provision of adequate schistosomiasisprevention as described in Section 4.2.4 E. Provision of adequate food sanitation F. Provision of adequate control of disease vectors including mosquitoes, rats and flies. G. Provision of adequate medical care capabilities and facilities including first aid facilities H. Provision of adequate excreta management for buildings not serviced by sewers I. Provision of adequate occupationalhealth and safety measures J. Provision of adequate housing with sanitary facilities 5 Noise Control A. Management of use of all machines to ensure meeting of appropriate standards for noise/vibration control B. No construction activities in night in residential area if feasible C. Adequate protection facilities provided to workers operating high noise/vibration machines 6 Spoil Disposal Dispose construction spoils in specified places and specified manners including protection dikes and resurfacing 7 Solid Waste Collect solid wastes regularly and dispose of collected wastes in adequate sanitary Management manner, including use of fencing to prohibit access to disposal sites by children 8 Soil Erosion Resurfacing all borrow areas and filling areas and furnish dykes as needed to protect

____ against discharge of soil runoff to downstream waterways 9 Cultural Relics No damaging activities to cultural relics; stop construction whenever cultural relics are discovered to allow EMO to determine needed protection measures 10 Aquatic Ecology Specially assign person/persons to watch appearance of the Yangtze rare species when "blow filling" operation is carried out in river sections sensitive to the species 11 Saicheng Lake Make sure workers will not enter the bird migratory area Migratory Birds 12 Land Use Occupy land as specified; no damage to farm land and crops; resurfacing land after use 13 ConstructionStage Contractors (C) are fully responsible for environmental protection in his construction area and camping area. C are to make monthly environmental report to define EMO on its performance in implementing the EPMs/constraints. Construction contracts must include listing and description of all EPM to be furnished by C. Also, the EMO will furnish Environmental Construction Inspectors (ECIs) to work with the Engineer Construction Supervisor (ECS) and allow the ECS to make formal requests for ______improvement in C performance as needed.

-48 - Project Component 7 - US$19.17 million Project Management The Project management component essentially finances the activities of: (i) PMO's at various levels of government;(ii) design work and technical assistance for producing the designs and preparation and processing of bidding documents; (iii) construction supervision; (iv) environmental managementand supervision;and (v) Project monitoringand evaluation.

Project Component 8 - US$5.63 million Institutional Development (US$4.8 million) and Flood Prevention and Disaster Mitigation TA (US$0.8 million).

8.1 InstitutionalDevelopment Under the Project MWR/CWRC and the Project provinces will be provided with technical assistance, training and study tours in China and other countries. These activities will help the Project to address institutional constraints in such critical areas as: (i) dike maintenance;(ii) resolution of complex design and construction issues; (iii) adoption of modem materials and construction technologies; and (iv) ensuring financial and physical sustainability of improved infrastructure facilities. Technical assistance will also be provided for institutional development of dike management offices to become autonomous corporate bodies which will be self sustaining through the collection of flood protection charges or fees.

8.2 Flood Prevention and Disaster Mftigation TA CWRC's physical model outputs will provide information for: (a) changes in the regimnedue to sediment movement in the middle and lower reaches as various structures -- mainly dams -- are completed on the tributaries and main stem of the river. This would give advanced forecasts for locations needed for river bank protection and for river training needs; (b) changes in flow in the river and lakes due to sediment movement and its effect on lake sedimentationrates and the capacity of the lakes to maintain flood storage volume; and (c) flood control strategies after the completionof the flood control structures.

-49 - Annex 3: Estimated Project Costs CHINA: Yangtze Dike Strengthening Project

River Bank Protection, includingDike FoundationTreatment 46.54 37.84 84.38 Dike Strengthening- Hubei 103.16 84.28 187.44 Dike Strengthening- Hunan 27.91 15.03 42.94 Dike Monitoring/RiverModeling 15.96 4.46 20.42 Equipmentfor Dike Operation and Maintenance 1.99 3.83 5.82 Resettlement,Hubei and Hunan 73.83 11.93 85.76 EnvironmentalManagement & Monitoring 0.78 0.94 1.72 Engineeringand Project Management 13.72 4.28 18.00 InstitutionalDevelopment 2.22 2.94 5.16 TotalBaseline Cost 286.11 165.53 451.64 PhysicalContingencies 31.14 18.97 50.11 PriceContingencies 10.88 7.01 17.89 Total Project Costs 328.13 191.51 519.64 Inte,est during construction 23.77 23.77 Front-end fee 2.10 2.10 TotalFinancing Required 328.13 217.38 545.51

Estimated Project Cost Project cost have been prepared by dike sections and Project components using mid-1999 prices. Physical contingencieshave been added at the rate of 20 percent for the River Bank Protectionworks, 10 percent for other Civil Works and Resettlement and 5 percent for the Electrical and Mechanical works, Engineering and Project Management and Institutional Development. Together physical contingencies amount to US$50.11 million. The cost related to planning, survey, design, construction supervision and quality control have been estimatedat 3 percent of the base costs. An overhead of 0.3 percent of base costs for the Borrower'smanagement offices and 0.7 percent for the Provincial Management Offices have been added under Project management. Price contingenciesfor the local cost share for works, goods and services have been calculated based on projected escalation factors of 1.0 percent for 2000, 2.0 percent for 2001 and 3.0 percent for the years thereafter. Price contingencies for foreign costs were as forecasted by the MUV indices of 1.6 percent for 2000, 2.5 percent for 2001, 2.6 percent for 2002 and 2.5 percent thereafter. Price contingencies add up to about 4 percent of the Project base cost, which is equivalent to about US$17.89 million. Interest During Construction(IDC) and other charges, including the front-end fee, levied during the Project implementationperiod on the disbursed and undisbursedportions of the Bank Loan are estimated to be about US$25.87 million over the four year Project implementationperiod. The latter costs which will be fully borne by the Central Government. The total Project cost is estimated at US$519.6 million (or about Yuan 4.31 billion equivalent), exclusive of IDC and commitment charges (US$23.77 million) and the I% front-end fee charged by the Bank (US$2.10million).

- 50 - Table 2-1: Project Cost Summary

The People's Republic of China Yangtze Dike Strengthening Project (YDSP) tRMB Million) IUSS Milliont Components Project Cost Summary % % Total Foreign Base Local Foreian Total Local Foreian Total Exchanae Costs

A. Changjiang Water Resources Commission 1. River Bank Protection 346.0 283.1 629.2 41.7 34.1 75.8 45 17 2. Seepage Control for Dike Foundaton 40.3 31.0 71.3 4.9 3.7 8.6 44 2 3. Technical Review Panel 3.3 6.8 10.1 0.4 0.8 1.2 67 - 4.RiverModeling 127.2 272 154.3 1531 33 1R6 IF 4 SubtotalChangjiangWaterResourcesCommission 516.8 348.1 864.9 62.3 41.9 104.2 40 23 B. Flood Disaster Prevention Center 1. Standards Review 25 37 62 03 05 n R - Subtotal Flood Disaster Prevention Center 2.5 3.7 6.2 0.3 0.5 0.8 60 - C. Hubei Province 1. Dike Rehabilitation 856.2 699.5 1,555.8 103.2 84.3 187.4 45 42 2, Dike Safety Monitoring System 5.3 9.8 15.2 0.6 1.2 1.8 65 - 3. Operafion and Maintenance Equipment 15.5 28.7 44.2 1.9 3.5 5.3 65 1 4. Resettlement 465.4 74.6 540.1 56.1 9.0 65.1 14 14 5. Environmental Management and Monitoring 2.8 0.9 3.7 0.3 0.1 0.4 25 - 6. Project Management 102.9 34.3 137.2 12.4 4.1 16.5 25 4 7. Institutional Development 76f 12 3 199 05 1 5 2 4 C 1 Subtotal Hubei Province 1,455.7 860.2 2,316.0 175.4 103.6 279.0 37 62 D. Hunan Province 1. Dike Rehabilitation 231.6 124.7 356.4 27.9 15.0 42.9 35 10 3. Operation and Maintenance Equipment 1.0 3.1 4.1 0.1 0.4 0.5 75 - 4. Resettlement 147.4 24.3 171.7 17.8 2.9 20.7 14 5 5. Environmental Management and Monitoring 3.7 6.9 10.5 0.4 0.8 1.3 65 - 6. Project Management 11.0 1.2 12.2 1.3 0.1 1.5 10 7. Institutional Development 511 1 7 66 0.6 02 OR 25 - Subtotal Hunan Province 399 7 1f1 9 551 6 48 2 195 fi77 29 15 Total BASELINE COSTS 2,374.7 1,373.9 3,748.6 286.1 165.5 451.6 37 100 Physical Contingencies 258.4 157.4 415.8 31.1 19.0 50.1 38 11 PrceContingencies 874 F71 144.'i 109 7n 170 39 4 Total PROJECT COSTS 2,720.5 1,588.5 4,309.0 328.1 191.5 519.6 37 115 Interest Durng Construction - 196.9 196.9 - 23.8 23.8 100 5 Front-end Fee - 174 174 - 21 21 100 Total Costs to be Financed 2,720.5 1,802.8 4,523.3 328.1 217.4 545.5 40 120

- 51 - Table 2-1 A: Detailed Project Cost

The People'sRepublic of China YangtzeDike StrengtheningPnoject (YOSP) (RMBMitlion) (USSMillionj ComponentsProject Cost Summary % % Total Foreign Base I oral Fo-ein Tot-al I -al ForCin Totat Exchange Costr A. ChangjiangWater ResourcesCommission 1. RiverBank Protecion 346.0 283.1 629.2 41.7 34.1 75.6 45 17 2. SeepageControl for Dike Foundation 40.3 31.0 71.3 4.9 3.7 8.6 44 2 3. TechnicalReview Panel 3.3 6.8 10.1 0.4 0.8 1.2 67 4. RiverModeling River Models 127.2 27.2 1543 153 33 186 18 4 Subtotal ChangjiangWater Resources Commission 516.6 348.1 864.9 62.3 41.9 104.2 40 23 B. FloodDisaster Prevention Center 1. StandardsReview 2 s7 6 7 n I 0 9 o 8 60 SubtotalFlood Disaster Prevention Center 2.5 3.7 6.2 0.3 0.5 0.8 60 - C. HubeiProvince 1. DikeRehabilitation Embankment 552.0 451.6 1,003.6 66.5 54.4 120.9 45 27 SeepageControl 162.7 133.1 295.7 19.6 16.0 35.6 45 8 CrossDike Structures 31.9 26.1 58.0 3.8 3.1 7.0 45 2 Other Minor CAvilWorks /a 10967 ARA 1 65 139 107 239 49 5 SubtotalDike Rehabilitation 856.2 699.5 1,555.8 103.2 84.3 187.4 45 42 2. Dike SafetyMonitoring System 5.3 9.8 15.2 0.6 1.2 1.6 65 3. Operabonand MaintenanceEquipment 16.5 26.7 44.2 1.9 3.5 5.3 65 1 4. ReseBlement Land Acquisibonand OtherCompensabons 236.8 39.5 276.3 28.5 4.6 33.3 14 7 PublicFaclites 199.2 35.2 234.3 24.0 4.2 28.2 15 6 ResettlementMonitoring & Evaluation 6.7 - 6.7 0.6 - 0.8 - - ResettlementAdministration 14.8 - 14.8 1.8 - 1.8 ReseotlementPlanning & Design 7 9 - 79 10 1 - - Subtotal Resettlement 465.4 74.6 540.1 56.1 9.0 65.1 14 14 5. EnvironmentalManagement and Monitoring EnvironmentalManagement Office 1.4 0.6 1.8 0.2 0.1 0.2 25 - EnvironmentalTraining 0.2 0.1 0.3 0.0 0.0 0.0 25 Supervisionand Monitonng 1 7 0A 1 0o1 0In n 7 75 Subtotal EnvironmentalManagement and Monitoring 2.8 0.9 3.7 0.3 0.1 0.4 25 8.Project Management ProjectAdministration 30.0 10.0 40.0 3.6 1.2 4.8 25 1 ProjectPlanning and Design 63.4 21.1 84.5 7.6 2.5 10.2 25 2 Construction Supervision 9g5 3 2 127 1 1 0.4 1 5 25 - SubtotalProject Management 102.9 34.3 137.2 12.4 4.1 16.5 25 4 7.Institutional Devetopment ConsultingSerices 6.6 6.6 13.3 0.8 0.8 1.6 60 - Study Toum& Training 0.0 0.0 0.0 0.0 0.0 0.0 50 lnsStubonalSupport for O&MOrganizations 10 6 6 66 0 1 07 0 8 B' SubtotalInstitutional Development 7 6 12 3 199 0 9 1 5 2A4 62 1 SubtotalHubei Province 1,455.7 860.2 2,316.0 175.4 103.6 279.0 37 62 D. HunanProvince 1.Dike Rehabilitation Embankment 175.5 94.5 270.0 21.1 11.4 32.5 35 7 SeepageControl 44.7 24:1 68.8 5.4 2.9 8.3 35 2 OtherMinor CivilWorks lb 114 61 17.6 1.4 n7 21 36 - SubtotalDike Rehabilitation 231.6 124.7 356.4 27.9 15.0 42.9 35 10 3. Operatonand MaintenanreEquipment 1.0 3.1 4.1 0.1 0.6 0.9 75 - 4. Resettlement Housesand Associated Facilibes 23.1 4.1 27.2 2.8 0.5 3.3 15 1 LandAcquisitonandOtherCompensabons 85.2 15.0 100.3 10.3 1.8 12.1 15 3 Public Facilites 13.6 2.4 16.0 1.6 0.3 1.9 15 - Resetlement Monitoring& Evaluation 2.8 0.3 3.2 0.3 0.0 0.4 10 ResettlementAdministration 12.7 1.4 14.1 1.5 0.2 1.7 10 - ResettlementPlanning & Design 99 11 111 12 01 13 10 Subtotal Reselement 147.4 24.3 171.7 17.8 2.9 20.7 14 5 S.Environmental Management and Monitoring EnvironmentalManagement Office 2.2 4.1 6.3 0.3 0.5 0.8 65 - EnvironmentalTraining 0.5 0.9 1.4 0.1 0.1 0.2 65 Supervisionand Monitorng 10 18 268 n1 0 2 03 65 SubtotalEnvironmental Management and Monitoring 3.7 6.9 10.5 0.4 0.8 1.3 65 6. ProjectManagement ProjectAdministration 2.0 0.2 2.2 0.2 0.0 0.3 10 Projed Ptanningand Design 7.2 0.8 8.0 0.9 0.1 1.0 10 ConstructionSupenvision 18 07 20 02 00 02 10 Subtotal Project Management 11.0 1.2 12.2 1.3 0.1 1.5 10 7. InstitutionalDevelopment ConsultngServices 5.0 1.7 6.6 0.6 0.2 0.6 25 StudyTours &Training 00 00 0 0 00 0 0 0 0 10 SubtotalInstitutional Development 5.0 1 7 6.6 0.6f 0 2 0 8 25 Subtotal Hunan Province 3997 1fi19 Sf1f 482 195 677 91 16 Total BASELINECOSTS 2,374.7 1,373.9 3,748.6 266.1 165.5 451.6 37 100 PhysicalContingendes 258.4 157.4 415.8 31.1 19.0 50.1 38 11 PriceConOngencies 874 571 1445 10.9 70 179 39 4 Total PROJECTCOSTS 2,720.5 1,588.5 4,309.0 . 328.1 191.5 519.6 37 115 InterestDuring Construcion - 196.9 196.9 - 23.8 23.8 100 5 CommitmentCharges - 174 174 - 21 21 100 TotalCosts to be Financed 2,720.5 1,802.8 4,523.3 328.1 217.4 545.5 40 120

- 52 - Table 2-1 B: Detailed Project Base Cost by Year

The People s Republic of Chr,a YarngtzeDike Strengthwirng Project (YDSP) Project Components by Year -BEass Costs BaaseCost iRMB Million) Base Cost (US S Milli onl 2000 20012002 2003 7004 ~~~~Total2000 2001 2002 2003 2004 Total A Changjiang Water Resources Commission 1. Rher BankPnoterdon 10.5 21R6. 266.0 94.3 41 8 629.2 1.3 26.1 32.0 11 4 5.0 75.8 2.5SeepageControlbfor Dike Foundafon - 20.1 20.8 15.2 15.2 71.m3 - 2.4 2.5 1.8 1.8 a86 3.Technical Review Panel - 2.5 2.5 2.5 2.5 10.1 - 0.3 0.3 0.3 0.3 1 2 4. River Modeling River Models - 64.3 70.5 19.5 - 154,3 777 8.5 2 3 - 18 6 Subtotal ChangjiangWakter Resources Commission 10.5 303.5 359.8 131.5 59.6 864.9 1.3 36.6 43.3 15.8 7.2 104 2 B. Flood Disaster Prevention CeDnterr 1. Standards Review - 2.5 2,9 0.8 - 5.2 - 0.3 0.4 0.1 0 8 Subtotal Flood imsaterPrevention Center - 2.5 2.9 0.8 - 8.2 - 0.3 0.4 0.1 - 0.8 C. Hubei Provbce 1. Dike Rehabilitation Embankment - 250.9 250.9 250.9 250.9 1,003.6 - 30.2 30 2 30 2 30.2 120.9 Seepage Control 73.9 73.9 73.9 73.9 295.7 - 8.9 8 9 8.9 8.9 35.6 Cross D,ke Structures - 23.2 17.4 17.4 - 58.0 - 2.8 2.1 2.1 - 7.0 O6ler Minor Civil Works la- - 3. 639 113 185 - - 0 77 58 29 Subtotal Dike Rehabilitahon - 348.0 345.5 406.1 456.1 1,555.8 - 41.9 41.6 48 9 55.0 187.4 2. Dike SafetyMonitornagSystem - 7.7 7.5 - - 15.2 - 0.9 0.9 - - 1.8 3. Operation and Maintenance Equipment 22.1 22.1 414.2 - 2.7 2 7 - 5.3 4. Resetbement Land Acquisition and OtherCompensations - 55.3 165.8 55.3 - 276.3 667 20.0 6.7 - 33.3 Public Facilities 46.9 140.6 46.9 234.3 5.6 16.9 5.6 28.2 Resetteieent Monitordng&Evaluation 0.8 1.3 2.9 1. 0.6 6.7 0.1 0.2 0.4 0.2 0.1 0.8 ResettlementAdministrafion 2.4 3.0 3.8 3.0 2.6 14.8 0.3 0.4 0.5 0.4 0.3 1 8 Resetlernent PlaDnnirng& Design 3.1 . .9 05 05 - - - 1.0 Subtotal Resrttlenmnt 6.9 110.4 313.1 106.5 3.2 540.1 0.8 13.3 37 7 12.8 0.4 65.1 S. Environmnbntl Management and Monitoring EnvronmenbalMana,qement Office - 0.9 0.3 0.3 0.3 1.8 - 0.1 0.0 0.0 0.0 0.2 EnvinonnenStaTrainir,qg 0.2 0.2 - - 0.3 - 0.0 0.0 - - 0.0 Supervision and Monoriton,g 0.4 0.4 0.4 0.4 1 6 - 0.0 0.0 0 0 0. 0 2 Subtotal Envinonmental Managemrnt and Moitoring - 1.4 0.9 0.7 0.7 3.7 - 0e2 0.1 0 1 e1 0 4 S. Project Management Project Admiristratbon 3.0 10.5 9.5 9.5 7.6 40.0 0.4 1.3 1.1 1.1 0.9 4.8 Project Plannin and Design 33.8 33.8 16.9 84.5 4.1 4.1 2.0 10.2 ConstructionSupervision 0 6 3.2 3.2 3.2 2.5 12.7 0.1 0.4 0 4 0.4 0 3 1.5 Subtotal ProjecttManagement 37.4 47.5 29.5 12.6 10.1 137 2 4.5 5.7 3 6 1.5 1.2 16.5 7. Inshbrhonr Dev lopnment Consulitng Services - 3.3 3.3 3.3 3.3 133 - 04 04 04 04 1.6 Stud,hTours & Trining 0.0 0.0 0.0 o 0 0.0 o 0 0 0 0.0 0.0 0 0 lrostbtutnalSupport forO&M Orgqanizafons - 1.7_ 1.7 1.7 1,7 6.6 - 0.2 0 2 0.2 0.2 0.8 Subtotal Institutional Devetlopment - 5.0 5.0 SO0 5.0 19.9 - 0.6 0.6 0 6 0.6 2 4 Subtotal Hubr,i Province 44.3 520.1 723.6 553.0 475.1 2,316.0 5.3 62.7 87.2 66.6 57.2 279.0 iX Hunan Province t. Dike Rehabilitation Embankment - 28.7 209 8 31.5 - 270 0 - 3.5 25.3 3.8 32.5 Seepage Control 6.2 38.2 24.4 8 8.8 - 0.7 4.6 2.9 8.3 Other MinorCivil Works/lb- - 14 1. 2. 176 02 .7 3 21 SubtotalDike Rehabilitation - 34.9 249.4 69.8 2.4 356.4 442 30e0 8.4 0.3 42.9 3. Operabon and Maintenance Equipment 4.1 - - 4.1 - - 0.5 - - O.S 4. Resotfiament Housesarnd Associated Facilities 8.2 13.6 5.4 27.2 1.0 1 6 0.7 - - 3.3 Land Acqbsiton and Other Compemsatons 25.1 25.1 25.1 25.1 - 100.3 3.0 3.0 3.0 3 0 - 12 1 Public Facilibes 4.0 4.0 4.0 4.0 - 16.0 0.5 0.5 0 5 O.S 1.9 Resetfement Monitoring &Evaluation - 0.9 0.9 0.6 0.6 3.2 - 0.1 0.1 0 1 0.1 0 4 Resettlement Administration 4.1 2.8 2.8 2.5 1.9 14.1 0.5 0.3 0.3 0.3 0 2 1.7 Reset3ernentPlanning &Design 6.8 2.2 2.2 11.1 0.8 0.3 0.3 - - 1 3 SubtotalResefttiment 47.9 48.6 40.5 32.2 2.5 171.7 5.6 S 9 4 9 3.9 0 3 20.7 5. Environmntal ManagenrBnt and Monitoring Environmental ManagemfentOffice - 1.6 1.6 1.6 1.6 6.3 0.2 0.2 0.2 0 2 0.8 EnvfronmentalTraining - 0.3 0.3 0.3 0.3 1.A 0.0 0 0 0.0 0 0 0.2 Supervisinand Monitorng - 0.7 0,7 0.7 0.7 2.8 - 0.1 0 1 0.1 0.1 0.3 SubtotalEnvinonmentatManagement and Monitoring - 2.6 2.6 2.6 2.6 10.5 - 0.3 0.3 0.3 0.3 1.3 S. Project Managenent Project Admninistration 0.7 0.7 0.3 0.3 0.3 2.2 0.1 0.1 0.0 0 a 0.0 0.3 Project Plamning and Design 4.8 1.1 0.8 0.7 0.7 8.0 0.6 0.1 0.1 0.1 e1 1.0 Constocbon Supervisin 0.4 0,4 0.4 0.4 0.4 2.0 0.0 0 0 0.0 0.0 0 0 02.2 SubtotalProject Management 5.9 2.2 1.4 1.3 1.3 12.2 0.7 0 3 0.2 0 2 0.2 1.5 7. Institutional Devralop-rint ConsutnrgServices - 1.7 1.7 1.7 1.7 6.6 0 2 0.2 0.2 0.2 0.8 Stur.,hTours&Tnaining - 0.0 0.0 0.0 0.0 0 0 - 0.0 0.0 0.0 0.0 0 0 Subtolal Institutional i7evelopment - 1.7 1.7 1.7 1.7 6.6 0.2 0.2 0.2 0.2 0.6 Subtotal Hunan Pronzvn 53.8 90.1 299.7 107.4 10.6 581.6 6.5 l0.8 36.1 12 9 1 3 67.7 TotalBASEUNE COSTS 108.6 916.1 1,38S.9 792.8 545.2 3.748.6 13.1 110.4 167.0 95-S r6S.7 451 6 Physical Contirngencies 9.7 107.8 156.5 84.2 57.5 415.8 1.2 13.0 18 9 10.1 6.9 50.1 Price Contingencies Inflation LoJcal - 3.1 25.0 30.1 29.3 87.4 - 0.4 3.0 3.6 3.5 10.5 Foreign - 2.9 15.0 18.5 21.9 58.2 - 0.3 1.8 2.2 2.6 7 0 Subtotal Inflation - 6.0 39.9 48.6 51.1 145.7 - 0.7 4.8 S 9 6.2 17.5 Devalualon - -1.1 -1.9 0.3 1.6 -1.1 - 0.2 0.4 -0.1 -0.2 0.3 Subtotal Price Con5nrgencies - 4.9 36.0 48.9 52.7 144.5 - 0.9 5. S 8 S.9 179.9 Total PROJECT COSTS 118.3 1,028.8 1.560.5 925.9 655.5 4,309.0 14.3 124.3 191.1 111.5 78 6 519 6

- 53 - Table 2-1 C: DetailedProject Cost including Contingenciesby Year

The People's Republic of China Yangtze Dike Strengthening Project (YDSP) Project Components by Year,- Totals Including Contingencies Totals IncIudino Contineencies IRMB Milisol Totals Including Contingencies (USS Millioni 2000 2001 2002 2003 2004 Total 2000 2001 2002 2003 2004 Total A. Changjiang Water Resources Commission 1. RiverBank Protection 12.5 261.2 327.2 119.5 54.6 775.1 1.5 31.6 39.6 14.4 6.5 93.6 2. Seepage Control for Dike Foundation - 22.2 23.5 17.7 18.2 81.5 - 2.7 2.8 2.1 2.2 9.8 3. Technical Review Panel 2.7 2.7 2.8 2.9 11.1 - 0.3 0.3 0.3 0.3 1.3 4. River Modeling River Models - 693 75.6 21.6 16665 - 8,4 9.1 206 - 20.1 Subtotal ChangjiangWaterResources Commission 12.5 355.4 429.0 161.6 75.7 1,034.2 1.5 42.9 51.9 19.4 9.1 124.t B. Flood Disaster Prevention Center 1. Standards Review - 268 31 09 - 6.5 - 0 3 0.4 01 - 0.8 Subtotal Flood Disaster Pevention Center - 2.6 3.1 0.9 - 0.5 - 0.3 0.4 0.1 - 0.8 C. Hubei Province 1. Dike Rehabilitation Embankment 277.4 282.9 291.4 300.2 1,151.9 33.5 34.2 35.1 30.0 13808 Seepage Control 81.7 83.4 05.9 88.4 339.4 - 99 10.1 10.3 10.6 40.9 Cross Dike Structures 25.6 19.6 20.2 - 65.4 - 3.1 2.4 2.4 - 7.9 Other Minor Civil Works la 3.7 74.2 157.1 235.0 - - 0.4 .89 1808 28.2 Subtotal Dike Rehabilitation - 384.7 389.0 471.7 545.7 1,791.7 - 46.5 47.1 56.8 65.4 215.8 2. Dike Safety Monitoring System 81 8.1 - - 16.2 - 1.0 1.0 - - 2.0 3. Operation and Maintenance Equipment - 22.6 23.3 - 45.9 - 2.7 2.8 - 5.5 4. Resettlement Land Acquisition and Other Compensations - 61.1 187.0 64.2 - 312.2 - 7.4 22.6 7.7 - 37.7 Public Facilites - 51.8 158.6 54.4 - 264.8 - 6.3 19.2 6.6 - 32.0 Resedlement Monitoring & Evaluation 0.6 1.5 3.3 1.6 0.7 7.6 0.1 0.2 0.4 0.2 0.1 0.9 Resettlement Administration 2.0 3.3 4.3 3.5 3.1 166 0.3 0.4 0.5 0.4 0.4 2.0 Resettlement Planning & Design 4.3 4.3 - - - 867 0.5 05 - - - 1.0 Subtotal Resettlement 7.5 122.1 353.1 123.7 3.8 610.2 0.9 14.7 42.7 14.9 0.5 737 S. Environmental Management and Monitoring Environmental Management Offnce o0. 0.3 0.3 0.3 1.9 - 0.1 0.0 5.0 0.0 0.2 Environmental Training 0.2 0.2 - 0.3 - 0.0 0.0 - - 0.0 Supervision and Monitoring 0.4 0.4 0.4 0.4 1.7 0.0 0.1 01 0.1 0.2 Subtotal Environmental Management and Monitoring - 1.5 0.9 0.8 0.8 4.0 - 0.2 0.1 0.1 0.1 0.5 S. Project Management ProjectAdministration 3.1 11.1 10.2 10.5 8.6 43.5 0.4 1.3 1.2 1.3 1.0 5.2 Project Planning and Design 35.5 35.5 17.8 - - 88.8 4.3 4.3 2.1 - - 10.7 Construction Supervision 0,7 3.4 34 3.5 2.9 1309 0.1 0.4 04 0.4 0.3 1 7 Subtotal ProjectManagement 39.3 50.0 31.4 14.0 11.5 146.2 4.7 6.0 3.8 1.7 14 17.6 7. Institutional Development Consulting Services - 3.5 3.6 3.7 3.8 14.5 - 0.4 0.4 0.4 0.5 1.8 Study Tours & Training 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Institutional Support lor O&M Organizations - 1.8 1.8 1_ 1 9 7.3 - 02 0.2 0.2 0.2 0 9 Subtotal Institutional Development - 53 5 4 5.5 5,7 21 8 - 06 0.6 0 7 0.7 2.6 Subtotal Hubei Province 46.8 571.6 811.0 639.0 567.5 2,636.0 506 69.1 98.0 76.9 68.0 317.7 D. Hunan Province 1. Dike Rehabilitation Embankment - 31.7 236.6 36.6 - 304.9 - 3.8 28.6 4.4 - 36.8 Seepage Control 60.9 43.1 28.3 - 78.2 - 0.8 5.2 3.4 - 9.4 Other Minor Civil Works /b 1.5 16.0 2.0 20.4 - 0.2 1.9 0.3 2.5 Subtotal Dike Rehabilitation - 386 281.2 80.9 2.9 403.6 - 4.7 34.0 9.7 0.3 48.7 3. Operation and Maintenance Equipment - 4.4 - - 4.4 - 0.5 - - 0.5 4. Resettlement Houses and Associated Facilities 9.0 15.0 6.1 30.2 1.1 1.8 0.7 3.6 Land Acquisition and Other Compensations 27.6 27.7 28.3 29.1 112.7 3.3 3.3 3.4 3.5 13.6 Public Facilities 4.4 4.4 4.5 4.6 18.0 0.5 0.5 0.5 0.6 - 2.2 Resettlement Monitoring & Evaluation - 1.0 1.1 0.7 0.8 3.6 - 0.1 0 0.11 0. 0.4 ReseotlementAdministration 4.5 3.1 3.2 2.9 2.3 15.9 0.5 04 0.4 0.3 0.3 1.9 ResettlementPlanning& Design 73 24 2,5 - - 122 0.9 03 03 - - 1.5 Subtotal Resettlement 52.7 53.8 45.6 37.4 3.0 192.5 6.3 6.5 5.5 4.5 0.4 23.2 S. Environmental Management and Monitoring Environmental Management Office - 1.7 1.7 1.8 1.8 7.0 - 0.2 0.2 0.2 0.2 0.8 Environmental Training - 0.4 0.4 0.4 0.4 1.5 - 0.0 0.0 0.0 0.0 0.2 Supervision and Monitoring - 0.7 08 08 08 31 - 01 01 01 01 0.4 Subtotal Environmental Managementand Monitoring 2.8 2.8 2.9 3.0 11.6 - 03 0.3 0.4 0.4 1.4 6, Project Management Project Administration 0.8 0.8 0.3 0.3 0.3 2.4 0.1 0.1 0.0 0.0 0.0 0.3 Project Planning and Design 5.0 1.1 0.8 0.7 0.7 8.4 0.6 0.1 0.1 0.1 0.1 1.0 Construction Supervision 0.4 0.4 0.4 0.4 05 22 0.1 01 0.1 0.1 0.1 0.3 Subtotal Project Management 6.2 2.3 1.5 1.4 1.5 12.9 0.7 0.3 0.2 0.2 0.2 1.6 7. Institutional Development Consulting Services - 1.8 1.8 1.8 1.0 7.3 - 0.2 0.2 0.2 0.2 0.9 Study Tours & Training 0.0 0.0 0.0 0.0 0.0 - 0.0 0.0 0.0 0.0 0.0 Subtotal Institutional Development - 15 I8 1 8 1 9 7 3 - 02 0 2 0.2 0,2 0 9 Subtotal Hunan Province 58.9 992 3374 1245 123 6323 71 120 40.8 150 1 5 763 Total PROJECT COSTS 118.3 1,028.8 1,580.5 925.9 655.5 4,309.0 14.3 124.3 191.1 111.5 78.6 519.6

- 54- Annex 4: Cost Benefit Analysis Summary CHINA:Yangtze Dike Strengthening Project

EconomicAnalysis (Table 1 below)

[Forprojects with benefitsthat are measuredin monetaryterms]

PresentValue of Flows Fiscal Impact ; - ~~~~EconomnicFinaneial Ahtalys E-- .COnOmIC I Financial Taxes Subsidies Benefits: 16.81 0.40 16.41 in YuanBillion

Costs: 4.84 4.83 0.11 0.12 InYuan Billion NetBenefits: 11.97 -4.43 0.11 16.53 In YuanBillion IRR: 49.2% N/A

If the differencebetween the presentvalue of financialand economicflows is large and cannotbe explainedby taxesand subsidies,a brief explanationof the differenceis warranted,e.g. "Thevalue of financialbenefits is less than that of economicbenefits because of controlson electricitytariffs."

Summaryof Benefits and Costs: The economic costs for the Project were derived from the financial costs by adjusting for taxes, duties,and interest during construction and the shadow pricing of foreign exchange at Yuan 8.3 = US$1. All discounted investment costs (including resettlement costs) include physical contingenciesand incremental 0 & M costs if there are any. Measured economic benefits derive from: (i) flood alleviation; (ii) incremental cost changes for flood fighting; and (iii) incremental cost changes in the use of detention basins. The largest benefits are the flood alleviation benefits which will be generated because the rehabilitated dikes have less likelihood of breaching. These benefits form 85% of the total. The other benefits are reductions in: (i) flood fighting costs; and (ii) the costs of using the detention basins. The flood fighting benefits are due to less requirementsin event of a flood to undertake special emergencymeasures to prevent breaching of the dikes. As a result of stronger dikes they are able to resist higher flood frequenciesand the use of detention basins is reduced. The total discounted benefits are Yuan 16.8 billion and the NPV is Yuan 12.0 billion. Details are given in Table 2 below. Overall the Project has an EIRR of about 49% and a B/C ratio of 3.5 (see Table 2 below). Between the two provinces Hubei clearly has the largest benefits from the Project. In the 1998 flood, Hubei, which has the longest river length, had the greatest damage.

- 55 - Table 2: Summary of Economic Analysis Results

Costs Incremental Capital Cost 2.87 1.98 4.85 Benefits Flood Alleviation 10.39 4.22 14.61 Reduction in 0 & M 0 0.21 0.21 Reduction Flood Fighting Cost 0.02 0.14 0.16 Reduction in Land Drainage damage 0 0 0 Reduction in Detention Basin Costs 1.82 0 1.82 Total 12.23 4.57 16.80 NPV 9.36 2.59 11.96

- 56 - Main Assumptions:

A. INTRODUCTION The primary aim of this Project is to reduce flood losses in the future as compared to those that would occur if nothing was done. Thus, the primary category of benefits to be evaluatedis the expected value of the reduction of flood losses in future years. Losses in the past have been substantial; the 1954 flood affected nearly 19 million people, of which more than 30,000 died; 4.3 million houses were destroyed and more than 200,000 hectares of farm land were flooded. The 1998 flood involved, in some instances,an even higher water level and resulted in a loss of nearly US$4 billion in Hunan and US$6 billion in Hubei. The Yangtze valley was heavily settled between the 9th and 13th centuries when an agriculturalshift from dry land farming in the north to paddy production in the south, accompaniedby a shift in the distributionof population, occurred. Over these four centuries, living standards rose whilst the population doubled. The Project largely involvesthe rehabilitationor reconstructionof existing main dikes, some of which date from the 15th Century with subsequent reconstruction,notably after the 1954 flood. The existing dikes offer a low design standardof protection,many only giving a designed standard of protection against floods of less than a return period of 15 years. In addition, they are generally in a poor condition with many defects such as cracks, piping, a high phreatic line and bank failure. In 1998, widespread breaching of the dikes was only minimizedby a massive flood fighting effort at a substantialcost.

A second componentof the comprehensiveflood action plan that is being funded is improvementsto the flood warning system. Because flooding is typically meters deep if it occurs, the main objectives of the flood waming system are, firstly, to improve management of flood flows through the use of detention basins. Thus, it is claimed that, for example, the 15 year flood can, through management, be made to have the effect of a 7.5 year event. The second purpose of the flood warning system is to reduce the risk to life rather than to reduce property losses. With the depths of flooding involved, flood proofing will not generally be feasible and a significant number of the buildings are likely to be destroyed by a flood. Therefore,the only contributionflood warning can make in this instanceto reducing flood losses would be by the evacuationof livestock and small movable private property. As this should be given lower priority than the evacuationof people, this possible contributionhas been ignored.

Flooding poses a considerable risk to life because of the depth of flooding and the probable collapse of some buildings. It is not consideredthat it would be helpful to seek to evaluate the number of lives that the proposed scheme will save and methods of predictingthe number of lives that will be lost in a flood are also in their infancy. The flood action plan for the Yangtze river is a program of different actions including afforestation and flood warning as well dike strengthening and raising; it is not within the scope of this analysis to attempt to assess whether the program as a whole is the best option or the operational strategy in total is the best strategy. The main option which is not included as a component of the overall strategy is managed retreat of the defense line. Because wetlands are valuable environmental assets, it is often appropriate to consider retreating the defense line in order to open up the river. The area between the retreated defense line and the river may then be allowed to revert to a natural wetland or used for pasture. At present, this is probably not a viable option in the Yangtze river basin for several reasons. Firstly, the availability of arable land per capita is very low in China. This relative scarcity of arable land makes the potential abandonmentof fertile arable land unlikely to be an appropriate strategy at present. Since arable land is considerablymore productivethan livestock farming, conversion of arable land to livestockuse is also unlikely to be appropriate. Secondly, retreating the defenses would involve resettlement of the populations currently inhabiting that land and because of its productivity, the area is one of most densely populated areas of China. Thirdly, construction of a new dike system on a new line is likely to be more

- 57 - expensive than renovating the existing system although the costs of river training may be reduced. In the long run, it is probable that managed retreat will become a viable option as population pressures ease and living standardsrise further; and so current actions should bear this in mind.

It is common to compare different design standards of protection and this comparison may seek to determine the optimum standard of protection. In this case, the agreed Yangtze Basin Flood Control Master Plan defines the appropriatedesign standard of protection as being to protect against the 1954 flood level. The renovated dikes are designed to achieve this standard when operated in conjunction with the other elements of the flood action plan. There are considerableuncertainties about the hydrology and the hydraulics of the Yangtze basin and it is not considered realistic to attempt to assess what it is the optimum standard of protection. Such analysis would be complicated because when a flood above the design standard is expected, the response is to undertake emergencyworks to seek to raise the crest height of the dike so as to allow the extreme flood to be passed safely. Therefore,the assessment of the design standard of protection is perhaps better conceivedof as a choice between raising the dike to a specific height now or through temporaryemergency works in the event of an extreme event. The determinationof the crest width to adopt in part is influenced by such a consideration. Secondly, when a very extreme event occurs, the likely response is to allow some areas to breach or overtop in order to provide additional flood storage areas in order to protect other areas. The categorizationof dikes into classes 1 to 5, with different crest widths and freeboards,reflects such an approach. The implicationfor a benefit-cost analysis is thus that in order to assess the benefits of raising a dike protecting one area of great economic importance,the losses from a flood in another area from such an event need to be assessed. To do this would require detailed modeling of the developing flood; a problem complicated by the different possible timings of floods from the main stem and the tributaries.

Overall, therefore, the dike raising project fits into a broader management strategy in which, as a flood develops, the sequenceof actionswould be:

* reservoir retention; * the use of the detention basins; * emergencydike raising; and * breaching of dikes in the lowest priority areas to create emergencydetention basins

The last strategy would be a desperate last resort and is not formally contemplated. The application of this managementstrategy is complicatedby the need to manage flows not just on the main stem of the Yangtze but also on its tributaries so that the peak flood flows do not coincide. A benefit-cost analysis can identify the best of the options that compare. In this analysis, a single project option, the core of which is dike strengthening and raising, was assessed for the two Provinces. This option in turn is part of a comprehensive flood action plan for the Yangtze river that includes the use of re-afforestation, flood storage reservoirs and flood detention basins. The benefit-cost analysis of the Project for each Province is calculated as the marginal benefits and costs of the Project assuming that the other components of the action plan are undertaken. In the case of the Three Gorges Project (TGP), these benefits are phased in with the completionof TGP.

B. BENEFITS

Six possible strands of benefits have been identified:

* reductions in flood losses both from reduced risk of dikes overtoppingand breaching; * reductions in the probabilityof using the detention basins;

- 58 - * a potential reduction in annual Operation and Maintenance costs; * a reductionin the costs of emergencyworks during a flood; * reduced disruptionto navigation; and * land drainage benefits.

B-1: Reductionin flood losses

The primary benefits of flood alleviation schemesare given by the losses that would otherwise occur. The National Codes (SL 72-94 and SL 206-98) require surveys to be undertaken after each flood to determine the flood losses. Thus, an extensive data base of flood losses has been built-up, although the sampling strategy adopted was weak in one instance and some of the derived values were for financial rather than economic losses. In general,the raw data was not available and the aggregatedloss data has generallybeen used in the benefit-cost analyses prepared for each of the three Provinces. Where possible and where appropriate,loss data has been developed insteadfrom basic principles. Usually the method used to assess the benefit of flood alleviationis to determine the loss-probabilitycurves for the baseline and do something options, the losses from floods being plotted against the exceedanceprobabilities of those floods, and then the area between the two curves is calculated. This area is the reduction in the expected annual average flood loss. For this Project, the area between the curves has to be weighted by the probabilities that the embankmentswill not be breached. For example, if the probabilitythat the existing dike will fail when a flood of a 10 year return period occurs is 0.8 and the probability that the reinforced dike will fail is only 0.01 then the incremental benefit is given by 0.79 times the differencein the loss experiencedfrom a flood with a return period of 10 years and no flood protection at all.

Reductions in failure probabilities A primary purpose of the Project is to reduce the probability of a breach in the embankments from a flood event which will not overtop the embankment. Therefore, a critical parameter is the probability of breaching with and without the Project for different return period floods. The use of failure probabilities introducesa way of unifyingthree different aspects: * the probability of an embankment failing through piping, sand boiling or another problem from an event below the design standardof protection; * the probabilityof the embankmentbeing overtopped;and * the likelihood of success of emergency flood fighting measures both to reinforce weak points to prevent failure below the design standard of protection and also in raising the crest level to protect against floods greater than the design standard of protection.

Thus, it does not matter why the embankment fails as a result of a flood of some return period, and the usual approach of deriving a loss-probabilitycurve can be defined as the simple case where the probability of failure for a flood of a given return period is zero for events below the design standard of protection and one for events greater than that design standard of protection. Although there is a theory available as the basis for assessing the probability that a dike will breach, there is an absence of an empirical data which will allow the prediction of breach probabilities as a function of the features of the soil, dike and flood. Therefore,the design engineers in each of the two Provinceswere asked to estimate the failure probability of the present embankmentsand those as designed in the Project. Moreover, sensitivity analysis was used to test the effect of varying the breach probabilities. A typical failure probability for dikes that was assumed for Wuhan is shown below in Table 3.

- 59 - Table 3: Failure Probabilities for the Dikes in Wuhan Municipality

Flood Pre-Project With Project Probabi

lities______With Existing Existing Existing Strengthened Strengthened Strengthened Strengthened existing dike + dike + dike + TGP and raised and raised and raised and raised dikes detention TGP + detention dike dike + dike + TGP dike + TGP + basin basin detention detention basins basins 1I0 0 0 0 0 0 0 0 2 0.001 0 0 0 0 0 0 0 5 0o015 0 0 0 0.01 0 0 0 10 0.40 0.03 0.005 0 0.20 0.001 0 0 20 0.60 0.40 0.10 0 0.30 0.10 0.05 0 50 0.90 0.60 0.30 0.10 0.65 0.40 0.20 0.02 loo 1.00 0.80 0.65 0.30 1.00 0.70 0.50 0.10 200 1.00 1.00 0.85 0.70 1.oo 1.00 0.70 0.65 500 I00 I.0 1.00 1.00 1.00 I.00 I.00 1000 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00

Reduced risk of overtopping This is normally a critical parameter but as just described, it is treated in the integrated methodologyas any event for which the probabilityof failure is one. This is to some extent a simplificationbecause the possibility of a partial failure is omitted. Thus, it is assumed that either the whole area which would be flooded by some event is flooded or it is not flooded at all: any breach or overtoppingbeing assumed to flood the area, the extent of this area depending only on the return period of the event. In practice, for some structures,overtopping will not cause complete failure of the structureand the volume of water that overtops the structurewill be insufficientto flood the entire area.

Loss-probability curves The losses from a particular flood event depend upon the depth and extent of flooding. Therefore, the gradient of the loss-probabilitycurve, the plot of the monetary value of the losses from different floods against the exceedanceprobabilities of those floods, varies accordingto the change in the number of properties, or the area flooded, and the change in the depth of flooding in those properties or areas. The Yangtze flood plain is generally a flat area contained within a rim of hills and the flat area is low in relation to the normal water level of the river. If a flood occurs then commonly flooding is several meters deep in the affected area; once a building has been flooded to a few meters depth of flooding,there is little more damage left to do (Figure 1 below). Hydraulic models giving the flood depth in different areas were not available but some estimates of the flood extent for different return periods were available, as were some limited results from more detailed studies. Therefore, loss-probability curves had to be estimated based upon these extent-probabilitycurves (see Table 4 below). Because of the reasons just given, these curves are considered to be a reasonableapproximation to the loss-probabilitycurve. An area of particular uncertainty is the success rate of bank protection works.

-60 - Table 4: Typical Loss ProbabilityCurve (Estimated)

Returnperiod Loss(% of maximumloss value) 1 6 2 9 5 25 10 33 20 56 50 61 100 68 200 100

B-2: Reductions in flood fighting costs Flood fighting costs may be considered as part of the O&M costs because they are, in part, determinedby the standard of O&M undertaken. Flood fighting costs are likely to be higher with poorly maintained dikes than with those dikes for which defects are identified and repaired during routine maintenance. In some cases, details of flood fighting and other costs were available for past floods. An escalating response model was used in the analysis as follows:

* Dike watching Almost any flood causes some costs as resources and personnel are mobilized and the condition of the dikes is monitored. Some element of material stock piling may also be involved. These costs are however relatively small. * Emergency works As a flood develops and threatens to become more severe, works will be undertaken to reinforce weak points, particularly those points where a breach threatens. The cost of such works is considerablyhigher than that of dike watching. The poorer the dike is maintained, then the more likely are such costs to be incurred and the greater will be those costs. * Dike reinforcement If the dike has not failedthrough breaching,and the flood continues to raise and to threaten to overtop the dike, temporaryworks are likely to be undertakento try to raise the dike crest through sandbagging or other means. At this point, a substantial proportion of the local inhabitants, as well as the emergency services and military personnel are likelyto be involved. The real cost of this level of response is typically very high. * Repair and closure works If a dike breaches an emergency closure of the breach will be attempted. In Jiangxi Province, such action costed Yuan 12 million in 1998. Once the flood has receded, a permanentrepair will be made; in the Jiangxi case, these works costed another Yuan 100 million. * Evacuation Where the populationof a threatened area must be evacuated, then there can be substantialcosts for transportation, providingtemporary shelter and health care. * Relief costs Relief payments and compensationfor losses should not be included in the benefit assessment because to do so would double count losses. If a farmer loses property valued at Yuan 1000 and the government makes relief payments to him of Yuan 300, the total economic loss remains at Yuan 1000 but now the farmer carries Yuan 700 of that loss and the governmentYuan 300.

B-3: Operationof detention basins In some Provinces,there are detention basins which would be used in the event of the more extreme floods. However, the use of the detention basins involves a considerable cost in terms of flood losses to the land

- 61 - uses inside those basins and also the cost of evacuating the population living within those detention basins. Where detention basins are required to be used, these costs will necessarily be incurred. In Hubei Province, these costs were estimatedto amount to Yuan 1200 per capita.

B-4: Reductions in disruptionto navigation When the water level exceeds a critical level, the flood fighting headquarters in Beijing may order the suspension of shipping movements so as to eliminate the risk of wash damage to the embankments. In 1998, ship movements were stopped for one month. Raising the dikes will potentially reduce the probability and duration of such disruptions. The depth of the main channel in Hunan, for example, averages 25 meters and ranges up to 61 meters in maximum depth. In low flow periods, when the minimum depth in Hunan Province falls to 4 meters, there are occasional and short periods when the depth of water in some parts of the main channel results in the suspension of traffic. But given the width of the river, there are anticipatedto be no adverse changes to navigation.

B-5: Inlandflooding

It is understood that at present the pumping of local rainfall from the areas behind the dikes is suspended during major floods because of fears that the increased flow in the main river would further increase the risk of dike failure. Raising and heighteningthe dikes will make pumping possible during major floods and result, firstly, in reductions in localized flooding behind the dike and secondly enable the water table to maintained at the depths below ground level desirable for maximum crop yield for areas of dry land farming. However, no estimates of such benefits have been obtained. Conversely, any such localized flooding as a result of local rainfall will reduce the benefits of the main dike raising and strengthening project because such flooding will occur irrespective of whether the Project is undertaken. The code standard for pumping capacity is to remove all excess water within 3 days of the occurrence, variously, of the 10 year or 20 year rainfall event. In the absence of other information, both possibilities have been omitted from the analysis.

B-6: Risk to life and health

All engineers know that the real reason why flood alleviationschemes are undertaken is to reduce the risk to people's lives. However, they are then forced to justify the proposed Project in economic terms on an entirely different basis: the reductions in the losses to buildings, their contents and to agriculture. In this instance, the historic record demonstrates that the potential loss of life is very large indeed. It is not however recommended that 'values of life' should be introduced into the benefit-cost analysis of flood alleviation projects. Rather the relative degree of risk should be assessed, although this cannot yet be done with any formal precision. Floods also cause health damage, stress and anxiety; they disrupt life and kinship relations especially when people are forced to leave home. Survey data for the UK shows that 40-70% of flooded householdsreport that the health of at least one family member is adversely affected by a flood and floods in the UK are trivial comparedto those in China. There is some evidence to show that children, the elderly and female headed households are particularly adversely affected by flooding. UK survey data shows that to the households affected, these other affects are frequently regarded as more severe than the damages to their home and replaceable property. A number of snail and disease bome diseases are endemic in the two Provinces and both the snails and insects breed in still waters. Secondly, there will no local suppliesof potable water in the flooded areas. Therefore, there is a significant risk of disease once polder areas have been flooded. After the 1998 flood, the Ministry of Health carried out a special program to combat the disease vectors and a subsequent survey found that there had been no significant increase in rates of the different diseases in areas where the specified control measures were

- 62 - implemented. Conversely, in 1954 there were many deaths after the flood from epidemic diseases across a large area. In principle, therefore, the costs of mounting such a special health program is a cost that should be added to the losses resulting from flooding. Specific works to reduce the risks of snails entering the poldersthrough the water gates have been included in the Project's cost in some cases.

B-7: Losses in urban areas

China has collected what are, in many cases, excellent, detailed surveys of flood losses in past floods. The National Codes then require these surveys of losses in past floods to be used to estimate the losses from future floods. These surveys have calculated flood losses in terms of the proportion of the total values of different classes of assets at risk and/or in a loss per mu (rural areas) and a loss per capita (urban areas). This proportional loss approach is consistent with the approach adopted in, for instance, the USA, Japan and Germany. But estimating future flood losses on the basis of the aggregated results from surveys of past flood losses does mean that there are no depth-damagecurves which express the losses to particular building types as a function of the depth of flooding. However, flood depths are such that in many cases a property is either not flooded at all or flooded to a depth of several meters.

Direct damages The approach applied in some of the Provincial analyses and adopted in the analyses undertaken for this report expresses the expected losses to a particularclass of buildings and their contents as a proportion of the total asset value of those classes within the affected area. This is a widely adopted approach: for example,it is that used in France and Hungary. These values were then converted into a loss per mu in rural areas and a loss per capita in urban areas.

Indirect losses The National code (SL206-98)proposes that 20% of direct losses be taken to give indirect losses. Detailed analyses in the UK of industrial indirect losses give a similar figure but floods in the UTK usually last less than a day as compared the several weeks on the Yangtze. Therefore, the code value can be taken to be reasonably conservative. In some cases, it was possible to use the industrial turnover figure for the Province to give a turnover per day, and then to multiply this figure by an estimate of the gross margin and by the approximate duration of flooding. The analysis by Hunan Province included estimates of the costs of disruptionon the main rail lines and this was included into the benefit assessment described here.

B-8: Agricultural losses

For agriculture,the two main components of losses are to standing crops and to livestock. Because of the long duration of the flood both the spring and autumn crops of rice are affected; the standingplants of the first crop are lost and planting of the second crop is delayed so that a catch crop must be planted, if possible, instead. The economic loss resultingfrom the complete loss of the first crop is given by the gross margin on the crop (basically sales price minus variable costs), adjusted to reflect the variable costs that will already have been incurred (i.e. seeds, fertilizer, pesticides). For the second crop, either the unadjusted gross margin should be used or it may be possible to plant a catch crop in the shortened growing season remaining. In the latter case, the loss is the reduction in the gross margin per mu. The Provinces based their analyses upon the National Code approach of converting the losses from past floods to a loss per mu for agricultural areas had been used. In Hubei, an average loss in rural areas of 9,140 Yuan/mu was used, derived on the basis of flood surveys; and in Hunan in the more rural of the two areas, a loss figure of 7,006 Yuan/mu was applied. As cross checks of the reasonableness of these values, they can be compared first to one MWR report ("Impact of flood disasters on the economy, society and the environment") that gives an average loss per mu, on the basis of post-flood surveys, over the period 1980-1989 as 12,120 Yuan/mu (1980s prices). Secondly, the resettlement plans give details on the

- 63 - household size, land access per capita, house size and compensationpayments for buildings. From this data, the average compensationpayment per mu can be calculated. In the case of Hunan, assuming that the dwelling is of brick/wood construction(and thus likely to be largely destroyed in a flood), the building loss per mu is equivalentto 8,200 Yuan/mu. To this would be added: crop loss, livestock loss, loss of building contents and damage to other items found in rural areas, including roads and bridges. Consequently,the values derived in the studies in each of the two Provinces appear to be quite plausible. The contributionof crop losses to these overall losses is rather minor: output per in Hunan is given as 1,475 Yuan/mu for paddy fields and 820 Yuan/mu for dryland farming.

B-9: TGP effects

The Three Gorges Project (TGP) will impact to a varying extent on each of the three Provinces (see Table 5 below), this extent depending in part upon the contribution and timing of the flood flows from the tributaries of the Yangtze. It is also necessary to analyze the benefits of the Project before and after the completion of the TGP. Where the TGP has a major effect, then Project benefits, after TGP becomes fully operational, fall accordingly.

Table 5: The Impact of the Three Gorges Projecton the Flood Problems

Province Effect of the Three GorgesProject on Flood Losses Hubei significantreduction for whole lengthof river (a conservativeassumption) Hunan significantreduction for upstreampart of the Province;small effect for downstream part

B-10: Phasingin of Project benefits Two conservativeassumptions have been made in the analyses:

* none of the benefits of the Project occur until the fifth year of the Project; in practice, depending upon the phasing of the construction works, there should be expected to be a build-up of benefits starting with the completion of the first part of the Project with full benefits occurTingwith the completionof the whole Project. * the benefits of the Three Gorges Project are not phased in; all the reduction in the flood alleviationbenefits of the dike Project occurring immediatelythat the first part of the TGP is operational.

Because benefits and costs occurring in the early part of the life of a Project contribute a disproportionate part of the benefits and costs, both assumptionsare conservative.

C: COSTS

The definition of benefits and costs given earlier defines a cost as any negative change relative to the baselinecondition. The most obvious costs are therefore associatedwith the constructionof the Project but it has been sought to examine all of the importantnegative changes.

-64- C-1: Capital costs These include all construction costs and, for convenience, where a particular component has an expected engineeringlife less than the overall life of scheme, the costs of replacement during the life of the scheme. Renovation of bank protection has been included as part of the annual 0 & M costs but one of the risks is of catastrophic failure of part of the bank protection works requiring replacement. As bank protection costs are a large fraction of the capital costs, the assessment of the likely life expectancy and probabilityof success are critical considerationsto the Project. Commitmentcosts have also been included in these costs. The practice in China is also to establish a revolving fund at the start of the Project from which 0 & M costs are paid. Strictly, inclusion of this amount as part of the costs of the Project may be regarded as double-countingbut it has been included on the grounds that the need arises from the equivalent of market imperfections.

C-2: Operationand maintenance

There should generally be a reduction in the real costs of Operation and Maintenance (O&M) which should be treated as a Project benefit rather than a reduction in costs. The exception is any new costs which are not incurred under the baseline case.

C-3: Residualvalue

No allowance has been made for a residual value of the Projectat the end of its predicted engineeringlife; it is assumed that at that point in time the present value of future benefits has fallen to the present value of future costs and hence that the residual value of the Project is zero.

C-4: Resettlement

The aim of the resettlement plan is to ensure that those affected have the same level of welfare after resettlement as they have at present. Therefore, there are no negative benefits of resettlement to be evaluatedand the costs of resettlementare simply included under the cost side of the equation.

C-5: Disruptionduring construction Construction will give rise to noise and dust nuisance, and to increases in local traffic. Those who would be worst affected by these effects are those who will be resettled in any case. In general, it is likely to be preferable to manage these issues through consultation with local communities rather than to seek to evaluate them in economic terms. The danger of seeking to evaluate them is the potential anomaly that is created whereby a Project which is strongly desired by the communityto be protected is rejected on the basis of an economic analysis which asserts that the disruption caused in the construction period to the local communityis such as to outweighthe potential benefits.

C-6: Environmentalimpacts

Environmental protection action is to be undertaken so that the Project will not adversely affect any significant environmental resources/values but instead will contribute to achievement of an economically-cum-environmentallysound and therefore sustainable project. Therefore, there are no negative environmentalbenefits of resettlementto be evaluated and the costs of environmentalmitigation are simply included under the cost side of the equation.

- 65 - C-7: Impacts on navigation

As discussedearlier, the impacts of the Project are likelyto be, on balance, positive.

C-8: Impacts on tourism

A potential negative benefit of the Project, and hence a cost, is the impact on tourism. Raising the banks will reduce the visibility of the countrysideand urban areas from tourist boats. However, these effects are likely to be minimal:the degree to which views are obstructed dependsupon the change in the angle of sight subtended by the eyes of the passengers on the boats. Since the river is wide, the narrowest points in Hunan Province during the dry season being 500-600 meters wide, the change in the angle of sight of increases in dike crest height of less generally less than 1 meter is small. Bank protection strategies such as rip-rap almost certainly reduce the attractiveness of the banks but some of the rivers most heavily used for tourism, such as the Rhine and Danube, are also the most heavily engineered rivers. Therefore,it is not to be expectedthat there will be significanteffects on tourism.

D: FRAMEWORKOF ANALYSIS

D-1: Discount rate

The national guidelines (SL206-98) require the use of a discount rate of 12% for projects, such as large hydroelectricplants, that yield a fnancial retum. Those guidelinesrequire the use of a discountrate of 7% for projects which do not yield a financial return. In view of the rate of growth in the economy of China, to which the opportunity cost of capital, the basis for discounting,should be related, a discount rate of 12% has been adopted. The problems of establishingthe true opportunitycost of capital are similar to those in correcting the Gross Domestic Product measure. The true opportunity cost of capital is the return elsewhere in the economy after all externalitieshave been included and after corrections have been made for reductions in natural capital. A lower rate than 12% could be defended but constraints on capital availability typically mean that there are other projects which are viable at higher discount rates and which should, therefore, be preferred to the project being appraised. Unfortunately, the use of discounting only gives a measure, weighted by the discount rate used, of the area under the net annual benefit curve. Any preferences that may be held about the shape of the curve will only incidentally be captured by the discounting approach. These preferences are usually labeled as 'individual time preferences'. Therefore, the latest version of the MAFF (1999) guidelines require that the net annual benefit curve be plotted, particularly when different 'do something' options are being compared. If appropriate, a reasoned argument may then be put forward as to why an option with a lower net present value should be preferred to the option with the highest net present value. One reason which might be given for preferring an option which does not have the highest NPV is that the annual net benefits fall below zero in the long run and stay negative; the argument about inter-generationalequity is a special instance of this general case. Here, because only a single "do something"option is being comparedto the baseline option, the case for plotting the net annual benefit curve is less pressing but it has been done: since the results are uninteresting, the graphs are not included in this report.

D-2: Growth rates

The national code (SL206-98) allows for losses from future floods to be assumed to increase by a rate usually of around 3% each year. Such growth factors should not be applied in benefit-cost analyses except in special circumstancesand then growth factors should be applied to all streams of benefits and costs and not just to a single stream. The reason for using a discount rate is that altemative investmentsthroughout

- 66 - the economy are anticipatedto yield a return on capital and therefore some expectation of growth is already built in to the analysis; the discountrate used should thus be related to the expected growth in the national economy. There are then a number of reasons why a growth rate might be considered. The first is that the economy in the Province is anticipated to faster than the national economy as a whole. The correct approach in this case is to use a higher discount rate because other investments in the economy of the Province would yield a greater return than in other parts of the country. Conversely, if the economy in the Province is growing more slowly than the national economy as a whole, then there is a case for the use of lower discountrate. A second reason is to take account of anticipatedfuture intensificationof development in the area either through changes in cropping patterns to higher valued crops or urban development. A reasoned case really needs to be made for such an expectation and rather than a blanket growth rate being applied, a phased projection of future development in specific areas ought to be adopted because future developmentis likely to be geographicallyconcentrated rather than uniformly distributed. In this analysis growth rates were not used.

D-3: Schemelife

The engineering life for the embankments has been assumed to be 50 years; this is consistent with the engineeringlife assumed for similarcountries in other countries. The engineering lives of other components are lower and are again consistent with those used elsewhere.

Figure 1: HouseholdContents Losses: Flood Damages as a Proportion of Total Value of Contents

Contents loss - proportional losses

70 60 - 50- "-"'%?s-'" UK: FLAIR%

30 -a- USA - 20 Appelbaum 1985

10 - ,

0 a, Japan

o o 0 Cl depth

- 67 - Sensitivity analysis / Switching values of critical items:

E: RISKS

The outcomes of decisions are always uncertain, not least because they lie in the future. Outcomes can be uncertain in two different ways: parametric uncertainties and systemic uncertainties. The first has been described as 'what we know we do not know' and can be quantified. We can, for example, associate standard errors of the mean to the results of statistical analyses. Systemic uncertainties are 'what we do not know that we do not know': they arise because our models or theories may be incomplete or simply wrong. For example,we may apply a linearmodel to analyze what is really a nonlinear system or the t-test for difference in means to data whose distributionis not normal. Until climate change was detected,there was systemic uncertainty about long term trends in rainfall intensity and runoff: now this has, arguably, been reduced to parametric uncertainty. In classical terms, parametric uncertainty is risk, because we can identify completely all of the possible outcomes and associate a probability with each, whilst systemic uncertainty is true uncertainty because it is not even possible to identify all possible outcomes. In summary, therefore,the picture of sources and nature of uncertaintiesis as shown below:

Probabilities Well Differentiated Undefined Systemic uncertainty Uncertainty Ignorance (Undefined) Parametric uncertainty Risk Amnbiguity (Well defined)

Risks are then a single category within in this classificationand one which whilst most easily assessed can be the least important. There is consequentlya danger that concentrating upon risks about outcomes will distract from the real issue of decision uncertainty. One way of handling decision uncertainty is to ask how great must be outcome uncertaintiesbefore they matter. The benefit-cost ratio itself is a good indicatorof the robustness of the choice of the do something option over the baseline option to the uncertaintiesabout the different streams of benefits and costs. Rather than a benefit-cost ratio of one forming a hurdle that must be jumped in order for the Project to be economicallyviable, it is actually the ratio at which there is the maximum uncertaintyas to whether a project is justified. If the benefit-cost ratio is 0.3 then we can be pretty confident that the Project is not viable; conversely, if the ratio is 5, then we can be very confident that the Project is viable. If the benefit-costratio is one, then only an infinitesimallysmall underestimateof the costs or overestimateof the benefits would make the Project inefficient. Experience also suggests that if the benefit-cost ratio is greater than about 15, then it is most likely that there is a major error in the analysis, such as a failure to apply discountingcorrectly. What we therefore want to know is how robust is the conclusion that the b/c ratio is greater than one; we want to know how hard we can hit the analysis before the b/c ratio falls below one. This can be done by identifyingthe parameters that have the greatest impact on the b/c ratio and using values that are extremely unlikely to be correct. If the b/c ratio still stays above one, then we can be highly confident that the Project is worthwhile. In effect, we see how hard we can kick the decision before it breaks. Arbitrarily varying the benefits and costs up or down by some percentage adds nothing to what we knew already because the benefit-cost ratio tells us by how much benefits could fall or costs could rise before the benefit-costratio fell to one. Experience indicateswhat the parameters are that will affect the benefit-costratio and the relative magnitude of their influence (See Table 6 below).

- 68 - Table 6: Parameters which May Affect the B/C Ratio and the Decision

Parameter Affecton decision Test

Laborcosts of 0 & M Economicgrowth should be expectedto increasethe real cost Not necessary of labor over time. However,the contributionto scheme benefitsare givenby the differencebetween the costs of 0 & M of the baselineoption and the do somethingoption; this significantlyreduces the effectupon the net presentvalue of the do somethingoption of predictionerrors in future labor costs. It is has moreoverbe arguedthat real 0 & M costs should be expectedto fall with the Project. Omissionis thereforeconservative.

The Projectis inadequately There is inadequate funding available to maintain the Yes, the greatestrisk is maintained existing dike system; therefore, there is a risk that the that the bankprotection availabilityof funds will not be sufficientto maintain the workswill requiremore Project. Thus,over time the protectionoffered by the Project maintenanceand repairs; will decline. bank protectioncosts also constitutea significant proportionof the capital costs

Breachprobabilities The assessmentof the probabilitiesof a breach occurring Yes;test breach under the baseline and do somethingoptions has a major probabilitiesboth for the effect on the net presentvalue of the do somethingoption. baselineand the do One reasonwhy breach probabilities might not be reducedby somethingcondition the anticipatedamounts with the do somethingoption is if designedconstruction standards are not achieved.

Existingstandard of The majority of flood alleviation benefits come from Usuallynecessary; here protection reductions in the consequenceof high frequency events. breachprobabilities are Therefore,errors in the estimationof the design standardof more critical protectionoffered by the existing embankmentswill have a significanteffect upon the predicted present value of the benefitsof the do somethingoption. It has been shownthat is acceptableto vary the return period of the flood stages ratherthan to vary the floodstages in testingfor this effect.

Impacton existingstandard of If the Three Gorges Project will significantlyincrease the Yes protectionof TGPand design standard of protection offered by the existing upstreamworks embankments,then this would significantlyreduce scheme benefits.

Capitalcost of constructionof Becausecapital costs occur in the initialyears, errors in the No, b/c ratioshows how scheme predictedconstruction costs have a significanteffect upon the great mustbe the predictednet present value of the scheme. underestimationfactor mustbe beforethe Projectwould not be justified

Geomorphologicstability Bankprotection works are intendedto protect the dikesand Yes,reduce life to stabilize the river channel. If these works are not expectancyof bank successfulthen in the extremecase parts of the dike will be protectionworks - same lost and a retreateddike will have to be built at somefuture effectas 0 & M date. Before that happens,further attempts would almost estimates certainlybe made at river training.

- 69 - Value of property at risk Economic growth should result in higher values at risk; the No assumption of constant real prices in assessing benefits is therefore a conservative assumption.

Change in susceptibility of With economic growth, the construction standards of No property to flood damage buildings have risen and are likely in the first instance to reduce susceptibility to damage (e.g. replacement of earlier timber and earth buildings by concrete and/or masonry structures). Conversely, electronic machinery is much more susceptible to damage by flood than the hand and mechanically operated equipment it replaces. Increased industrial concentration similarly increases indirect costs: lost production cannot then be made up elsewhere in China. It is very difficult to assess the likely direction of the overall change but the use of constant real prices is likely to be conservative.

Engineering life With a discount rate of 12%, the present value of the benefits No of the scheme in the period of c + 30 to c + 50 years is low.

Climate change Climate change is predicted to change both rainfall and No, direction of change is runoff, specific climate predictions for China are not to hand. unknown Therefore direction and extent of the change is unknown. But the effects will be greatest in later years when the effects would have the least impact on present values.

Increased development of the With increased intensity of development of the protected No protected areas areas, losses from floods should also be expected to rise. However, the economic objective is not strictly to reduce flood losses but to increase the efficiency of the use of the river basin as a whole. The appropriate way to include the effects of increased development is not to increase the flood losses but to determine whether increased development in the particular location increases the efficiency of use of land.

A detailed assessment has been performed for various parametric conditions as mentioned above to test the viability of the Project. It will be noticed from Tables 7A and 7B below that under no circumstance does the B/C ratio drop below 1.2 (EIRR=15%) for any of the provinces examined indicating that the Project is very robust.

- 70 - Table 7A: ParameterRisk Assessment - Benefit Cost Ratio

Risk Application Hubei Hunan

Base case 5.2 2.3

Delay of 2 years and TGP is on time 3.4 1.9

Loss estimation 30% less than base 3.5 1.6

Breach probabilities are 50% for 1/10 year 4.6 1.5

Probability of breach for 1/20 is 50% etc. 3.0 1.4

Table 7B: Parametric Risk Assessment - EIRR Terms

Risk Application Hubei Hunan

Base case 53% 25%

Delay of 2 years and TGP on Time 30% 24%

Loss estimation 30% less than base 37% 21%

Breach probabilities are 50% for the 1/10 year 34% 19%

Probabilities of breach for 1/20 is 50% 50% 18%

Assume high frequency events are not included 38% 15%

-71 - Annex 5: Financial Summary CHINA: Yangtze Dike Strengthening Project Years Ending December31, 2000to June 30, 2005 (in US$million)

Year I I Year22 Year 3 Year 4 Year 5 Year 6 { Year 7 Total Financing Required Project Costs InvestmentCosts 14.3 124.2 191.0 111.5 78.6 0.0 0.0 RecurrentCosts 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total Project Costs 14.3 124.2 191.0 111.5 78.6 0.0 0.0 Interestduring 0.0 1.6 2.4 5.9 8.6 5.3 0.0 construction Front-endfee 0.0 2.1 0.0 0.0 0.0 0.0 0.0 Total Financing 14.3 127.9 193.4 117.4 87.2 5.3 0.0 Financing IBRD/IDA 0.0 45.0 65.0 52.0 48.0 0.0 0.0 Government 14.3 82.9 128.4 65.4 39.2 5.3 0.0 Central 11.4 57.0 93.2 51.6 32.5 5.3 0.0 Provincial 2.9 25.9 35.2 13.8 6.7 0.0 0.0 Co-financiers 0.0 0.0 0.0 0.0 0.0 0.0 0.0 UserFees/Beneficiaries 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Others 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total Project Financing 14.3 127.9 193.4 117.4 87.2 5.3 0.0

Yeari I Year2 IYe;ar3 Year erSIYaS e Total Financing Required Project Costs InvestmentCosts 0.0 0.0 0.0 0.0 0.0 0.0 0.0 RecurrentCosts 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total Project Costs 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Interestduring construction 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Front-endfee 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total Financing 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Financing IBRDIIDA 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Government 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Central 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Provincial 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Co-financiers 0.0 0.0 0.0 0.0 0.0 0.0 0.0 UserFees/Beneficiaries 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Others 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total Project Financing 0.0 0.0 0.0 0.0 0.0 0.0 0.0

- 72 - Main assumptions:

Table1: FinancingAnfangeiit by Componentsand Sources

ThePeose'sepubicofChina The Govement Provrice Provnwce The Ya-gize DOSkeSfoev Prject(YDSP) World Fundsto SWeBonds CtylCounty StateBands City/CoutyGovemrment Total DtabsnentAocountsby Finances Bank WlR Hubei FundsHubei Hunar FundsHuran pU 4ilion)

A Chanq WaterResources Commission 1. SitePrepwadon, River Model - 3.8 - - - - - 3.8 2. CivilWOs a RiverBak Protedion - 93.6 - - - - - 936 b. Dke RehahEtaon - 9.8 - - - - - 9.8 G PhysicalRMriModdin 6.6 2.0 - - - - - 8.6 Subttal CivilWorks 6.6 105.4 112.0 3. Goods a. CikeMordgirq&Ri-Modleng 19 1.9 - - - - - 3.8 b. Equiiert FbodPrewon & MilgatonCenter 0.5 0.1 - - - - - 0.6 SubltoWGoDds 2A 20 - - - - - 4.4 4. PmectangementandlrsiftoalAnangment 1.2 1.5 - - - 1.2 3.9 SubtaldChangW aterResouresCornumsion 10.2 11Z7 - - - - 1.2 1241 B. FloodDisaster PreventionCenter 1.4 0.1 - - - - - 1.5 C. FLbeiProvince 1. CivUWorks a Dke Rehabitaton 140.7 - 37.5 9.4 - - - 187.6 b. OherMinorCM VVa 18.2 - 6.2 4.2 - - - 28.6 SubtotalCvil Works 158.9 43.7 13.6 - - 216.2 Z Goods a DkeMaiaing&OGM Equprent 5.7 - 0.9 0.5 - 0.0 0.0 7.1 b. Offce Equment and Instrument 0.3 - - - - 0.0 0.0 0.3 Subtoal Goods 6.0 - 0.9 0.5 - 0.0 0.0 7.4 3. Reseleent Resetert Housing- - 12.8 19.2 - - - 32 0 Land Ahxuston and Otlers - - 16.4 24.6 - - - 41.0 Sutiotl Resettlernent - 29.2 43.8 - - - 73.0 4. nstitutionalDevdopmerrt 2.4 - 0.6 0.4 - - - 3A 5. Project Manageent - 12.7 5A - - 18.1 Substeota Hubei Province 167.3 - 87.1 63.7 - - - 318.1 D. Hurian Province 1. Civil Woks a. lkeRehabiabfion 24.6 - - - 11.6 8.3 - 44.5 b. OtlerMinorCMisi\ksl 3.0 - - - 0.7 0.5 - 4.2 Subtotal CivilWorks 27.6 - - - 123 8.8 - 48.7 2. Goods a Dke Mantarin & OIMI EqupTent OA - - - 0.1 - - 0.5 3. Resetemt Resefterdent,jaig - - - - 1.8 1.8 0.1 3.7 Land Acquisbon and Others - - - 9.2 9.2 0.6 19.0

SubtDtal Reseelerment - - - - 11.0 11.0 0.7 22.7 4. InstSoii DevebpmerTt 1.0 - - - 0.6 0.6 0.0 22 5. ProjectManagement - - - - 1.3 0.3 0.0 1.6 SubtoW Hurnan Province 29.0 - - - 25.3 20.7 0.7 75.7 TOTAL 207.9 112.8 87.1 63,7 25.3 20.7 1.9 519.4 Frcrt End Fee 2.1 ------21 Iteret during construdcon ------23.8 23.8 Grand1to0bl 210.0 112.8 87.1 63.7 25.3 20.7 25.7 545.3

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- 73 - Annex6: Procurementand DisbursementArrangements CHINA:Yangtze Dike Strengthening Project

Procurement

A-I: InstitutionalArrangements

Provincial Project ManagementOffice Each Province has established a Provincial Project Management Office (PPMO) for the day-to-day responsibilities and to coordinate Project implementation. Although there are slight variations in the two provinces generally the PPMO, which will function as a group headed by a senior official from Provincial Planning Commission or Provincial Finance Bureau, will have staff seconded from the Provincial Water Conservancy. The PPMO will have overall responsible for Project planning, financial management, technical and procurement affairs, preparation of annual work plans, coordinationbetween the PMOs at local Government levels, and assuring counterpartfunding.

Changjiang Water Resources Commission The Changjiang Water Resources Commission (CWRC), which is under the Ministry of Water Resources,will implementthe river bank protection and selected dike foundation treatment works not financed by the Bank. CWRC will also be responsible for the river modeling and be involvedin the dike monitoringprogram. CWRC will put in place adequate organizational arrangementsfor the implementationof the river bank protection and dike foundation treatment works in close consultationwith Hubei and Hunan. CWRC will also set up a Project Management Office (PMO) for the planning, implementationand operation of a physical model for the middle reach of the Yangtze River.

Divisional Responsibilities The PPMO will establish five divisions: (i) general services; (ii) finance; (iii) procurement;(iv) engineering;and (v) environmentand resettlement. The main responsibilitiesof the engineeringand procurementdivisions are:

ProcurementDivision

* guide and supervisethe preparationof bidding documents for civil works and goods; * co-ordinateand supervise compliancewith procurementprocedures; - prepare ICB/NCBprocurement plans for all major works and goods; * manage, with assistance from a National Tendering Corporation, the procurement under ICB for equipment; and * ensure that contracts are concludedand implementedby the local government agencies as "owners'.

Engineering Division:

* oversee design and construction progress, construction supervision including quality control and contractor performance; * prepare and monitor annual constructionand investmentplans; * guide and supervise Project procurement, carry out field inspections to verify payment claims, constructionprogress and quality of work; and * prepare bi-annual physical progress report, includingprocurement reporting.

The two provinces have managed several IBRD/IDA supported projects (9 projects in different sectors) in the past and their staff is familiar with the processing of: (i) procurement in accordance with Bank

- 74 - Guidelines; and (ii) withdrawal applications and disbursement of funds under World Bank supported projects. Most project expenditures will be made through ICB/NCB contracts and will be properly documented. This will help to simplify financial managementfor the Project. Detailed arrangementsfor financial managementand control systems under the Project, includingthe adoption of tabular formats for financial reporting, have been agreed. The Ministry of Finance (MOF) will manage the Special Account (SA) for Bank Loan funds.

Local Project ManagementOffice At the local governmentlevels (Prefecture/Cityand County/District), Project ManagementOffices (LPMO) have been established. Each LPMO will be responsiblefor Project planning, fnancial management, technical affairs, preparationof annual work plans, coordinationbetween Government organizations and implementationagencies, and assuring counterpart funding. The LPMOs will adopt and set up a similar organizational structure as the PPMO. They will provide guidance and oversee the constructionof works by the owners, which in most cases will be the dike managementoffices. The LPMO will be responsiblefor:

* coordinating overall Project implementation,preparation of annual design, investigation and constructionplans; * reviewing and approvingNCB bid documentation,procurement processing, bid evaluation and contract award; * ensuring availabilityof adequate counterpart-funding; * preparing financial statements and reports on physical and financial progress; * overseeing implementation performance, Project acceptance, financial auditing, Project transfer and trial operation; * processing periodicrequests for disbursementagainst contractor payment certificatesfrom the implementingagencies and forward them to the PPMO; and * monitoring the implementationof RAPs and EMPs.

Implementation Agencies The implementation of Project works will be entrusted to owner organizations,which in most cases will be the Dike Management Offices and in a few cases the Water Conservancy Bureaus at local Government levels. The structure and staffing of these offices will be adjusted to match the Project scope and the technical complexityof contracts to be implemented.The local governments will establish additional implementationunits as needed. The implementationagencies will follow instructionsfrom provincial and prefecture/cityPMOs to ensure that adequate attention is paid to important Project implementationactions, such as adopting agreed bidding and selection proceduresfor the contractingof constructionsupervisors, suppliers and contractors. Their main responsibilitiesare to:

* prepare annual financing needs for each contract, construction schedules and supply of materials; * manage procurement processes, including preparationof bid documents, pre-qualification of contractors, evaluation of bids received, recommendation for contract award and contract signing; * organize detailed Project design, constructionsupervision and organize and prepare Project acceptanceand certificationreports; * implement the environmentalmanagement and resettlement action plans and arrange for timely land acquisition; * control, manage, and supervisethe allocation of Project funds; * prepare Project progress report, and assist with preparation of financial and audit statements;

- 75 - * maintain key Project data and files; and * arrange for World Bank missionsto inspect Project sites.

Planning and Design The Provincial Investigation and Design Institutes (PIDI) and CWRC's Design Institute (CWRCDI) have assisted the provincial and local Government WRHBs and Dike Management Offices since 1998 with Project formulation,the preparationof the feasibility studies and the planning and design of Project works. To ensure continuity,the implementationagencies will retain PIDI and CWRCDI to prepare final designs of the major Project works including construction drawings, technical specificationsand bill of quantities for incorporation in the bid documentation. PIDI and CWRCDI will also be retained to carry out design changes during Project implementation.Technical specialists will be contracted as required to assist with resolving complex design or construction issues.

Construction Supervision The owner organizationsat local government levels will use competitive selection procedures for the employment of nationally recognized "Grade A" organizations to act for the owners as the "Engineer"for the constructionof works. The Project CoordinationOffice (PCO) will make sure that the owners employ consultants with relevant experience. As experience in this area may be limited in China, joint ventures of domestic and international consultants will be considered. The owners will also continue to retain PIDI and CWRCDI during the construction of works to make design adjustmnentsas needed. Note also that the EMO is to furnish EnvironmentalConstruction Inspectors(ECIs) to work with and through the Construction Engineer to check the environmental performance (EP) by contractors and to require improvementsin their EP as needed.

ProcurementMethods The Guidelines for procurement under IBRD Loans and IDA Credits published by the Bank in January 1995 and revised in January and August 1996, September 1997 and January 1999 will be applied to Bank financed procurement of goods and works. The Standard Bidding Documents (SBD) developedby the Ministry of Finance and the Bank will be adopted for all InternationalCompetitive Bidding (ICB) and National Competitive Bidding (NCB) for works and goods, and the Standard Bid Evaluation Form will be used. Works procured through ICB and NCB costing in excess of Yuan 35.0 million will be processed by the PPMO. The LPMO will manage all other NCB contracts. Small civil works contracts and works procured through local procedures and force account will be managed by the District and County level Dike Management Divisions or Water Conservancy Bureaus Project cost and procurement arrangements are shown in Table A. For contracting consulting services, the Guidelines for the Selection and Employment of Consultants by the World Bank Borrowers dated January 1997, revised September 1997 and January 1999, as well as the StandardRequest for Proposals dated July 1997, revised April 1998 and July 1999 for consultantrequirements will be applied.

Local Bidding Proceduresand ProcurementCapacity Assessment A new Law related to procurement procedures - "The Tendering Law" of the People's Republic of China - was adopted and promulgated on August 30, 1999 and had become effective as from January 1, 2000. At present both provinces and CWRC have in place instructions,detailing the local bidding procedures to be followed under state and local government financed projects. Those instructionsare based on guidelines issued by the Ministry of Water Resources. The bidding process for civil works starts with the completion of: (i) preliminarydesigns for the works at hand; (ii) preparationof investmentand financing plans; (iii) nominationof the "owner" in charge of implementingthe works; and (iv) organizational arrangements for implementation of works. Once this bidding package has been prepared, it is submitted to the Provincial Tendering Administration Committee for their review and approval. The submission also includes: (i) a description of the bidding procedures to be followed; (ii) the type of works, including specifications and bill of quantities; (iii) principlesof bid evaluation; and (iv) qualificationcriteria for potential bidders. This agency checks whether the documentation is in line with provincial regulations and instructions. If everything is found to be in

- 76 - order, an authorizationto proceed is issued. Regarding civil works on the Yangtze Class I and II dikes as well as key works on Class III dikes a "public"process of competitive bidding will be followed.Invitations for bids are posted in national and provincial newspapers.For works on lower class dikes competitive bidding is suggested, but inviting bids from at least five qualified bidders is permitted and commonly followed.No sole source invitationto negotiate a contract is followed, except in emergency situations. For the earth/rockworks on Class I dikes, only national contractors certified as Grade "A" and "B" are allowed to participate. For the construction of cross-dike structures only Grade "A" contractors are authorized to participate. The following steps are generally followed for inviting and processing bids: (i) prepare bid documentationand cost estimate; (ii) advertise the invitationto submit pre-qualifications;(iii) evaluationof pre-qualifications and preparation of list of bidders; (iv) issue bid documents to qualified bidders; (v) schedule bid conference and site visit; (vi) sent clarifications to all qualified bidders based on questions asked during the bid conference and site visit; (vii) bid preparation period is generally 7-8 days but sometimesas short as 3 days; (viii) form a bid evaluationcommittee and detail the evaluation methodology to be followed;(ix) submissionof bids followed by public bid opening on the same day; (x) bid evaluation and recommendationfor award; (xi) contract award; and (xii) contract signing. Some of the local bidding procedures are not in compliance or inconsistent with the Bank's procurement guidelines. The main inconsistenciesare: (i) preparationof cost estimates based on out-of-date normnsand guidelinesissued by Government;(ii) the use of cost estimates in the evaluation of bids or for "bracketing", e.g. if the bid price exceeds the cost estimate by 5% or more or is lower than 8% or more then bids are declared non-responsive and rejected; (iii) too short bid periods of 7-8 days (new Law stipulates 20 days); and (iv) bid evaluation criteria are not detailed in the bid document,only principlesare given. Each bid evaluation committeesets the evaluation method after bid opening. In most cases the "points system" is followed. Points are scored for the following five elements:(i) bid price; (ii) technical approach for constructionof works; (iii) quality assurance arrangements; (iv) proposed measures to ensure timely completion; and (v) contractor's experience and financial performance. The bid scoring the most points is awarded the contract. A bid bond of at least 3% of the bid price and a performancebond of at least 8% are required. The advancepayment to contractorsranges from 10-20%. Local bidding procedures for goods do not use "bracketing"and bids for goods are generally received from bidders invited to submit bids. As most goods are of local origin, provincial procurement agents are used. The lack of experience with undertaking procurement in accordance with World Bank guidelines will be addressed as follows. First, procurement training will be provided to staff handling procurement at the PPMO and LPMO levels. This training will be overseen by Resident Mission procurement staff and will start during the Project Launch Workshop. Second, a strict Bank review of procurement procedures will be put in place during the early stages of Project implementation, which will include Bank review of the first three NCB contracts in each province irrespectiveof contract values.

During loan negotiations a supplementary letter to the legal documents was agreed stating that the Borrower and the Provinces will not use local procedures unacceptable to the Bank for procurement of Bankfinanced works,goods or services. This letter will be signed by the Borrower and Hubei and Hunan provinces at loan signing.

A-2: ProcurementImplementation Plan

General Time bound procurement implementationplans for each province have been prepared using Microsoft Project and a critical path method (CPM). The program is structured by Project components detailed in Annex 2, which for most part are linked to the layout of existing dike sections. The contract packaging is also based on this breakdown. Works on various dike sections will start simultaneouslyand be completedmore or less at the same time.

- 77 - A-3: ProcurementAction Plan

Civil Works The aggregate civil works contract value of works executed under the Project is estimated at US$380.8 million. The total value of NCB civil works undertaken under the Project is estimated at US$253.9 million; the aggregate value of Small Works (SW) contracts is estimated at US$19.70 million. The aggregate value of Non Bank Financed civil works is US$107.2 million. The contracts for riverbank protection (US$93.6 million) and selected dike foundation treatment works (US$9.8 million) will be undertaken by CWRC using 100 percent government financing (NBF). The civil works for the physical river model under the CWRC component, estimatedat US$8.6 million (excluding US$3.8 million for site preparation, which is financed by the Govermment),will be procured through three 3 NCB contracts of about US$2.9 million each. The dike strengtheningworks in Hubei and Hunan will be undertaken in forty four sections involvingmany local governmentsdispersed over a river stretch of about 1,000km. Since the contracts are of relatively small value (about US$6.8 million on average per contract), widely dispersed along the river and with possible annual interruptionsby floods, they will not be of interest to international contractors and, therefore, NCB procedures will be adopted. The dike strengthening works, including the cross-dike structures and supply and installation of gates/hoists,will be undertaken through 36 contracts (27 for Hubei and 9 for Hunan) with a total value of US$200.2 million in Hubei and US$45.1 million in Hunan. Remedial works on dike crest roads are valued at US$12.6 million in Hubei and US$1.7 in Hunan and will be procured using NCB procedures in packages ranging in value from US$0.2 million to US$1.0 million and for those works costing less than US$200,000(US$5.4 million in Hubei and US$0.7 million in Hunan) Small Works (SW) procedureswill be used, including lump-sum,fixed price contracts awarded on the basis of quotations obtained from three (3) qualified domestic contractors in response to a written invitation. Procurementof grass and tree plantation,with an aggregate value of US$13.6 million (US$10.3 million in Hubei and US$3.3 million in Hunan), will also be undertaken through SW contract procedures. Total SW packages are estimatedat 110 scatteredalong the dikes, of which 85 will be in Hubei and 25 in Hunan. Table B-2 gives the bidding procedures to be used and a detailed breakdown of the contract packaging, by package type (civil works, goods and services), Project component grouping, contract packagegroup, and number of packages by Project component.

Goods The total value of goods to be procured under the Project is estimated at US$12.0 million. The supply of goods/equipmentfor river modeling by CWRC (US$3.1 million) and equipment for O&M and dike monitoring (US$5.2 million) will be procured through three ICB contracts (total value US$8.3 million). A margin of preference of 15 percent of the CIF price of imported goods or actual customs duties, whichever is lower, will be applied to domestically manufactured goods procured through ICB. AnotherUS$3.3 million of O&M and dike monitoring equipment will be procured using NCB procedures through contracts estimated to cost less than US$250,000. Miscellaneous equipment, such as office equipmentand vehicles with an aggregate value of US$0.4 million will be purchased in contracts costing less than US$100,000 through "national shopping"procedures.

Technical Assistance The aggregate value of international and national consultant services contracts under the Project is estimated at US$9.8 million. The aggregate value of the Bank financed portion of the Technical Assistance (TA) components amounts to US$5.1 million, with the balance or US$4.7 million being Non Bank Financed (NBF). All consulting contracts, includingthose for river modeling, which are expected to cost more than US$100,000 (aggregate value of US$2.2 million) will use the "Quality Based selection" or "QBS" procedures. Consulting contracts expected to cost less than US$100,000 (aggregate value estimated at US$2.8 million) will use the "Selection Based on Consultant's Qualifications"or "CQ" procedures. "Single Source Selection" procedures will be for consultant contracts costing less than

- 78 - $50,000 each (aggregate value estimated at US$0.1 million) after prior approval of the Bank. Individual consultants will be procured under the procedures in the guidelines for employment of individuals. All consulting assignments with values over US$200,000 will be advertised in the Development Business periodical.

Training and Study Tours Bank financed training and study tours, estimated to cost US$1.1 million, are planned for three target groups: (i) the managerial staff of the Borrower; (ii) managerial staff of PPMOs and LPMOs; and (iii) the technical staff responsible for survey, design, construction and maintenanceof the Project works. Training and skill development areas will include use of modem and innovativeconstruction technologies, Project management, maintenanceof major structures (includingdike safety), and modem construction practices. Reimbursementof training and study tours expenditureswill be subject to a prior "no objection" from the Bank. These training and study tour programs would be 100 percent financed from Bank Loan proceeds.

Other Items not Financed by the Bank The implementationby CWRC of river protectionand some dike foundation treatmnentcontracts valued at US$103.4 million will not be financed by the Bank. Land acquisition and resettlement cost (US$95.0 million), site preparation for river modeling (US$3.8 million), survey, design and construction supervision,Project managementand offices (US$19.8 million),consulting services and training (US$5.8 million) and IDC and commitmnentcharges (US$23.8 million) will be funded by local sources of funds.

Prior Review All ICB contracts for goods worth US$250,000 or more (US$8.3 million) would be subject to prior review. For NCB procurementof civil works costing US$200,000 or more bid documents, bid evaluation and award recommendation reports for the first three bids per province will be subject to prior review by the Bank. Thereafter only bids with cost estimates exceeding US$5.0 million equivalent will be subjectto prior review. This is estimatedto cover 27 civil works contracts representing about 81 percent or US$205.0 million of the NCB aggregate contract value of US$ 253.9 million. Contracts for consultantservices in excess of US$50,000 for individuals (US$2.7 million) and of US$100,000 for firms (US$2.3 million) will be subject to prior review. Overseas and domestic training and study tours (US$1.1 million) will be reimbursedbased on programs agreed with the Bank. All other contracts will be subjectto ex-post review by Bank supervisionmissions (see Table B).

- 79 - Procurementmethods (TableA)

Table A: Project Costs by Procurement Arrangements (US$ million equivalent)

~~~~~~~~ _t 1. Works 0.00 253.90 19.70 107.20 380.80 (0.00) (180.70) (12.30) (0.00) (193.00) 2. Goods 8.30 3.30 0.40 0.00 12.00 (5.80) (2.60) (0.30) (0.00) (8.70) 3. Services 0.00 0.00 5.10 4.70 9.80 Consultant services (0.00) (0.00) (5.10) (0.00) (5.10) 4. Training and Study Tours 0.00 0.00 1.10 1.10 2.20 (0.00) (0.00) (1.10) (0.00) (1.10) 5. Interest during 0.00 0.00 0.00 23.80 23.80 construction (0.00) (0.00) (0.00) (0.00) (0.00) 6. Front-end fee 0.00 0.00 2.10 0.00 2.10 (0.00) (0.00) (2.10) (0.00) (2.10) 7. Resettlement and Land 0.00 0.00 0.00 95.00 95.00 Acquisition (0.00) (0.00) (0.00) (0.00) (0.00) 8. Project Management and 0.00 0.00 0.00 19.80 19.80 Engineering (0.00) (0.00) (0.00) (0.00) (0.00) Total 8.30 257.20 28.40 251.60 545.50 (5.80) (183.30) (20.90) (0.00) (210.00)

Figures in parenthesis are the amounts to be financed by the Bank Loan. All costs include contingencies 2 Includes "small works" (SW) civil works, goods to be procured through "local shopping", consulting services, training and study tours and the front-end fee

- 80 - Table A2: Detail Procurement Arrangements by Expenditure Accounts

The PeoplesRepublic of China YangtzeDike Strengthening Project (YDSP) PrucurementMefhod ProcurementArrangements Inteat.ional National Training & (USSMillion) Compaeitive Competitive Local Consulting Blddino Biddiso Shoontno Setrvicets N B F Total A. ChangjiangWater Resources Commission 1. Civil Works a.MajorCivil Works RiverBank Protection - 93.6 93.6 Dike Rehahlaitaion 3 8 9.8 SitePreparaton itr River Modeling - - 3.8 Physical Model 8 - 8.68 (6.8) (6.9) 2. Goods Controlund Measuring System/Office Equipment for RiverModel 3.1 0.6 - - - 3.7 (1.6) (0.3) (2.0) OfficeEquipment FPMC la - 0.3 - 0-0.3 (0.3) (0.3) 3. ProjectMaengemrent Maintenanceand Operation fr RiverModeling - - 1.1 2.8 3.9 -(1.1) (1.2) ConsultngServices. Training and Sdy ToursFPMC - - - 1.9 - 1.9

B. HubeiProvince 1.Civil Works a. MajorCivil Works Dike Rehabiliation - 187.6 - - - 187.6 (140.6) (140.6) Buildings& Roads - 12.6 5(3 -) 18.0 (7.9) (3.6) (11.5) b. Minor Civil Works LeveeCottage. Turffing and Tree Plantation 10.3 10.3 (8.7) (6.5) 2.Goods Dike Monitoring& OperatniorMaintenanceEquipment 5.0 2.1 - 7.1 (4.0) (1.7) (5.7) OfficeEquipment - - 0.3 - 0.3 (0.3) (0.3) 3. ResetfSiment Resettemrent Housing 32.0 32.0 LandAcquisiteon and Others - 40.9 40.9

4. Tchnical Assistance Resettement& Environmental Monitodndg &Evaluaton - - 0.3 0 (0.3) (0.3) ConsultingServices - - 1.3 0.6 1.9 (1.3) (1.3) StudyTours & Training (.0.6 0.6 1.2 (0.6) (0.6) 5. Project Management - 18.1 181

C. Huno Province 1.Civil Works a. MajorCivil Works DikeRehabilitation - 243.4 (244364 (24.6) (24.6) Buldings& Roads . 1.7 0.7 . 2.5 (1.0) (0.4) (1.4) b. Minor Civil Works LeveeCottage. Turffing and Tree Plantaton 3.3 13.3 (1.6) (1.6) 2. Goods OperationtMaintenanceEquapment 0.2 0.2 . - . 0.4 (0.2) (0.2) (0.3) Office Equipment -0.1 0.1 (0.1) (0.1) 3.Resettlement Resetliement Housing 1-6 186 LandAcquisiton and Others 18.5 15.5

4.Technical Assistance Resettlement& Environmental MonitoringlEvaluation - - - 0.2 0.9 1.1 (0.2) (0.2) ConsultingServices - 0.6 0.3 0.9 (0.6) (0.6) StudyTours & Training - - - 0.2 0.6 0.8 (0.2) (0.2) 5. Project Managemnent - - 1.71 1.7

Total 8.3 2572 20.1 6.2 227.9 519.7 (5.8) (183.2) (12.7) (6.2) - (207.9)

Note:Figures in parenthesisare the respectiveamounts tnanced by The Wodd Bank ka FPMC:Flood Prevention and Mitggano Center

- 81- Table Al: ConsultantSelection Arrangements (optional) (US$ million equivalent)

A. Firms 0.00 1.20 0.00 0.00 1.10 0.00 4.70 7.00 (0.00) (1.20) (0.00) (0.00) (1.10) (0.00) (0.00) (2.30) B. Individuals 0.00 1.00 0.00 0.00 1.70 0.10 0.00 2.80 (0.00) (1.00) (0.00) (0.00) (1.70) (0.1 0) (0.00) (2.80) Total 0.00 2.20 0.00 0.00 2.80 0.10 4.70 9.80 (0.00) (2.20) (0.00) (0.00) (2.80) (0.1 0) (0.00) (5.10) 1\ Including contingencies

Note: QCBS = Quality- and Cost-Based Selection QBS = Quality-based Selection SFB = Selection under a Fixed Budget LCS = Least-Cost Selection CQ = Selection Based on Consultants' Qualifications Other = Selection of individual consultants (per Section V of Consultants Guidelines), Commercial Practices, etc.

N.B.F. = Not Bank-financed Figures in parenthesis are the amounts to be financed by the Bank Loan.

- 82 - Priorreview thresholds (Table B) Notes to TableB: All contractsnot subject to the Bank's prior review would be subject to the post review. All contracts for individualconsultants and all single source contact in excess of US$ 50,000 would be subject to the Bankesprior review.

ICB: IntemationalConpetitive Bidding. NCB: National CompetitiveBidding. SW: Small Works FA: ForceAccount NSP: National Shopping,requiring at least three price quotations. QCBS: Quality and Cost Based Selection. CQ: Consultants'Qualifications. Prior review on NCB procedure for civil works: 1. all contracts > US$ 5,000,000.0 2. the first three NCB bid documents in each province inrespectiveof value TableB: Thresholdsfor ProcurementMethods and PriorReview'

1. Works Major Works >10,000 ICB n.a. Dike rehabilitationand >200 to <10,000 NCB 205.0 cross-dikestructures Otherworks <200 SW/FA none 2. Goods For O&M,dike monitoring >250 ICB 8.3 and river modeling; >100to <250 NCB none Officeand survey <100 NSP none equipment none 3. Services (a) Consultingservices firms >100 QCB 2.3 <100 CQ none individuals >50 Quotations 1.1 <50 Single source 0.1

Totalvalue of contractssubject to priorreview: US$216.8 million out of US$285.6million or 76%

OverallProcurement Risk Assessment

Average

Frequency of procurementsupervision missions proposed: One every 6 months (includesspecial procurementsupervision for post-review/audits) During Project implementation, the Bank will assist MWR/CWRC and the two provinces to ensure that the Project is carried out smoothly in accordance with the agreed Project objectives. The Bank has extensive experience in managingthis type of project. It willbe able to tap intoa pool of worldwidetechnical experts to solvemanagerial and technical problems. It has access to higher government levels to raise issues related to procurement, disbursementand otherfinancial and managementaspects of the Project.

- 83 - Table B-1: Procurement Packaging

Item MWR and Hubei Hunan Total CWRC

Civil Works

1. River Bank Protection

Total Value in US$ million 93.6 93.6

Procurement Procedure NBF

No. of Contracts N/A

Average Size of Contracts N/A

2. Dike Rehabilitation and Cross-dike Structures

Total Value in US$ million 9.8 200.2 45.1 255.1

Procurement Procedure NBF NCB NCB NBF/NCB

No. of Contracts N/A 27 9 36

Average Size of Contracts in US$ million N/A 7.4 5.0 6.8

3. Small Civil Works

Total Value in US$ Million 15.7 4.0 19.7

Procurement Procedure SW SW SW

No. of Contracts 85 25 110

Average Size of Contracts in US$ Million 0.18 0.16 0.18

4. River Modeling

Total Value in US$ Million 8.6 8.6

Procurement Procedure NCB NCB

No. of Contracts 3 3

Average Size of Contracts in US$ Million 2.9 2.9

5. Resettlement/Sitepreparation

Total Value in US$ Million 3.8 72.9 22.2 98.8

- 84 - Procurement Procedure NBF NBF NBF NBF

No. of Contracts N/A N/A N/A N/A

Average Size of Contracts in US$ Million N/A N/A N/A

Goods

1. 0 & M Equipment

Total Value in US$ Million 4.1 7.4 0.5 12.0

Procurement Procedure ICB/NCB ICB/NCB NCB ICB/NCB

No. of Contracts 2 2 5 9

Average Size of Contracts in US$ Million 2.1 3.7 0.1 1.3

ICB -International Competitive Bidding NCB -National Competitive Bidding SW--Small Works Contracts NS - National Shopping NBF- Non Bank Financed Thresholds generally differ by country and project. Consult OD 11.04 "Review of Procurement Documentation"and contact the Regional ProcurementAdviser for guidance.

- 85 - Disbursement

Allocationof loan proceeds(Table C) Disbursementfor civil works will be 65 percent made against eligible payments to contractors for works executed and for authorized mobilization advances. Disbursement for goods and equipment, including vehicles, will be at 100 percent of foreign expendituresfor direct imports, 100 percent of the ex-factory costs for locally manufactured items, and 75 percent of expenditures for other items procured locally. Expenditures for training, study tours will be disbursed at 100 percent and for technical assistance 100 percent against Statement of Expenditures (SOEs). See Table C: Allocation of Loan Proceeds. The estimated disbursementschedule for the Bank Loan is given on the summary page of the PAD and further details are provided in the PIP. Table C: Allocation of Loan Proceeds

_ Allll_ Civil Works 171.80 65% River Model - CWRC (US$6.6) Dike Rehabilitation - Hubei Province (US$140.6) - Hunan Province (US$24.6) Civil Works 21.20 65% Roads and Buildings - Hubei Province (US$11.5) - Hunan Province (US$1.4) Grass and Tree Plantation - Hubei Province (US$6.7) - Hunan Province (US$1.6) Goods 8.70 100% for CIF, 100% of local O&M and Dike Monitoring expenditures(ex-factory cost) and 75% - Hubei Province (US$6.0) of local expendituresfor other items - Hunan Province (US$0.4) procured locally River Modeling & FDPC - CWRC (US$2.0) - MWR (US$0.3) Consultants' Services 5.10 100% - Hubei Province (US$1.6) - Hunan Province (US$0.8) - CWRC (US$1.5) - MWR (US$1.2) Research, Training, Study Tours 1.10 100% - Hubei Province (US$0.6) - Hunan Province (US$0.2) - CWRC - - MWR (US$0.3)

Total Project Costs 207.90 Interest during construction Front-endfee 2.10 Loan amount = US$210.0million Total 210.00

- 86 - Special account: To facilitate disbursement a Special Account (SA) in US Dollars will be opened at a commercialbank acceptableto the Bank. The SA will be opened by the Ministry of Finance (MOF), with an initial deposit of US$9.0 million and an authorized allocation of US$18.0 million. The authorized allocation is approximately equal to the Bank's projected expenditure for four months of Project implementation. Applicationsfor replenishmentfor the SA would be submittedmonthly or when the account is drawn down to 50 percent of its authorized allocation,whichever comes first. The Provincial Bureau of Finance will make payments within 2 weeks after receipt and review of withdrawal applications. The lower level FB will pass on the funds promptly, and no later than 2 weeks after the funds have been received.

Retro-activeflnancing To avoid delays in the start-up of the Project, retro-active Bank financing of US$4.0 million is recommendedto cover eligible expendituresincurred between December 1, 1999 and the date of the signing of the Loan and Project Agreements. The agreed activities eligible for rectro-active financing have been agreed during Project appraisal and are detailed in the PIP. The procurement proceduresfor the agreed activities have been agreed and the bidding documentsreviewed.

- 87 - Annex 7: Project Processing Schedule CHINA: Yangtze Dike Strengthening Project

Timetaken to preparethe project(months) 12 10 First Bankmission (identification) 02/12/99 02/12/99 Appraisalmission departure 01/15/2000 12/10/99 Negotiations 04/24/2000 05/02/2000 PlannedDate of Effectiveness 09/01/2000

Prepared by: 1. Governmentof China,Ministry of WaterResources and ChangjiangWater Resources Commission 2. Govermnentof Hubei 3. Governmentof Hunan.

Preparation assistance: Policyand HumanResources Development Fund (PHRD),Government of Japan DutchConsultant Trust Fund (DCTF), Governmentof TheNetherlands WorldBank Budget (BB)

Bank staff who worked on the project included: Nme ic _ Daniel J. Gunaratnam Task Manager Bert L. Kramer Co-Task Manager Lang Seng Tay Water Resources/FloodControl Li Xiaokai Water Resources Dirk De Bruin River Management *Chen Charng Ning Dike/Riverbank Protection Specialist *ChenZuyu Land Slides and Sedimentation *KrystianPilarczyk River Hydraulicsand Dike Engineering *Wu Changyu Dike Geo-technicalExpert *PeterKo Flood Forecasting/RiverMechanics Expert *Dale Lille and *ChenJinrong Flood Forecasting *AnneNicolson and *Yao Songling ResettlementSpecialists *CollinGreen Flood Hazard Economics *KumarMohit and *Xie Qingtoa EnvironmentalSpecialists *Hu Shunong Cost and Procurement *Wu Ning Financial Specialist *Harvey Ludwig Principal EnvironmentalSpecialist Yu Youhua Financial Management Nicolette K. Dewitt Legal Advisor Clifford Garstang Legal Advisor CeciliaBelita and Yinfeng Zhi Task Team Assistants

* Indicates consultanthired by the Bank

- 88 - Annex 8: Documents in the Project File* CHINA:Yangtze Dike Strengthening Project

A. ProjectImplementation Plan Hubeiand HunanProvinces, MWR and CWRCReports:

1. FeasibilityStudy Report on Yangtze River Dike StrengtheningProject, Jingnan (Jingzhou)Section, preparedby the Planning,Design and ResearchInstitute of CWRC; 2. FeasibilityStudy Report on YangtzeRiver Dike StrengtheningProject, Bapu (Erzhou)Section, prepared by the Planning,Design and ResearchInstitute of CWRC; 3. FeasibilityStudy Report on YangtzeRiver Dike StrengtheningProject, Huanggang Section, prepared by the Planning,Design and ResearchInstitute of CWRC; 4. FeasibilityStudy Report on YangtzeRiver Dike StrengtheningProject, Wuhan (UrbanZone) Section, prepared by Hubei Reconnaissance,Planning and Design Institute for Water Conservancyand Hydropower, WuhanUrban Flood Control Design Institute and WuhanCity WaterPlanning and DesignInstitute; 5. FeasibilityStudy Report on YangtzeRiver Dike StrengtheningProject, Wuhan(Suburb Zone) Section, preparedby Hubei Reconnaissance,Planning and Design Institute for Water Conservancyand Hydropower, WuhanUrban Flood Control Design Institute and WuhanCity WaterPlanning and DesignInstitute; 6. FeasibilityStudy Report on the WorldBank FinancedYangtze River Dike StrengtheningProject, Hubei Section, prepared by Hubei Reconnaissance,Planning and Design Institute for Water Conservancyand Hydropowerand WuhanCity Water Planningand DesignInstitute; 7. ProjectImplementation Plan, the WorldBank Financed Yangtze River Dike StrengtheningProject, Hubei Province, prepared by Hubei Reconnaissance,Planning and Design Institute for Water Conservancyand Hydropower; 8. FeasibilityStudy Report on the WorldBank Financed Yangtze River Dike StrengtheningProject, Hunan Section, prepared by Hunan Reconnaissance,Planning and Design Institute for Water Conservancyand Hydropowerand WuhanCity WaterPlanning and DesignInstitute; 9. Project ImplementationPlan, the World Bank Financed Yangtze River Dike StrengtheningProject, HunanProvince, prepared by HunanReconnaissance, Planning and DesignInstitute for Water Conservancyand Hydropower; 10. Proposalfor FloodControl and DisasterMitigation Engineering Technology Research Center, Ministry of WaterResources; 11. Proposalon Flood ControlRiver Models, CWRC, March 2000; 12. EnvironmentImpact AssessmentReport for the YangtzeFlood Control Project, ResearchInstitute for Yangtze Water ResourcesProtection, Hunan Water Conservancyand HydropowerSurvey & DesignInstitute, HubeiWater Conservancy and HydropowerSurvey & DesignInstitute; 13. Supplementto the EnvironmentImpact AssessmentReport for the Yangtze Flood Control Project, ResearchInstitute for YangtzeWater Resources Protection, Hunan Water Conservancy and HydropowerSurvey & DesignInstitute, Hubei WaterConservancy and HydropowerSurvey & DesignInstitute; 14 Yangtze Dike StrengtheningProject, ResettlementAction Plan, December 1999, Hunan Water Conservancyand HydropowerSurvey & DesignInstitute, Hubei Water Conservancyand HydropowerSurvey & DesignInstitute, Jiangxi Water Resource Planning and DesignInstitute, Draft Report; 15 YangtzeDike StrengtheningProject, Resettlement Action Plan, December 1999, Hunan Province, Hunan WaterConservancy and HydropowerSurvey & DesignInstitute, Draft Report; 16 YangtzeDike StrengtheningProject, Resettlement Action Plan, December1999, Hubei Province,Hubei WaterConservancy and HydropowerSurvey & DesignInstitute, Draft Report; 17 YangtzeDike StrengtheningProject, ResettlementAction Plan,March 2000, Hunan WaterConservancy and HydropowerSurvey & DesignInstitute, Hubei Water Conservancy and HydropowerSurvey & DesignInstitute, JiangxiWater Resource Planning and DesignInstitute, Final Report.

- 89 - B. BankStaff Assessments In the course of Project preparationand appraisal various written contributionshave been made by Bank staff and Bank consultants.These reports can be found in the Project file in the World Bank Office, Beijing. The PAD has extensivelydrawn from these contributions.

C. Other None *Includingelectronic files

-90 - Annex 9: Statement of Loans and Credits CHINA: Yangtze Dike Strengthening Project

Difference between expected and actual Original Amount in US$ Millions disbursements Project ID FY Borrower Purpose IBRD IDA Cancel. Undisb. Orig Frm Rev'd

P040513 1996 China 2ND HENAN PROV HWY 210.00 0.00 0.00 146.62 75.96 0.00 P003619 1996 China 2ND INLAND WATERWAYS 123.00 0.00 0.00 113.92 37.26 0.00 P003652 1996 China 2ND SHAANXI PROV HWY 210.00 0.00 0.00 92.41 54.75 0.00 P058844 2000 China 3RD HENAN PROV HWY 150.00 0.00 0.00 150.00 0.00 0.00 P051856 1999 China ACCNTGREFORM & DEV 27.40 5.61 0.00 30.88 12.39 0.00 P003559 1993 China AGRIC. SUPPORTSERVI 0.00 115.00 0.00 4.37 -3.21 0.00 P050036 1999 China ANHUI PROVINCIALHWY 200.00 0.00 0.00 171.58 13.98 0.00 P003563 1996 China ANIMAL FEED 150.00 0.00 0.00 133.27 130.40 56,61 P049665 1999 China ANNINGVALLEYAG.DEV 90.00 30.00 0.00 97.35 1.48 0.00 P003602 1996 China CH-HUBEI URBAN ENVIRONMENT 125.00 25.00 28.32 76.87 69.26 3.54 P003603 1995 China CHiNA-ENTERPRISEHOUSING & SOC SEC REF 275.00 75.00 20.00 154.42 153.40 16.72 P057352 1999 China CHINA-FOURTHRURAL WATER SUPPLY PROJECT 16.00 30.00 0.00 44.15 3.76 0.00 P036414 1996 China CHINA-GUANGXIURBAN ENVIRONMENTPROJECT 72.00 20.00 0.00 86.11 14.33 0.00 P056491 1998 China CHINA-HEBEIEARTHQUAKE REHABILITATION 0.00 28.40 0.00 0.43 -7.63 0.00 P003598 1995 China CHINA-LIAONINGENVIRONMENT PROJECT 110.00 0.00 0.00 45.66 44.34 0.00 P003637 1997 China CHINA-NATIONALRURAL WATER III 0.00 70.00 0.00 57.34 25.85 15.47 P040185 1998 China CHINA-SHANDONGENVIRONMENT PROJECT 95.00 0.00 0.00 79.99 41.33 0.00 P003586 1994 China CHINA-SHANGHAIENVIRONMENT PROJECT 160.00 0.00 0.00 54.64 54.17 0.00 P003646 1996 China CHINA-SHANGHAISEWERAGE PROJECT II 250.00 0.00 0.00 123.99 98.37 0.00 P043933 1999 China CHINA-SICHUANURBAN ENVIRONMENTPROJECT 150.00 2.00 0.00 152.02 4.70 0.00 P003580 1993 China CHINA-SO.JIANGSU ENVMT PROTECTIONPROJ 250.00 0.00 0.00 3.25 2.59 0.00 P003566 1992 China CHINA-TIANJINURBAN DEV& ENVMT PROJECT 0.00 100.00 0.00 9.23 6.44 4.20 P003599 1996 China CHINA-YUNNANENVIRONMENT PROJECT 125.00 25.00 0.00 130.46 51.25 -3.43 P003473 1993 China CHINA-ZHEJIANGMULTICITIES DEVELOPMENT 0.00 110.00 0.00 13.07 13.01 3.33 P036952 1997 China CN-BASICED. IV 0.00 65.00 0.00 23.29 -9.47 0.00 P036950 1996 China CN-BASICED. POOR III 0.00 100.00 0.00 1.03 2.51 0.00 P003636 1995 China CN-BASICEDUC IN POOR& MINORITYAREA II 0.00 100.00 0.00 0.99 3.04 0.00 P003566 1998 China CN-BASIC HEALTH (HLTH8) 0.00 85.00 0.00 74.02 11.15 0.00 P003646 1996 China CN-CHONGQINGIND POL CT 170.00 0.00 153.99 15.61 142.10 11.94 P003589 1996 China CN-DISEASEPREVENTION (HLTH7) 0.00 100.00 0.00 34.51 40.53 0.00 P036953 1999 China CN-HEALTHIX 10.00 50.00 0.00 55.65 2.29 0.00 P046051 1999 China CN-HIGHEREDUC. REFORM 20.00 50.00 0.00 64.39 16.14 0.00 P003624 1992 China CN-INFECTIOUSDISEASES (HLTH5) 0.00 129.60 0.00 22.30 18.39 18.35 P037156 1995 China CN-IODINEDEFICIENCY DISORDERS CONTROL 7.00 20.00 7.00 0.31 9.98 2.98 P034618 1996 China CN-LABORMARKET DEV. 10.00 20.00 0.00 20.41 22.33 0.00 P003634 1995 China CN-MATERNALCHILD HEALT(HLTH6) 0.00 90.00 0.00 12.53 15.30 0.00 P058308 1999 China CN-PENSIONREFORM PJT 0.00 5.00 0.00 4.98 2.91 0.00 P003502 1994 China CN-RURAL HEALTH MANPOWER (HLTH4) 0.00 110.00 0.00 11.16 10.30 0.00 P003635 1997 China CN-VOC.ED. REFORM PROJ 10.00 20.00 0.00 5.57 0.37 0.00 P003653 1999 China CONTAINERTRANSPORT 71.00 0.00 0.00 69.69 49.69 0.00 P051736 1998 China E. CHINAIJIANGSUPWR 250.00 0.00 0.00 231.00 190.64 52.86 P003647 1995 China ECONOMICLAW REFORM 0.00 10.00 0.00 5.09 5.76 0.00 P003606 1998 China ENERGYCONSERVATION 63.00 0.00 0.00 60.96 6.52 0.00 P060270 1999 China ENTERPRISEREFORM LN 0.00 5.00 0.00 4.97 3.34 0.00

- 91 - Differencebetween expected Original Amountin US$ Millions and actual disbursements Project ID FY Borrower Purpose IBRD IDA Cancel. Undisb. Orig Frm Rev'd P003632 1993 China ENVIRONMENTTECH ASS 0.00 50.00 0.00 9.03 9.67 8.06 P003507 1996 China ERTANHYDRO 11 400.00 0.00 0.00 11.24 -0.51 0.00 P003623 1993 China - FINANCIALSECTOR TA 0.00 60.00 0.00 13.55 15.47 10.08 P036041 1995 China FISCAL& TAX REF. & 25.00 25.00 0.00 39.68 41.95 4.41 P003557 1994 China FORESTRESOURCE DEV 0.00 200.00 0.00 16.41 6.18 -39.26 P046952 1998 China FOREST.DEV. POOR AR 100.00 100.00 0.00 171.41 -3.91 20.34 P051705 1999 China FUJIAN 11HWY 200.00 0.00 0.00 198.00 21.34 0.00 P003626 1994 China FUJIAN PROV HIGHWAY 140.00 0.00 0.00 46.42 45.09 27.56 P003594 1996 China GANSUHEXI CORRIDOR 60.00 90.00 0.00 111.27 36.63 0.00 P003627 1993 China GRAINDISTRIBUTION P 325.00 165.00 0.00 246.92 249.67 49.20 P003518 1993 China GUANGDONGPROV. TRANSPORT 240.00 0.00 0.00 0.62 0.62 0.28 P058843 2000 China GUANGXIHWY Project 200.00 0.00 0.00 200.00 0.00 0.00 P003614 1998 China GUANGZ.CITY CRT.TRP 200.00 0.00 0.00 142.92 47.94 0.00 P051888 1999 China GUANZHONGIRRIGATION 80.00 20.00 0.00 92.22 15.39 0.00 P003504 1994 China HEBEUHENANNATIONAL 380.00 0.00 0.00 16.22 16.22 0.00 P038988 1997 China HEILONGJIANGADP 120.00 0.00 0.00 68.06 18.64 0.00 P003581 1993 China HENAN PROV. TRANSPORT 120.00 0.00 0.00 6.36 6.36 0.00 P035698 1998 China HUNAN POWER DEVELOP. 300.00 0.00 0.00 300.00 65.50 0.00 P003654 1997 China HUNANIGUANGHWY2-NH2 400.00 0.00 0.00 266.32 126.32 0.00 P049700 1998 China LAIL-2 300.00 0.00 0.00 229.68 29.32 0.00 P003493 1995 China INLANDWATERWAYS 210.00 0.00 0.00 35.81 6.41 0.00 P041890 1999 China LIAONINGURBTRANSP 160.00 0.00 0.00 141.50 30.50 0.00 P003540 1994 China LOESSPLATEAU 0.00 150.00 0.00 14.16 -1525 0.00 P056216 1999 China LOESSPLATEAU II 100.00 50.00 0.00 142.50 25.67 0.00 P036949 1998 China NAT.HWY 3-HUBEI 250.00 0.00 0.00 194.32 10.99 0.00 P041268 1999 China NAT.HWY4-HUBEVHUNAN 350.00 0.00 0.00 336.50 16.00 0.00 P003590 1997 China OINBAMTS. POVTYRED 30.00 150.00 0.00 115.20 45.64 0.00 P003570 1993 China RAILWAYVI 420.00 0.00 0.00 44.56 44.56 -15.68 P003571 1995 China RAILWAYSVIl 400.00 0.00 29.00 303.81 249.81 38.97 P003595 1994 China RED SOILS It DEVELOP 0.00 150.00 0.00 30.88 20.46 5.00 P003592 1993 China REF. INSTL& PREINV 0.00 50.00 0.00 13.61 14.14 0.00 P046829 1999 China RENEWABLE ENERGYDEVELOPMENT 100.00 0.00 0.00 100.00 0.00 0.00 P003638 1996 China SEEDS SECTORCOMMER. 80.00 20.00 9.40 49.77 28.39 0.00 P003622 1994 China SHANGHAIMTP II 150.00 0.00 0.00 3.89 3.89 0.00 P044485 1997 China SHANGHAIWAIGAOQIAO 400.00 0.00 0.00 361.22 43.26 0.00 P003569 1996 China SHANGHAI-ZHEJIANGHi 260.00 0.00 7.75 78.35 54.78 46.77 P003649 1996 China SHANXI POVERTYALLEV 0.00 100.00 0.00 25.87 7.29 0.00 P003585 1995 China SHENYANGIND. REFORM 175.00 0.00 0.00 66.21 49.61 0.00 P003609 1994 China SICHUAN GAS DEV & CONSERVATION 255.00 0.00 0.00 79.22 58.72 0.00 P036947 1995 China SICHUANTRANSMISSION 270.00 0.00 0.00 112.07 111.27 6.45 P045264 2000 China SMALLHLDRCATTLE DEV 93.50 0.00 0.00 93.50 5.80 0.00 P003593 1994 China SONGLIAOPLAIN ADP 0.00 205.00 0.00 14.37 -2.34 0.00 P003639 1995 China SOUTHWESTPOV. REDUC 47.50 200.00 0.00 59.02 49.40 0.00 P003591 1998 China STATEFARMS COMMERCI 150.00 0.00 0.00 90.93 -3.40 0.00 P003539 1998 China SUSTCOAST RES DEV 100.00 0.00 0.00 81.86 3.53 0.00

- 92 - Difference between expected OriginalAmount in US$ Millions and actual disbursements Project ID FY Borrower Purpose IBRD IDA Cancel. Undisb. Orig Frm Revd P003597 1993 China TAIHU6ASIN FLOOD CO 100.00 100.00 0.00 16.36, 12.01 -0.77 P046563 1998 China TARIMBASIN It 90.00 60.00 0.00 126.37, 26.60 0.00 P042299 1999 China TECCOOP CREDIT IV 10.00 35.00 0.00 42.01, -2.10 0.00 P003600 1995 China TECHNOLOGYDEVELOPME 200.00 0.00 0.00 89.92, 63.50 0.00 P003633 1994 China TELECOMMUNICATIONS 250.00 0.00 30.00 13.80, 43.80 8.20 P003616 1993 China TIANHUANGPINGHYDRO 300.00 0.00 0.00 61.23,4.69, 53.03 0.00 P003533 1993 China TWAJININD. 11 150.00 0.00 40.35 320.00, 43.38 3.19 P056424 2000 China TONGBAIPUMPED STORA 320.00 0.00 0.00 191.99, 0.00 0.00 P045788 1998 China TRI-PROVINCIALHWY 230,00 0.00 0.00 328.15. 57.03 0.00 P003650 1997 China TUOKETUOPOWERIINNER 400.00 0.00 24.00 280.10, 234.95 22.66 P036405 1997 China WANJIAZHAIWATERTRA 400.00 0.00 0.00 158.61, 76.10 0.00 P046564 1999 China WESTERNPOVERTY RED 60.00 100.00 0.00 208.02, 22.07 0.00 P034081 1997 China XIAOLANGOIMULTI. If 430.00 0.00 0.00 0.25,17.59, 132.09 0.00 P003562 1994 China XIAOLANGDIMULTIPURPOSE 460,00 0.00 0.00 14.86, 4.78 0.00 P003644 1994 China XIAOLANGDIRESETTLEMENT 0.00 110.00 0.00 202.48, 10.95 0.00 P003612 1995 China XINJIANGHIGHWAY I 150.00 0.00 0.00 9.26,37.37, 14.86 0.00 P003643 1997 China XINJIANGHWY II 300.00 0.00 0.00 41.75, 106.82 0.00 P003596 1995 China YANGTZEBASIN WATER 100.00 110.00 0.00 101.17, -4.60 0.00 P063123 1999 China YANGTZEFLOOD EMERGY 40.00 40.00 0.00 12.88 16.68 1.67 P003641 1994 China YANGZHOUTHERMAL POW 350.00 0.00 0.00 41.55 0,00 P003642 1995 China ZHEJIANGPOWER OEVT 400,00 0.00 0.00 19.28 0.00 P003534 1992 China ZHEJIANGPROV TRANSP 220.00 0.00 0.00 12.88 12.55

Total: 15940.40 3955.61 349.81 9752.81 4054.88 392.25

- 93 - CHINA STATEMENTOF IFC's Held and DisbursedPortfolio 30-Apr-2000 In MillionsUS Dollars

Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic 1999 Bank of Shanghai 0.00 21.76 0.00 0.00 0.00 21.76 0.00 0.00 1996 Beijing Honnel 3.93 0.50 0.00 3.85 3.93 0.50 0.00 3.85 2023 CIG HoldingsPLC 0.00 3.00 0.00 0.00 0.00 0.00 0.00 0.00 1998 CIG Port Holding 0.00 1.50 0.00 0.00 0.00 1.50 0.00 0.00 1998 Caltex Ocean 21.00 0.00 0.00 45.00 21.00 0.00 0.00 45.00 1998 Chengdu Chemical 0.00 3.20 0.00 0.00 0.00 0.00 0.00 0.00 1998 Chengxin-IBCA 0.00 0.36 0.00 0.00 0.00 0.36 0.00 0.00 1987/92/94 China Bicycles 0.00 0.95 0.00 0.00 0.00 0.95 0.00 0.00 1994 China Walden IV 0.00 4.63 0.00 0.00 0.00 4.63 0.00 0.00 1994 China Walden Mgt 0.00 0.01 0.00 0.00 0.00 0.01 0.00 0.00 1994 Dalian Glass 0.00 2.40 0.00 0.00 0.00 2.40 0.00 0.00 1999 Dujiangyan 25.59 0.00 0.00 30.00 0.00 0.00 0.00 0.00 1995 Dupont Suzhou 20.25 4.15 0.00 36.40 20.25 4.15 0.00 36.40 1994 Dynarnic Fund 0.00 12.35 0.00 0.00 0.00 10.70 0.00 0.00 1999 Hansom 0.00 16.10 0.00 0.00 0.00 16.10 0.00 0.00 1996 Jingyang 40.00 0.00 0.00 100.00 40.00 0.00 0.00 100.00 1998 Leshan Scana 6.10 1.35 0.00 0.00 4.00 1.35 0.00 0.00 1996 Nanjing Kumho 10.71 3.81 0.00 30.45 10.71 3.81 0.00 30.45 1995 Newbridge Inv. 0.00 2.13 0.00 0.00 0.00 2.13 0.00 0.00 1997 Ningbo 0.00 2.00 0.00 0.00 0.00 2.00 0.00 0.00 1997 Orient Finance 13.33 0.00 0.00 16.67 13.33 0.00 0.00 16.67 1997 PTP Hubei 12.63 0.00 0.00 25.38 12.63 0.00 0.00 25.38 1994/97 PTP Leshan 3.00 0.00 0.00 0.00 3.00 0.00 0.00 0.00 1996 Pacific Ports 0.00 3.64 0.00 0.00 0.00 3.64 0.00 0.00 1998 Rabobank SHFC 2.03 0.00 0.00 2.03 2.03 0.00 0.00 2.03 1998 Shanghai Krupp 30.00 0.00 0.00 68.80 0.00 0.00 0.00 0.00 1999 Shanxi 19.00 0.00 0.00 0.00 4.50 0.00 0.00 0.00 1993 Shenzhen PCCP 3.76 0.99 0.00 0.00 3.76 0.99 0.00 0.00 1995 SuzhouPVC 20.17 2.48 0.00 20.35 20.17 2.48 0.00 20.35 1998 WIT 5.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1996 Weihai Weidongri 3.61 0.00 0.00 0.00 3.61 0.00 0.00 0.00 1993 Yantai Cement 11.43 1.95 0.00 6.10 11.43 1.95 0.00 6.10 1998 Zhen Jing 0.00 2.00 0.00 0.00 0.00 2.00 0.00 0.00 Total Portfolio: 251.54 91.26 0.00 385.03 174.35 83.41 0.00 286.23

- 94 - Approvals Pending Commitment FY Approval Company Loan Equity Quasi Partic 2000 BOS RI 0.00 0.00 3841.00 0.00 2000 CIG Zhapu 6000.00 5000.00 0.00 0.00 1998 Chengdu Chemical 7400.00 0.00 0.00 8600.00 1997 Chinefarge 12800.00 0.00 0.00 20000.00 1998 Orient Fin A Inc 3333.33 0.00 0.00 0.00 1997 PTP Holdings 0.00 0.00 1500.00 0.00 2000 PTP Holdings II 0.00 0.00 33.00 0.00 1998 PTP Hubei BLINC 0.00 0.00 0.00 1500.00 2000 SBCF I 0.00 0.00 15000.00 0.00 2000 SBLAV 0.00 0.00 15000.00 0.00 2000 Shizuishan Carbn 6300.00 0.00 1700.00 6000.00 1998 XIB 50000.00 0.00 20000.00 0.00 1998 Zhen Jing 4500.00 0.00 0.00 0.00 Total Pending Commitment: 90333.33 5000.00 57074.00 36100.00

- 95 - Annex 10: Country at a Glance CHINA:Yangtze Dike Strengthening Project East POVERTYand SOCIAL Asia & Low- China Pacific income Developmentdiamond* 1998 Population,mid-year (millions) 1,238.6 1,817 3,515 Life expectancy GNP per capita (Atlas method, US$) 750 990 520 GNP (Atlas method,US$ billions) 928.9 1,802 1,844 Average annual growth, 1992-98 Population(%) 1.0 1.2 1.7 Labor force (%) 1.3 1.6 1.9 GNP Gross per primary Most recent estimate (latest year available, 1992-98) capita enrollment Poverty (% of populationbelow national povertVline) 6 Urban Population(% of total population) 33 35 31 Life expectancvat birth (years) 70 69 63 Infant mortalitv (per 1,000 live births) 32 37 69 Child malnutrition (% of children under 5) 16 20 .. Access to safe water Access to safe water (% of population) 83 77 74 Illiteracv (% of population age 15+) 17 15 32 Gross primary enrollment (% of school-apepopulation) 120 117 108 China Low-income group Male 120 119 113 Female 120 118 103 KEY ECONOMICRATIOS and LONG-TERM TRENDS 1977 1987 1997 1998 Economic ratios* GDP (US$ billions) 172.3 268.2 902.0 960.9 Gross domesticinvestmentGDP 28.5 36.1 38.2 38.8 Trade Exports of aoods and services/GDP 4.8 13.6 23.0 19.1 Gross domesticsavinas/GDP 29.0 36.2 42.6 43.4 Gross national savings/GDP 29.0 36.2 41.5 41.4 Current account balance/GDP 0.2 0.1 3.8 3.4 Domestic Iny Interest pavments/GDP .. 0.4 0.6 0.7 Savings Investment Total debt/GDP .. 13.2 1.3 16.2 avigs Total debt service/exports .. 9.6 9.8 9.5 Present value of debtGDP .. .. 14.9 Present value of debt/exports .. .. 62.7 Indebtedness 1977-87 1988-98 1997 1998 1999-03 (average annual growth) GDP 9.8 10.3 8.8 7.8 7.0 -China Low-incomegroup GNP per capita 8.5 8.8 7.4 6.5 6.2 Exports of goodsand services 18.4 14.4 23.1 4.6 4.4

STRUCTUREof the ECONOMY 1977 1987 1997 1998 Growth rates of output and investment (%) (% of GDP) 30 Agriculture 29.4 26.8 18.7 18.0 Industry 47,1 43.9 49.5 49.2 20 Manufacturina 31.1 34.4 37.3 36.8 10 Services 23.4 29.3 32.1 32.8 Private consumption 63.4 51.3 45.7 44.5 93 94 9C 96 97 98 General governmentconsumption 7.5 12.5 11.6 11.9 GDI -O-GOP Imports of goodsand services 4.2 13.5 18.5 14.3

1977-87 1988-98 1997 1998 Growth rates of expons and imports (%) (averagQeannual growth) Aariculture 6.4 4.4 3'5 3'5 40 Industrv 10.9 14.1 10.8 9.2 30 Manufacturing 11.4 13.4 9.9 8.9 2 Services 12.7 8.6 8.2 7.6 Private consumption 9.7 8.6 7.7 6.7 General govemment consumption 9.0 9.9 8.2 8.4 0 Gross domestic investment 10.7 11.7 7.6 7.6 93 94 95 96 97 98 Imports of goods and services 19.2 12.5 12.7 1.5 Exports : Imports Gross national product 10.0 10.0 8.5 7.4

Note: 1998 data are preliminaryestimates. The diamonds show four kev indicators in the country (in bold) comparedwith its income-aroupaverage. If data are missina, the diamond will be incomplete.

- 96 - China

PRICESand GOVERNMENTFINANCE 1977 1987 1997 1998 Inflation(%) Domesticprices 30 (% change) Consumer prices .. 7.3 2.8 -0.8 20 Implicit GDP deflator 1.6 5.1 1.2 -1.3 10

Governmentfinance 0 I (%of GOP, includes current grants) 93 94 95 96 97 96 Current revenue .. 21.5 12.0 12.8 -10 Current budget balance .. 4.2 0.6 -2.2 GDPdeflator * CPI Overall surplus/deficit .. -2.1 -1.5 -4.0

TRADE (US$ millions) 1977 1987 1997 1998 Exportand import levels(US$ millions) Total exports (fob) ,. 39,437 182,792 183,757 2r0,000 Food .. 4,781 11,075 10,619 Fuel .. 4,544 6,987 5,181 1 *0.000 Manufactures .. 26,206 158,838 163.157 Total imports (cif) .. 43,216 142,370 140,166 100,000 Food .. 3,055 6,308 6,463 Fuel and energy .. 539 10,306 6,773 Capital goods .. 21,110 57,930 61,915o

Export price index (1995=100) .. 75 95 89 92 93 94 00 96 97 98 Import price index (1995=100) .. 75 92 89 a Exports U Imports Terms of trade (1995=100) .. 99 104 100

BALANCEof PAYMENTS (US$ millions) 1977 1987 1997 1998 Currentaccount balance to GDPratio(%) Exports of goods and services 8,550 39,120 207,251 207,589 4 Imports of goods and services 8,148 38,880 166,754 165,900 Resource balance 402 240 40,497 41,689 2- Netincome 82 -215 -11,097 -13,428 Net current transfers -70 224 5,144 4,278 0 92_ 94 gs ~~9697 96 Current account balance 414 249 34,544 32,540 2 Financingitems (net) -320 4,534 1,313 -26,114 Changesin net reserves -94 -4,783 -35,857 -6,426 - Memo: Reserves includinggold (US$ millions) .. 22,500 147,000 Conversionrate (DEC,local/US$) 1.9 4.5 8.3 8.3

EXTERNALDEBT and RESOURCE FLOWS 1977 1987 1997 1998 (US$ millions) Compositlonof total debt, 1998 (USSmllions) Total debt outstandingand disbursed .. 35,340 146,697 156,105 IBRD .. 1,427 8,239 9,610 IDA 1,330 7,830 8,693 A: 9,610 G: 29,473 B 8,693 Total debt service .. 3,852 18,445 13,009 D:3,946 IBRD .. 208 858 940 IDA .. 12 81 97 862 Compositionof net resourceflows Official grants .. 209 228 Official creditors .. 626 4,315 2,282 Private creditors .. 5,462 8,134 916 Foreign direct investment .. 2,314 44,236 45,000 Portfolio equity .. 0 8,457 1,153 F:82,521 World Bank program Commitments .. 1,306 2,425 2,636 A - IBRD E - Bilateral Disbursements .. 702 2,275 2,061 B - IDA D- Othermultilateral F- Private Principal repayments .. 97 377 434 C -IMF G - Short-term Net flows .. 605 1,898 1,627 Interest payments .. 124 562 602 Net transfers .. 482 1,335 1,024

DevelopmentEconomics 9/2/99 - 97 - Additional Annex No.: 11

YANGTZE DIKE STRENGTHENING PROJECT ENVIRONMENTALIMPACT ASSESSMENT

SUMMARY A: INTRODUCTION The EnvironmentalImpact Assessment (EIA) report for the Yangtze Dike StrengtheningProject (YDSP) was prepared by the Research Institutefor Yangtze Water ResourcesProtection (RIYWRP)with assistance from correspondingWater and HydropowerDesign institutes in Hunan and Hubei provinces. World Bank staff and consultants also assisted with the preparation of the EIA. The EIA is based on the updated provincial EIA reports prepared by the provincial design institutes mentioned above for the Project componentsin each province.The provincial EIAs have been approved by the ProvincialEPB's and SEPA. The EIA for the Project meets the requirementsof both the Governmentof China and the World Bank. The EIA takes into account the entire spectrum of environmental effects that could result from the Project, including effects on: (i) physical natural resources; (ii) natural ecological resources; (iii) economic development; (iv) quality of life values; and (v) global environmental issues, as they apply to Project components in each of the three provinces. The EIA delineates all "Significant Environmental Issues" (SEIs) affectedby the Project, describes the potential for each SEI to cause adverse environmentaleffects if not controlled, and describes recommended control measures, called "EnvironmentalProtection Measures" (EPMs). The EPMs include: (i) mitigation measures, to lessen the magnitude of adverse impact; and (ii) measures to offset any residual adverse effect not solved by mitigation, so that there will be no significant net adverse effect. In some instances, the EIA recommends a third kind of EPM, namely enhancement measures, for those situations where a small additional investment would yield valuable environmental benefits. An overall EnvirommentalManagement Plan (EMP) has been developed as an integral part of the EIA, which will be carried out during Project implementation.The EMP includes: (i) establishmentof an EnvironmentalManagement Office (EMO) in each province; (ii) establishmentof an internationalpanel of environmentalexperts; and (iii) implementationof environmentalmonitoring and trainingprogramns.

B: PROJECT DESCRIPTION

B-1: Project Components

The Project is an environmental protection project which includes: (i) civil engineering works for rehabilitation of the river banks, dikes and cross-dike structures; (ii) a resettlement program; (iii) environmental protection measures; and (iv) other components including flood forecasting and flood emergency systems and programs to provide assistance during floods. The civil engineering works have been described in detail in Annex 2 and detailed description of the resettlement action program is given in Annex 12. The following paragraphs summarize the enviromnental protection components and project altematives.

- 98 - B-2: EnvironmentalProtection Components

The followingenvironmental protection components have been incorporatedin the Project design:

2 * forest and grass planting: some 680,000 m of wave-breaking forest and 7,250,000 m2of erosion preventiongrasses will be planted on the dike slopes, costing about Yuan 33 million; * resurfacing of borrow areas followingcompletion of works; and * schistosomiasiscontrol measures includingfilling borrow areas, constructionof snail sinks, and supply of snail nets;

In addition, environmentalprotection measures in the civil works contracts will be: (i) water, air, noise, and solid waste pollution control; (ii) protection of workers' health; (iii) prevention of soil erosion; (iv) protection of aquatic ecological features and migration birds; (v) protection of cultural relics; and (vi) control of land use.

B-3: Project Alternatives

The possible alternatives considered for the Project include: (i) no-project (do nothing ) alternative; (ii) flood diversion and storage project to enlarge flood diversion areas and increase flood storage capacities; and (iii) higher dikes alternative.

No-proiect Detailed analyses shows that many reaches of the dikes, of which some are hundreds of years old, have serious defects such as: weak and dangerous sections, poor and permeable foundations, and aged cross-dikestructures. If the dikes are not improved (doing-nothingalternative), dike failures are likelyto occur in many places, resulting in serious flood disasters with many people killed and huge economic losses as was the case in 1954 or 1998 when serious floodingoccurred.

Increasing diversion and storage capacities A proposeddiversion and storage project, with a total storage capacity in excess of 50 billion m, depends on present dikes and the upper basin reservoirs to play their roles to hold the flood waters as they occurred during the 1954 flood. In addition, most of the diversion and storage facilities constructed after 1954 have never been used for such purposes. As a result agricultureand many industries have rapidly developedin the areas earmarked for diversion and storage of flood water. In addition, the population in these areas has increased rapidly. It will be difficult to transfer them to other areas and economic losses will be prohibitive. Therefore, this alternativeis also considerednot feasible.

Higher dikes Analysis showsthat the maximum probableflood peak level would be 2-3 m higher than the actual water level of the 1954 and 1998 flood levels. If the dikes are to be raised by 2-3 meters, it is estimated that: (i) 7.6 billion m3 of earth will be needed; (ii) more than 1.60 million mu farmland will be occupied; (iii) and about 1.0 million people need to be resettled. Besides, thousands of culverts, pump stations, and bridges will need to be reconstructed. Furthermore, as the geological foundations of many dike sections are poor, such sections may breach in case of high water levels, which of course will cause calamities. Therefore, this alternative is considered too costly to be implemented and is not expected to reduce dike failure risks. Therefore, the present Project, as a key component of the an overall Yangtze Flood Control Master Plan, is necessary and is the only feasible alternative.

- 99 - B-4: ProjectEconomics The total Project cost is estimated at US$545.5 million including financing charges, of which about US$335.5 million will be provided from local counterpartfunding sources and US$210.0 million from the Bank loan. A benefit-costanalysis was carried out and the following benefit streams were considered: * reductions in flood losses arising from higher and stronger dikes (Yuan 14.6 billion); * reductions in flood fighting costs (Yuan 0.2 billion); * reductions, in some instances,in the costs of using detention basins (Yuan 0.2 billion); and * reductions in dike operationand maintenancecosts (Yuan 1.8 billion).

Two baseline conditions were considered: with and without the Three Gorges Project (TGP), because the Project is scheduled to be completed before the TGP becomes operational. The key indicators of the economic analysisare shown in Table I below:

Table 1: Summary of Project Economic Analysis

Province Net Present Value Benifit-Cost Ratio Economic Internal (in Yuan Billion) Rate of Return (%) Hunan 2.6 2.3 25.0 Hubei 9.4 4.3 53.1

C: ENVIRONMENTAL SETTING C-1: EnvironmentalStudy Area

The Environmental Study Area (ESA) for the Project includes four sub-areas: (i) areas protected; (ii) constructionareas, project affected river reaches, and downstreamnareas.

C-2: Land Use

The ESA is mainly located in the plain of the Middle and Lower Reaches of the river, which consists of flat terrain with fertile soil, a warm and humid climate, plenty of water, and good conditions for irrigation. As a result, irrigatedagriculture has been highly developedwith about 86% of land suitable for cultivation. Other land use includes forest land, lakes, urban and residential areas, and unused land. Due to the high populationdensity, the amount of land per capita in the area is lower than the average for China.

C-3: Natural Physical Resources

The natural physical resources of the ESA include topography/landform,geology, climate, hydrology, floods, surface water quality, air quality and noise. The landforms in the ESA include accumulated plain, low mountains and hills, river terrace, and beaches and sand/clay bars. The Project is located in an area with earthquake intensity equal or lower than Grade VI except for the Yongji embankment area where the earthquake intensity is Grade VII. The ESA belongs to the subtropical monsoon climatic area with rich precipitation(average annual 1,000 -1,600 mm). The Project is along the middle and lower reaches of the Yangtze, with mean annual runoff of 451 billion m at Yichang gauging station and 894 billion m at Datong gauging station and mean annual flows of 14,300 mr/s and 28,300 m3/s respectively. The historic maximum flows at the two gauging stations are 71,100 mn/sand 92,600 m3 /s and minimum 2,770m3/s and

- 100 - 4,620 m3/s respectively.The Yangzte is a river with frequent and serious floods, once in every IOyears on average, which usually causes hundreds or even thousands of people killed, millions of people homeless, and countless economic loss. Table 3.4-7 shows the estimated losses caused by floods in the last 100 years.

C-4: Natural EcologicalResources

The Project area is a highly developed area with limited natural forests and terrestrial wildlife. The natural ecologicalresources in the ESA that might be affected by the Project include: (i) fish species; (ii) migration birds area; and (iii) and wetlands. With respect to fish species, there are some 2 10 species in the middle and lower Yangtze river system and 108 species in the Yangtze mainstream.Five (5) state protected species can be found in the river reaches of the Project: (i) Chinese River Dolphin; (ii) Chinese Finless Porpoise; (iii) White Sturgeon; (iv) Chinese Sturgeon; and (v) and Chinese Sucker. Many lakes in the ESA such as Poyang Lake are migration birds areas which are generally far from the Project's construction areas. In 1998, a new migration bird area --- the Saicheng Lake in Jiangxi Province --- was formed when the following five state protected birds were found there: Grus leucogeranus,Grus mamacha, Grus vipio, and Anser albifrons, Cygnus columbianus. With respect to wetlands, there are 15 significant wetland areas in the ESA of which only the Honghu Lake is close to the Projectconstruction area.

C-5: EconomicResources

The Project protected area is a highly developed area with complete infrastructures, abundant water resources,well irrigated land with high levels of production, and powerful industry bases. The industry in this area includes a number of the nation's top-rankingkey enterprises.With a well developed agricultural economy,qualified technical professionals,good education system, and well developed key industries,the area holds an importantposition in the economy and social developmentof China.

C-6: Quality of Life

Quality of life situation in the ESA mainly refers to family income levels, public health conditions, and cultural values including relics and scenery. As mentioned above, the Project region is a highly developed area, with a well developed agriculture and industry base. The mean annual salary of urban and rural residents is in the range of 4,000 - 9,000 yuan and the net income per capita per annum is in the range of 2,000 - 3000 yuan. The average housing area ranges around 10 - 20 m' for urban residents and 25 - 36 m for rural residents. With respect to public health, there are quite complete medical care systems in the Project area including hospitals in all cities and townships and clinics in all villages. A major public health concem is schistosomiasiswhich has prevailed in the region for a long time. Even now the region is still the most serious schistosomiasisinfection region in China. There are many cultural relics and heritage in the ESA including Yueyang Tower in Yueyang, Yellow Crane Tower and East Lake in Wuhan. Of the various environmentalresources noted above, those which are most likely to be influenced by the Project are the regionaleconomics and quality of life ones, which are expectedto be benefited greatly due to less frequent and less serious flooding.

- 101 - D: ENVIRONMENTALIMPACT ASSESSMENTAND EPMs

D-1: Delineationof SignificantEnvironmental Issues (SEIs)

The application of a matrix system, which lists SignificantEnvironmental Issues (SEIs) associated with major flood control/dikerehabilitation projects, identifiedthat more than twelve major (12) SEIs and some others apply to this Project. The 12 major SEIs are (i) resettlement;(ii) land use; (iii) aquatic species; (iv) public health; (v) dike structural stability; (vi) downstream impacts; (vii) flood emergency program; (xiii) borrow areas and spoil disposal; (ix) cultural relics; (x) impacts on Dongting Lake; and (xi) construction operation constraints.The other SEIs include: (i) constructionoperations; (ii) environmentalaesthetics; (iii) traffic; (iv) public infrastructurefacilities; (v) quality of life; and (vi) regional wetlands.

D-2: Resettlement

D-2.1 Description of ResettlementProgram The YDSP covers two provinces of Hubei and Hunan, and during the construction of the YDSP, 180 villages of 44 townships/farms in 22 counties/districtswill be impacted,with land acquisitionof 33,750 mu, house demolition of 1.519 million m and relocation of 10,958 households with 47,992 people. Of this resettlement, 2,880 households (25 percent of the total) for 10,958 resettlers will be relocated in 22 concentrated sites. This will result in an estimated 13,859 persons who will require livelihood development, to be met primarily through the improvementof agriculturalland with developmentof sidelineactivities and industriestaking a lesser role.

Over 70 percent of affected households (35,484 persons in 8,078 households) will relocate intemally to their current village/administrativearea within their existing community and with continued access to existing infrastructuresand facilities.Resettlement to centralizedresettlement sites where planning includes required infrastructureand social facilities and allows for resettlementof social and kinship groups together is proposed for 30 percent of households(12,508 resettlers in 2,880 households). With respect to livelihood development, only 4.8 per cent of arable land in the directly affected villages is required for Project construction,and thus no significant adverse impacts on the region are foreseen. For the persons affected by loss of income generatingpotential, the RAP proposesthat there is rehabilitation of farmland which will be improvedto increase supply capacitiesfor people to be employedin livestock developmentand others to be provided with off-farm opportunities.The RAP reasonably and in detail analyzes the income restoration program and gives a conclusionthat the resettlers can maintain and improve their income generationunder the proposed plan.

In order to carry out the plan, a feasible resettlement budget has been developed incorporatingcosts for compensation, income restoration, planning, monitoring, supervision and contingencies. Mechanisms for consultation,participation and grievance resolution have also been applied and integrated into the RAP. To ensure successful implementation of the RAP, a detailed supervision and monitoring system has been proposed.

D-2.2 Environmental Assessment on Resettlement Considering that the resettlement planning and preparation is well underway, and assuming that support from the two provincial planning institutes (Hunan Water Conservancy and Hydropower Survey and Design Institute and Hubei Water Conservancy and Hydropower Survey and Design Institute), and other Governmentalagencies will continue as planned, it is concluded that the implementationof the overall resettlement program is at this stage progressing satisfactorily. In addition, if the EPMs specified in the ETA, including environmental monitoring, are implementedas detailed in the ETAand ResettlementAction Plan, the Project resettlement activitieswill be

- 102- in compliance with both national as well as World Bank environmental directives and standards. This compliance will be monitored by the Project Environmental Management Office and the International Environmental Panel of Experts. The following recommendations are made to ensure efficient and environmentallyfriendly operation of the resettlementprogram:

Environmental Engineering Aspects: The contractors involved in the implementationof the Resettlement Action program (RAP) will need to submit drawings, specificationsand monthly reports on all aspects of RAP implementationincluding attention to the environmental conditions in the construction areas. The Environmental Construction Inspectors (ECIs) to be furnished by the Project EMOs will monitor the operations of the contractors to ensure that their work complies with the environmental standards stipulated in the civil works contracts. The recommendationsof the International EnvironmentalPanel of Experts, includingthose pertaining to social and cultural issues, will need to be implementedby the EMO. Those may also include the allocationof time and provision of budget for site visits by the Panel to allow for direct contactwith resettlementand host families.

Resettlement Environmental Monitoring. Efficient resettlement environmentalmonitoring by the Project EMO is critical to the success of the resettlement program. This includes: (i) delineating resettlement house/facilities design criteria for inspection that they are built according to the standards specified; (ii) requiring the village to appoint a Village Environmental Officer; (iii) preparation of a manual with operating guidelines for officers, including instruction on monthly reporting and record keeping; (iv) training received by officers; and (v) bi-monthlyvisits to the village by ECI to monitor the situationon the ground, for the first year after moving in, and with subsequent visits every six months.

Use of Appropriate Standardsfor RS Villages/Townships. Technicalguidelines will be needed during the constructionof resettlement facilities to ensure that all the facilities are being constructed as per the agreed standards and specifications, including (i) for families resettled in municipalities with urban facilities, provisions for participation of the resettler homes in the municipal infrastructure facilities program including water supply, sewage disposal, solid waste management, etc., and (ii) for families resettled in areas without such services, provision of wells furnishingwater of acceptable mineral quality,provision for chlorinatingor other measures to ensure water is safe to drink, provision of pour-flush toilets discharging to dual disposal pits, arrangements for sanitary solid waste collection and disposal, provision of adequate drainage to protect against flooding, and availability of adequate clinics/hospitals.In addition monitoring will be needed of pollution control measures of the industries proposed to be set-up under the resettlement program.Particular attentionwill need to be paid to well water quality, to check that mineral content does not exceed specified limits, and does not pose problems of color, hardness, iron and manganese content.In addition monitoring will be needed of pollution control measures of the industries proposed to be set-up under the resettlement program

Other Issues: Other resettlement issues evaluated in the EIA include: (i) continuing development of the database of environmental parameters relevant to the resettlement sites; (ii) special issues such as rehabilitationof socially and economicallydisadvantaged groups of people; (iii) detailed advanceplanning for Panel of Experts field trips; (iv) environmental reporting system for the Panel's visits, with EMO preparing summary report with detailed reports (to be included as annexes) to be prepared by each of the EMO subcontractors;and (v) disease control in resettlementvillages, townships.

Summary Evaluations: Table 4 presents a summary evaluation of the environmental adequacy of the ResettlementAction Plan for the Project. It is concludedthat the net irnpact of the resettlementprogram is beneficial to both the resettled and the host population.However, effective surveillanceand monitoring as described in the EIA is importantto ensure that all the RAP's planned objectives will be achieved.

- 103 - D-3: Land Use

The Project will change present land uses in the ESA to a small degree, because the Project will mainly strengthen the existing dikes. After the Project is completed,the land use mode in the Project protected area will not be changed significantly. The impact of the Project is the loss of about 31,404 mu of land for dike widening, which represents only about 0.1 % of the 33.7 million mu farmland protected. During the construction period of the Project, measures will be taken to minimize the impact on land resources, includingcareful land use planning and ensuring that these plans are adopted by the PMO and implemented by the contractors. After the completion of the Project, the flood control standards in the regions will be greatly improvedfrom the present 10-20-yearrecurrence of floods to protection against the major floods of 1954 type (50 to 100 year recurrences).This improved level of protection will effectively ease the flood threat on land resources,which will facilitateplanning for optimal use of the available land.

D4: Aquatic Ecology

The Yangtze river in the Project areas is frequentedby the following four rare aquatic species:

Chinese River dolphin (lipotes vexilliter! This specie is already near extinction in the Yangtze river system (only about 100 left), with their habitats mostly in sandbar/backwater areas. The Project construction operations areas do not include these habitats, however, careful observations must be made during constructionto detect the dolphins and if detected, constructionmust cease until the dolphins have gone or are divertedaway.

Chinese sturgeon and Chinese Finless porpoise These species migrate along the river channel's deep bottom troughs, and will not be affected by the Project. White Sturgeon (Psephurus gladius), Chinese Sucker (Myxocyprinus asiaticus) and Yangtze Sturgeon (Acipenser dabryanus): These are freshwater fishes that live in the Yangtze River throughoutthe river sections.These fishes naturally have the ability to avoid adverse surroundings when disturbed, and all fishes live in the deep area of the river, so the implementationof the Project is not expectedto cause any significantadverse effects

Four Family Fishes In addition, the Yangzte river is also habitat for "Four Family Fishes", namely black carp, grass carp, silver carp and big head. These reproduce in the flood season (May to July) when most constructionis halted; hence no significantimpact from the Project is expected.

Other Fish Species Other important fish species have habitats in lakes and ponds, which should not be affected by the Project.

D-5: Public Health

Schisto (schistosomiasislControl: The major public health concem for the Project is the Schisto control.

Engineering Control Measures: Project preparationstudies include engineering provisions for schisto control. These include snail sinks and snail nets included in the design of culverts and gates, of backfill operations of borrow areas, and of snail infectedwet areas.

Schisto Control Measures during construction: Schisto controlmeasures during constructioninclude: (i) medical examinationsfor workers; (ii) schisto control education and training of all the personnel and

- 104 - workers involved; (iii) use of prevention medicines by workers; (iv) control of wet areas; (v) management of excreta; (vi) use of boots and gloves; and (vii) monitoring to ensure the application of the above measures as shown in Table 4.2.4-1. These measures will be included in construction contracts and implementationof the measures will be ensured by the Environmental Construction Inspectors (ECIs).

Schisto Control in Flood Emergencies: The schisto controlmeasures used in flood emergenciesinclude use of schisto medicine, use of protective boots/gloves/clothingand use of snail nets.

Other Diseases Hazards during Construction: The dike rehabilitationprogram poses the potential risk for disease outbreaks among construction workers which are common to virtually all major construction projects, including enteric diseases, insect vector transmitted diseases, and others, all of which are to be prevented/controlledby the contractors with monthly reportsto the Project EMO as specified in civil works construction contractsand with continuing surveillanceby the ECIs fumished by the EMO.

D-6: Dike StructuralStability

The dikes will be more stable when the Project is completed.With this and the other flood controlmeasures, the overall result will be a system which can manage floods of the 1954 level, provided that emergency control measures of the comprehensiveplan (such as use of storage basins) are promptly and efficiently utilized during the flood hazard period With respect to earthquake hazards, most of the dike projects are in regions where no special earthquakeprotection measures are needed. The exception are dikes in locations where the design earthquake intensity is Grade 7. The designs for improving these dikes include special protection measures:the crest of the dike has been widened from the normal 8.0 m to 10.0m, and the entire dike body has been widened accordingly.

D-7: DownstreamImpacts

Unlike dam/reservoirprojects, which usually result in a variety of changes in the downstream region, this Project will have little impact on the downstream areas. The only major downstream effect of the dike strengtheningproject will be on the downstream flow hydrology at times of serious floods, as the project measures will increase river flood flows in the downstream river sections. Analyses show that the flow capacity of the downstream region is much greater than in the river system in the project region, hence no adverse downstream flowing hazards are expected. In addition, no other adverse downstream effects are foreseen, such as effects on aquatic species, public health, shipping, etc.

D-8: Flood EmergencyProgram

The Yangtze Flood Emergency program is an important component of the national flood control system, which comprises commanding system, emergency programs, and action plans. The emergencyprograms prepared by the general commandof the Yangtze flood control and local flood control commands includes: flood regulation programs; flood forecasting; rescue program for dike failure; implementationprogram for safe relocation from diversion and storage areas; mobilizing and organizing programs for flood control teams; flood emergency programs conceming materials supply, communications and traffic; emergency programs concerning refugee and anti-epidemic measures. These programs are part of an integral system and will be put into action immediatelywhen needed. During the 1998 flood, which was one of the most serious floods of the Yangtze, the flood emergency programs were started timely and played an important role in minimizing the flood losses and damages.Based on the 1998 flood experiences, on earlier floods along the Yangtze river, and on flooding experience elsewhere in China, an Emergency Flooding Control

- 105- System exists and is updated periodicallyfor application in the Yangtze river basin.

D-9: Borrow Areas and Spoil Disposals

The Project will require substantial quantities of soil materials for dike rehabilitation, with much less production of spoil. The soil materials are to be taken from some 20,000 mu land areas in which 70 % in Hunan and 30 % in Hubei is in the river bank areas . Compensationfor these temporarily used land (one year) has been planned and included in the RAP at a rate of 1,800yuan/mu. Most of the borrow area will be filled with spoils stored in temporary places or with soils from river bank to become or return to farmland. And a little portion of the borrow area will be developed as fish ponds at request or agreement of the farmers.However, measures have been planned to prevent schisto hazards in the borrow areas.

D-10: Cultural Relics/Heritages

Upon completion of the Project, flood hazards in the ESA will be reduced and therefore potential flood damage to the relics/heritagesin the ESA will be reduced too. All the valuable cultural relics/heritagein the ESA are located far away from the dike rehabilitationconstruction zones and will therefore not be adversely affected by the construction operations. If any evidence is disclosed during the constructionperiod which indicates possible damage to any valuable relics, the civil works contractors will immediately inform the Engineering Supervisor,ECI, EMO and follow instructionsto protect the relics.

D-11: Impact on Dongting Lake

Dongting Lake, with four tributaries on its north side connecting with the Yangtze, is located in Hunan Province. It is the only area in the Yangtze middle reach that can accept Yangtze floodwater with a significanteffect on cutting down Yangtze peak flood level. The lake's outlet to the Yangtze is located at Chenglingji.When the Project is completedthe water level at Chenglingjimay be somewhathigher in flood season and the flood discharge from the Dongting Lake would be hampered. As a result the Dongting lake will keep a higher water level for some time, exerting great pressure on the Dongting lake area. In order to ensure the safety of the Dongting Lake area, a comprehensiveflood control project is being undertaken in this area in parallel with the planned project works. Both are integral components of the Yangtze Basin Flood Control Master Plan. The Project is to be finished in 2000, two or three yeas ahead of the completion of the Project. After completion of the comprehensive flood control project in Dongting Lake area, the function of the Dongting Lake for alleviatingYangtze floodwatercan be fully exerted and, at the same time, the Dongting Lake area will also be safer.

D-12: ConstructionOperation Constraints

Historically, civil works contractors have often caused unnecessary environmental damages, sometimes serious, simply because it is the nature of contractors, and of the Supervision Engineer, to focus on expediting building the projects' physical components, with generally low-priority attention to environmental protection requirements. However, experience has shown that it is quite feasible and affordable for contractors to observe and comply with the EPMs specified in EIA, provided these requirements are specified in the construction contracts and provided Environmental Construction Inspectors (ECIs) are made available to observe the contractor's operations and to insist on compliance. Table 2 shows the EPMs to be observed by contractors. A team of ECIs will be employed by each provincialEMO, who will, like supervisingengineers, monitor on-spot contractor performance to ensure all EPMs specified in the EIA will be actually implemented. A serious environmentalissue under the Project is the potential schistosomiasis hazard, because most of the Project construction areas are in serious

- 106 - schistosomiasishazard areas. All contractors will be required to implement the schistosomiasiscontrol measures described in Table 3 to protect their constructionworkers, which include medical examination, snail killing, provision of safe drinking water, medicine and protection clothes, adequate excreta management, and other measures. In addition to ECI's daily monitoring, a special schistosomiasis monitoring teamn will check periodically the contractor's performance to ensure the EPMs for schistosomiasiscontrol will be implementedduring constructionperiod.

D-13: Other SEIs

Other SEIs includethe following six: Project constructionoperations, traffic, public infrastructurefacilities, aesthetics, quality of life and regional wetlands. The "Project construction operations" cover 4 sub-issues: water quality, air quality, noise, and water supply. The construction activities under the Project are not expected to produce significantwastewater. In addition, constructionactivities are scattered along the near 700 km dike alignment and the water flow and volume in the Yangtze is very large, with an average annual minimum flow of 3,000 md/s.Therefore, the constructionof the Project will have no significant impact on the Yangtze water quality. However, the ECIs will monitor the contractor's performance to ensure that all wastewater from construction and domestic use, will meet national standards when discharged into the river. Because the Project dikes cover 700 km and most of the dike sections are in rural areas, the constructionof Project will not have significant adverse impacts on air quality, noise level, water supply, traffic, public infrastructure, aesthetics, except perhaps the construction of dike sections in or near cities/towns. For construction in such sections, sensitive places and corresponding EPMs have been identified. The ECIs will monitor on-site the contractor operations to ensure all these EPMs will be implementedduring Project construction. After completion of the Project, the public fears about flooding will be greatly dispelled with the greatly improved flood control standard.This will contribute significantly to promote the economic development in the area, attract more investments, increase employment and incomes and, as a result, significantly improve the quality of life in the area. The Project does not change the hydrology in the wetlands in the ESA. All but one of the wetlands in the ESA are too far from the Project constructionareas to be affected by the constructionoperations. For the one near the dikes (Honghu Lake) the constructionoperations will ensure that constructionworkers will be barred from travelingto the lake.

E: ENVIRONMENTALMONITORING

An essential component of the Project is its EnvironmentalMonitoring Program, which is to cover both the construction and operation stages of the Project, thus covering a period of some 23 years for Hunan Province, and 24 years for Hubei Province. The monitoring work should begin as soon as the P/EMOs become operative. Individual monitoring programs have been developed in the Project EIA including monitoring activities,monitoring parameters,number of persons and skills needed, monitoring frequencyas well as input needed in terms of professional man-months. The individual monitoring programs are summarizedin Table 5. The monitoring program will be managed and supervisedby the EMO, and most of the detailed field work will be done by the ECIs and by the EMO professional staff. However, other agencies, includingthe provincial schistosomiasisresearch institutes,provincial EPBs, and other concerned institutes are to participate in the field work in accordance with agreements with EMO. Costs for monitoring work by these other agencies, which is outside their normal scope of monitoring, are to be reimbursedby the EMO/Project.

- 107 - F: OTHER IMPORTANTISSUES

The other important issues assessed in the EIA include public consultation, public disclosure, compliance with environmentallaws, environmentaleconomics, risk assessment,and global environmentalissues.

F-1: Public Consultation

Public consultation programs have been conducted by Project proponent in the two provinces and by the EIA team during Project preparation. Some 327 individuals covering a range of ages, occupations, and education of the people to be affected by the Project and 38 members of NGOs (such as NGO ecological units, NGO fisheries, Peasants Party, Workers Democratic Party, China Democratic League, China Association for Promoting Democracy, Chiu San Society, Worker's Union, Women Units, Rural Teachers Unions, Rural Doctors Asssociationand others) as well as representativesof pertinent governmentagencies and professional institutions have been consulted. Consultation forms included discussions at meetings, interviews at random and filling questionnaires. Among the 365 people consulted, 364 show a positive attitude to the Project and 160 made donations for flood fighting in 1998. Information of the people consultedand their commentshave been summarizedin tables in the detailed EIA. Some of their comments have been taken into considerationin preparing the EIA or made available to pertinent agencies such as resettlementoffices in two provinces.

F-2: Public Disclosure of EIA Report

Public disclosure is an integral part of the EIA process. In order to take the views of affected groups and local NGOs fully into account in Project design and implementation,the Project EIA report is released to the public so that affected people and NGOs can understandthe Project and its environmentalimpacts, and give their opinions, suggestionsand requirements. The completed EIA report, which includes a detailed description of the RAP, was placed in December 1999 (prior to appraisal) in selected libraries in the two provinces. The libraries are located at places which can be readily reached by people living along the river in the areas subject to flooding and in the capitals of the two provinces. The draft RAP was disclosed to all Project affected counties, townships, villages and people as early as September 1999. The RAP was finalized in November 1999, after full agreementswere reached with all counties, townships and villages. After appraisal the govermnent made some changes in the Project locations in February 2000. These changes were documented in a supplemental report to the EIA and revisions to the RAP. Both these documents were placed in early April, 2000 in four libraries (Wuhan, Jinzhou, Changsha, and Yuyang) used by many people in the two provinces. Three days prior to placing the EIA report in the libraries, notices were published in provincial and local newspapers and on television networks informing the public that they may visit the libraries to review the report and to give their comments to provincial PMOs. Comments were received and have been taken into consideration in subsequent Project planning and implementation.In addition for most of 1999 and 2000 on a weekly basis the news media described the Project's main locations, key componentsand the type of activities proposed under the Project. Apart from the above actions public disclosureof the EIA and related documentswas carried out as indicated below:

- 108 - Document Date Location 1. PID/EDSto infoshop June20, 1999 Infoshop(EXTIN) 2. DraftResettlement Action Plan (RAP), Nov 23, 1999 Infoshop(EXTIN) 3. EnvironmentalImpact Assessment (EIA), Nov 23, 1999 Infoshop(EXTIN) 4. ResettlementAction Plan (RAP), Oct. 1999 Dec 6, 1999 ISGIM 5. SummaryEIA, November 1999 Nov 29, 1999 SECBOED/Alternates 6. RevisedRAP, March2000 April3, 2000 Infoshop(EXTIN) 7. Supplementto EIA, April 2000 May 8, 2000 Infoshop(EXTIN) 8. FinalRevised RAP, April2000 May31, 2000 Infoshop(EXTIN)

F-3: Compliancewith EnvironmentalLaws

During the preparation of the EIA report, the development of EPMs and the EnvironmentalManagement Plan, various environment-relatedlaws/regulations of China and the World Bank were observed and complied with. The EIA identifies the chapters/sections, which address compliance with corresponding PRC requirementsand Word Bank guidelines.

F-4: EnvironmentalEconomics

EIA analysesshow that the environmentalbenefits of the Project in controlling flooding will result in huge economic and socio-economicbenefits, compared to limited and relatively insignificant negative impacts. The Project is for the benefit of all people in the areas protected by the Project, and unlike many major projects, it is not in the "rich get richer, poor get poorer" category.

F-5: Risk Assessment

The EIA has carried out a risk assessment anlysis for the Project. Table 6 summarizes the evaluation and shows that Project planning and design has given careful attention to this aspect. It should be noted that flood control projects for major rivers anywhere in the world are designed to protect against floods for a selected flood return period, which representsthe optimum economic level of protection. Larger floods will of course cause serious damage. The purpose of such projects is to reduce flooding as much as feasible.For this Project the design flood is the 1954 flood, which represents a I in 100 year flood.

F-6: Global EnvironmentalIssues

The EIA also evaluates Project-related Global Environmental Issues particularly Earth Warming and Bio-diversity degradation. This evaluation shows that the effects of the Project in these areas will be negligible.

G: ENVIRONMENTALMANAGEMENT PLAN

To ensure effective implementationof the EnvironmentalProtection Measures (EPMs) specifiedin the EIA, including environmental monitoring, Provincial EMOs (P/EMOs) are to be established in each province. The provincial EMOs are responsible for management of all environmental issues related to the Project including implementationof the EMP and implementationof environmentalprotection requirementsin the Project final design, construction, and operation stages for both dike constructions areas and resettlement areas. Figure I shows the institutionalstructure of a provincial EMO and its relationship with other parties

- 109 - involved in environmental management for the Project in each province. An Overall Environmental Coordinator (C/EMO) is to be appointed to work together with the P/EMOs to ensure appropriate coordination between the two PlEMOs. An internationalPanel of Environmental Experts (POE) will be established to review and periodically (usually at six month intervals during construction period) the environmental performance of all agencies involved in the Project and make recommendations for improvements. The P/EMOs and C/EMOs are to be established immediately following the signing of Government /World Bank Loan Agreement. The overall EMP includes provisions for: (i) training of the staff of the P/EMOs including ECIs, resettlement Village Environmental Officers (VEOs), and EMO subcontractors; plus (ii) a visit to the USA to study how environmental aspects of flood control are managed for the Mississippi River, which is of about the same magnitude as the Yangtze with quite similar problems, to take advantage of lessons learned there in the comprehensive R&D program for the Mississippi basin carried out over the past half-century by the US Corps of Engineers. Tables 7, 8 and 9 show the cost estimates for environmental management for the two provinces respectively, which are included in overall Project budget.

H. SUMMARY AND CONCLUSIONS

Table 9 summarizesthe EIA study. As it shows, the Project is essentially an environmental improvement undertaking, because it will greatly enhance the socio-economic/qualityof life of the people living in the flood-hazardareas which will be better protected through the Project. It is indeed a " People's Project", so much so that many individuals living in these areas have made personal contributions to help project funding. Table 9 in addition shows that, assumingthe EPMs specified in the EIA, including environmental monitoring, are properly carried out, the Project will not result in any significant adverse environmental effects. To ensure the EPMs will be carried out, the Project includes an Environmental ManagementOffice with responsibility for getting this done, with its budget guaranteed in the Government/Bank Loan Agreement, and with establishmentof an InternationalPanel of EnvironmentalExperts who will visit the Project every 6 months during the constructionperiod to review the Project's environmental performance. The Panel will report directly to both the Governmentand the Bank.

Table 2: Estimated Losses Caused by Most Serious Floods in 20th Century Flooded Area Affected Population People killed Houses Economic Losses Year Affected Province (10'mu) (10 persons) (10' person) Destroyed (10' sets) (10"yuan) 1931 Hubei, Hunan,Jiangxi, Anhui, 5090 2850 145,400 179.60 * Jiangshu 1935 Hubei, Hunan, Jiangxi,Anhui, 2264 1003 142,000 40.60 Jiangshu 1949 Hubei, Hunan, Jiangxi,Anhui, 2721 810 5,700 45.20 * Jiangshu 1954 Hubei, Hunan, Jiangxi, Anhui, 4755 1880 33,000 427.60 Jiangshu 1980 Hubei, Hunan, Jiangxi, Anhui 4005 _ 1,339 _ *

1983 Hubei, Hunan, Jiangxi, Anhui 5001 * 8 * * 1995 Hubei, Hunan, Jiangxi, Anhui, 5568.8 9212.3 1,085 78.50 566.05 Jiangshu 1996 Hubei, Hunan, Jiangxi, Anhui, 6509 9718 1,513 265.04 795.66 Jiangshu 1998 Hubei, Hunan, Jiangxi,Anhui, 482 229 1,562 212.85 Jiangshu Notes: * Data not available; ** No officialfigure is available,but losses are estimated to be over Yuan 100 billion according to data available.

- 110 - Table 3: EnvironmentalConstruction Constraint

No. ITEM CONSTRAINTS

1 Wastewater all dischargedwastewater meet national standards

2 Air Pollution Control A emissionsfrom all fuel burning machinesmneet national waste gas discharge standards; B. measuresto controlblasting and quarryingdust; C. road dust control (wetting,paving); and D. controlproduction of obnoxiousand toxic fumes.

3 WaterUse use water as planned and obtainpemnission

4 WorkersHealth A. worker medicalexamination to screen out infectiousvnius carriers (inital and periodic); B. provisionof safe drinkingwater supply; C. wastewatertreatment and management; D. schistosomiasisprevention as describedin Section4.2.4 E. provisionof adequatefood sanitation; F. provision of adequatemeasures for contmolof diseasevectors including mosquitoes, rats, and flies; G. provisionof adequatemedical care capabilites and facilitiesincluding firstaid facilities; H provisionof adequate excretamanagement; 1. provisionof adequateoccupational health and safetymeasures; J. provisionof adequatehoussng wstb sanitary facilstres;

5 NoiseControl A. all machinesmeet nationalnoise! vibration control standards; B. no constructionactivities in night in residentialarea if feassble; C. provisionof adequateprotecbon facilitiesto workers operatinghigh noise/vibrationmachines;

6 Spoil Disposal Dispose constructionspoils in specifiedplaces and specifiedmanners includingprotection dikes and resurfacing.

7 Solid Waste Collect solid wastes regularly and dispose in adequate sanitasymanner including use of fencing to prohubitaccess to disposal Management sites by children.

8 Soil Erosion Resurfacing all borrow areas and filling areas and furnish dikes as needed to protect against discharge of soil runoff to downstreamwater ways;

9 Cultural Relics No dasnaging activities to custural relies, stop constructionwhenever cultural relies are discovered so EMO can determine needed protectionmeasures.

10 AquaticEcology Specially-assignedperson/persons to watch appearanceof the Yangtezerare species when warping operaton is carriedout in river sections sensitve for these species.

11 Land Use Occupy land as specified,no damageto farm landand crops;resurfacing land after use.

12 Monthly Cdnstructon Contractors(CC) is fully responsiblefor environmentalprotection in his constructionarea and camnpingarea. CC is Environmental to make monthly environmental report to Environmental Construction ispectors (EClsYEMO on its performance in Report implementingthe EPMs/constraints.Constriction contractmust include detailed descriptionof aUEPMs to be furnished by CC.

Notes: (a) Allof the constraintsnoted above are to complywith National and provinciallaws and regulations applicable to construction. (b) Detailed constraints will be prepared according to above items by the P/EMO and will be included in Project construction contracts.

-111 - Table 4: SummaryEvaluation of EnvironmentalAdequacy of ResettlementProgram Criteria/lssues Adequacy of Design Adequacy of Adequacy of Monitoring & Planning Construction O&M Planning Needed

1 RS Families ______

1.1 Economics 1.1.I Transportationto new sites B SA SA High 1.1.2 Comparisonof property A SA SA Adequate 1.1.3 Rehabilitationcompensation A SA SA High 1.1.4 New income levels B SA NI High 1.1.5 Training needs B SA NI Adequate 1.2 Housing and Housing Amenities 1.2.1 Housing Quality A SA SA Adequate 1.2.2 Housing water suplply A B SA Adequate 1.2.3 House exereta management NI NI NI NI 1.3 Public health infrastructure 1.3.1 Water supply quantity/quality/safety NI B NI NI 1.3.2 Solid waste management NI B NI NI 1.3.3 Drainage A SA NI Adequate 1.3.4 Clinics/medical facilities B SA NI NI 1.3.5 School sanitation NI NI NI NI 2 Host Villages ______= 2 1 Vjila er.Qnnmc' B B SA NI | 2 Village frastnrctureacpatciy B SA NI Adequate

3 Socio-cultural Issues 3.1 Relocation within same demographic group A A A Adequate 3.2 Relocation in the same region A A A Adequate 3.3 Acceptance bv hosts A SA SA Adequate

4 Institutional issues 4.1 Provincial govermmentscollaboration A A A Adequate 4.2 Safety netgrievances mechanics A SA B NI 4.3 Public participation SA IN IN NI

Note: A = very good; B = OK; IN = inadequate data; NI = needs improvement; SA seems adequate

- 112- Table 5: Summaryof MonitoringProgram

ParticipantAgencies | Associated Man-month No. Items Section Design Other Sections Const on Operation fmo cc ~~~~~~Chapte3 Cntuto prto Agencies Agencies and 4 Peiod Period

I Resetflement 5.2.1 * * * * 4.2.1 30 30 2 Landuse 5.22 * * * 42.2,33 4 10 3Actuaticsvecies 5.2.3 * * 4.2.33.3 (ECI) 4 Publichealth 5.2.4 = -_4.2.4 3.7 66 36 5 Dyke structiral stability 5.2.5 * * * * 4.2.5 1 3 61Downstn= impact 52.6 * * * 4.2.6 2 6 7 Emergencyrgram 52.7 * * 4.2.7 2 6 8 mhn s miratory birds 5.2.8 * * * 4.2.8,3.5 2 9 Bonow areas and spois 5.2.9 * * * 4.2.9 (EC 10 Culturalrelics/heritages 5.2.10 4.2.10.3.5 (ECl-

11 Donginx Lake floodreleasing 5.2.11 _ * 4.2.11 2 6 12 Constructionconstraints 5.2.12 * * 4.2.12 (ECI 13 Other SEls 553 = = _ 43 53 _ 13.1 Conshtuction 5.3.1 _ _ 4.3.1 13.1.1 Water ualitv 53.1.1 4.3.1 3.41 27

_ 13.1.2Airaualitv 5.3.1.2 * * * * .12.3.4. 13 _ 13.1.3Noise 5.3.1.3 * * * * 4.3.1.3.3.4. 13 13.1.4Water suvvly 5.3.1.4 4.3.1.43.6

13.2 Traffic 5.3.2 * * - * * 4.3.2, 3.6 ___ 13.3Infistructre 5.3.3 4.3.3. 3.6 _ 13.4 Aesthetics 5.3.4 _ 4.3.4,3.7.3 (ECI) _ 13.5 Ouality of life 5.35 * _ * _ * 4.3.5,3.7 Resettlement 14 Constiuchionsupervision 5.2.14 * _ = - 4.2.12 648

1' VEOs 5.2.14 * _ * 4.2.1 46 Note: (ECI) = to be monitored by ECI; Resettlement = monitoring has been included in Resettlement monitoring

-113- Table 6: Summary of Risk Assessment Evaluation

Risk Item Item given proper Pertinent EIA report attention sections

1. Risk of dyke failure Yes 4.2.5, 6.5.2

1.I Structural integrity of dyke Yes 4.2.5

1.2 Protecting dyke from river erosion Yes 4.2.5

1.3 Consideration of earthquake hazard in design Yes 4.2.5

2. Flooding Emergency Planning/ Preparations Yes 4.2.7

3. Infectious disease risk Yes 4.2.4

3.1 Usual construction zone hazards Yes 4.2.4, 4.2.10

3.2 Special schistosomiasisEPMs during construction Yes 4.2.4

3.3 Hazards from flooding events Yes 4.2.4

3.3.1 Schistosomiasis for flood fighters Yes 4.2.4

3.3.2 schistosomiasis in flooded communities Yes 4.2.4

3.3.3 Enteric disease in flooded communities Yes 4.2.4

4. Safe awarenessrisk Yes 6.5.3.1

5. Downstream flooding hazard Yes 4.2.6

6. Hazards to wildlife Yes 4.2.3, 4.2.8

6.1 Aquatic species Yes 4.2.3

6.2 Migratory birds Yes 4,2.8

7. Transparency with Public Yes 6.1, 6.2

7.1 Public consultation Yes 6.1

7.2 Public disclosure Yes 6.2

8. Compliance with environmental law/ guidelines Yes 6.3

9. Improper land use Yes 4.2.2

-114- Table 7: Estimated Total Cost for Overall Environmental Management Operations(US$) -Hunan

Item Reference Pre- Construction Operations Sub-total Costs (Figures) Construction period, 3 period, 20 period, 0.5 years years year Environmental Management Office Tab. 7.6.1-1 28,750 146,000 500,000 674,750 Training Program Tab. 7.6.1-4 - 35,000 - 35,000 Supervision and Monitoring Fig. 5.3-2 - 200,000 42,500 242,500 Expert Panel Tab. 7.6.1-8 - 78,000 - 78,000 EMO Facilities 30,000 60,000 100,000 190,000 Sub-total 58,750 519,000 642,500 1,220,250 Contingencies 10% 5,875 51,900 64,250 122,025 Total 64,625 570,900 706,750 1,342,275

Table 8: Estimated Total Cost for Environmental Management Operations (US$) (Hubei)

Item Reference Pre- Construction Operations Sub-total Costs (Figures) Construction period, 4 period, 20 period, 0.5 years years year Environmental Management Office Tab. 7.6.1-2 28,750 195,000 500,000 723,750

Training Program Tab. 7.6.1-4 - 67,100 - 67,100 Supervisionand Monitoring Fig. 5.3-2 - 287,500 51,000 338,500 Expert Panel Tab. 7.6.1-9 - 24,000 - 24,000 _EMO Fa_lities __-_ r 30,000 80,000 100,000 210,000 |Sub-ttal = | 58,750 653,600 651,000 1,363,350 Contingencies 10% 5,875 65,360 65,100 136,335 _Total64,625 718,960 716,100 1,499,685

-115 - Table 9: Summary of EIA Evaluation

Item No. SEls Sections of EIA Potential for Adequacy of Net adverse report which adverse effects if EPMs environmental discuss SEI not properly effects - -__-_- controlled I Resettlement 2.2,2. 4.2.2. 5.2. It OK NNASEEs 2 Land Use 33422522 . O NNASEEs 3 Aquatic Species 3.5. 4 2 3 * O NNASEEs 3.1 Rare species 5.2.3 OK NNASEEs 3.2 Four Family 5.2.3 N 3.3 Other Fish species 5.2.3 N ___ 4 Public 3.7.2. 4.2.4 5.2.4 O K NNASEEs 4.1 Usual construction 4.2.10 X * OK NNASEEs Schistosomiasis in 4.2 construction zone 4.2.4 **K NNASEEs 4.3 Flooding disease 4.2.4 OK NNASEEs 4.3.1 Flood 4.2.4 OK NNASEEs Enteric disease in 4.3.2 flooded 4.2.4 -* OK NNASEEs 5 Dyke Structural 2.1.1. 4.2.5 iii OK NNASEEs 6 Downstream 3.1.3. 3.1.4. 3.4.4 * NNASEEs 6.1 Hydrology 4.2.6. 5 2.6 * OK NNASEEs 6.2 Other 4.2.6 N 7 Flood Emergency 4.2.7 s**OK NNASEEs 8 Saicheng 3.5.2. 4.2.8 se O NNASEEs 9 Borrow Areas and 4.2.9 O*K NNASEEs 1t Cultural 3.7.3. 4.2.10 _ = OK NNASEEs It |Impacts on 4.2.11 O**K NNASEEs Construction 12 Operations 4.2.12 | iOK NNASEEs 13 Other SEls 4.3 Water supply, environmental 13.1 _pollution control 4.3.1 _ i _ OK NNASEEs Environmental 4 OK NN ASF F 13.3 Traffic and 4.3.2. 433 i_ OKO NNASEEs 13.4 lQuality of life !4.3.5 ! iiOK NNASEEs

114 Public 6i- OK NNASEEs 15 Public disclosure 6,2 | ii OK NNASEEs | Compliance withrT 16 lenvironnnent 16.3 | F*OK NNASEEs Chinese 16.1 government 6.3.1 O*K NNASEEs

16.2 World Bank 6.3.2 ** O NNASEEs 17 Environmental 6.4 OK NNASEEs

18 Risk assessment 6.5 * OK NNASEEs G oal .6.6 _OK _ n- _Ev MOK

Environmental == Ma1na ement Plan/ 7

.Overall Proj'ect __ 22 environmental 8 Overall 22.1 environmental 8 -Adecuate 222 Environmental 8Exccllcnt

Notes: N None, NNASEEs = No net adverse significant enviromnental effects if EPMs specified in EIA are duly applied. ***= Major, ** = Intermediate, * = lesserbut significant.

- 116- Figure 1: Provincial EMO Management Structure

Provincial Proiect S ManaMement l

EnizinceringS erttemn Villag nvironmenl Oilc

IECIs Moioii nttt I~~~~~~~~~~~~~~~~~~~~~~~~~~~~

cc l VEOsl

Notes l. Management or Contract; Cooperation or Supervision 2. CC = Construction Contractor; VEO = Resettlement Village Environmental Office ECI = Environmental Construction InsDector, P/EMO = Provincial Project EMO

-117- Additional Annex No.: 12

YANGTZE DIKE STRENGTHENING PROJECT RESETTLEMENT ACTION PLAN (RAP) SUMMARY

1. Introductionand Background The Yangtze River, the largest river in China, stretches over a length of 6,300 km with a basin coverage of 1.80 million km . The basin is home to some 19 million people, approximately 58% of which live in the rural areas with agriculture being their main source of income.The annual per capita income in rural areas is approximatelyYuan 2,156 compared to Yuan 5,531 in urban areas. In addition to being the rice basket of China the Project area is also a major center for industry and commerce. Flooding is frequent in the Yangtze basin with floods occurring in the middle and lower basins resulting in huge losses to people's property and lives and serious damage to the local ecology and environment. The Government is undertakingseveral initiatives in flood management, and the Project is a major step in that direction. The Project aims to upgrade and strengthen the dike system in the provinces of Hunan and Hubei. The Project will result in a significantnumber of people being resettled and hence a detailed ResettlementAction Plan has been prepared to implement the resettlement component of the Project. The Project will consist of reinforcementof 559 km of main dikes of the Yangtze in Hunan and Hubei provinces (Hunan: 117 km and Hubei: 442 km). Construction will include heightening and widening dike body, slope protection, bank protection, dike body and dike foundationtreatment, building of platforms, improvementin dike operating facilities and equipment, and land compensation and resettlement. In both provinces work is underway, beginning soon after the floods of 1998, with resettlement representingthe initial task before construction commencement. Flood protection provided by the YDSP will benefit a land area 20,057 km' including cultivated land of 12.58 million mu and a population of 16.77 million will gain from this. The Project on completion will also provide protection to key urban and rural areas as well as vital infrastructure such as airports, ports, rail routes (Beijing - Guangzhou, Beijing - Jiulong) and important national highway No. 107. It is estimated that the annual benefit from the Project will be Yuan 1.166 billion (Hunan 356 million and Hubei 810 million). The intermaleconomic rates of return are calculated at 25 and 45 for Hunan and Hubei respectively. Whereas the Project brings substantialeconomic benefits to the people of the Yangtze basin, it also displaces a total of 47,992 people from 10,958 households that will require resettlement, including acquisition of almost 33,750 mu of land. Resettlers represent approximately 16.5 percent of the population of the directly affected villages, and thus an elaborate Resettlement Action Plan has been prepared to minimize all the related impacts. The Project feasibility study has taken into account the impacts from resettlementand the design has been prepared to avoid/minimizeresettlement as much as possible. This has been a result of numerous site investigationsand altemative site before preparing the final plan.

2. Impact of the Project

A total of 47,992 people from 22 counties, 44 townships and 180 villages, within the provinces of Hunan and Hubei will be affected.

- 118 - Hubei Hunan Total Affected Households 6,494 4,464 10,958 Populations People 28,779 19,213 47,992 Reduced Means of 7,651 6,208 13,859 Production (persons)

Land and Land (mu) 15,172 18,577 33,749 Assets Buildings (103m2 ) 884 879 1,763 Enterprises 180 67 247 Graves 2,408 4,408 6,816 Temporary Land Loss (mu) 4,166 8,788 12,954

Due to the linear and elongate nature of the Project affected area, impacts on local social and economic systems will be minor. The Projectwill however have a considerableimpact on local population,primarily through structural and land losses and economic adjustment associated with reduced availability of cultivated land following re-allocationof village lands. Table 1 lists the populations and assets affected by land acquisition for the YDSP, and Table 2 indicates the proportion of the Project areas affected. These impacts have been quantified as follows:

v LandAcquisition - a total 33,750 mu of occupied land, of which 65 percent (21,906 mu) is arable land, about one third of which is irrigated will be required. Trees/orchards and fishpond/water ponds, represent the next largest component of the acquired land at 12 percent (3,913 mu), and 12.5 percent (4,220 mu) respectively. Of the total occupied land, 18,577 mu is in Hunan Province (55 percent), and 15,172 mu (45 percent) in Hubei province. A total of 12,954 mu of land will be required for temporaryuse or lease. * Building Acquisition - 1,763,014 m2 of houses and buildings will be acquired, of which 14 percent are commercial buildings of 243,923m',and 86 percent private houses covering 1,519,091 m. Of the 247 enterprises affected many will be able to relocate partial operations, extend on current sites or absorb land losses with no production loss. Affected enterprise structures include housing for staff who will relocate locally. Affected or lost private buildings and staff housing is considered under resettlement.

Province Private Housing Affected Enterprises and Public Buildings Affected Hubei -Totalrural area housing - 180 enterprisesto be affected,33 whollyand 147partially 544,266m' 144,237m' -Totalurban area housing= 195,085m' Hunan -Total privatehousing area = -Total enterpriseand publicbuilding area (67 units)=99,686m 779,700m_

* Infrastructure Losses - The Projectwill require rebuildingor restorationof some 176 km of simple roads, 38 km of concrete road, 254 km of broadcastinglines and TV cables, 476 km of telephone lines, 143 km of 10 kV transmittingline, and 20 km of 35 kV transmission lines.

* Resettlement - As a result of land acquisition,47,992 people from 10,958 households (including resettlers from enterprise housing) will require resettlement. Detailed surveys of affected people

- 119- have not identified any ethnic minority populations. In Hunan and Hubei provinces ethnic minorities can be found in the mountainous western regions of the province, having left the Yangtze Valley with the immigrationof the Han over 400 years ago. No remaining communities of ethnic minorities are to be found in the Project area, and though individuals have likely married and integrated into the dominant Han culture, they would not be expected to be considered vulnerable due to their ethnicity, nor are they indigenousto the area, and thus the World Bank's OD 4.20 Indigenous Peoples is not applicable to the current Project. Through the household surveys, vulnerable groups (representingapproximately 5% of resettlers) such as widows, female headed households,households without labor and disabled households were identified for special subsidies and support under the resettlement plan. As the Project is a linear/corridor type development,while many villages are affected, in most instancesthis affects only a small portion of each village, overall an average of 16.5 percent of the total population of 291,474 in the 180 affectedvillages.

* Economic Effects - Land acquisitionimpacts on production by enterprises will be minor with few of the 234 affected establishmentsrequiring complete relocation. An estimated 13,859people will be required to readjust their means of income generation as a result of agricultural land loss. Estimated post-resettlementland areas are approximately5 percent below existing levels. Some 85 percent of the income and production restoration programs are land based, providing for recovery and improvement of the affected workers, primarily within existing or related agricultural practices.

* Hosts - Re-allocationof lands within resettlement villages, and in some cases in adjacent villages which may sell their land to the affected villages, will result in land area reductions for all agricultural households in the village. In both scenarios, land compensation (or purchase costs) should be utilized for the development of all remaining village lands. Project monitoring will also review the utilizationof designatedfunds for such purposes.

3. Legal Frameworkand ResettlementStrategy The RAP for YDSP has been prepared within the national Chinese legal framework, and in accordance with the World Bank's Operational Directive 4.30 on Involuntary Resettlement. Appropriate national regulationspertain to land and water resource management.Key regulations studied and used for design of RAP include (i) the "Land Management Act of People's Republic of China", 1998; (ii) "Water Act of People's Republic of China, 1998; (iii) the "Land Compensation and Resettlement Regulation for Large and Medium Sized Water Conservancy and Hydropower Projects", 1991; and (iv) other national and provincial ordinances and decrees of Hunan and Hubei provinces on land management. The key principles of resettlement compensationunder the Project have been designed based on these laws and regulations. The guiding principle has been to award compensation costs to the resettlers in such a way that their original standard of living is maintained at the least. A matrix of the entitlements for the people and assets affected by the Project is presented in Table 3. Compensation standards (presented in Table 4) have been determined for: (i) land; (ii) housing; (iii) auxiliary buildings and trees; (iv) relocation and transfer; (v) public utilities in settlements;(vi) relocation allowances; (vii) vulnerableand economicallyweaker groups; and (viii) infrastructureand special facilities. Average compensationcosts for private housing range from 50-100 yuan/rn for auxiliary structures to a maximum of 270-410 yuan/mi for brick-concrete housing, and 700 yuan/mi for frame-structure premises in Wuhan. Enterprises and public/institutional buildings' compensationrange from a minimum of 60 yuan/rn to a maximum of 800 yuan/ m between the provinces. Land compensationhas been calculated for each resettled family on a per mu basis for two categories of land, one for per capita cultivated land holdings of less than I mu and another for more than 1 mu. The

- 120 - compensationranges from 3,200 yuan/mu (for other miscellaneousland) to 29,800 yuan/mu (for vegetable field) in the forner category to 3,600 yuan/mu (forest land) to 29,800 yuan/mu in the latter. These compensationestimates not only cover the full replacementcosts but also the livelihood developmentcost which extend far beyond replacement costs. Use of these procedures is essential to achieve the basic resettlementgoals, namely that all families involved in resettlementwill not be disadvantagedby the Project and instead, to the extent feasible, will share in Project benefits. 4. ResettlementProgram

Chapter 4 of the RAP presents the ResettlementProgram for the Yangtze Dike StrengtheningProject. The chapter outlines the various housing and economic restoration measures which have been developed in order to: (i) minimize disturbance to resettlers by providing local resettlement options, familiar production/incomerestoration altematives, necessary support in the period of transition; (ii) be acceptable to both resettlers and host populations;and (iii) maintain or improve income levels and standardsof living of Project affected people. Chapter 4 also describes the mechanisms for restoration of enterprises, infrastructureand utilities affected by the Project.

4.1 Household Restoration Some 10,958 householdsof 47,992 people in the Project area will have to be resettled,of which 4,464 families or 19,213people come from Hunan, and 6,494 householdsof 28,779 people from Hubei. In accordance with the guidelines for minimizing distance to altemative resettlement sites, and with resettler preferences, the following resettlement altematives were developed, based on available land area, its capacity for increased production,and the viability of industryexpansion. Resettlement Type Number of HH Number of People Internal Resettlement (resettlementof rural householdswithin the existingvillage area) 8,078 35,484 Collective Resettlement (relocationto newresidential areas in rural and urbansites (as 2,880 12,508 appropriate),urban resettlement to apartmentblocks and rural safety platform sites) Total 10,958 47,992

4.1.1 Internal resettlement Almost 74 percent of resettlers will be relocated within their existing village administrativeareas, minimizingdisturbance to existing social and economic systems. This type of rural resettlementwill require land improvementand the redistributionof village productive lands, and in eleven instances,the transfer of lands from adjacent villages to supplement lands currently available within the village. Environmentaland economic capacity investigationsidentified the 168 villages as feasible for this means of resettlement, in light of the production restoration measures proposed. In most cases of intemal resettlement, infrastructure and service displacement will be minor, and the restoration of all impacted services is included in the resettlement program and budget. House reconstruction will be undertaken by the villagers themselves, in accordancewith relevant standards.

4.1.2 Collective Resettlement Collectiveresettlement will involve 2,880 families of 12,508people to 22 sites. There are the followingthree types for collectiveresettlement:

* Towns or Communities - where new housing areas can be constructed in existing communities; * TownshipBlocks - where new residentialblocks will be developed for resettlers; and * Safety Platforms - elevated platforms will be built nearby to villages, on top of dikes where residential housing will be constructed.

- 121 - In Hunan and Hubei 22 residential sites will be developed for rural resettlers in towns or communities, providing for a total of 2,880 households with 12,508 people. Through land re-allocation and land development, the RAP provides for the largely rural resettlers to maintain agricultural livelihoods. In Hunan, 10 residential safety platforms are proposed for the resettlement of 1,715 rural households totaling 7,331 people. In each instance, minimum housing and living space standards will be met, and where adequate infrastructure and facilities including water supply and sanitation, drainage, power will be provided. 4.2 Production Resettlement The income and production restoration program described in Section 4 was developedaccording to guidelinesof: (i) providing a variety of restoration alternatives,with land as the primary means of support; (ii) utilizing local resources and development activities without adverse impact to the environment; and (iii) development of secondary and tertiary village run industries. Net income per capita rates have been set by the program as a target and measure for successful implementationof the program.An analysis of the land capacity in the affected villages has examined land availabilityand level of development of existing lands during the identificationstage of the selected sites where reduced land holdings, with appropriateinvestment an development,would not compromisecanying capacity. Production plans for each province are detailed in Table 5 below: 4.2.1 Hunan Province - Improve 52,762 mu of land to support 5,077 resettlers and transfer 1,227 mu of foreign village tilled land to support 893 resettlers, among which 623 mu is irrigated and 604 mu is non-irrigatedland. 4.2.2 Hubei Province - Support 7,651 rural resettlers, among which 6,183 persons will be involved in improving low-output land, 342 persons in animal husbandry, and 1,126 persons in village-runenterprises and tertiary industry.

Implementation of the above programs will require an estimated investment of Yuan 166.96 million, distributed as Yuan 54.62 million for Hunan Province and Yuan 112.34 million for Hubei Province, which will be met by use of the land compensationand resettlement funds. The average investment per capita for rearrangement is Yuan 12,048. 4.3 Occupation of Tenporary Lands Total affected lands have been identified as 12,954 mu. Compensationwill be provided based on annual output (for lost production),and to meet restoration costs. These costs are not included in the RAP as they are met by the Project construction costs 4.4 Infrastructure and Enterprise Recovery Chapter 4 identifies affected infrastructure which will be relocated or reconstructed as a result of the Project, at a cost of approximately Yuan 64.40 million. Affected enterprisestotal 247, with in many instancesland acquisition will result in only partial relocation or loss of land with minimal impact to production. Investment for their relocation and lost production is estimatedat Yuan 107.25million.

5. ResettlementBudget

Chapter 5 of the RAP presents detailed cost estimates for implementing the resettlement program in the Project regions, which comprise the costs for the three participating provinces. The discussion covers the following items: (i) compensationcosts; (ii) planning and managementcosts; (iii) costs for contingencies, including basic contingency and contingency for price difference; (iv) budget program, including fund disbursementand fund sources; and (v) annual investmentplan. Overall Project cost is approximatelyYuan 966.14 million, with Yuan 369.80 million for Hunan and Yuan 596.33 million for Hubei Province (as summarized in Table 6). These costs incorporate compensation for relocation (including houses and

- 122 - assets), land compensationand compensationfor public utilities, etc. Based on inventories undertaken and compensation standards, total compensation costs are estimated at Yuan 820.83 million or 85 percent of the total resettlementbudget), including Yuan 501.71millionrelocation compensation for resettlers, Yuan 232 million land acquisition compensation, and Yuan 87.12 million compensation for public utilities. Planning, management, training, supervision and consulting fees are estimated to be 65.54 million yuan. Base contingenciescosts are Yuan 20.37 million in Hunan and Yuan 32.83 million in Hubei. Based on the annual investmentplan and the price indexes, the contingency cost for price difference is estimated to be Yuan 26.59 million. In addition, a contingency of 5 percent of the housing compensation value has been included in the overall Project contingency to provide a safety net fund for vulnerable groups in Hunan of Yuan 0.86 million. The fund will be supported by local and central government respectively, about 18 percent and 2 percent.The funds will be furnishedfrom the following sources:

* HydrologicalConstruction Fund, * ProvincialGovernments Agricultural DevelopmentFund, * Provincial, City and County finance, * HydrologicalConstruction Subsidy, * SpecialLabor Fund for Poverty Area and Capital from Beneficial Units, * Income from water fee, * MunicipalMaintenance Fund, - Central Government.

6. OrganizationalStructure and Administration

The institutionalstructure for resettlement aspects of the Project is illustrated in Figures 1 and 2, showing the agencies and organizations responsible for management, planning, implementation, supervision and monitoring all aspects of resettlement at the provincial level. In addition they show independent external inputs, and the recommended appointmentof an Overall ResettlementCoordinator as a link between the two provinces, the Ministry of Water Resources, and the World Bank. In both provinces the PMO, as Project owner, contracted the relevant provincialHydropower Planning and Design Institute to develop the RAP, including undertaking inventory, modifying design for resettlement minimization, identificationand evaluation of alternativeresettlement and production sites and income generation activities in consultation with relevant agencies and affected populations.The PROs, through counterpartoffices at the County level and through representatives in each of the affected townships and villages, are responsible for the implementationof the plan. Supervisionof implementationwill be provided through furnishingan SR in each province to ensure quality and timely progress on resettlement works. In addition, as noted in the EIA, each province will establish an EMO with primary responsibility for ensuring that the resettlement program design and implementationwill comply with the EPMs specified in the EIA. The PMO will arrange to appoint in each village a VEO to be responsiblefor environmentalmanagement and for reporting on resettlement progress, while the provincial EMO and ECIs will supervise planning and development public health infrastructureand waste management practices in the resettlement villages. Monitoringwill be provided by an IMEO to regularly evaluate the progress of resettlement, including the social and economicrehabilitation of affected populations,and to provide direction and advice to the SR and PMO for adequate performanceand in the resolution of problems. IMEO reports will be furnished to both the PMO and the World Bank. Successful implementation of the resettlement program will require sizeable investmentin training of resettlement staff in resettlementtechnology, and of resettlers in undertakingnew production techniques and industry skills. The budgets for these training programs total approximately Yuan 3.76 million.

- 123 - 7. Public Consultationand SocialAdjustments

The resettlement program includes provisions for public consultation and social adjustments to ensure achievement of the goal that the affected parties (resettler families and the host communities) involved in the resettlement program are not disadvantaged by the Project and to the extent feasible will share in the Project benefits. Preferentialpolicies specified by the Government and additional policies included in the RAP will be available to resettlers. Policies of primary importanceto resettlers will be:

* Tax and levy deduction for acquired lands, and for exemptionsor reductions in the associatedgrain quotas,thereby supportingboth the resettlers and host communities; * Industrial, agricultural and animal husbandry taxes and levies at the county and township levels will be adjusted in accordancewith the resettlementimpact magnitude in each administrativearea; * The resettlement budget includes a contingency for the support of vulnerable groups if they are disadvantaged by the Project and, due to unforeseen circumstances, unable to restore their livelihoodunder the proposed RAP; and * In the year of resettlement, resettlers will be exempted to contribute annual labor to dike maintenance.

Consultationand participationof affected people and their representativeshave been integral components of the developmentof the RAP. Detailed consultationshave been conducted with all the affected counties, townships and villages and thousands of affected and host households on the impact of the Project and proposed locations for resettlement and livelihooddevelopment plans. Some of the comments resulted in modificationsto the Project to ensure that resettlementwas minimized.For example if the constructionof a concrete wall to protect from flood waters was feasible rather than a dike, the "wall" design was adopted since the "wall" option occupied about 1/10 the space requirementsof a dike. The adoption of this option resulted in some cases with no need to resettle any people. Detailed consultation agreements have been concluded with all resettler households listed in the Resettlement Action Plan. Essential to the success of the planning and assurance of resettler acceptance and understanding of the resettlement program is the issuance of resettlement entitlementbooklets (as utilized in the Xiaolangdi Resettlement Project), and the undertaking of agreementswith all affected parties. Grievance redress mechanisms in China are clear and comprehensive,yet the publication of the existence and use of this mechanism to affected people through incorporation in the resettlement entitlement booklets will be essential to its effective use, and thus management of resettlement implementation. Comprehensiverecording of grievances and responses and actions at all levels will also be undertaken.

8. ResettlementContracts and Agreements

The PMO in each province has lead responsibility for implementingthe provincial resettlement program component of YDSP. This work involves participation and cooperation between numerous agencies including the PMO Chief, PRO, SR engaged by the PRO, EMO, CiROs and CoROs, township governments,the resettlementVillages includingtheir leaders. In order for these various agencies/officials to work together efficiently, a number of contracts/agreementsare needed which spell out clearly the roles of the participatingparties. Primary contracts/agreementsto be undertaken between the involved parties include: (i) letter of Agreement between PRO and City RO; (ii) Agreement on Land Sharing between Host Community and Resettlement Village; (iii) Agreement on Resettler Family Compensation between Resettling Family and Township Government; (iv) Agreements on Land and Asset Acquisition with Counties, Townships and Villages; and (v) Contract for Construction of Resettlement Project, including specific constraintsrelating to environmentalprotection.

- 124- 9. Monitoringand Supervision Regarding resettlement, the PMOs will be responsible for internal monitoring of land acquisition and resettlement (RAP) implementation.The responsible PMO staff will have appropriate experienceand will facilitate coordinationbetween different agencies involved in resettlement.A training program is included in the RAP which provides staff training in monitoring and supervision. The PMOs will monitor the performance of ROs at various levels (cities, counties, and villages) during Project implementation, coordinatethe resettlementwork by all parties, and keep abreast of resettlement implementationstatus. Key activities will include: (i) resettler relocation, site allocation and housing progress; (ii) quality of production re-establishmentprojects; (iii) recommendationson any problems encountered with implementation;(iv) income restoration; (v) infrastructure and community facility construction; (vi) re-establishment of vulnerable groups; (vii) timely disbursement of funds; (viii) maintaining public consultations; (viii) resettlement training services; and (ix) project and organization management. The PMO will submit monitoring summary reports to the Overall Resettlement Coordinator and World Bank twice a year. An Independent Monitoring and Evaluation Organization (IMEO) e.g. the Yellow River Resettlement Monitoring and Evaluation Co. Ltd. will be retained by the PMOs for monitoring and evaluation of land acquisition and resettlement work under the Project. Responsibilitiesof the IMEO will include technical consultation services, monitoring and supervising overall resettlement implementation, evaluate the resettlement supervision organizations (SRs), and report to the PMOs/PROs and the ORC on the status of resettlement progress.The IMEO will also take part in periodic public consultationmeetings at village and township levels. During its periodic site visits the IMEO will evaluate public complaints and monitor the efficiency of the grievance redress process and make recommendationsas necessary on any possiblechange to the process. The duration of independentmonitoring and evaluation will cover the Project construction period and a two-year period after Project completion. During Loan negotiations an assurance has been obtained that each province will employ, not later than September 15, 2000 and thereafter at all times maintain: (i) a monitoring institution with TOR, qualifications and experience acceptable to the Bank, to monitor, evaluate and report on the socio-economic progress of all persons covered by the respective RAPs; and (ii) a panel of environmental and resettlement experts with TOR, qualifications and experience acceptable to the Bank, to assist in overseeing the implementation of the EMP and the RAP and monitoring the impact of the implementation of the Project on the environment. Supervision of resettlement will be delegated to a Supervisor of Resettlement (SR) who will supervise implementationof the RAP, resettlement Project cost and identify and report on any issues. The SR will report to ROs and PMOs for early resolution of problems with contractors,thus avoiding the intensification and evolution of such problems. The SR will exercise schedule, quality and cost control of resettlement implementation and community infrastructure re-establishment, and arrange acceptance of completed works, in order to facilitate smooth completion of the resettlement component according to quality and scheduled requirements. The SR will include head office staff and field supervision teams. Typical staff profile will include a chief engineer, and two full-time staff to be responsible for office and field work. Supervision work has started in May 2000. The total cost is estimated at Yuan 8.21 million, which has been included in the cost estimate for resettlement. A position of an Overall Resettlement Coordinator (ORC) will be created at the Central Project CoordinationOffice (CPCO), who will coordinatethe resettlement operations in both provinces.The ORC will work with an overall resettlement coordination committee comprising one representative from each PRO. The ORC will report to the Ministry of Water Resources, the Yangtze Water Resource Commission (CWRC) and the World Bank on matters pertaining to resettlementunder the Project. The ORC, working with each PRO, will prepare reports describing the overall status of resettlement, incorporatingthe results of each province's monitoring and reporting to the Panel of Experts (POE), the World Bank, MWR and CWRC officials as required. This support will involve furnishingregular reports to World Bank missions,

- 125 - facilitatingfield visits and meetings with relevant agencies, and responding to various queries as required. A Panel of Experts (POE) on Resettlement will be established to make periodic evaluations of Project resettlement performance and provide recommendation on measures which may need to be taken so that Project resettlement performance will comply with requirements specified in the Government-BankLoan Agreement for the Project. The POE is to be an independent panel, reporting both to the Governmentand the Bank and is expectedto provide guidance in planning/implementingthe overall resettlement program. Two Panel meetings, of 12 days duration have been planned each year from 2000 to 2003, covering the period of Project construction.At a later time the Governmentand Bank will evaluate the possible need for Panel function during the operation period. The cost for POE has been estimated at Yuan 2.1 million and is included in the foreign currency componentof the resettlementbudget.

10. ResettlementImplementation Scheduling

Resettlementschedules for Hunan and Hubei have been developed in order to ensure that: (i) the timing of construction activities does not disrupt agricultural production; (ii) compensation and land allocation to resettlers is received a minimum of 3 months in advance of relocation; (iii) provision or replacement of infrastructureand utilities occurs in advance of resettlement; (iv) resettlement construction is scheduled to minimize impacts on the overall YDSP works; and (v) resettler training is scheduled in production ebb period. The overall YDSP resettlement schedule is presented in Figure 3. Resettlement under the Project is scheduled for implementationthrough the end of 2003. Resettlement activities have commenced at priority dike sections in both provinces and up to now 3,566 households with 15,369 resettlers have been relocated. The implementationof these activities in respect to the standards are outlined in the RAP, and the agreed measures to rectify any shortfalls are described below. As involvement of the Bank and confirmation of the YDSP as a separate project within the overall program is yet to be confirmed, resettlement is being undertaken according to a wide range of compensation standards and modes of disbursementwithin the Project area, a situation governed primarily by the availability of funds.

During field visits to project areas, several aspects of household restorationand resettlement were observed to be progressingwell:

* Rural houseplant allocations have been provided in conformancewith standards described in the RAP. In each internal resettlementarea visited these were less than 300 meters from the original sites, and all of the resettlers interviewedwere satisfied with the location of the new sites. * Rural housing reconstructionhas been managed by resettlers,based on both recommended layouts and individual preferences. In most instances, resettlers have made significant increasein size and quality of housing. * While no resettlementto townshipshas yet been undertaken,sites have been identified, and resettlers interviewed in Hubei were aware of, and satisfied with the relocation sites and proposed conditions. * In rural areas, resettlers remarked that they had participated in inventories, signed off on their affected assets, and were aware of the schedule and program for resettlement.

Consultations with resettlement implementing agencies and field visits also identified areas where improvementsare required. These areas, and the agreementsreached with the PMOs in regard to specific activities required to address them, and elevatingthe current programto RAP standards are outlinedbelow:

- 126 - * Current levels of qualified staff at the County level will be increased and the resettlement staff training program describedin the RAP will be implemented.

It was confirmed during Loan negotiations that Project specific ROs were established at all levels, with staffing in accordance with the requirements outlined in the RAP. In addition it was confirmed during negotiations that the proposed training programs for the ROs had started, and guidelines on the management offunds had been issued to all ROs.

* Compensation for rural structures which have been less than adequate for housing replacement,leaving resettlersto rely on personal savings and loans * Compensationstandards for land, where proposed,are below standard, and in most instanceshave not yet been disbursed, preventingrural land developmentand consequent land re-allocation and livelihoodrestoration programs. * Compensationfor enterprise structuresis below the required standard, being providedonly for structures, and not for lost production and wages, or associated facilities, causing loss in employment,and in some cases stallingof enterprisesor public buildings. * Where compensationwas provided for lost crops, this was below the standards proposed in the RAP.

The PMOs confirmed during Loan negotiations compliance with the compensation standards stated in the RAP in accordance with the appropriate local and national regulations. In doing so, current compensation standardsfor all Project areas will be made uniform, and supplementary compensationto resettlers already compensated at the lower standards will be made to the RAP standards. All compensationwill meet at least replacement costs and in general be more than replacement costs to meet livelihood needs.

The County/Township ROs have agreed to carry out land readjustment and provide land/productive compensation as soon as possible in accordance with the guidelines and standards specified in the RAP which willfund improvement and agricultural extension activities to improve the productivity of the land available to resettlers after relocation.

* Disbursement scheduling in most instances has been linked to the commencement of demolition of existing houses, leaving no time for resettlers to construct replacement housing in advance of relocation and thus extendingperiods of temporary accommodation.

Commencement of disbursement a minimum of three months in advance of demolition to allow for house completion before demolition, thus avoiding (or at least minimizing) any need for temporary accommodation. In accordance with the policies and procedures described in the RAP, the following commitments were made during Loan negotiations: (a) Appointment of independent monitoring and evaluation organizations and supervisors for resettlement by September 15, 2000. (b) Agreements to be made with all affected households, enterprises and villages (for bothfuture resettlement and in areas where resettlement has already commenced). (c) Arrangement of relevant land tax, levy and grain quota reductions where appropriatefor resettlers.

- 127 - (e) Arrangement for the exemption of resettlers from the requisite annual labor on dike maintenance in the year of resettlement. Gi Immediate preparation and issuance of the resettlement entitlement booklets which describe compensation standards and other entitlements, the grievance process, income restoration programs, and the responsibilities of both resettlers and resettlement implementing organizations in realizing the RAP. Table 1 Summaryof AffectedStructures, Fixed Assets and Population

Item Unit Hubei Runan rotal

Affected Cities/Counties/Districts Units 15 7 22 Affected Townships Units 31 13 44 Affected Villages Units 128 52 10 4. fifdetdgmem,en Al. Households to be resettled HH 6,494 4.464 10.958 Urban Households HH 2.214 2,214 A2. Populationto be resetded People 28,779 19.213 47,992 Urban Pesettler People 9,649 9,649 A3. Houses needtd to be resetted m SS3,5S7 979,427.50 1,763,015 A3.1 House of enterprises m 144,237 99,686.18 243,923 Frame-structure m 7,566 7,566 Brick-concrete-structure m 96,171 50,289.70 146,461 Brick-wood structure m 37.063 44,628.48 81,691 Wood(earth) strtcture _ _ _ 212.16 212 Miscellneous m 3,437 4,555.84 7,993 A3.2 Private house 739350 779,741.32 1,519,091 Frame-structure ems 7,256 7.256 Brick-concretestructure Im | 210,157.43 500.268 |Brick-wood-structure 412,463 373,483.28 795,946 Wood(earth) structure mX 9,485.00 9.485 Miscellaneous m 29,520 186,615.61 216,136 A4. Other fixed Assets Fene wall m 87,386 190,684 Ground m 292,982 160,030.70 453,013 Water pool _ Im_ _ 4,928 4,928 Tower Pc 66 66 Water well 201 1240 1,441 Presd-water well P. 690 690 Tomb 'n 2,408 4,408 6,816 Simple building pc. 2,639 2,639 A5. Trees finc.fmits.timber) stem . 65.413 143.903 209.316 R.aad._ mu 15,172 18,577.68 33.750 B1. Irrigadon land mu 4,497 3,054.16 7.551 B2. DrY soil mu 4363 7,085.53 11.448 B3. Veeetable land mu 168.2 2,738.48 2,907 B4. Water pond mu 3,007 1,213.44 4.220 B5. Frost mu 1,471 2,442.63 3,913 B6. Hacienda mu 466.25 466 B7. Land for house mu 1,577.19 1577 B8. Miscellameous mu 1666.33 1,666

Cl. Traffic facilides a. Concrete road surface km 38.39 38 b. Simpleroad km 106.89 69.24 176 c. Machine-plough road Ian 43.62 44 C2. Electrical facilities a. Low voltage transmission line km 225.44 124.72 350 b. 10 kV electrical transmissionline km 93.52 49.6 143 c. 35 kV electrical transsission line Ian 19.8 20 d. transformation device Dc 97 97 C3. telephone line 366.89 109.59 476 C4. broadcasting & TV line km 230.14 23.68 254 CS. water mains km 101.22 3.9 105 C6. Iron Tower Pc. 7 7

- 128- Table 2: Impact on the Affected Areas Due to Land Acquisition and Resettlement ProvinceCounty Villages Information of effected area Occupied land and resettlement Percentage of occupie landand reseatlemen Province County effected Household Population Arable land Household Population Arable land Household Population Arable land Hunan 7 52 16,405 72,898 114,815.61 4,464 19,213 10,780.07 27 26 9 Linxiang 9 4,725 20,250 35,870.00 1,738 7,447 2,763.25 37 37 8 Yunxi 8 2,461 10,753 15,301.00 541 2,363 1,397.00 22 22 9 Junshan 9 2,123 7,446 13,159.00 729 2,556 917.07 34 34 7 HuanRaai 4 1,069 5,241 3,732.61 314 1,539 437.60 29 29 12 Junshan 7 1,915 11,524 17,004.00 234 1,408 1,350.35 12 12 8 Huarong 14 4,112 17,684 29,749.00 899 3,871 3,528.00 22 22 12 Jianxin 1 9 29 386.80 Hubei 15 156 54,303 218,576 300,766.95 6,494 28,779 9,028.00 12 13 3 Jingzhou 5 1,208 5,160 7,484.85 314 1,412 535.00 26 27 7 Songzi 1 647 2,633 4,171.00 8 33 70.00 1 1 2 Gong'an 31 16,349 77393 109,802 3228.00 66633 Shishou 29 8,256 32,567 40,212.00 2,300 9,740 22303.00 28 30 6 Hannan 21 6,574 23,565 62,737.00 771 3,423 283.00 12 15 0.5 Caidian 7 494 1,999 3,393.00 17 81 782.00 3 4 23 Zhuankou 7 1,633 6,082 5,514.00 245 91.00 15 18 2 Hongshan 18 5,681 19,974 24,491.80 83 496 62.00 1 2 0.3

______Hanyang 5 1,295 5,180 4,481.80 351 1,441 210.00 27. 28 5 Jiangxia 8 3,640 13,084 11,657.50 239 1 364.00 7 11 3 E'zhou 3 1,613 6,180 4,691.00 403 2,041 810.00 25 33 17 Huangzhou 12 5,517 19,703 19,201.00 364 1,497 197.00 7 8 1 Tuanfeng 3 1,396 5,056 2,930.00 288 1,361 93.00 20.6 26.9 3.2 Qingshan 1 80 280 Wuchang 5 25 110 Totalin the Project Area 208 70,708 291,474 415,582.56 10,958 47,992 19,808.07 15.5 16.5 4.8

- 129 - Table 3: ResettlementEntitlement Matrix

Impact Affected Compensation Policy Other Measures Entity

Loss of arable Arable land, QL Provision of equivalent land O Readjustment of village land land resulting vegetable garden, nearby (if available); within affected villages and host from permanent trees and orchard O Cash compensation to village for villages where applicable; land acquisitionland acquisition areas, arable land for both more and less 0 Use of cash compensation for reservoirs/ponds, than I mu/family categories farm intensification, crop in the path (compensation unit prices based diversification and other land locatede on output value of cultivated land, development and agricultural odyengthenig aland compensation times and extension techniques for more strengthening and relative land management efficient use of land.

worker population regulations); workingthese L0 Detailed compensation rates in land areas Table 3-2.

Loss of land Arable and 0 Compensation for temporary land 0 Return of temporary land to the from temporary cultivable land acquisition based on the annual land user after use. land acquisition located in the path output of the leased land plus the of dyke costs associated with land strengthening preparation and re-cultivation; s Detailed compensation rates in Table 3-2.

Loss of Housing and 0 Compensationfor housing 0 Building materials may be settlements auxiliary buildings including private housing (rural salvaged from old housing or (including in the path of dyke and urban); enterprise building to be utilized in housing, strengthening and 0 Replacement land for households new structures; auxiliaryth residentialto be provided within the original 0l Assistance to be provided to the auxiliary the residential village (internal settlement), if resettlers in procurement of labor and scatered trees in the houses available; material for construction of new and transfer i h If replacement land not available housing; subsidy) provide alternative 0 Provisions to be made for household/enterprise location as temporary housing and financial close to the original location as assistance accorded where rental possible (collective resettlement); support needed for temporary O House-for house replacement in accommodation; urban areas; 0 Transportation/relocation O Cash compensation based on allowance to be provided to the original house area to urban resettlers on household basis. resettlers; O Detailed compensation rates in Table 3-2.

Loss of crops Crops located in 0I Cash compensation to affected 0 Crop loss to be minimized to the the path of dyke farmers based on the average of extent possible by avoiding strengthening the previous three years acquisition during harvesting production value

- 130- Loss of Enterprise and O Compensation for land and U Provision for continuance of enterprises workers employed reconstruction of enterprises' employment of workers affected from with the structure/buildingsand facilities; enterprise relocation during the enterprises 0 Compensationfor loss in transition period through provision of production and relocation of temporary premises, or compensation enterprises; for lost wages. U Detailed compensation rates in Table 3-2.

Loss of Water supply, O Compensationfor reconstruction /reconnection to water supply/ utilities sanitation in electricity! sanitation (previous resettled houses infrastructure); andsettledrprses U Detailed compensation rates in and enterprises Table 3-2.

Loss of public Roads, power U Compensationto O Prompt allocation of land for infrastructure supply, water owners/operators for reconstruction of public infrastructure supply, infrastructure replacement; including labor and material. telecoynmunication L Detailed compensation rates in and media Table 3-2. broadcast facilities in the affected areas

Impact to Elderly, orphans, U Additional cash allowances U Prompt payment to vulnerable vulnerable widows, and provided to vulnerable and and economically disadvantaged groups female headed economicallydisadvantaged groups early in the resettlement households being groups; process. resettled U Detailed compensation rates in Table 3-2

Loss of cultural No significant U Not applicable O Not applicable property impacts arising from the Project

Based on: (a) Land Management Act of the People's Republic of China 1998 (b) Water Act of the People's Republic of China 1988 (c) Land Compensation and Resettlement Regulation for Large and Medium-Sized Water Conservancy & Hydropower Projects, State Councilpromulgated Order No. 74, February 15, 1991 (d) Design Regulationfor Flooded Reservoir Area Treatment at Water Conservancy and Hydropower Projects, 1985, the Ministry of Hydropower (e) Investigation Detailsfor the Reservoir-flooded Physical Substances at Water Conservancy and Hydropower Project, the Ministry of Hydropower, 1986 Wfl Standards for Village/lTownPlanning, the Ministry of Construction, September 27, 1993, 2) Classification of Villages and Towns; 4) Standards for Construction-occupiedLand, Chapter 4, Land for National Construction (h) Hubei Province Land Management Implementation Method, Hubei Province, September 3, 1987 (i) Jiangxi Province Implementation of Land Management Act, July 15, 1989, Chapter 4 - Land for use in State Construction

- 131 - Table 4: YDSP Resettlement Compensation Standards

Description Unit Unit price (Yuan) IHunan | Hubei SETTLEMENTS I Buildings Public Buildings Wuhan/Other 2 Framework m 800/N/A 2 Brick-concrete or 345 450/320 Brick-wood Ml 260 350/260 Clay/wood in' 1 - 2 Miscellaneous in 60 100170 Private House Rual/ other urban/Wuban Frame-work m2 700 in Wuhan 2 Brick-concrete ma * ij 270/320/410 2 Brick-wood m 203 240/260/320 2 Clay/wood 11 153 2 Miscellaneous M 50 60/70/100 2. Auxiliaries Private-owned Rural area/town Fence _ _m2 20 24126 Sun-drying ground mw 12 20122 Water pond n?_ 80 Well pce 1,000/1,000 pressure well pce 70 2001200 Simvle stuctare _ pe _ 50/50 Tomb pce 100 190/190 Public-owned_ _ Concrete______Fence______rn______28 Concret Ground M= 25 Water Tower item 6,000 Well -___pce 2__,000

Simple StmuctuTes |_ _ _ce 60 3 Trees pce | 20 30 4 ResettlementSubsid Rural/urbanper HH Town ___ MaterialsRelocaton person 50 5001550 MaterialsLoss person if) 350/450 For work delay person 100 400/500 5 Reconstruct Public Facilities______

Land acquisition in resettlement area mu r _ N/An/700/1 0i0oo Land leveling person 390/200/330 Roads person ! 60/70/320' Tap water person | 60/70nOO2 Drainage person 50/50/160

Power supply person _80/80/180_ Others person 50/50/205 6 Other Coinpensation _ RS area township constsucton HH 3 00 Subsidy for moving to towns HH 3_50 7 Vulnerable Groups Housine HH Elderly orphansand widows HE 3,00 Female headed or labour short households HH 4,000 LANDCOMPENSATION I Per capita cultivated land < 1 mu Regular area/Wuhan (I) Paddy field mu R 409 8,832/13,248 (2) Dry land mu 5n 7 5,754/8,631 (3) Market garden mu 8,409 13,200/29,80O (4) Waterpond mu 8,409 8,250/13,200 (5) Forest land mu 3,835 3,600/6.750 (6) Garden plot mu 5,990 (7) House Plot mu 'A4Sf

(8) Other land mu _ _ 13.200/3.200

- 132 - 2 Per capita cultivated > I mu mu (1) Paddyfield nut 6,932 9,832/13,248 (2) Dry land un 3,854 5,75418,631 (3) Market garden mu 6,932 13,200/29,800 (4) Waterpond mu 6,932 8,250/13,200 (5) Forest land mu 3,835 3,600/6,750 (6) Garden plot mu 3,835 (7) House Plot mu 4,425 3 Temporary land requisition mu Cultivatedland mu 1.800 4. Green crops mu 500 SPECIAL FACILITIES INFRASTRUCTURE

I Roads km _ 250.000 2 SimpleRoads km 169,038 170,000 3 Tractor Road Iam 12,531 4 Power facilities kmI (I) Low-voltage lines kmn

380v trnsmission line km _ 12,000 220v transmissionline km 9,127 9000 (2) High-voltage lines km 35kv transmission lne km _ 35,000 10kvtransuassion line km 22,525 23 00( (3) Transforming facilities set 3,000 5 TelecommunicationLines km 12,860 13,000 6 Broadcasting Lines akm 8,000 _ 8 oo 7 Cable T.V Lines kan 10,000 8 Steel Tower pole 150,000 9 TapWater Trunk Lines km 50,000 70,000 1. Movenearby(intemal resettlement)tTownship building (collective resettlement of urban resettlers)lTownships(uwban)

-133- Table 5: YDSP Resettler Income Restoration Planning Improvement of Improvement of Resettled Village Lands Lands (inlcuding land Resettlement Resettled into Province County (city, by transfer from other into Animal Vilage Enterprise Tot district, farm) producion Husbandry and Tertiary (person) Area Populatson Area opulation (person) Industry (person) (mu) resettled (mu) rsne . ______(Pg ) (nerson) . . Hubei 15 5,501 56,629 3,775 367 1,362 5,504 Jiangzhou 340 3,291 219 20 101 340

Songzi 45 678 45 45

Gong'an 396 5,946 396 396 Sbhshou 146 2,194 146 146 Caidiuan 233 3,498 233 233 Xinzhou 1,822 18,770 1,251 191 381 1,823 Huangpi 248 3,482 232 16 248 Zhuankou 72 1,086 72 72 Jiangxia 316 4,744 316 316 Hongshan 127 1,232 82 20 25 127 Jiangan 41 621 41 41

Hanyang 258 3,024 202 20 36 258 E'zhou 1,122 3,881 259 463 60 803 1,122 Huangzhou 169 2,076 138 20 11 169 Tuanfeng 165 2,106 140 20 5 165 Hunan 6 6,208 52,763 5,077 1,227 893 238 6,208 linxiang city 1,692 16,636 1,368 378 286 38 1,692 Yunxi district 1,058 9,291 776 284 280 2 1,058 Junshan farm 234 3,161 234 _ 234 Huanggaihufarm 166 1,350 166 166 Junshan district 753 7,975 753 753 Huarong county 2,305 14,350 1,780 565 327 198 2,305 TotalofProjectArea 11,709 109,391 8,852 1,227 893 367 1,600 11,712

- 134 - Table 6: Summary of Resettlement Costs (1,000 yuan)

lUlinqn -1ith i -- Tal -

| . ~~~~ ~ ~% ~ ~~~~~CostCost % Cost 1 ReIpe2tipnCnqts ...... 259,07&70 .52 249,611-AS .37 -Nl8.6R&fRS0 44 l l TTmge"Z 214q1 11;1 n 139 611 11 = R2 74? 73 = 1 2 Enterpriseq 7-1l 4n _ 4R 14-,47R _ I I Attpi me-nts, A4Rsvn In nSm I _, IA PR, AC,= 1 4 Snh-idy for the Pnnr -9 1 n7 nn -_ 1 776nn __ q1i,frtnirctlre - n -R61 1= 861Jn =

1 h Other -RR3n SR _ 944 OR 2 Land Crnpenltinn 94O869.13f 21 nns92-34 A7 V4si9664 ?.2h. 3Pihlie Iffilitips 16,79s1-7TL 3 79,7o916, 17, o6nxlw 14 X I.1nning+ M nnsgem ent 33,19j-5f) 7 I 3X7 h 71,X76.44 h 4 1 S,RnrvcX+P1gnning qs76R 4( n7Rnn M44R 40

7 ImpI ement.tnn Management I 1JI-?? In 1J617 nn - . 11.1.4 1 -

13 Teehnir.nITr-ining 3 S35L - 1 - 5nn5D -if) 4 4 qiiperviqinn 7074 2nil =-An s,04J7 -

4 5 Mmnitaring + Fvad,uation 2 s92fl - 3.77n0f - 6,36h2L 4 I Re'Pett1ementPanel 1 11 7 -n . nnnnn.n = 11 9 M =

14 7 Other l RR 70 - 1 RSI _ Osntigene Cactc s 4 1 S&2.1 13 1h637L161 1fi

5 1Rasic 39R17 sn .2 97.5SR7 - incl Weak GTrnipSnlh-idy S76nn =94sf0n 1 066nn0 = S9 Prire Diffprenne s73ss4 R3D _ RR-16ss _

I TOTAI 501,664.6n) 666265-49 - 1,16Z9s30-09

- 135- Figure 1: Provincial Resettlement Management Structure

ORC

Figure 2: Coordination and External Monitoring (ORC and POE)

Overall Resettlement Coordination Commnittee (Imember from each PRO)

Infonnal AssoctatEon City/County RO C ty/Count R ...... -

RS Village RS Village

Note: ORC.: OverallResettlement Coordinator; RO: Resettlement Office; MWR: Ministry of WaterResources; PRO: Provincial Resettlement Office;CWRCe YangtzeWater Resource Commission;IMEO: IndependentMonitoring and Evaluation Organization; RS: Resettlement Supervisor;EMO: EnvironmentalManagement Office;PMO: Project Management Office;PPlI: Project Planning Institute; POE: Panel of Experts

-136 - Figure: 3 Resettlement Implementation Schedule 1999 2000 2001 2002 2003 ID TaskName Duratio o 24 32j 314 1 Preparation of Mid Yangtze River Flood Control I loo-

2 Bank Procedure for Project Preparation 97.5 _

1 3 Revisioin of Design, by the Project Implemnents 49.75

20 Procurement Procedure of Civil Works 46.25 N

80 River Bank Protection, CWRC 99.7 -

81 Within Hubei Province 99.7 A

82 Jingnan Section 99.4 M

91 Wahan Section 60.4 v

1 OC Bapu Section 95.2M i Q CH uanggang Section 69.2 is

117 Within Hunan Province 84 w -

11i Minsheng Polder Section, from 0+000 to 84 w

1 2, Jianshe Polder Section, from 32+724t0 S 49.5 M_

132 Jianxin Polder Section, from 51+012 to 5 33 w

14C Junshan Farm Section, from 53+975 to 7 53.5 M

I4 r Yongji Polder Section, from 78+200 to 8f 70.5 mis

153 Luchang Polder Section, from 86+380 to 56.5 Mi

1 ~ Jiangnan Polder Section, from 109+1 10 t 28w

162 Huauggaihu Farm Section, from 136+04' 26.9 M

1 7C Dike Rehabilitation, Hubei Province 123.4 -

171 Jingnan Dyke 117.7 -

184 Wuhan Dike 123.4 -

197 Bapu Dike 113.4 -

208 Huanggang dike 93.3 M a

22C Dike Rehabilitation Works, Hunan Province 154.25_

221 Minsheng Polder Section, from 0+000 to 32+6 128.5 _

24r Jianshe Polder Section, from 32+724 to 51+01 90 a

261 Jianxin Polder Section, from 51+012 to 53+97 51.5 'A

293 Junshan Farm Section, from 53+975 to 76+80 122.55' _

31 Yongji1 Polder Section, from 78+200 to 86+384 78.25 a

34E Luchang Polder Section, from 86+380 to 109+ 100

373 Jiangnan Polder Section, from 109+110 to 131 97 w

391 Huanggaihu Farm Section, from 136+044 to 1 62.5 M

422 Ponds Backfill, Wrapping 58 w

427 Office Equipment & Vehicles 72.45 N r

- 137 - 1999 2000 2001 2002 2003 200. ID TaskName Duration 2F314 2 12T3 4 1|2|3 4 1|2|34 1|2F3

220 Dike RebabIitation Works, Hunsm Province 154.25w w

221 Mlnsheng Polder Section, from 0+000 to 32+624 128.5w w

245 Jianshe Potder Section, from 32+724 to 51+012 90 wi _

269 Jianxin Polder Section, from 51+012 to 53+975 51.5 wI _

293 Junshan Farm Section, from 53+975 to 76+800 122.55w w

319 Yongii Polder Section, from 78+200 to 86+380 78.25 w i M..

346 Luchang Polder Section, from 86+380 to 109+110 100 wI

373 Jiangnan Polder Section, from 109+110 to 136+044 97 wi -

398 Husaggaihnu Fann Section, from 136+044 to 142+055 62.5 wi

422 Ponds Backill, Wrapping 58 w'

427 Office Equipment & Vehicles 72.45 w

0 437 YDSP Resettlement 19 .2w w -

438 Hunan Province 190.2 w r - -

439 Preparation 30 wi ir -

441 Execution 169.2 w

442 Huarong County 128.4 w

465 Junshan District - -7,w

483 Junshan Farm 131.6 w

502 Yunxi District 135.6 w-

523 Lioxiang City 160.2w - - -

546 HEuanggaihu Farm 73.6 wl

566 Jianxin Farm 54 wi,

578 Hubei Province 159.6w - -

579 Preparation 30 wi,

581 Execution 138.6w w _

582 Jlngzhou Prefecture 128.4w w

605 Wuhan City 117.6w w

623 Erhou City 131.6 w ir

642 Huanggong City 135.6w - -

-138- Additional Annex No.: 13

YANGTZE DIKE STRENGTHENING PROJECT

FINANCIAL MANAGEMENT

I. Background

This report is the result of a financial managementreview and analysis of the Project as conducted by Wu Ning, Consultant, in March 2000, supervised by Youhua Yu, Senior Disbursement Specialist, EACCF and further reviewedby Nancy Chen, Financial ManagementSpecialist, EAPCO, to determine whether the Project has in place an adequate financial management system as required by the Bank OP/BP 10.02. The review was performedin accordancewith the following:

* Guide for Review and Design of Accounting and Reporting System for World Bank Projects (Prepared by Central Operational Services Unit, East Asia and Pacific Region, December 1997); * Review of Financial Management System as stipulated in Annex II of LACI ImplementationHandbook; and * Project Financial Management Manual issued by the Loan Department, February 1999.

The review consequently included procedures as were considered necessary and appropriate to the Project's circumstances,including site visits, discussions and observations. As a result, the task team has discussedand reviewed with Provincial Finance Bureaus, Water ConservancyBureaus, Provincial Planning Commission and other implementing agencies the plans, procedures and guidelines for establishing a sound project financial management system, inter alia, accounting system, staffing and training programs, internal controls,project reporting, auditingand budgeting procedures.

II. Organizationof ProjectFinancial Management

This Project is a Central Government undertaking to be implemented by two provinces: Hubei and Hunan, and by Changjiang Water Resources Commission (CWRC), which is organized under the Ministry of Water Resources (MWR). A Central Project Coordination Office (CPCO) will be established under MWR to oversee Project implementationand provide coordination between the two participatingprovinces (See Attachment 1).

The provinces have established Project Leading Groups (PPLG), which are chaired by the Vice-Governors. Under the PLGs Provincial Project Management Offices (PPMO) have been established to oversee the preparation of annual work programs, oversight the procurement and itnplementationprogress, funds management and coordination between provincial agencies and the Bank. The PPMOs will also serve as the secretariat of the PLGs. The PPMOs have the following divisions:

* Comprehensiveaffairs; * Finance and accounting; * Engineering;

- 139 - * Procurement;and * Environmentand resettlement.

Hubei Province The implementationof Project works will be entrusted to the owner organizations, which are the Dike Management Offices or in some cases the Water Resources Bureaus at local govermnentlevels.

Hunan Province Yueyang is the only project city and the Yueyang Project Management Office (YPMO) has been established to represent the Province as the owner for implementingProject works and be responsiblefor Project implementation,quality assurance and consolidation of Project accounts.

For purpose of coordination of Project implementation,PMOs have been established at each city and county, respectively.

The ProvincialFinance Bureaus (PPFB) and the PPMOs in Hubei and Hunan Provinces, respectively, all have experience with implementingWorld Bank-financed projects (e.g. the Yangtze Basin Water Resources Project, the Yangtze Flood Emergency Rehabilitation Project) and therefore are familiar with the existing disbursement,procurement, financial reporting and auditing requirements. PFB has accumulated extensive experience with both the Bank and MOF's requirements in preparation and processing of withdrawal application and financial management of Bank-financed projects. However, additional training will be providedto Project staff at all levels (see Section VI: Staffmg and Training). See Attachments2 and 3: OrganizationChart for Hubei and Hunan, respectively.

CWRC has established their Project Leading Group (CWRCPLG) for the River Modeling studies. Under CWRCPLG there is a Project Management Office (CWRCPMO) which is attached to Changjiang Science Institute. CWRCPMO consists of an Advisory Group and the following four (4) divisions:

3 Comprehensiveaffairs; i Planning, finance and accounting; e Scientificresearch and technology; i Engineering. m. Loan DisbursementArrangements

The Bank loan will be disbursed based on traditional disbursementtechniques. The Project will not be using PMR-based disbursements,as agreed between the Bank and Ministry of Finance (MOF).

In accordance with the Implementation Agreement reached between MOF, MWR and Project provinces, MOF will manage, monitor and maintain the SpecialAccount (SA). MOF will reconcilethe SA, check and monitor withdrawal applications and verify payment requests to meet Bank requirements.Applications for withdrawal of the proceeds of the loan and for replenishmentof SA will be prepared and submitted to the Bank by MOF. For purposes of channeling funds from MOF to the County levels, each Province, City and County will use the Finance Bureaus. The County PMOs will verify the accuracy and validity of expenses submitted and progress reported, and prepare requests for payment. The applicationswill be further reviewed and approved by the County Finance Bureau before submitting to a higher level PMO for approval. Eventually the requests for payment will be submitted by MOF to the Bank. See Attachment 2A and 2B: Flowchart of Withdrawal

-140 - Applicationsand Project Funding for Hubei and Hunan, respectively. Original invoices and backup documentation will be retained at points of initiation. MOF will retain copies of withdrawal applicationsand copies of supportingdocuments.

IV. Financialand AccountingSystem

From July 1, 1998, according to MOF's documentation,the Bank-financed Projects in the People's Republic of China will follow the "Accounting Procedures for World Bank-FinancedProjects" issued by MOF as a basis for bookkeeping and preparation of financial statements and Project reports. These proceduresdictate the format of financial statements,Chart of Accounts and related instructionswhich would therefore affect Project accounting and reporting requirements. Accrual accountingand double entry basis will be adopted. Project accounts will be maintained by County PMOs, consolidatedby City PMOs and further consolidated and submitted by PPMOs on a semi-annual basis to the Bank, by October 1 and April 10 covering the first and second half of the year, respectively. As accounting software has been developed under the supervision of MOF and the Bank's Beijing's Country office, Hubei's Provincial Finance Bureau (PFB) and CWRCPMO agreed to adopt this software for accounting purposes. However, because of limited computer skills in the Project's city and county PMOs, Hunan's PFB decided to use the traditionalway of bookkeeping.

V. Internal Controls

A well designed internal control system is one of the key elements critical to the success of a project. Financial management manuals (the Manuals) are jointly prepared by the PPMOs and PFBs, and by CWRCPMO, respectively. The objective of the Manuals is to document the operational procedures and guidelinesfor Project financialmanagement, encompassingall levels of Project management. The scope of the Manual will encompassthe following key elements:

3 Project financialmanagement structureand staffing (e.g. job descriptions); 3 Identificationof the accountingstandards to be used by the Project and all the participatingagencies (e.g. tailored Chart of Accounts to project specifics and sample accounting treatments); i Key internal control features such as a system of authorization, verification, reconciliationand Project reporting to provide adequate control over Project costs, cash and asset managementand segregationof incompatibleduties; * Reporting formats tailored to Project specifics; * Procedures for procurement,disbursement and counterpartfund management; * Budgetary procedures;and * Auditing arrangements

The final draft Manuals have been reviewed by the Bank and have been finalized prior to Loan negotiationsin Washington.

In accordance with BP 10.02 paragraph 6, the task team reviewed the status of compliance by the Borrower and Project implementingentities with audit covenants in existing Bank-financed Projects. The major findings of the auditswere:

* Hunan Project Area - no areas of significant non-compliance or material weaknesses came to the auditors' attention. * Hubei Project Area - the auditors noted a series of unsupported costs and material

- 141 - control weaknesses. A letter addressingthe Hubei audit issues was sent and the task team responded during the October 1999 supervision mission that the irregularities will be corrected.

Although the audited projects were appraised before July 1998, managed by a different task team and the implementingagencies different from that of the currentProject, the leadership structure is similar: both projects involve the Ministry of Water Resources and Provincial Planning Commission. The issues raised in the audit report present a risk that similar issues could repeat themselves. It is important to take appropriate preventive measures so that such risks can be mitigated. Therefore,this issue was discussed with the Hubei PMOs during appraisal and a strong message was sent that the Bank is seriousabout financial managementand that mis-use of Project funds is prohibited.

VI. Staffingand Training

The PMOs at all levels have been established and are fully staffed. In order to have sound financial management of the Project, the staff of each lower level PMO (both at the City and County level) includes at least one Project accountant who has overall responsibility for maintaining the Project accounts and preparing financial statements, and one cashier who processes cash receipts and expenditures. CVs for the accountants and cashiers of PMOs at all levels were provided for review by the Bank. The institutional arrangements for Project management and implementation have been established and staff assigned. The names of key financial staff at various levels have been provided to the Bank for review.

The task team has recommendedthat well designedand focused training be provided by the PFB and PPMO during the Project Launch Workshop, to ensure that staff understands the Project's financial managementsystem and requirements. This training should include the following features:

* Bank procedures and the Project's financial managementprocedures for withdrawalof Bank funds; * Overview of the Project'sfinancial statement formats; * Review of the Project's Financial Management System Manual; * Procurementprocedures; and * Project audit requirements.

PFBs intend to hold separate workshops focusing on the accounting procedures and the use of accounting software.

VII. Project Reporting Requirements

The format and content of the following Project financial statements represent the standard project reporting package agreed between the Bank and MOF. These formats have been discussed and agreed with all parties concerned. The Project financial statements will be submitted to the Bank by MOF on a semi-annualbasis, February I and August 1 of each year, and include the following four statements:

* Balance Sheet; * Summary of Sources and Uses of Funds by Project Component; * Statementof Implementationof Loan Agreement; and * Statement of Special Account

- 142 - VIII. Audit Arrangements

The Bank requires the Project financial statements to be audited in accordance with standards acceptableto the Bank. In line with other Bank financed Projects in China, the Project will be audited in accordancewith Government Auditing Standards of the People's Republic of China (1997 edition). The National Audit Office (NAO) will be the auditor of the Project. NAO will entrust Hunan and Hubei Provincial Audit Offices to audit the implementation of the project in their provinces, respectively. The RepresentativeOffice of NAO in Wuhan will audit CWRCPMO. NAO will audit the SA and the financial statements consolidated by MOF. The audit including opinions on financial statements, Special Account and Statement of Expenditureswill be scheduled for submission to the Bank by MOF within 6 months after the end of the calendaryear.

IX. Budgeting

The Project's budget will be prepared annually by the PMOs based on submissions prepared by the implementingagencies. The budget preparedat each governmentlevel will be submittedto the Finance Bureau for approval at the same level. PPMOs will consolidatebudgets approved and submit for the Bank review and approval by April 1 of each year. All counterpart funds will be channeled to the PMOs and implementingagencies through local the Finance Bureaus. Details of budget preparation and approval procedures are to be given in the Manual, which are to serve as guidance for all parties involved.

X. Conclusion

The task team has determinedthat the Project satisfies the Bank's financial managementrequirements as stipulated in OP/BP 10.02. In the team's opinion, the Project will have in place an adequate Project financial management system that can provide, with reasonable assurance, accurate and timely information on the status of Project implementationthrough reporting formats agreed with the Project management office and as required by the Bank. Training of the Project's designated financial staff on topics indicated in Attachment I below will be carried out during the Project Launch Workshop. Authorization for MOF to open the Special Account (SA) for the Project will be obtained by Loan effectiveness.

- 143 - Attachment I China: Yangtze Dike Strengthening Project ProposedAction Plan (March 2000)

Description Responsibilty TargetDate A. ProjectFinancial ManagementSystem Manual 1. Establishajoint working groupfor the PPMO/PBF Pre -appraisal(Completed) preparationof the Manual 2 Draft ManualTeviewed by the Bank PPMOIPBFIBank Post Appraisal(Completed) 3. The Manual finalized,including the PPMOlPBF/Bank Negotiations tailoredProject financialstatements (Completedfor both provinces) provided to the Bank for fwutberreview. 4. The Manual distnbuted to all relevant PPMO/PBF Board staff (nanual discussedat provinciallevel. Please note that these two provinceshave prepared several manualsfor several of .______the Bank projects) B.Staffing& Internal Controls CVs of accountantsto be hiredby the PPMO/Bank PostAppraisal city/countyPMOs provided to the Bank for review. (Completed All CV's at PPMO leveland many of the counties.Alnost all the lower and higher level departmnentshave been establishedand staffare in place) 2 Inform HubeiPMOs about the issues BanldPMO Post Appraisal identified in a differentproject in Hubei (Completed-Howeverthe issue of and emphasizethe importanceof mismanagementoccurred over a very financialmanagement small componen,for which procedures .______were not clearlyestablished) C. Training l Project Launch workshopto all-related PPMO/PBF/Bank Board staff on: a. Bank and the Projectfinancial managementrequirements including withdrawalof Bank fends b. Projectfinancial statements formiats c. Project FinancialManagement Systems Manual d. Project audit requirements e. Procurementprocedures

D. SpecialAccount Obtaindomestic clearances for opening PFB By effectiveness of SA 2. Authorizedsignatures sent to MOF and PFB/MOF By effectiveness Bank 3 First withdrawalapplication sent to the PBF After effectiveness Bank for initial deposit

Attachments: 2. Organization Chart 3. Flowchart of Bank Withdrawal Applicationsand Project Funding

-144 - YANGTZE DIKE STRENGTHENINGPROJECT Flowchart of Bank Withdrawal Applications and Project Funding Hubei Province

CENTRAL GOVERNMENT (SDP::>M-YtR)WORLD fOFf BANR. (SPCMO, MWR) Ministryof Water I Resources MinisUyof Finanoe

,. I ,___ - ProvincialProject Legend: LeadingGroup . Cash Flow, includingBank IF r Loan and Counterpart ProvincialProject Provincial Funding ManagementOf fice -' F;ina=ccBureau ...... DocumentFlow of Request for Payment

City Project DocurnentApprovedRequest Flow offor Leading Group Payment

Leading Role

Ct Project City Finance Bureau Managements Office ...... - ......

t CountProject 6 Lai Group f

Lt CountyProJect ib Countyf:inance Maagernent Offlee \ _Bureau

I I ,......

- 145 - YANGTZE DIKE STRENGTHENING PROJECT Flowchart of Bank Withdrawal Applications and Project Funding Hunan Province

f t0:09 b llr~~~~~~~~~Cash Flow,';including Ban.

T!1, g'> r fe ,?,,,eques.for aymen

t 0 000000 000f L;4dv7tgDocument Flowof

: e ~~~~~~~~~~~e ; Role iCasFlwinuding

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CHINA YANGTZEDIKE STRENGTHENING PROJECT PROJECT DETAILS

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