Document of The World Bank

FOR OFFICIAL USE ONLY Public Disclosure Authorized

Report No: 34134 - CN

PROJECT APPRAISAL DOCUMENT

ONA

PROPOSED LOAN Public Disclosure Authorized

IN THE AMOUNT OF US$180 MILLION

TO THE

PEOPLE’S REPUBLIC OF

FOR A

SICHUAN URBAN DEVELOPMENT PROJECT Public Disclosure Authorized August 11,2006

Urban Development Sector Unit East Asia and Pacific Region

This document has a restricted distribution and may be used by recipients only in the Public Disclosure Authorized performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUNALENTS (Exchange Rate Effective December 5,2005h CurrencyUnit = RMB 8.1 = US$1

FISCAL YEAR January 1 - December 31

ABBREVIATIONS AND ACRONYMS

Vice President: Mr. Jeffrey Gutma$ EAPVP Country ManagerDirector: Mr. David Dollar, EACCF Sector Director: Mr. Keshav Varma, EASUR Task Team Leader: Mr. Hiroaki Suzuki, EASUR CHINA URBAN DEVELOPMENT PROJECT

CONTENTS

Page

A . STRATEGIC CONTEXT AND RATIONALE ...... 1 1. Country and sector issues ...... 1 2 . Rationale for Bank involvement ...... 4 3 . Higher level objectives to which the project contributes ...... 5

B. PROJECT DESCRIPTION ...... 6 1. Lending instrument ...... 6 2 . Project development objective and key indicators ...... 6 3 . Project components ...... 6 4 . Lessons learned and reflected in the project design...... 8 5 . Alternatives considered and reasons for rejection ...... 9 C . IMPLEMENTATION ...... 10 1. Partnership arrangements ...... 10 2 . Institutional and implementation arrangements., ...... 10 3 . Monitoring and evaluation ofoutcomeshesults ...... 10 4 . Sustainablllty...... 10 5 . Critical risks and possible controversial aspects ...... 11 6 . Loan conditions and covenants ...... 13

D. APPRAISAL SUMMARY ...... 14 1. Economic and Financial Analysis ...... 14 2 . Technical ...... 16 3 . Fiduciary ...... 16 4 . Social...... 16 5 . Environment ...... 17 6 . Safeguard policies ...... 18 7 . Policy exceptions and readiness ...... 18 Annex 1: Country and Sector Background ...... 19 Annex 2: Major Related Projects Financed by the Bank and/or other Agencies ..... 31 Annex 3: Results Framework and Monitoring ...... 33 Annex 4: Detailed Project Description...... 42 Annex 5: Project Costs ...... 48 Annex 6: Implementation Arrangements ...... 50 Annex 7: Financial Management and Disbursement Arrangements ...... 54 Annex 8: Procurement...... 62 Annex 9: Economic and Financial Analysis ...... 72 Annex 10: Safeguard Policy Issues...... 94 Annex 11: Project Preparation and Supervision ...... 112 Annex 12: Documents in the Project File ...... 115 Annex 13: Statement of Loans and Credits ...... 116 Annex 14: Country at a Glance ...... 120 Annex 15: Maps IBRD 34137 PEOPLE'S REPUBLIC OF CHINA

PROJECT APPRAISAL DOCUMENT

EAST ASIA AND PACIFIC

EASUR

- Date: August 11,2006 Task Team Leader: Hiroaki Suzuki Country Director: David Dollar Sectors: Roads and Highways (79.8%), Sewer Sector MangedDirector: Keshav Vanna (10.5%), General Water, Sanitation, and Flood Project ID: PO83322 Protection Sector (8.1%), Sub-national Lending Instrument: Specific Investment Loan Government Administration (1.6%) (SIL) Themes: Other Urban Development (P), Land Management (S), Other Environment and Natural Resources Management (S), State Enterprise/Bank Restructuring and Privatization (S), Infrastructure Services for Private Sector Development (S), Municipal Governance and Institutional Building (S)

Environmental screening category: A Safeguard screening category: Full____ Assessment

For Loans/Credits/Others(US$m): 180 I I

Total Bank financing (US$m.): 180 I

Borrower: THE PEOPLE'S REPUBLIC OF CHINA

Responsible Agency: Provincial Project Management Office (PPMO) lothfloor, Nongzi Building, No. 10 East Jinli Rd. Qingyang , , Sichuan, China Tel: 86-28-8612-8880, Fax: 86-28-8612-9043, Email: [email protected] ;Y 07 08 09 10 11 4nnual 9.00 54.00 54.00 45 .OO 18.00 Zumulative 9.00 63.00 117.00 162.00 180.00 Project development objective Re$ PAD Section B.3

Project Development Objective: To improve core urban functions in an equitable and resource efficient manner by removing identified infrastructure bottlenecks hampering land development, transport, and environmental conditions in four second-tier cities in Sichuan Province.

Urban Infrastructure Investment Component (US$365.56 million): This component will fund strategic-investments supporting spatial planning priorities as shown under: Miunyang US$98.70 million: The construction oftrunk and secondary infrastructure, including drainage and environmental improvements, for two major urban development areas: Pioneer Park (US$49.96 million); and the Southern Economic Development Zone (SEDZ) (US$48.73 million), adjacent to ’s city center. Suining US$64.98 million: The construction of secondary infrastructure and roads in the newly developed Xining District Area (US$58.23 million) to the west ofthe city, including an associated link road to the city railway station area, the Xining Road (US$6.75 million). USs76.35 million: Build two riverbank roads Route A (US$40.44 million) and Route B (US$35.91 million) that are designed to improve access within the city and enhance the degraded riverbank environment. Punzhihuu USs125.53 million: Four components designed to accommodate growth ofthe city by improving access and traffic circulation in two urban roads, viz. Bing-Ren Road (US$80.22 million) and Bin Jiang Road (US$9.32 million), and upgrading the city’s sewerage systems (US$10.41 million), riverbanks, and landscape conditions (US$25.60 million) Institutional Development and Capacity Building (IDCB) Component (US$7.00 million): This component consists oftechnical assistance (TA) for Institutional Development and Capacity Building within the project municipalities (US$3 -30 million), and TA for Project Implementation and Management, including EMP/RAP implementation monitoring (US$3.70 million). The goal of the TA is to help municipalities improve urban planning and management capacities related to spatial planning, land management, transport planning, and utility and asset management.

Which safeguard policies are triggered, if any? Re$ PAD Section D. 6 Environmental Assessment (OP/BP/GP 4.01) Involuntary Resettlement (OP/BP 4.12) Significant, non-standard conditions, if any, for: N.A. Disbursement Conditions: (i) Signing ofthe subsidiary agreement between Mianyang and Mianyang Sanjiang Construction Investment Co., Ltd. (MSCIC), satisfactory to the Bank. (ii) Signing ofthe subsidiary agreement between Mianyang and Mianyang Science and Education Pioneer Investment Co., Ltd. (MSEPIC), satisfactory to the Bank. (iii) Signing ofthe subsidiary agreement between Yibin and Yibin Urban Construction Investment Co., Ltd. (YUCIC), satisfactory to the Bank. (iv) Signing ofthe subsidiary agreement between and Panzhihua Urban Construction Investment Management Co., Ltd. (PUCIMC), satisfactory to the Bank.

Covenants applicable to project implementation: Starting in 2008, Mianyang, Panzhihua, Suining and Yibin will fbmish to the Bank an annual plan for the operation and maintenance (including budget) ofinfrastructure constructed under the Project. By February 28,2007, Mianyang and Suining will furnish to the Bank a 2007-2013 long-term plan (including budget) for construction investments and public services to be provided in the Three Economic Development Zones @e., Zone 2 ofPioneer Park, Zone 2 of SEDZ and Xining District Area). From 2007, Mianyang and Suining will furnish a detailed annual plan for construction investments and public services planned for the corresponding year and a report on investments made (including, actual expenditures) in the previous year. Mianyang will complete the award of contract for constructing the Municipal Section ofthe Second Ring Road before the award ofcontract for constructing the Project Section ofthe Second Ring Road. Mianyang will furnish to the Bank by June 30,2008 an environmental assessment, environment management plan and a resettlement action plan for the Municipal Section of the Second Ring Road. Panzhihua and Panzhihua Water Affair Company (PWAC) will complete the award ofcontract for constructing the Qingxiangping Wastewater Treatment Plant before the award ofcontract for constructing the wastewater collection systems that will serve the treatment plant. The wastewater department ofPWAC will produce: (a) after its FY 2007, total revenues equivalent to not less than the sum ofits total operating expenses; and the amount by which debt service requirements exceed the provision for depreciations; and (b) after its FY 2009, total revenues equivalent to not less than the 1.3 times the sum ofits total operating expenses; and the amount by which debt service requirements exceed the provision for depreciations. The various responsible agencies and project companies will implement the Environment Management Plans, Resettlement Action Plans, and Resettlement Policy Frameworks when they carry out the Project activities or linked activities. Implementation ofthe plans and frameworks as well as the cost ofsuch implementation, the cost ofproviding public facilities and public services and the process ofauction, price negotiation, and allocation ofland for development are to be monitored and evaluated by independent agencies and reported to the Bank. (viii) The respective RAPSspecify that Mianyang and Suining will guarantee payment ofthe lifetime allowances. (ix) In developing the Three Economic Development Zones, Mianyang and Suining will sell and/or transfer the land through the following processes: auction, negotiated price and allocation in accordance with domestic laws and regulations. Other processes may be used only in agreement with the Bank.

(x) All project companies ofMianyang, Panzhihua and Yibin will hrnish to the Bank, audited records, accounts and financial statements (balance sheets, statements ofincome and expenses and related statements) no later than six (6) months after the end ofeach FY. (xi) Semi-annual project progress reports will be furnished to the Bank every February 28 and August 3 1, starting in 2007.

A. STRATEGIC CONTEXT AND RATIONALE 1. Country and sector issues

Overview 1. Urbanization has been strong driver ofeconomic growth and poverty reduction in China. Over the past quarter ofa century, China maintained a high annual economic growth rate exceeding 8%. China’s cities and towns generate more than 60 percent ofits GDP - an economic impact that will become even more important as urbanization rises, as projected by the National Development Plan, from 42 to 65 percent over the next 20 years. But while rapid urbanization has been a significant driver ofthis economic development, it also produced myriad economic, environmental, regional and social challenges due to its unprecedented speed and scale. China’s 11 th five year plan (2006- 201 1) therefore aims to achieve more balanced economic and social development and to address regional and rural-urban imbalances.

Urban development challenges 2. Rapid urban development requires well-coordinated and efficient spatial development planning and professional management. These challenges, raised by decentralized market-driven growth, have highlighted the gap between old central planning approaches and modem urban planning methods. In addition, urban transport needs must be factored into spatial development plans to ensure convenient in-city and city-to-suburban mobility. However, municipalities currently spend too much on road construction at the expense ofroad maintenance, traffic management, and public transport, marginalizing pedestrian and non-motorized transport, reducing travel safety and neglecting scenic and environmental conditions, particularly on urban riverbanks. This situation is compounded by car ownership growing faster than anticipated, worsening urban congestion, air pollution, and road accident rates. In the context ofthese challenges, capacity building in urban planning, management, and service delivery is a high priority.

3. Because ofhigh demand for housing, services, and manufacturing sites, resulting from China’s rapid urban economic growth and the sizeable migration from rural to urban areas, developed land prices in urban areas have risen steeply and such land is becoming increasingly scarce. Chinese cities are enlarging their boundaries by converting peri-urban rural land into urban areas. All rural land is owned by the State, while rights to rural land are held by agricultural collectives. Although urban and rural land use rights were strengthened in recent years, China’s Land Administration Law (LAL) authorizes only governments to acquire land from agricultural collectives and to sell land-use rights to the private sector. This government monopoly over land use rights and the non- competitive land market has distorted incentives governing urban land use decisions. It has led to some municipalities developing new urban areas without proper planning and without long-term economic rationales. Moreover, the gap between real land values and what governments pay is a potential source of social conflict between governments and farmers. Because demand for limited urban land is growing, not to mention the possible future relaxation ofthe hukou policy (household registration system), which may increase demand further, governments have a strong interest in ensuring that rural to urban land

1 conversion processes are more economically rational and socially equitable in the future. In this context, the economic and social integration ofthousands offarmers displaced in peri-urban areas into the growing urban economy is being accorded high priority. This process involves resettlement ofthousands of farmers displaced from rural activities in peri-urban areas and their effective economic and social integration into urban communities.

Sichuan Urban Development Strategy and Project 4. Regional disparities afflict China’s urbanization. China’s Western Region, which consists of 12 inland provinces, including the Sichuan Province, produces only 20 percent ofthe national GDP. GNP per capita in the Western Region is only half ofthe national average. Due to Sichuan’s strategic location, size, resources and growth potential, the province is a driver ofdevelopment for China’s Western Region. Accounting for a third ofthe Western Region’s population and GDP, Sichuan is one ofthe most important inland provinces in China, and a destination for both national and international investment. In Sichuan, urbanization in 2005 was only 28%, significantly less than the national average ofabout 42%. However, the Sichuan government expects the percent of urbanization to climb by 12% and reach 40% by 2010. A one percent gain in Sichuan’s urbanization represents 900,000 non-urban residents becoming urban residents. Sichuan’s cities will thus need to assimilate over 10 million new inhabitants by 2010, suggesting a significant need for properly planned new urban land, and higher levels ofinfrastructure investment to meet the economic needs and social and environmental challenges ofits rapidly expanding cities.

5. The Bank is already supporting Sichuan’s development through the ongoing Sichuan Urban Environment Project (SUEP), which has financed water and wastewater treatment facilities in the provincial capital, Chengdu, and in three other second-tier cities: , , and Dayang. Complementing this project, the proposed Sichuan Urban Development Project (SUDP) will support an important element of Sichuan’s growth strategy, which is to accelerate infrastructure investment in strategic “second tier cities” and to attract international and national investments to stimulate development and growth. Sichuan’s second-tier cities, like other secondary cities in China, must adapt to new sources ofgrowth and changing industrial structures. Labor- and land-intensive industries are leaving city centers for suburban locations, and being replaced by high technology industries and information-based service industries.

6. Four “second-tier” cities are targeted for Bank assistance under SUDP: Mianyang, Suining, Yibin and Panzhihua. These cities are among the fastest growing urban centers in the province (see Annex 1 for details), and have considerable growth potential. However, they face serious bottlenecks that, if not addressed, threaten their future sustainability. Common challenges faced by these cities are: (i)high population densities with scarcity of developed urban land and problems surrounding conversion ofland from rural to urban uses; (ii)inefficient, linear development along rivers and inter-city main roads, contrary to city master plans; (iii)underdeveloped peripheral areas, including agricultural enclaves, adjacent to city centers; (iv) congestion, poor overall mobility, and inefficient urban transportation systems; (v) environmental deterioration; and

2 (vi) inadequate municipal human resource capacity in urban service delivery and urban p1 anning .

7. Descriptions ofeach city with its particular challenges are given below.

0 Mianyang is an economic, cultural and informatiodhigh-technology center, 80 km from Chengdu, with significant industrial spin-off opportunities for industrial growth. Mianyang has developed along three main axes along existing trunk roads, resulting in an inefficient linear spatial pattern common in many second-tier cities. This linear development pattern took root because infrastructure financing was unavailable to develop underused agricultural enclaves adjacent to its city center. Through SUDP, Mianyang aims to stem hrther development along its trunk roads, and invest in nearby peri-urban enclaves which are already semi-urbanized and have non- agricultural income rates ranging from 20 to 70%. Such a strategy would maximize the efficiency ofMianyang’s spatial development and infrastructure investments, provide a well organized road network, shorten travel distances, and reduce vehicle emissions, among other benefits. This new urban area development will stimulate the city’s growth and improve overall quality oflife by providing developed land required for industrial and commercial activities, as well as public facilities and housing needs. Those residents in impacted rural areas will all be converted into urban residents, posing challenges for effectively integrating them into urban life. e Suining is a regional service market and distribution center on the Fujiang River that is well-served by new rail and highway networks to and from Chengdu and Chongqing. City development is constrained by a high urban population density - five times higher than the national average - and “stretched” city development along the Fujiang River. Because little land is available to develop Suining’s old urban center, the city plans to develop along its east-west axis. Its western Xining district, targeted for support under SUDP, is a new urban development area adjacent to the city center, with good access to rail and highway networks. As in Mianyang, the rural population will be converted into urban residents, posing similar challenges in adapting to an urban, non-agricultural based environment. e Yibin is a major commercial, agro-industrial, and energy center near the borders of and Guizhou, with one ofthe fastest growing urban populations. Its physical setting - surrounded by mountains and two rivers that merge to form the Yangtze - divide the city into a central district and two sub-areas. This scattered city pattern has prevented balanced development, leaving the central district overcrowded, with commercial, industrial, administrative, and residential complexes without adequate traffic and transport connections. Under SUDP, Yibin will construct two roads which follow its riverbanks that are designed to improve access within the city and enhance its previously degraded riverbank environment. 0 Panzhihua is an established regional industrial center and a regional supplier of mineral resources and hydropower. The city has significant growth potential, albeit constrained by its fragmented topography along the Jinsha River, little available urban land, and underdeveloped transport system. Municipal and industrial water pollution, poor wastewater treatment capacity, and poor river embankment conditions also contribute to urban environmental degradation. Through SUDP, Panzhihua

3 intends to improve city access and traffic circulation and upgrade its scenic and environmental conditions on its urban riverbanks.

8. SUDP will address these cities’ challenges by supporting increased infrastructure investments in the context ofupgraded spatial planning efforts and strengthened urban management to develop and consolidate new and existing urban areas, improve urban transport networks and sewerage systems and enhance scenic public areas. Though not designed to directly address China’s pervasive distorted land pricing system, the project will significantly improve processes for conversion ofland from rural to urban use through improved approaches that include: Preparing local urban area development and infrastructure investments as an integral part ofcity-wide comprehensive master plans. Common features ofthese plans include: (i)redevelopment of older areas, particularly in city cores; (ii)improvements to and consolidation ofundemsed areas and agricultural enclaves within existing urban areas; (iii)enhancement ofinter-city urban transport networks; and (iv) improvement ofcity environmental conditions; Conducting a rigorous demand analysis to ensure that the proposed urban area development reflects real urban growth requirements, and that least cost options of various development alternatives are chosen; Developing an innovative framework for resettlement and land compensation. For example, the project will adopt a comprehensive compensation program which is designed to fully restore the livelihoods ofproject affected people through lifetime compensation allowances, provision, within the project area, ofimproved housing areas with saleable land use rights (a significant advance for rural people who had previously occupied land and housing under collective ownership), and access to the urban hukou system, which provides better social and welfare services. Further, by supporting a more concentrated and integrated development pattern ofenclave land, rather than the linear pattern now prevalent, the project will help to minimize land acquisition and resettlement in the long-term development ofthe urban areas; 0 Providing technical assistance (TA) to project municipalities to develop their institutional capacities in: (i)urban planning and land management; (ii)infrastructure services provision; (iii)optimization of current and future infrastructure assets; and (iv) information technology in city planning and management.

2. Rationale for Bank involvement 9. SUDP addresses one ofChina’s most pressing development problems, viz. promoting equitable and resource-efficient development in four ofChina’s rapidly growing second-tier cities through innovative strategies - particularly with respect to social impacts on project affected people - that lend themselves for replication elsewhere in China. The Bank is well placed to support the Sichuan government in this project. The Bank has considerable experience in infrastructure planning and in peri-urban development planning. The Bank has also been a pioneer among development agencies in formulating resettlement guidelines and compensation systems for project affected people. The Bank has also done relevant sector work in China, including: (i)Land Policy

4 Reform for Sustainable Economic and Social Development; (ii)Building Institutions for Sustainable Urban Transport; and (iii)Development Issues and Strategy for Towns. The World Bank thus brings to this project a long history ofengagement with major urban clusters in China and other countries, and partnerships with clients in central and local governments that facilitate creativity and innovation in policy development and project design.

3. Higher level objectives to which the project contributes 10. SUDP’s objectives cut across three ofthe five pillars defined in the Bank’s Country Partnership Strategy (CPS) that aim to help the GoC rebalance its growth to one that is less resource intensive and generates more urban employment. SUDP directly contributes to achieving CPS goals to reduce poverty, inequality, and social exclusion, and improve the management ofresource scarcity and environmental challenges. SUDP also indirectly contributes to improving public and market institutions and reducing inter- regional uneven development. In particular, the project will support the following objectives defined under these goals ofthe CPS: (i)Promote efficient and balanced urbanization and migration ofsurplus labor from rural to urban areas by improving the quality of urban management and infrastructure; (ii)Build a resource efficient society by promoting more financially sustainable utility systems, expanding urban wastewater collection and treatment facilities, and by promoting urbanization with transport options including public and more efficient transportation modes that reduce pollution and fuel consumption; (iii)Improve land administration management by clarifying landholder rights, land acquisition and compensation practices, and support alternative approaches to acquisition ofrural land, and help enhance the role ofland as a stable revenue source; and (iv) Strengthen regional competitiveness in the lagging inland regions to attract foreign and domestic direct investment.

11. The significance ofthis project, in the context ofChina’s process ofurbanization and the role ofcities as engines ofeconomic growth, is the fact that in relatively underdeveloped Western areas ofChina, SUDP cities are being pro-active in managing this process professionally and efficiently. The usual scenario in developing countries is that such peripheral areas ofcities are allowed to undergo a densification and urbanization without carefully planned interventions that guide their growth. As a result, land use is sub-optimal and inefficient. In this particular case, two cities - Mianyang and Suining - are enhancing the development value ofenclave land which has already undergone partial and inefficient transformation in terms ofits land utilization, by providing a comprehensive plan to improve their environment, to provide infrastructure and to ensure well balanced commercial, economic and social development.

12. Lessons learned during project implementation will be analyzed in an Analytical and Advisory Activities (AAA) program that will monitor urban-to-rural conversion activities and associated impacts on farmers (e.g., livelihoods restoration, rural to urban hukou conversion, economic and social urban integration, etc.). This tracer and empirical study will contribute to development ofa replicable rural-to-urban conversion model for other cities in China and in other countries. Under an ongoing land reform AAA program,

5 the Bank is also helping the Government prepare land policy reforms that address related structural and regulatory issues.

B. PROJECT DESCRIPTION 1. Lending instrument 13. The lending instrument is a Specific Investment Loan with well-identified project components.

2. Project development objective and key indicators 14. The project development objective (PDO) is to improve core urban functions in an equitable and resource efficient manner by removing identified infrastructure bottlenecks hampering land development, transport, and environmental conditions in four second-tier cities in Sichuan Province.

15. This will be achieved through strategic investments, which take into account the spatial features ofeach project city. These investments intend to improve the process for conversion ofland from rural to urban uses and to address challenges of displaced farmers in the process ofresettlement. Key indicators used to gauge progress on meeting the development objective are listed in Annex 3.

3. Project components Urban Infrastructure Investment Component (US$365.56 million) 16. This component will support spatial planning priorities in the four cities as shown under:

Mianyang US$98.70 million The proposed project will fund the construction oftrunk and secondary infrastructure, including drainage and environmental improvements, in two new major urban development areas adjacent to Mianyang’s city: (a) Pioneer Park: US$49.96 million This subcomponent will fund the construction of 0 23.6 km oflocal access roads and associated bridges, sewers, and drainage, as well as landscaping activities, to expand the park area (483 ha); and 0 2.6 km section ofthe Second Ring Road (2RR) within Pioneer Park (including an interchange with Yingbin Avenue), as part ofthe 2RR. (3) Southern Economic Development Zone (SEDZ): US$48.73 million The subcomponent will support construction of 24.5 km of local access roads within areas A & C ofthe SEDZ (560 ha), together with associated drainage infrastructure and landscaping.

Suining US$64.98 million The proposed project components in Suining are secondary infrastructure, sewerage and roads in the newly developed Xining District Area to the west ofthe city, including an associated link road to the city railway station area. (a) Xining District Area: US$58.23 million

6 The Xining District Area component will support secondary infrastructure construction to develop an area of 351 ha for mixed residential, administrative and commercial uses. The proposed works include 25 km ofaccess and distributor roads, bridges, river embankments, sewers, and landscaping. (b) Xining Road: US$6.75 million The Xining Road is proposed as a link northwards from the Xining District Area to the North railway station to improve access and connectivity to the new development area.

Yibin US$76.35 million The proposed project will fund two river bank roads designed to improve access within the city and enhance the degraded riverbank environment. (a) Route A: US$40.44 million Route A (6.7 km) is a distributor road along the north bank ofthe Min Jiang and Chang Jiang rivers connecting the old city and existing urban areas with the Tianyuan District and the proposed new industrial development zone. (b) Route B: US$35.91 million Route B comprises a 3.5 km extension ofthe existing riverbank wall and two-lane local road westwards from the Cultural Square in the center ofNan An District.

Panzhihua US$125.53 million The proposed project will support four components designed to accommodate growth of the city by improving access and traffic circulation (two urban roads), and upgrading the city’s sewerage systems, riverbanks, and landscape conditions. (a) Bing-Ren Road: US$80.22 million The proposed Bing-Ren Road is a link between the existing central business district (CBD) and the expanding residential district ofRenhe. It would comprise a 6.7 km section ofa four-lane road linking the recently completed Airport Access Road to Duren Road (West) in Renhe. (b) Bin Jiang Road: US$9.32 million The proposed road improvement (2.7 km) will relieve congestion in the downtown area and will provide additional capacity for longer distance cross-town traffic. (c) Sewerage: US$10.41 million The sewerage component will help develop comprehensive wastewater collection systems (39 km ofpipeline) in the Bingcaogang, Geliping, and Qingxiangping catchments, which will be connected to the existing Bingcaogang Wastewater Treatment Plant (WWTP) and new Qingxiangping WWTP, to be constructed under a build-operate- transfer (BOT) arrangement. (d) River Embankment and Landscape Improvement: US$25.6 million The proposed project will support a series ofmeasures along the Jinsha River: cleaning up debris; constructing an embankment to prevent slope and soil erosion; and improving landscapes at four scenic spots, including planting trees and bushes along the 15 km of river from Xinzhuang Bridge to Jinsha railway station.

7 Institutional Development and Capacity Building (IDCB) Component (US7.00 million) 17. This component consists of: (i)TA for Institutional Development and Capacity Building for the project municipalities (US$3.30 million) and (ii)TA for Project Implementation and Management, including EMP/RAP implementation monitoring (US$3.70 million). The goal ofthe TA is to help municipalities improve urban planning and management capacities related to spatial planning, land management, transport planning, and utility and asset management. A management information system (MIS) and geographical information system (GIS) will be used as major instruments for municipal institutional development and capacity building. TA will include trainings and workshops linking, via satellite, SUDP cities with other Asian cities and cities worldwide to share information and best practices, with possible advisory and technical support from the Tokyo Development Learning Center. This global linkage will also help the project cities induce foreign direct investment in the project areas, especially in the Economic Development Zones.

4. Lessons learned and reflected in the project design 18. The following are “lessons learned” from other Bank-financed urban and transport projects, including from the ongoing SUEP, as well as relevant sector work:

Urban infrastructure or land development projects should not be developed solely from a narrowly focused sub-sector perspective. Under SUDP, each infrastructure and urban area development component was developed as an integral part ofa comprehensive city development strategy and an urban and spatial plan, considering demographic evolution and development ofeconomic activities in each city.

Adequate project preparation is critical to avoid project implementation delays and under-utilization of a loan. The project’s investment components are fully prepared and realistically scheduled. Their cost estimate is in line with market prices. In addition, implementation arrangements, procurement processes, and fund flows have been reviewed to minimize the possibility ofdisbursement delays, building on experience from the ongoing SUEP.

Quality of a RAP highly depends on the accuracy of the data and information on Project Affected People (PAP) and their assets and properties. Inadequate information creates major challenges in the implementation of RAPS. In the preparation ofthe RAP, a very detailed socio-economic survey was conducted on PAP’S socio-economic conditions and their properties. This survey also addressed impacts on owners and employees ofshops and enterprises in project areas.

Preparation of a high quality RAP is important, but its successful implementation cannot be guaranteed without systematic and intensive supervision mechanisms and capacity to adjustflexibly to unexpected situations. The project team will strengthen RAP supervision by: (i)extending the originally proposed project closing date from December 3 1, 2011 to December 3 1,201 3 to fully cover the implementation period ofthe land

8 development “linked” to the project beyond the Bank-funded construction period; and (ii) establishing a multi-disciplinary supervision team.

5. Alternatives considered and reasons for rejection 19. As relates to SUDP’s overall objective, Mianyang and Suining’s objectives are to stimulate growth and development in ways that efficiently use available land and avoid inefficient linear development along trunk roads and riversides. In this context, two alternative land development options for Mianyang and Suining were considered.

20. In the first option, cities would have appropriated and built only primary infrastructure in bands ofland adjacent to city areas - mostly underused agricultural enclaves. Under this scenario, farmers and collectives would have developed offshoot infrastructure, housing, and enterprises in secondary areas not served by the municipalities. This strategy would have decreased land acquisition in the short-term, but would have been constrained by current Chinese law which: (a) severely limits the use of collective-owned land for non-agricultural purposes unless the land is first acquired by the State and converted to urban land, and (b) vests ownership ofrural land in collectives, not individual farming households; while households hold 30-year contractual rights over land, these rights are not mortgageable. Second, the cities would have had difficulties recuperating trunk infrastructure investment costs, as China does not have a viable system ofdevelopment fees, let alone a real estate tax. Such a scenario would have resulted in poorly planned, piecemeal, and low density development, and was thus rejected.

2 1. The second alternative considered was aimed to be more demand driven and to reduce municipalities’ financial exposure by letting the private sector build self-contained developments, or campuses, near the periphery ofthe two cities. This alternative, which was adopted in Bangalore, India, was rejected because oflegal constraints on the conversion ofrural land to urban uses if land is not first acquired by the State and because oflegal uncertainty concerning the use ofland as collateral for mobilizing necessary funds. Also, it would have continued to distort the urban spatial structure, thereby accelerating motorization.

22. The third option, which was adopted under the SUDP, provides a comprehensive set ofinfrastructure investments to develop and consolidate urban land, and was considered the best overall solution.

23. Alternative investment options were also considered for Panzhihua, which decided to construct five new wastewater treatment plants to supplement its two existing wastewater plants - based on its master plan. An alternative option, to construct fewer plants with larger capacities, was rejected, because its topography and ability to acquire sufficiently large urban land plots were problematic. The preferred plant locations minimize the investment costs for pumping and operations by using gravity for the sewerage system.

9 C. IMPLEMENTATION 1. Partnership arrangements 24. The Bank is coordinating with MIGA and IFC to provide synergies and comprehensive support to the project cities to enhance their competitiveness. While the Bank will finance priority infrastructure and municipal institutional development, MIGA and IFC will provide municipalities with technical assistance to improve their investment climates for private sector development and investment (see Attachment 1 of Annex 4 for details).

2. Institutional and implementation arrangements 25. A Leading Group headed by a Vice-Governor designated the Sichuan Construction Commission (SCC) as the agency responsible for project management. The SCC subsequently appointed the Provincial Project Management Office (PPMO) ofthe ongoing SUEP to prepare and execute SUDP. The roles ofPPMO include: (a) overall project coordination, management and monitoring, (b) annual budget preparation, (c) project-wide quality assurance, (d) progress reporting to the Bank and Sichuan Provincial Government, (e) interagency coordination and procurement support; and (f) training facilitation.

26. Municipal Project Management Offices (MPMOs) were established in Mianyang, Panzhihua, Suining, and Yibin. Implementing agencies vary according to each project component, and include government departments, investment companies, and a water affairs company. Although the PPMO already has sufficient experience in implementing Bank projects, each city’s Bank experience is limited. The four MPMOs will thus be supported by a project management consultant. Resettlement Offices of each Economic Development Zone have adequate experience in undertaking resettlement activities. They will provide legal and administrative support to project affected people related to land acquisition, resettlement, and livelihood restoration.

3. Monitoring and evaluation of outcomes/results 27. The M&E Results Framework is structured around sub-objectives and intermediate results to be attained in each project city. Each component result indicator is tied to its city objective. Progress on overall outcome indicators will be assessed by and reported in technical and social audits. Specific arrangements for results monitoring across individual components are detailed in Annex 3. Regarding the urban area development components in Mianyang and Suining, annual investment plans and expenditure programs ofthe EDZ and Suining District Area including their financing plans will be reviewed and their implementation will be followed up. The implementation ofEMP and RAPSwill be monitored by external independent consultants funded by the Bank loan, according to the predetermined perfonnance indicators. The PPMO, MPMO, and implementing agencies will monitor project activities, and provide regular progress reports.

4. Sustainability 28. The project will enhance urban functions offour second-tier cities and contribute to economic development by enhancing economic development zones and providing

10 infrastructure. In addition, the project will support urban renewal and construction of sewerages and river embankments to improve environmental conditions essential to urban sustainability. The project will help ensure financial and operational sustainability oftargeted institutions in terms ofcost recovery and operation and maintenance. The project will provide TA to develop institutional capacity within the four municipalities to plan, manage, and implement complex urban development programs. Finally, the project will address problems faced by displaced rural users ofurban land, to ensure not only fair compensation, but also social and economic sustainability through assistance to help them fully integrate into the urban community.

5. Critical risks and possible controversial aspects 29. The table below provides a summary ofthe key development risks relating to project implementation, and the mitigation measures that have been put in place to minimize and manage them, as well as the risk ratings in line with the outcomes proposed in Annex 3.

Potential Project Risks Rating Risk Mitigation measures developed during project preparation Risks related to the urban area development component in Mianyang and Suining Municipalities will strictly follow government regulations on land sales transactions (Le., auction, negotiation, and transfer). Land transactions are not Municipalities will respect minimum prices, and transparent and their revenues are M publicize land sales prices when price transactions are not maximized for municipalities. negotiated. The Bank supervision team will closely monitor land sales records. Arrangements are in place to review and monitor annual investment plans and expenditure programs ofMianyang Land sales proceeds are not used and Suining in their respective economic development M for public purposes. zones receiving land sales proceeds. Audits ofthe land development companies in Mianyang will be undertaken. A conservative and rigorous land demand assessment was Delay in industrial land sales due to undertaken. exogenous factors such as an Also, if necessary, industrial land will be converted to economic recession residential or commercial land, for which demand is more stable and predictable. Households in this category were identified using social and economic surveys, and a RAP-based detailed socio- economic study was undertaken. Compensation levels are not Consultations with PAPs were held. adequate to restore or improve Efforts will be made to employ lower-income household PAPs’ livelihoods after project members in the project’s civil and maintenance works for implementation, particularly in the economic development zones. households whose incomes are Municipal governments will ensure supplemental income generated mainly from agricultural subsidies until PAP livelihoods are filly restored. activities Collective-owned facilities, such as markets, will be established in project areas where PAPScan conduct commercial activities.

11 Municipal resettlement offices will provide intensive vocational training and job search assistance for these households to help them integrate into the urban community and economy. PAPs converted from rural to urban residence will receive, in addition to other benefits, new housing worth considerably more than their original housing, title to that housing, and will be able to rent, sell or utilize such property as collateral should they choose. Specific provisions have been designed to ensure that vulnerable households and groups are assured offull restoration, and likely improvement, oflivelihoods and standards ofliving and provisions made to closely monitor outcomes among those groups. ~ ~ ~~~~ The respective RAPSspecify that Mianyang and Suining Failure oflifetime allowances for will guarantee payment ofthe lifetime allowances. project affected people because of M An adequate grievance mechanism will be established. insolvency ofthe economic Compensation contracts developed allow PAPs to bring development zones suit in court in the event ofalleged defaults. The compensation contracts between municipalities and Compensation payments will not M collectives will include provisions that payments will be reach PAPs. made directly to accounts held by PAPs. Risks related to all the components Excessive loan savings as a result Norm-based cost estimates were adjusted in line with ofcost over-estimation based on M market prices, by comparing estimates with recent construction cost norms market-based contract prices for similar works. Including municipality-funded components is conditional Delay in construction of on confirmation ofproject financial arrangements and a municipality-funded infrastructure construction implementation schedule. M components (roads, and a Contract awards for Bank-funded sections are conditional wastewater treatment plant) on municipalities awarding contracts for city-financed infrastructure. During appraisal, detailed financial analyses of municipalities and wastewater utility and urban area Municipal financial capacities may development investment companies were undertaken to be insufficient, delaying project gauge their abilities to fund the project. These studies implementation and threatening the M paid particular attention to capacities to fund O&M. sustainability and operation and Follow-up monitoring and analyses will be executed maintenance (O&M) offunded during project supervision. infrastructure assets. Submission ofan annual O&M plan and budget satisfactorv to the Bank is included in a loan covenant. The PPMO, with the support ofthe Bank and its Project implementation delays consultants, will provide systematic trainings of because municipalities lack Municipal PMOSand PIU staff. M experience with World Bank Procurement agencies and project management projects. consultants will be recruited to assist the four project municipalities. Risk Ratings: H=High; S=Substar al; M=I 3dest; N=Negligible or Low Risk

30. Beyond developmental risks mentioned above, SUDP also poses significant risks to the reputation of the World Bank in regard to the project’s land acquisition and resettlement activities. Given international media attention and reporting on China’s land- related issues, the World Bank may be drawn into controversy in this area. Anticipating this reputational risk, the Bank has conducted intensive due diligence during project

12 preparation on the risks related to: (i)how municipalities will expropriate and sell land, and their use ofsales revenues; (ii)the adequacy ofthe compensation packages in the Resettlement Action Plan; (iii)implementation performance ofthe Resettlement Action Plans, and failure to fully integrate displaced persons into the urban community and economy, and (iv) the possibility that the agreed approach to resettlement and land acquisition in projects, subprojects and activities “linked” to the Bank funded project will not be followed. Appropriate risk mitigation measures have been adopted, including a Resettlement Policy Framework for linked activities. Nonetheless, the Bank’s previous experiences in other large scale resettlement projects reveal that, however well-prepared, Resettlement Action Plans cannot foresee and therefore address all eventualities. To prepare for the unexpected, the Bank intends to enhance the supervision ofthe urban area development component by: (i)establishing a special, multi-disciplinary supervision team; and (ii)extending SUDP’s closing date from 2011 to 2013 to allow monitoring of land acquisition and resettlement ofthe land development linked to the Bank-funded infrastructure component.

6. Loan conditions and covenants 31. Disbursement Conditions are listed as follows. (9 Signing ofthe subsidiary agreement between Mianyang and Mianyang Sanjiang Construction Investment Co., Ltd. (MSCIC), satisfactory to the Bank. (ii) Signing ofthe subsidiary agreement between Mianyang and Mianyang Science and Education Pioneer Investment Co., Ltd. (MSEPIC), satisfactory to the Bank. (iii) Signing ofthe subsidiary agreement between Yibin and Yibin Urban Construction Investment Co., Ltd. (YUCIC), satisfactory to the Bank. (iv) Signing ofthe subsidiary agreement between Panzhihua and Panzhihua Urban Construction Investment Management Co., Ltd. (PUCIMC), satisfactory to the Bank.

32. Covenants applicable to project implementation include the following. (9 Starting in 2008, Mianyang, Panzhihua, Suining and Yibin will furnish to the Bank an annual plan for the operation and maintenance (including budget) of infrastructure constructed under the Project. (ii) By February 28,2007, Mianyang and Suining will furnish to the Bank a 2007- 2013 long-term plan (including budget) for construction investments and public services to be provided in the Three Economic Development Zones (ie., Zone 2 ofPioneer Park, Zone 2 of SEDZ and Xining District Area). From 2007, Mianyang and Suining will furnish a detailed annual plan for construction investments and public services planned for the corresponding year and a report on investments made (including, actual expenditures) in the previous year. (iii) Mianyang will complete the award ofcontract for constructing the Municipal Section ofthe Second Ring Road before the award ofcontract for constructing the Project Section ofthe Second Ring Road.

13 Mianyang will furnish to the Bank by June 30,2008 an environmental assessment, environment management plan and a resettlement action plan for the Municipal Section ofthe Second Ring Road. Panzhihua and Panzhihua Water Affair Company (PWAC) will complete the award of contract for constructing the Qingxiangping Wastewater Treatment Plant before the award ofcontract for constructing the wastewater collection systems that will serve the treatment plant. The wastewater department ofPWAC will produce: (a) after its FY 2007, total revenues equivalent to not less than the sum ofits total operating expenses; and the amount by which debt service requirements exceed the provision for depreciations; and (b) after its FY 2009, total revenues equivalent to not less than the 1.3 times the sum of its total operating expenses; and the amount by which debt service requirements exceed the provision for depreciations. The various responsible agencies and project companies will implement the Environment Management Plans, Resettlement Action Plans, and Resettlement Policy Frameworks when they carry out the Project activities or linked activities. Implementation ofthe plans and frameworks as well as the cost of such implementation, the cost ofproviding public facilities and public services and the process ofauction, price negotiation, and allocation ofland for development are to be monitored and evaluated by independent agencies and reported to the Bank. The respective RAPSspecify that Mianyang and Suining will guarantee payment ofthe lifetime allowances. In developing the Three Economic Development Zones, Mianyang and Suining will sell andor transfer the land through the following processes: auction, negotiated price and allocation in accordance with domestic laws and regulations. Other processes may be used only in agreement with the Bank. All project companies ofMianyang, Panzhihua and Yibin will furnish to the Bank, audited records, accounts and financial statements (balance sheets, statements ofincome and expenses and related statements) no later than six (6) months after the end ofeach FY. Semi-annual project progress reports will be furnished to the Bank every February 28 and August 3 1, starting in 2007.

D. APPRAISAL SUMMARY 1. Economic and Financial Analysis

Economic Analysis 33. Urban Area Development Components in Mianyang and Suining. Land demand analysis concludes that the total area ofland to be developed under SUDP corresponds to real demand ofthese cities’ economic growth. The relatively high densities used in the project sites will result in a smaller urban footprint, shorter traveling distances, and shorter infrastructure networks, thereby improving overall land use efficiency and minimizing land acquisition and associated resettlement in long term.

14 Economic Rate of Return (ERR). See Financial Analysis section.

34. Urban Transport Components (Mianyang: sub-section of the Second Ring Road (2RR); Suining: Xining Road; Panzhihua: Bing-Ren Road and Bin Jiang Road; and Yibin: Route A Road). All urban road components were evaluated based on time and vehicle operating cost savings calculated relative to a "do-nothing" scenario. All components generate an adequate ERR. Detailed methodologies and assumptions are provided in Annex 9.

35. Sewerage Component and Embankment and Landscape Improvement Component in Panzhihua, and Route B Road Component in Yibin. The environmental and quality-of- life benefits accrued by financing these components are difficult to quantify. As a result, calculation ofan ERR was not attempted, but cost-effectiveness analysis was conducted.

Financial Analysis 36. Urban Area Development Components. The financial analysis ofthe three urban area development components used a model linking land use, land and infrastructure costs, projected sale prices ofland, cash flow, and Financial Rates ofReturn (FRR). The economic analysis ofthe urban land components was conducted by replacing the administrative land acquisition costs used in the financial model, with the opportunity costs ofland. The three land components generate the following FRR and ERR: Pioneer Park (Mianyang): FRR 11.8%; ERR 7.2%

0 Southern Economic Development Zone (Mianyang): FRR 13.1%; ERR 7.4%

0 Xining District Area (Suining): FRR 9.9%; ERR 7.4 %

37. FRRs are higher than ERRs, as administrative land acquisition costs are lower than economic costs. The ERRs are conservative estimates - calculated on cash flow only, not including other project benefits mentioned above that are difficult to monetize. If one included these benefits, expected economic returns would be much higher than calculated.

38. Sewerage Component in Panzhihua. A financial analysis was conducted on the whole wastewater treatment system in Panzhihua. The financial model predicts the wastewater system will run a deficit from 2006 to 2008 because the wastewater tariff and coverage are too low. However, the planned gradual tariff increase, together with construction and operation ofa BOT WWTP, and an associated sewerage subcomponent under SUDP, will boost revenue in subsequent years to cover all costs, including depreciation ofinvestment costs.

39. Municipal Finance. Financial conditions in the four project municipalities,

1 including in their districts and economic development zones, were analyzed to assess their capacities to provide counterpart funds, adequate operation and maintenance, and debt service. The analysis indicates that they will be able to provide the necessary funds.

15 2. Technical 40. The proposed components were studied and designed by national design institutes, and reviewed by international consultants. Project designs are technically sound and based on good engineering practice, and represent least cost alternatives.

3. Fiduciary 41, Financial Management. The project’s financial management system was assessed using the Financial Management Sector Board’s guidelines dated November 3,2005. The assessment concluded that the project meets the Bank’s financial management requirements, as stipulated in BP/OP 10.02. The project also has a financial management system that can, with reasonable assurance, provide accurate and timely information on the status ofthe project in the reporting format agreed with the Bank (see Annex 7).

42. Procurement. The PPMO will oversee procurement activities ofthe implementing agencies in the four project cities. An assessment ofthe implementing agencies’ procurement capacities confirmed that organizational arrangements are adequate for procurement management. Indemnification ofkey procurement issues, risks, and corrective measures have been discussed and agreed with PPMO (see Annex 8).

4. Social 43. Resettlement. In all four project cities, surveys and repeated rounds ofpublic consultations identified the people and assets to be impacted by this project’s resettlement requirements. Each city also conducted the following: (i)a land acquisition survey to determine the amount and kind ofland to be affected; (ii)a buildings and associated assets survey to determine all housing, structures, and buildings impacted, and their type and status; (iii)surveys ofimpacted enterprises, units, and shops; (iv) scattered tree surveys to identify the number and types oftrees affected; (v) special facilities surveys to establish how water systems and supplies and power facilities will be impacted; (vi) communication facilities and other infrastructure surveys; and (vii) social and economic surveys to establish the baseline socioeconomic conditions ofthe city, township, villages, and resettlers in project-impacted and resettlement areas. Based on this work, RAPSfor the four cities were prepared. The key resettlement factors in each city are summarized in the table below.

/Items 1 Mianyang IPanzhihuaim-n’m Land acauisition (mu) P 2.4 15 r-x P^----~xr-zir--5~

No. ofhouseholds relocated

44. Compensation Standards. Compensation standards were established in each city for all categories of assets, including land, housing, other fixed assets, trees and crops, and other facilities. In Mianyang and Suining, where rural village collectives will cease to exist after all their land is acquired, land compensation will be paid to individual

16 households, rather than to the collective, and will be in the form oflifetime allowances paid to each family member to compensate for the lost agricultural productivity value of the land. Individuals in Mianyang and Suining will also be converted to urban hukou, gaining access to additional benefits. Affected rural residents in all four cities will be eligible for replacement housing free ofcost with an area at least as large as their original houses, equaling at least 20 square meters per household member, and they will have title to their new homes as private property. Attention has also been paid to compensation for business activity interruption, lost wages and salaries, illegal structures, individual and business leases, and other parties affected by the project. Full details are available in the respective RAPS.

45. Linkage. Linkage with activities not included in the project was carefully studied and four sets ofactivities were identified. First, the Qingxiangping wastewater treatment plant to be constructed in Panzhihua was determined to be linked to the sewer network subcomponent ofthe project. An abbreviated resettlement action plan for the construction ofthe plant, which will impact 13 persons, was reviewed and determined to be in compliance with OP 4.12 requirements. Second, in Yibin, the completed resettlement activities for the construction ofboth the Yangwan wastewater treatment plant and the Nanan wastewater treatment were reviewed and determined to have been done in compliance with OP 4.12 requirements. Third, in Mianyang, the following activities were determined to be linked to the project: a 3 km section ofthe Second Ring Road in Mianyang that will be financed by Mianyang; development ofland to be served by the road and drainage funded by the Bank loan (hereafter called “Zone 2 Area”) ofPioneer Park, and development ofthe Zone 2 Area ofthe Southern Economic Development Zone. A Resettlement Policy Framework has been agreed to for application to cover resettlement resulting from those activities. Finally, the land development ofthe Xining District Area in Suining was determined to be linked to the Bank-funded road and drainage construction, and a Resettlement Policy Framework has also been agreed for application to that development.

46. Indigenous Peoples. The populations to be affected are peri-urban and do not meet the definition ofIndigenous Peoples as established under Bank policy OP 4.10. Work done on the Status Report on Minority Nationalities in Sichuan showed that the scattered groups classified as minority nationalities in the project area ofPanzhihua have been fully assimilated to urban life and are indistinguishable from the majority population.

5. Environment 47. The project is classified as Category A under OP 4.01. An EA was carried out in each project city and associated EMPs were developed, following national procedures and standards, and Bank safeguard policies. The EA did not identify any serious negative environmental impacts. Major findings ofthe EAs and EMPs are presented in Annex 10.

48. Environmental benefit. The proposed project will bring about positive impacts and benefits to the environment and communities in four project cities, including reduced wastewater discharges, improved environmental aesthetics, and improved transportation

17 networks, as well as reduced urban traffic congestion and motor vehicle emissions, and improved quality oflife. Urban area developments, and sewerage, river embankment, and landscape improvements will positively impact the cities' environmental conditions.

49. Mitigation measures. The project will have adverse impacts during its construction and operation phases. The EMPs specify appropriate mitigation measures, including supervision and monitoring plans and appropriate institutional arrangements and training, including cost estimates. Major mitigation measures include control of construction practices; contractor management; analysis of alternative alignments, materials, and designs; and installation ofnoise insulation and barriers at sensitive receptors. The EMPs were mainstreamed into the Project Implementation Plan (PIP).

50. Public consultation. There were two rounds ofpublic consultations in each city on the EAs, involving public opinion questionnaires for project-affected people, supplemented by meetings with key stakeholders. Raised issues and concerns have been incorporated into the project EAs and EMPs, as appropriate.

5 1. Information disclosure. The availability of EAs was disclosed in local newspapers in project cities, and EAs have been placed in local project offices and local public libraries, as well as in the Bank Infoshop.

6. Safeguard policies Safeguard Policies Triggered by the Project Yes No Environmental Assessment (OP/BP/GP 4.01) [XI [I Natural Habitats (OP/BP 4.04) [I [XI Pest Management (OP 4.09) [I [XI Cultural Property (OPN 11.03, being revised as OP 4.11) [I [XI Involuntary Resettlement (OP/BP 4.12) [XI [I Indigenous Peoples (OD 4.20, being revised as OP 4.10)' [I [XI Forests (OP/BP 4.36) [I [XI Safety ofDams (OP/BP 4.37) [I [XI Projects in Disputed Areas (OP/BP/GP 7.60)" [I [XI Projects on International Waterways (OP/BP/GP 7.50) [I [XI

7. Policy exceptions and readiness 52. Nopolicy exceptions apply to this project.

53. Project Readiness. The Provincial Project Management Office (PPMO) and the Municipal Project Management Offices (MPMO) have been established. The municipalities have completed preparation ofmost preliminary designs, and 20 percent of detailed designs for the proposed investments.

* In the context of China, Indigenous People refer to minority nationalities. ** By supporting the proposedproject, the Bank does not intend to prejudice the final determination of the parties' claims on the disputed areas.

18 Annex 1: Country and Sector Background CHINA: SICHUAN URBAN DEVELOPMENT PROJECT

1. The rationale for this project builds on linkages between urbanization, infrastructure investment, and the changing functions ofsecondary urban centers in China.

CHINA’S SECOND-TIERCITIES AND CHANGING URBAN FUNCTIONS

2. Second-tier Cities. Although China’s cities and towns generate more than 60 percent ofthe country’s GDP, China as a country is still under-urbanized, with undersized and under-agglomerated cities, constrained by negative externalities. China’s urbanization level is projected to climb from 40 percent to over 50 percent in the next 15 years. This accelerated urban growth is expected to come primarily from the development ofsecond-tier provincial cities, as provinces with more evenly distributed cities grow faster. Therefore, Sichuan’s second-tier provincial cities, such as Mianyang, Suining, Yibin and Panzhihua, are targeted under SUDP.

3. Shifts in City Functions. The changing urban functions are driven by shifts from quantity over quality and low land and labor costs, towards consolidation and optimization ofurban form and functions. The second-tier cities are increasingly experiencing this new pattern ofurbanization (through de-concentration and vertical specialization), with labor- and land-intensive industries moving outside city cores. This opens large parts ofinner cities to commercial, financial, and non-state sectors and requires the development ofnew urban areas, inner city transport, and road networks, as well as adjustments to land use rights and land transfers, improvements to regional and city planning, and development ofa sustainable municipal tax revenue base and revenue sharing at the prefecture level.

4. Urban Land Development. Over the last twenty years several structural changes in urban land use patterns have become apparent: the separation ofthe work-residential co- location under the centrally planned economy, the decline ofresidential densities, and increasing ofjob densities in city centers, and overall, a population density decline across urban areas. Within this context, urban land development in China is driven mostly by three factors: (i)growing incomes, decreasing household sizes, and increased demand for residential land; (ii)a growing service sector (finance and retail), generating increasing demand for modem office and shopping buildings; and (iii)structural change with heavy industries giving way to high technology industries in the electronics and R&D sectors, requiring newly developed areas that are energy and heat efficient, ICT compatible, and compliant with pollution regulations. The lack ofinfrastructure construction financing encourages municipalities to develop and sell land alongside major existing highways, thus requiring very little infrastructure construction and financing, in the short term. This practice has resulted in “ribbon” developments that increase travel distance, impede intercity traffic, increase infrastructure maintenance costs, and lead to inefficient land use: a typical pattern for many Chinese second-tier cities.

19 5. Urban Transportation. The faster than expected urbanization has shaped the current urban transport problems in China. Motorization has grown faster than expected due to a rapid reduction in car prices, increased availability ofcar loans, and heavy highway investments. However, benefits brought by increased mobility are fast eroding due to increased gridlock. Traffic congestion, pollution, and increased risk oftraffic accidents have become parts ofdaily life and are rapidly reducing the quality ofurban life and the efficiency ofurban economies. The urban planning process also fails to give adequate consideration to the service needs and affordability concerns ofthe floating population, usually the poorest residents. The increasing diversification ofthe urban population by income group, and the influx oflow-income young laborers, increase demand for diversified urban transport services (in terms ofquality, affordability, and destinations served).

SICHUAN DEVELOPMENTSTRATEGY Figure 1 6. Among China’s western provinces, Sichuan Changes in Urban Form and Function of is one ofthe most important. It has the population the Chengdu-Chongqing Group ofa major country - over 113 million - a broad and well developed industrial base, an elastic supply of R unskilled and semi-skilled labor, a growing endowment ofScience and Technology (S&T) workers, and several dynamic cities which can spearhead growth.

7. Sichuan in 2004 had a GDP ofUS$79 billion, one third ofwhich was generated by industry, and the province exported US$4 billion worth ofmerchandise. Growth led by industry has -w I:~MOWO been among the highest in China and reached nearly 13 percent between 2003 and 2004.

8. Sichuan is likely to remain a major producer of agricultural commodities, including silk, but its future growth is likely to depend as it has in the recent past on manufacturing and high tech services. Much ofthis manufacturing is concentrated in a handful ofcities, such as Chengdu, Mianyang, , , , Yibin, Suining, Luzhou, and Panzhihua.

9. Among the leading industries with the brightest prospects are engineering, auto parts, electronics, metallurgy, textiles, and defense. Of the services industries, IT and software are likely to grow rapidly and share important linkages with manufacturing.

10. Sichuan’s future development is buttressed by a number offactors:

0 A long industrial tradition which is the source ofan experienced workforce;

0 Numerous research establishments;

0 A concentration ofhigh tech defense industries that support IT and software development;

20 FDI by major MNCs, including Motorola, Siemens, Toyota, Mitsubishi, and others, which are drawn to Sichuan by human resource incentives and improving infrastructure; Abundant energy supplies; Abundant mineral resources; Several successful science parks in the vicinity of Chengdu that are helping to create high-tech clusters.

11. Thus,,as manufacturing industries start to migrate from coastal cities to the interior, Sichuan offers multiple urban and industrial foci for development.

12. Sichuan ’s Urban Challenges. The main challenges facing Sichuan today are under-urbanization (28 percent compared to the national average of42 percent), rural migration pressures, shortages ofhousing and office space, and environmental degradation. The main goals ofthe Sichuan development strategy over the next two decades are to utilize the province’s market size and human and physical resources, and place a major thrust on infrastructure development for accelerated capital formation and rapid urban growth. Sichuan is preparing for rapid urban development, population growth of 8 to 10 percent, and 40 percent urbanization by 2010 by putting an emphasis on furthering the development ofmedium- and small-sized cities.

13. Role of Sichuan ’s Medium-Size Cities. Sichuan’s urban system’ forms a pattern of dispersed settlements offew cities with high densities. Sichuan’s cities are not yet integrated into the broader regional economic cluster due to low productivity ofthe secondary and tertiary sectors. The low productivity is itself a result of diseconomies of scale and weak urbanization. The population ofeach ofthe twelve medium-size cities will reach 500,000 by 2010. This will entail shifts in economic activity and in urban form ofthe two metro regions (Chengdu and Chongqing), increasing their functional complementarily and specialization (see Figure 1). Two regional metro clusters, Chengdu and Chongqing, which specialize mainly in processing, administration, financial services, and education, will gradually drive manufacturing industries and employment towards faster growing second-tier cities (e.g., Suining, Mianyang, Yibin). To absorb the industrial, commercial, and migration externalities and expand their market radii, the second-tier cities’ infrastructure investments will have to grow at higher rates than the national average - or by a projected 10-12 percent annually (Table 1).

Sichuan has 32 cities comprising one provincial megalopolis, 12 medium sized cities, and 19 small cities. 21 Table 1. Urban Growth and Infrastructure: Sichuan and the Four Project Cities

Urbanization Level (?? ,2003)’ 37 53 22.2 19.7 16.9 Population Density (peoplekm’, 2004) 830 141 258 701 386 Urban Population Growth (% ,1998-2002) 2.9 1.2 2.9 7.2 1.9 Growth GDP (Y 100 million, 2003) 1870 164 396 159 291 GDP Growth Annual (%, 2003) 13 18.2 7.8 13.2 12 Income Per Capita (Y,2003) 18052 15569 7574 4246 5665 Projected Annual Growth (2005-2015) 8 8-10 7 9 10-12 Transoort Infrastructure

14. With fixed asset levels currently below the national mean, Sichuan’s second-tier cities (Deyang, Neijiang, Guangguan, Yibin, Suining, Mianyang, Panzhihua, etc.) are undertaking new investments to expand and optimize their urban functions, by developing new urban areas, roads, power supplies, water and sewerage systems, and improving river embankments, landscaping, and urban environmental conditions and livability.

FOURSUDP CITIES AND THEIR CHALLENGES

15. According to the Sichuan Development Strategy, the province’s twelve second tier cities (250,000 - 1,200,000 population) are expected to increase investments in fixed assets, adjust urban functions, and agglomerate. These mid-size cities are still underdeveloped urban areas in basic infrastructure and city services, compared with the regional center Chengdu (see indicators in Table 2). Within this group, the core urban areas of Panzhihua, Mianyang, Suining, and Yibin are among the fastest growing cities in Sichuan (Table 1).

Sichuan Statistics Bureau, 2004. SUDP projection, benchmark figure. 22 Table 2. Urban Infrastructure Indicators for the Sichuan Main Second-Tier Cities

16. The selectivity of SUDP was guided by identifying common problems in Panzhihua, Mianyang, Suining, and Yibin in regard to core city growth, such as: (i)high population densities, land scarcity and underutilization for commercial and residential uses; (ii)congestion, lack ofmobility, and inefficient transport systems; (iii)fragmentation, disorganization, and deteriorating urban environments; and (iv) inadequate municipal capacity to optimize the improvement ofcity functions and urban planning. SUDP will address these problems by investing in new urban land areas, expanding urban transport networks and sewage systems, and improving scenic public areas.

Mianyang 17. Mianyang, which is 80 km from Chengdu, is an economic, communications, and science center with significant spin-off opportunities for both industrial growth and research and development (R&D) due to its proximity to the Chengdu-Chongqing group. Mianyang has consolidated numerous economic development zones into three principal zones, ofwhich two will be expanded under SUDP - Pioneer Park (PP) and Southern Economic Development Zone (SEDZ), both adjacent to its city center.

18. The main urban problems the city faces are limited urban space constrained by the Fujiang River, and hills surrounded by agricultural land. Mianyang has been expanding along three axes following existing trunk roads, resulting in an inefficient spatial pattern (See Map lb). The linear development along these roads extends up to 12 km from the city center, but large areas ofland much closer to the center remain undeveloped. This pattern ofdevelopment is inefficient as it overstretches public transport lines, increases travel time, and creates congestion by concentrating local traffic on few intercity highways. 23 19. The city’s Master Plan foresees a decentralized city structure, growing in both the northwestern and southern directions. This requires optimization ofthe urban functions by relieving the CBD and relocating the city administration, hi-tech and science enterprises to the northwestern part ofthe city (PP), and the general manufacturing industries to the south (SEDZ). The inner city areas are planned for land recycling and higher value uses (residential, financial, and commercial).

20. The proposed project components entail the provision ofbasic infrastructure and access improvements to two major urban development areas - PP and the SEDZ. The two areas will contribute to the development of land much closer to the city center (respectively 4-9 km and 2-4 km). Infilling undeveloped urban space will significantly improve the spatial compactness ofthe town and its transport and land use efficiency.

21. The area under the two land development schemes, about 12 km2will increase the urbanized area by 22 percent, and the housing area by 13 percent (housing 150,000 people). These increases will account for only four years ofdemographic gr~wth.~A number ofnew residents in the proposed new schemes will come from the inner city. The average population density in the two schemes is 126 peoplehectare, significantly lower than the current average density in Mianyang’s built-up area (213 people/ha). The lower density after the project reflects higher environmental standards for open space and community facilities, and a significant increase in floor space per person. About 27 percent ofthe developed land will be for commercial and industrial use.

Suining 22. Suining is a regional service, market, and commodity distribution center on the Fujiang River. The city ofSuining will market itself as a satellite city for spill-over growth from neighboring Chongqing. The comparative advantages of Suining are in . textiles, chemical industries, and agricultural processing. The existing express railways and the completion ofthe planned Neijiang-Suining-ChongqingRailway will establish the city as a transport hub.

23. The problem which constrains city growth is high population density (the city has the second highest population density after the capital, Chengdu), hrther exacerbated by growth ofthe industrial sector and associated non-farm rural-to-urban migration. Suining’s development has been following the same pattern as Mianyang’s: linear growth along a trunk network and along the Fujiang River (See Map 2b). The current development ofthe city extends for about 16 kilometers along the river. The city master plan proposes developing new districts across the river and to the west ofthe existing city to reduce population densities in the downtown area.

This is based on the historical population growth rate. 24 24. SUDP components in Suining are designed to assist the city to expand its western part (Xining District), and support an associated link road to the city station area. The Xining district will cover an area of 3.51 km2that is 1.5 to 4 km from the city center. As in Mianyang, the new land development scheme will lower commuting distances and alleviate traffic congestion on the trunk road network. The new district will be directly connected to the railway station. The proposed land development plan will increase the urbanized area ofSuining by 7 percent, and house about 53,000 people. This is 7 percent ofthe existing population, corresponding to one year ofdemographic growth.

Yibin 25. Yibin is a communication and commercial center on the banks ofthe Chang River, strategically located on the border ofthe three provinces of Sichuan, Yunnan and Guizhou, and is connected to important rail and road arteries. Yibin is projected to grow to one million people by 2030, and to become the urban industrial center in southern Sichuan. The development strategy aims to transform Yibin into a second growth point of the Chengdu-Chongqing economic zone. The comparative advantages ofthe city are in chemical products, wine production, and power generation.

26. However, the projected economic growth is constrained by fragmented form and function due to land scarcity. The city is located at the confluence oftwo rivers dividing the city into one core district and three sub-areas (See Map 3). The city’s fragmentation spurs very high densities in the old downtown with linear arrangements for land use and function. The scattered city scale prevents the formation ofthe core city district as a commercial and business center, leaving it with mainly cramped and overbuilt administration buildings. The existing road system lacks effective traffic connection and network functionality.

27. The city master plan until 2020 envisions optimizing urban spatial organization by developing newly developed areas, relocating industries, and redeveloping the old city. The plan also foresees developing new radial transport roads and better delineating and linking the different land use functions (administration, business, and residential) of each area within an independent and organic urban environment ofmultiple centers. The development ofthe road network includes construction ofa series of riverbank roads, two to be developed under SUDP (Roads A and B) linking the development areas, and construction ofthree bridges connecting roads for each area, a sewage treatment facility, and a dock.

Panzhihua 28. Panzhihua is an established regional industrial center and supplier ofraw materials and power from the “steel and smoke-stack” industrial era. Its per capita GDP is three times higher than the Sichuan average and second only to Chengdu. Manufacturing, hydroelectric power, and metal industries (high grade steel vanadium- titanium and silicon aluminum alloys) make up about 70 percent ofthe city’s GDP. The city has significant growth potential, but a poor layout, undeveloped transport networks, and little urban character. The city’s organization is limited by its particular landscape, with urban functions segmented along existing roads (See Map 4). Water pollution from municipal wastewater, industrial wastewater, and surface scouring is a serious problem.

25 The inadequate wastewater treatment capacities and lack ofembankment along the Jinsha River also contribute to soil erosion and environmental degradation.

29. The longer-term strategy ofthe city is to improve the city’s functions by opening the city for investment in fixed assets (currently Panzhihua ranks seventh among ten peer cities in fixed asset investment), and particularly for improvement ofthe city infrastructure. The city growth strategy aims to develop the local transport system, improve the city’s traffic capacity road system, and river embankments, and upgrade the sewage system and wastewater and sewage treatment facilities, all ofwhich are supported under SUDP. In addition, the municipality plans to expand the core urban area by developing a CBD and constructing trunk roads connecting with the city periphery. Also, Panzhihua will promote land and real estate development and upgrading ofits service industries, by improving city planning and development ofits riverside areas to achieve comprehensive environmental renovation and revamp the city’s overall identity.

CHINA’S LANDACQUISITION FRAMEWORKFOR URBAN DEVELOPMENT

30. Under China’s Constitution, urban land is owned by the State while the principal holders ofrural land rights are formally established collectives. Within this framework, individuals may legally acquire land use rights for specific properties. Thus, in the case of farmland, under the Land Administration Law (LAL), farmers have 30-year land use rights over land allocated to them by collectives. These rights have been further strengthened by the passage ofthe Rural Land Contracting Law of2002. In the case of urban land, the LAL provides use rights for different types ofproperties (70-years for residential purposes, 40-years for commercial, entertainment and tourism purposes, and 50-years for industrial purposes), and along with related laws and regulations, has established a legal framework for a private market in those rights.

3 1. Although both urban and rural land use rights have been strengthened in recent years, there is essentially no method in China by which rural land users can directly sell their land use rights to urban users. In order for land to be converted from rural to urban uses, it must first be acquired by the government. The Land Administration Law (LAL) authorizes only the government to acquire agricultural land from collectives and thereafter sell the land-use rights to the private sector for urban development uses. The Constitution ofChina allows requisition ofland by the State for the public interest (Article 10).

32. While the term “public interest” as used in the Constitution is not defined, essentially all urban development in China over the past twenty years has taken place by converting land that was officially classified as rural into enterprise and industrial estates, urban housing, and other mixed use, public and private urban development.

33. Under the project, the land acquired for economic development zones (called EDZs in this annex) will be used for a mix ofpublic and private purposes, including the development ofprivate commercial housing. The government and Bank strategy for the project involves testing new approaches that will, if successfbl, have applicability for future land development and urban land use in other cities:

26 0 A rigorous demand analysis was conducted to ensure that the proposed urban area developments reflect real growth requirements ofthe cities, and that least cost options ofvarious development alternatives were chosen;

0 The proposed urban area development and infrastructure investments are being conceived as an integral part ofcity-wide comprehensive master plans. Common features ofthese plans include: (i)redevelopment ofolder areas, particularly in city cores; (ii)improvements to and consolidation ofunderused areas and agricultural enclaves within existing urban areas; (iii)enhancement inter-city urban transport networks; and (iv) improvement ofcity environmental conditions; The project has developed an innovative framework for land management and rural-to-urban land conversion that addresses resettlement and land compensation issues. For example, the project will adopt a comprehensive compensation program that will allow project affected people to fully restore their livelihoods through lifetime compensation allowances, provision ofimproved housing within the project area with saleable land use rights, and access to better infrastructure/public facilities and social and welfare services, available under urban hukou system; and

0 TA will be provided to project municipalities to develop their institutional capacities to: (i)address rapid urbanization through enhanced urban planning and land management; (ii)sustain growth by ensuring investment and providing core infrastructure services; (iii)optimize existing and improved infrastructure assets; and (iv) use information technology in city planning and management.

34. According to the government’s analysis, the proposed urban area development, including its private components, will promote “public interest’’ on a number of grounds:

0 The EDZs willprovide economic and environmental benefits. The development of EDZs will result in a more rational use ofland (see Annex 9 on economic analysis) that will reduce future infrastructure costs, increase efficiency, and avoid environmental damage from haphazard, uncontrolled sprawl without proper environmental infrastructure. The proposed areas are in fact peri-urban development areas that are already being haphazardly converted to non- agricultural uses. The project will also generate other economic benefits for the cities and their people, such as employment, economic growth, expanded and improved housing stock, improved infrastructure, and controlled and environmentally sound urban development, all ofwhich contributes to poverty reduction.

0 The EDZs in the Project are in conformity with new strict national standards. The EDZs are in conformity with a new national planning approach adopted by the NDRC with respect to urban growth. According to the NDRC, through State Council Document 28, the national approach to the review and approval of development zones has become much stricter. This change was adopted to make urban growth more rational, reduce proliferation ofindustrial estates throughout the country, and avoid the problem ofconverted land lying idle as a result ofweak demand. As a result ofthese tougher standards, the total number ofEDZs in the country was drastically reduced from 8,000 to 1,500. In the project cities, the sites

27 have been selected after careful planning studies ofcity growth options. The three EDZs under the project have passed this heightened scrutiny and have been approved by NDRC. Documents issued by the Municipal Government, Provincial Government, and NDRC approving the three zones were obtained from the PPMO. Revenues from land sales will be used forpublic benefits. The governments of Suining and Mianyang have explained that net revenues resulting from land sales will be deposited into an account (audited annually) to be used exclusively for public purposes, such as supporting infrastructure and public facilities including hospitals, schools, libraries, and other social programs in the EDZs and the municipalities. The two municipalities submitted lists ofinvestments and programs considered to be in the public interest. Steps will be taken to ensure land revenues are maximized. The governments of Suining and Mianyang explained that to maximize revenues, land transfer for commercial and real estate development will be done on the basis of auctions, in accordance with applicable regulation^.^ Land used for industry will be transferred on the basis ofnegotiated prices and according to applicable regulatiom6However, in light ofprior practices by which local governments were often transferring land to industry at highly concessional or token prices, the State Council has called for minimum standard prices to be set and made public by local governments, and, accordingly, a regulation establishing an appropriate minimum price has been adopted and will be applied to sale ofland in the EDZs.

35. Ensuring fair compensationfor acquired land. In most countries, the calculation ofcompensation begins with an assessment ofthe fair market value ofthe property being acquired. The absence ofa market for the private transfer ofrural land to urban uses makes this problematic in China. Therefore, compensation is determined under the Land Administration Law without reference to assessed land values. Instead, compensation consists ofthree legally required payments: (a) A compensation fee for land, which is six to ten times the average annual output value ofthe land for the three years prior to the acquisition. This is paid to the collective owner, not the villagers who hold farmland contracts; (b) A subsidy for resettlement, again paid to the collective. The standard subsidy is four to six times the average annual output value, though this can go as high as fifteen times, with a maximum combined payment of(a) and (b) amounting to thirty times the average annual output value; and (c) Compensation fees to households for structures and standing crops. Land Administration Law, Art. 47.

’ Regulation on Transferring State-Owned Land by Bidding, Auction and Boarding, effective on July 1,2002.

Regulation on Method to Determine the Minimum Price for Transferring Land Use Rights of State-owned Land by Negotiated Price, June 28, 1995; and Provisions on the Transfer of the right to use State-owned Land by Negotiated Price, August 1,2003. 28 36. A number ofserious concerns with this standard have been expressed in recent years, reflecting doubts that its application will result in fairness to dispossessed farmers. In Document 28 of2004, for example, the State Council urged local governments to focus on efforts to improve compensation. It stipulates that farmers should be resettled on alternative land, elsewhere if necessary, or given urban status with social security and jobs. Compensation should be sufficient to sustain the original living standards of the farmers whose land has been taken, and to pay for social security costs ofthe landless farmers as a result of land acquisition. If it is not, the People’s Governments ofthe province, autonomous regions, and municipalities should approve an increase in the resettlement and rehabilitation subsidies. When the aggregate amount ofland compensation, resettlement, and rehabilitation subsidies reaches the legal ceiling, and still cannot ensure that farmers will be able to sustain their original standards ofliving, the local People’s Governments may use revenues from the paid use ofpublic land to subsidize them.

37. As described in the proposed RAPs (see Annex 10 for details), the project has adopted a compensation plan that goes well beyond the formula spelled out in the Land Administration Law and attempts to incorporate the approach and full spirit ofDocument 28, which provides guidance, but which is not a national law. As such, the Sichuan and national governments will monitor the compensation scheme carefully to determine if it is a suitable model for future urban development, until a full market system is adopted, and to make adjustments as necessary during implementation to ensure the affected people are able to successfully adapt to their changed circumstances.

3 8. Ensuring that compensation reaches individual farmers. Under existing law, the recipient ofthe compensation fee and resettlement subsidy is the collective, as the owner ofthe land. The persons who have lost their land use rights (as they have contractual rights ofuse only) have no direct legal right to this compensation from the government, as their rights are derived from the collective and the Land Administration Law does not contemplate direct compensation to households for the loss ofsuch rights. This has led to well-publicized social tensions between farmers and local governments. There have been complaints on the part ofland-losing rural residents who in a significant number ofcases have charged that a collective has unfairly or improperly retained most or all of their compensation.

39. The project has addressed this question in Suining and Mianyang by securing in the contracts that will be entered into by the EDZs and the collectives for land acquisition, that the EDZs themselves will pay compensation directly to the PAPS,rather than funneling money through the collectives. It has been agreed that a monthly subsidy for life will be provided directly to each individual PAP (not household). EDZ authorities will also sign contracts with individual households on the amount ofcompensation for housing demolition (model land acquisition and housing demolition contracts are appended to the RAPs for Suining and Mianyang).

40. This approach addresses concerns about the role ofthe collective as a potential bottleneck for the distribution of compensation. Moreover, the respective RAPSspecify that Mianyang and Suining will guarantee payment ofthe lifetime allowances, in cases where the relevant EDZ Authority defaults on its payment obligations. Furthermore, it 29 will be stipulated in the contracts in Suining and Mianyang that in the event ofan alleged default, the PAPSaffected by that default will have the right to bring suit in court if the collective from which the PAP came failed to file against the EDZ. This right to bring suit will arise automatically if the collective fails to file suit 30 days after being informed ofthe alleged default by the PAP. The Bank team also retained the legal services ofa professor ofcontract law at the Sichuan University. His analysis confirmed that the draft agreements furnished to the Bank would be enforceable under Chinese contract law. This conclusion was further reinforced by discussions with municipal judges in Suining and Mianyang .

41. There is a risk that the proposed system of compensation is too complicated, and difficult to monitor, given the implementation ofa lifetime allowance. Nevertheless, the project approach is more comprehensive and is considered a pilot by the Sichuan government, and will be monitored closely. In addition, some parts ofthe approach have already been applied to urban area developments in two of the cities, and carefully considered by the government in numerous consultations with stakeholders. The ultimate solution for China is to recognize land ownership by individuals and to develop a land market together with a property tax system. However, this fundamental change requires a Constitutional Amendment and the formulation ofa political consensus. China has been gradually enhancing land use rights ofindividual farmers, including piloting registration of these rights. However, China is still in a transitional period where administrative mechanisms are required. These will need to be adjusted over time in parallel with progress in land policy reforms, until a full land market system is adopted.

30 Annex 2: Major Related Projects Financed by the Bank and/or other Agencies CHINA: SICHUAN URBAN DEVELOPMENT PROJECT

Latest Supervision (PSR) Rating (Bank-financed projects only) Sector Issue Project Implementation Development Progress (IP) 0b.iective

Guangxi Urban Environnemental Sewer, drainage, solid waste Project (Ln. 43480, S S management Cr. 30970), (1998/06/16) Yunnan Environnent Pollution control, and municipal Project (Ln. 40550, S S water, wastewater, solid waste, and Cr. 28920), night soil management (06/26/ 19 96) Sichuan Urban Water supply and wastewater Environment Project MS S systems, and solid waste (Ln. 44960, Cr. management 28920), (06/17/1999) Chongqing Urban Water supply and wastewater Environment Project S S systems, and solid waste (Ln. 45610), management (06115/2000) Hunan Urban Development Project Wastewater, flood protection, S S transport (Ln. 475 lo), (0911 612004) Second Tianjin Urban Development and Sewage, transport Environment Project S S (Ln. 46950), (05/20/2003) Wuhan Urban Transport Project Transport S S (Ln. 47270), (03/09/2004)

31 Shanghai Selective road investments to Metropolitan enhance capacity and relieve Transport Project I1 S S bottlenecks (Ln. 36520), (10/14/1993) Ciuangzhou city Public transport investments and support to policyloperations and Center Transport S S Project (Ln. 43290), planning (051291199 8) Shijiazhuang Urban Transport Project Road maintenance S S (Ln. 46000), I I (03/27/2001) Other Development Agencies Sichuan Enterprise Benchmarking MIGA 1 Study

IP/DO Ratings: HS=Highly Satisfactory; S=Satisfactory; MS=Moderately Satisfactory; MU=Moderately Unsatisfactory; U=Unsatisfactory; HU=Highly Unsatisfactory; NA=Not Applicable; NR=Not Rated.

32 Annex 3: Results Framework and Monitoring CHINA: SICHUAN URBAN DEVELOPMENT PROJECT

Results Framework

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Project Development Objective: Evidence* that identified bottlenecks To determine whether or not To improve core urban functions in an hampering core urban functions have been the project objective has been equitable and resource efficient manner removed in participating municipalities, as achieved and to adjust the by removing identified infrastructure expected by the strategic investments ofthe urban development strategies bottlenecks hampering land project, including a high level ofsatisfaction and plans including development, transport, and among users ofthe investments funded under investment programs in the environmental conditions in four the project and among those affected by land future, and to assess the second-tier cities in Sichuan Province. acquisition and resettlement under the project replicability ofproject innovations in the rest of China. Results Indicators for Each Component Mianyang Component Outcome To verify satisfactory and Objective: to rationalize the city’s - Area ofland sold each quarter; timely progress in, or spatial development by expanding two disaggregated between residential, completion ofthe Component, urban development areas adjacent to its industrial, and commercial and to adjust the land overcrowded city core areas, and - Auction price of land per m2as compared development and sales plan of constructing a connecting urban road, to projected price the two urban development to provide new urban space and to - Time lag between lease attribution and land areas. relieve congested core areas. use occupation - Price per m2 ofapartments sold - Number ofnew residents on site - Satisfaction ofPAPs with resettlement process and outcome output - Satisfactory progress on construction works and assets constructed, as compared to the projected disbursement schedule. - Resettlement progress as scheduled Suining Component Outcome To verify satisfactory and Objective: to support the city’s urban - Area ofland sold each quarter; timely progress in, or area development on its western side, disaggregated between residential, completion ofthe Component, by developing a new urban area industrial and commercial and to adjust the land including a connecting urban road, to - Auction price ofland per m2,as compared development and sales plan of provide new urban space and to relieve to projected price per category the new development areas. congested core areas. - Time lag between lease attribution and land use occupation - Price per m2 ofapartments sold - Number ofnew residents on site - Satisfaction of PAPs with resettlement process and outcome output - Satisfactory progress on the construction works and assets constructed, as compared to the projected disbursement schedule - Resettlement progress as scheduled

33 Yibin Component Outcome To verify satisfactory and Objective: to improve the city’s - Reduced travel times and increased flow timely progress in, or strategic traffic function, relieve - Landscape improvements ofthe river bank completion ofthe component, congestion in city core areas, and to ofthe new administration area and to prepare the next stage improve the landscape of the new - Satisfaction ofPAPS with resettlement ofdevelopment and the administration area. process and outcome investment plan. output - Satisfactory progress with the construction works and assets constructed

Panzhihua Component Outcome To verify satisfactory and Objective: to develop the city’s - Improved river water quality timely progress in, or comprehensive and sustainable - Wastewater (WWT) service coverage completion ofthe component, wastewater system, and to improve - Additional number ofservice connection and to prepare the next stage strategic urban transport functions and sewers ofdevelopment and the the environment and landscape ofthe - Improved financial performance ofWWT investment plan. riverbanks. operations - Reduced travel time and flow - Satisfaction level ofscenic improvements. - Satisfaction of PAPSwith resettlement process and outcome output - Satisfactory progress with the construction works and assets constructed

Institutional and Capacity Outcome To verify satisfactory and Development Component - Efficient use of information produced by the timely progress in, or Objective: to improve the municipal GISMIS systems completion ofthe component, capacity for urban planning and output and to develop continuous management, including spatial - Municipal staff trained on GISMIS; Institutional and Capacity planning, land management, transport, - Number ofcontracts awarded and Development Program. utility and asset management. satisfactorily implemented

* - via reports from technical and sc a1 audits

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nh 3 d Annex 4: Detailed Project Description CHINA: SICHUAN URBAN DEVELOPMENT PROJECT

URBANINFRASTRUCTURE INVESTMENTCOMPONENT

Mianyang 1. Urban Area Development Context. Mianyang’s Master Plan envisages growth in both its northwestern section (Pioneer Park area and new administration center) and southern section (Southern Economic Development Zone). Although located very close to the city center, these areas remain only partially developed because they lack secondary infrastructure. City administration and hi-tech and science related enterprises and institutions will be relocated to the northwestern section, and general manufacturing industries to the southern section. The core area land vacated by these industries and institutions will be redeveloped for high quality residential, financial, and commercial uses.

2. Moreover, Mianyang has consolidated numerous economic development zones into three principal zones, two of which will be supported by SUDP. The proposed project components will provide basic infrastructure and access improvements in these two major urban development and development areas: Pioneer Park in the Northwest, and the Southern Economic Development Zone.

(a) Pioneer Park Project Scope: The Pioneer Park component will support: 0 the construction of 23.6 km of local access roads, and associated bridges, sewers, drainage, and landscape work to expand the park area by 483 hectares to provide: (i)190 ha ofresidential land for about 80,000 people, including relocated farmers; (ii)35 ha ofland for commercial and office spaces; (iii)84 ha of land for industrial use; and (iv) 173 ha for public spaces (roads, open spaces, parks and community facilities). 0 the construction of a 2.6 km section of the Second Ring Road (2RR) that traverses Pioneer Park, including an interchange between the 2RR and Yingbin Avenue. Estimated Costs; US$49.96 million (US$25.85 million to fund the Park development, and US$24.12 million for the 2RR section, including the interchange).

(3) Southern Economic Development Zone (SEDZ) Project Scope: The component comprises: 0 the construction of 24.5 km of local access roads within Phases A & C of the SEDZ (560 ha of land providing: (i)1 18 ha of land for housing for about 47,000 people, including relocated farmers; (ii)126 ha of land for commercial and office spaces; and (iii)136 ha ofindustrial land; and (iv) 179 ha ofpublic space roads, open spaces, parks and community facilities) Estimated Costs: US$48.73 million.

42 Suining 3. Urban Development Context. The city expects that overflow households from its overcrowded core area and new migrant households will be accommodated in new urban districts to be developed across the Fujiang River to the east, and to the west in Xining District, which is well-positioned to access future highway and railway networks. The project components in Suining are designed to support growth-enhancing investments in the Xining District Area, as well as a related link road to the city station area.

(a) Xining District Area Project Scope: The proposed project will fund the construction of 25 km ofaccess and distributor roads as well as bridges, river course improvements, sewer infrastructure, and landscaping to develop the Xining District Area. Suining’s ultimate goal for this area is to support 35 1 ha of mixed residential (1 17 ha), commercial (47 ha), and public space (1 88 ha roads, open spaces, parks, and community facilities) to serve a future population of about 50,000, including farmers displaced by land acquisition. Estimated Costs: US$58.23 million.

(b) Xining Road Project Scope: The project would fund the construction ofthe Xining Road, a proposed 8.5 km link northwards from Xining District to the North station to improve connectivity and access to and from the new development area. Estimated Costs: US$6.75 million.

Yibin 4. Urban Development Context: Yibin is located where the Min Jiang and Jinsha Jiang rivers come together to form the Chang Jiang (Yangtze River). The city is set to become a prime energy producing centre in Western China once a series of major hydroelectric projects are developed on the Jinsha Jiang immediately upriver ofthe city.

5. In Yibin, the proposed project would support the construction of two roads, Route A and Route Byboth of which follow its riverbanks and are designed to improve access within the city and enhance the previously degraded riverbank environment.

(a) Route A: US$40.44 million Project Scope: Route A (6.7 km) is a distributor road connecting a section of the old city situated between the Minjiang and Jinshajiang rivers (pop. 180,000) with the Juishou District (development area north of the Minjiang River, pop. 120,000) and the Tianyuan District (development area north of Changjiang River, pop. 120,000). It also provides access to the existing Nanxi highway. The road is connected to the new Changjiang Bridge currently under construction. It is intended to provide access for residential and light commercial traffic between Tian Yuan and the Changjiang and Min River Bridges and, in the longer term, to join to the Yibin-Nanxi Highway to the south.

43 (3) Route B: US$35.91 million Project Scope: This subcomponent will fund a 3.5 km extension to Route B, an existing two-lane local road and riverbank wall leading west from the Cultural Square in the centre ofNan An District. The purpose of the road extension and wall will be to improve the riverbank’s environmental conditions, as well as open up some (relatively small) areas ofriverside land to development. As part ofthe River Ring Road, to be constructed between 2009 and 20 11 to link seven city clusters, the road extension will help improve overall transport linkages by connecting with smaller roads at the lower part of the South Riverbank West District. The City intends to transfer all administration offices from the old part ofthe City to the south bank of the Jinshajiang by 2012.

6. The city will also lay important water and wastewater infrastructure under Route B. A gravity sewer will serve all development on the hill above Route B. As the road extension is constructed, flood protection works will also be carried out along the right bank ofthe Jinshajiang, complementing existing flood protection infrastructure on the left bank (vertical walls downstream of the Railway Bridge and levees upstream).

Panzhihua 7. Urban Development Context: Panzhihua is surrounded by mountains and high- density development runs along both banks of the Jinsha River. Further development in these zones is severely constrained by the mountainous topography; thus, Panzhihua’s future growth hinges on developing new areas in its southern region along with requisite transportation infrastructure. The city’s heavy, mineral-based industrial activities have also reduced water quality in the Jinsha River, and degraded its riverbanks, requiring mitigation.

8. Through four components, this project would help accommodate future growth by improving city access and traffic circulation, and upgrading scenic conditions and environmental conditions on urban riverbanks. The components are: (a) supporting construction of the Bing-Ren inter-district link road; (b) financing a section ofBin Jiang Road; (c) supporting a program of sanitary sewers in Bingcaogang, Geliping, and Qingxiangping; and (d) funding a package ofriver embankment and scenic improvements.

(a) Bing-Ren Road: US$80.22 million Project Scope: The proposed 6.72 km, four-lane Bing-Ren Road would link the existing central business district with the newly expanding residential district of Renhe. More specifically, it would link the recently completed Airport Access Road to Duren Road (West) in the . The road would includel.4 km oftunnel and provide access to the new Gantaban development zone. In the future, the road would serve as an urban trunk road, providing traffic relief in the downtown area as well promoting development in the new Ganbatang district.

(3) Bin Jiang Road: US$9.32 million Project Scope: This proposed road improvement project will relieve traffic congestion downtown and improve cross-town traffic by constructing a 2.7 km ‘missing section’ of

44 the Bin Jiang Road downstream from Dukou Bridge. Works on this main urban arterial road will also include needed addtions to the trunk sewer network.

(c) Sewerage Component: US$10.41 million The sewerage component will help develop comprehensive wastewater collection systems in Bingcaogang, Geliping, and Qingxiangping. Catchments will be connected to the existing Bingcaogang WWTP and a new Qingxiangping WWTP, which will be constructed as a Build-Operate-Transfer operation. The project will also construct 8.6 km of d300 - d700 sewer networks in the Bingcaogang catchment, 30.7 km of d300 - d900 sewer networks in Qingxiangping catchment (total 39.3 km of new sewers), and about 2,900 service connection sewers.

(d) River Embankment and City Scenic Improvements: US$25.60 million Project Scope: This component will support measures along the Jinsha river to clean up debris, construct embankments to prevent slope and soil erosion (at selected locations along 30 km of both sides ofthe river), improve landscaping at four scenic parks; and plant trees and bushes, above the 50-year flood level, along the 15 km stretch ofriver from Xinzhuang Bridge to Jinsha railway station.

INSTITUTIONAL DEVELOPMENTAND CAPACITY BUILDING COMPONENT

TA to support project implementation of the Urban Infrastructure Investment Component (US%3.70million) 9. Since the four cities targeted by this project do not have adequate Bank-funded project experience, this project will coordinate and facilitate a TA program for MPMOs in line with their contractual responsibilities for project implementation.

10. This technical assistance will provide advisory and quality control services to support the project’s infrastructure investment components. Municipalities will receive assistance in reviewing project designs, preparing and evaluating bids, negotiating contracts, monitoring contract execution, and scheduling and resolving contract issues. Overseas and national training and study tours will be held to supplement such assistance. TA will also be provided to monitor implementation of the EMP and RAP.

TA to build municipal capacity in urban planning and management (US$3.30 million) 1 1. Successful urban development requires intelligent urban planning, careful financial management, and ample project management capacity. However, the four rapidly developing cities targeted by this project are facing huge challenges in adjusting their urban master plans to the unprecedented speed of area urbanization and associated demographic and economic changes. To enhance competitiveness, SUDP cities, particularly Mianyang and Suining with their economic development zones, must develop within their administrations efficient information, data collection, and data sharing systems that serve key stakeholders and constituents, including citizens and tenants.

45 12. This component, thus, will help these four cities build institutional capacities in urban planning and management, and information management, by introducing a Management Information System (MIS), and a Geographical Information System (GIs).

13. The following lists key urban planning and management systems to be targeted under this component, Note that TA designs will reflect factors such as current uses of MIS/GIS in urban planning and management, municipal staff capacity and experience, and identified priority areas in each city: Urban master plans, follow-up, and adjustments; Land use planning and management (including industrial and commercial estate development planning, and residential and housing development planning); Transport planning and management (including public transport planning and management); Environment control planning and management; Infrastructure development planning (capital investment planning, asset management planning, operation and maintenance, utility management); Cadastral mapping; Urban financial management (fiscal revenue planning, tax management, land revenue planning, debt management); Project implementation and management systems; Other important urban management (including disaster and emergency management programs); Digital information system/office of information technology/tenant supporting system; and City-to-city learning networks.

As necessary, technical assistance to each city will address the following three areas, or sub-components: (1) Formulating and/or developing spatial information platforms integrating urban information; (2) Developing spatial databases and spatial analysis, mapping, or reporting sub- systems; and (3) Developing and implementing training and study programs to secure necessary experts and operators and to train municipal executives, managers, planners, and engineers on how to use the GIS database and information management system for urban planning and management.

15. The concept and scope of each city’s technical assistance program is available in the Project File.

46 Attachment 1 of Annex 4

WB/IFC/MIGA Support to SUDP Cities in Private Sector Development and Investment

SUDP’s objective is to improve urban functions in four key cities and improve their competitiveness by investing in urban infrastructure and strengthening municipal institutional capacity. However, private sector development and investment are also critical to these cities’ economic development and job creation. Accordingly, the Bank has been supporting private sector development and investment in Sichuan and these four project cities through the Multinational Investment Guarantee Agencies (MIGA), ’ and the International Finance Corporation (IFC).

MIGA, in association with IFC, conducted an enterprise competitiveness benchmarking study often provincial cities - including SUDP’s four cities - and its analysis and findings will help the provincial and municipal governments improve their investment climates and attract Foreign Direct Investment (FDI). IFC also established in Sichuan the headquarters of the multi-donor-funded China Project Development Facility (CPDF), which provides technical assistance and capacity building for private sector development.

Building on the success of the enterprise competitiveness study, IFC started a new program to help Sichuan develop industrial business “clusters” strengthen economic competitiveness. Mianyang is one of the three pilot cities selected by IFC for participation in this project (Chengdu and Deyang are the others). Mianyang’s electronics and information technology sector, which produces 50 percent ofthe city’s economic output, is its most important business cluster, and more than 90 percent ofthis output is generated by the Chong Hong Electronic Company. Obviously, Mianyang heavily depends on Chong Hong’s success. However, Chong Hong has been a stagnant, inwardly-oriented state-enterprise increasingly challenged by private sector competitors. Chong Hong, now under new management, intends to transform itself from a traditional, home electronics company into a competitive, technologically savvy enterprise. To do this, IFC’s new program will help Chong Hong find private partners to spin off its manufacturing units, and develop linkages with Research and Development institutions in Mianyang. IFC’s industrial clustering program will thus help Chong Hong develop outward-oriented linkages in both manufacturing and R&D. Given its strong ability to link public and private sector partners, IFC’s new program may be able to help energize the SUDP-supported Pioneer Park, which will host R&D and technology businesses, and the Southern Economic Development Zone, which will provide industrial and commercial real estate for enterprises related to Chong Hong’s cluster linkage.

47 Annex 5: Project Costs CHINA: SICHUAN URBAN DEVELOPMENT PROJECT

Table 5.1.1 Project Cost Table by City

Local, in Foreign, in Total, in Project Baseline Cost by Component andlor Activity 1 US$ million I US$ million 1 US$ million 1

’ Identiflable taxes and duties are US$ I1.57 million, and the total project cost, net of taxes, is US$360.99 million. Therefore, the share of project cost net of taxes is 49.9%.

Table 5.1.2 Project Cost Table by Sector

Local Forei Total in US$ million Sichuan Urban Development Project: I I

’ Identifiable taxes and duties are US$ 1157 million, and the total project cost, net of taxes, is US$ 360.99 million. Therefore, the share of project cost net of taxes is 49.9%.

48 Table 5.2 Project Costs and Financing Plan

’ Identifiable taxes and duties are US$ 11.57 million, and the total project cost, net of taxes, is US$ 360.99 million. Therefore, the share of project cost net of taxes is 49.9%.

49 Annex 6: Implementation Arrangements CHINA: SICHUAN URBAN DEVELOPMENT PROJECT

1. A Leading Group headed by a Vice-Governor of Sichuan designated the Sichuan Construction Commission (SCC) as the agency responsible for project management. The SCC established the Provincial Project Management Office (PPMO) to prepare and execute the SUEP project, and SUDP will be managed from the same office. The role of PPMO includes: (a) overall project coordination, management and monitoring; (b) annual budget preparation; (c) project-wide quality assurance; (d) forwarding progress reports to the Sichuan Provincial Government and Bank team; (e) interagency coordination and procurement support; and (0 sectional training facilitation. Each city will have its own Municipal Project Management Office (MPMO). Major institutional responsibilities are summarized in the table below.

Mianyang I Panzhihua I Suining Yibin

Head of Mianyang Vice Mayor Deputy Secretary of Mayor Leading Group Municipality: Suining CCP Vice Mayor Committee

Pioneer Park: Director of Pioneer Park management committee

SEDZ: Deputy director of SEDZ commission Project Management Office (PMO) Head of PMO Pioneer Park: Director of City PMO at Vice Secretary-general General Manager, Urban Planning municipality: of Yibin City Mianyang Sci-Edu and Construction Director of City Government Innovation Bureau Development and Investment Co. Planning Ltd. Commission

SEDZ: Director of PMO at zone: Zone SEDZ Economic Financial Bureau and Development Deputy Director Bureau Location of Pioneer Park: MY City Urban City Development Yibin Investment PMO Sci-Edu Planning and and Reform Group Innovation Construction Commission Investment Co. Bureau Ltd.

SEDZ: SEDZ Commission, Economic and Development Bureau Functions of Coordinating Coordinating Coordinating Planning, Financing, PMO Government Government Government Resettlement,

50 Mianyang Panzhihua Suining Yibin Activities Activities Activities Engineering, including Environmental Management

- .~ Implementing (i)Mianyang Panzhihua Urban Suining Economic Yibin Urban Agencies S anj iang Construction and Technology Construction Construction Investment Development Zone Investment Co., Ltd. Investment Co., Management Co, (SETDZ) Ltd. Ltd. (ii)Mianyang Science and Education Pioneer Investment Co., Ltd. Functions of Engineering, Engineering, Engineering, Assisting PMO to IA Procurement, Procurement, Procurement, accomplish detailed Accounting, Accounting, Financial matter, project management Disbursement, Disbursement, Environment work. Environment Environment management management, management, (Recommended), Resettlement Coordinating the Resettlement resettlement in (Recommended) different project districts

O&M of (i)Mianyang (i)Relevant SETDZ Urban Yibin Public Utility Project Assets Sanjiang government Management Office Office Environment agencies, (ii)Mianyang (ii)Panzhihua Urban Landscape Water Affairs Company. (Group) Company Counterpart Funds Provision of (i.1) Fucheng Panzhihua City Suining City Yibin City Finance Counterpart District Finance Finance Bureau Finance Bureau Bureau Funds Bureau (30 %), (RMB2,720), (i.2) Mianyang SETDZ Economic Zone (RMB 14,424) Finance Bureau (10 %), (i.3) Mianyang Sanjiang Company (60 %). (ii.1) Mianyang City Finance Bureau (82%), (ii.2) Pioneer Park Finance Bureau (13%), (ii.3) Mianyang Science and Education Company (5%)

51 Mianyang I Panzhihua I Suining Yibin Debt service Payment of (i)Mianyang Panzhihua City SETDZ Finance Yibin City Finance Debt Service S anji ang Finance Bureau. Bureau Bureau Construction Investment Co., Ltd. (ii)Mianyang Science and Education Pioneer Investment Co., Ltd.

2. Mianvane Saniianp Construction Investment Co., Ltd. (MSCIC) MSCIC was established in October 2001 to develop rural land now located in the Southern Economic Development Zone for industrial, commercial, and residential uses. It is a state enterprise owned by the Mianyang Economic & Technological Development Zone (METDZ), which is the administrative unit of the under the Mianyang Municipal Government. MSCIC’s main functions are conducting resettlements, supervising construction, and marketing and selling developed land areas,

3. Mianvane Science and Education Pioneer Investment Co., Ltd. (MSEPIC) MSEPIC was established in July 2001 to develop rural land now located in Pioneer Park for industrial, commercial, and residential uses. It is a state enterprise owned by the Pioneer Park Administrative Commission (‘PPAC’), which is an administrative unit of the Mianyang Municipal Government.

4. Suinine Economic and Technologv Development Zone (SETDZ) All the components in Suining will be implementedby Suining Economic and Technology Development Zone (SETDZ), which is a part of Suining Municipality.

5. Yibin Urban Construction Investment Co., Ltd. All the components in Yibin will be implemented by Yibin Urban Construction Investment Co., Ltd, fully owned by Yibin Municipality

6. Panzhihua Vrban Construction Investment ManaPement Co., Ltd. All the components in Panzhihua will be implemented by Panzhihua Urban Construction Investment Management CoyLtd, fully owned by the Panzhihua Municipality.

7. Panzhihua Waste Water Affair Company The wastewater treatment system in Panzhihua is currently run by the Wastewater Department of the Panzhihua Water Affairs Company (PWAC), which is a state controlled enterprise established under corporate law.

52 LJ Annex 7: Financial Management and Disbursement Arrangements CHINA: SICHUAN URBAN DEVELOPMENT PROJECT

EXECUTIVE SUMMARY

1. The Bank conducted an assessment ofthe adequacy ofthe project financial management system ofthe Sichuan Urban Development Project (SUDP). The assessment, based on guidelines issued by the Financial Management Sector Board on November 3,2005, has concluded that the project meets minimum Bank financial management requirements, as stipulated in BP/OP 10.02. The project will have in place an adequate project financial management system that can provide, with reasonable assurance, accurate and timely information on the status ofthe project in the reporting format agreed with the project team and as required by the Bank.

2. Funding sources for the project include the Bank loan and counterpart funds. The Bank loan proceeds will flow from the Bank into the project’s designated account to be set up at and managed by the Sichuan Provincial Finance Bureau (SFB). For Panzhihua, the Bank loan proceeds will flow from SFB to its Municipal Finance Bureau (MFB) to contractors and suppliers. For Suining and Yibin, the Bank Loan proceeds will flow from SFB to the relevant MFBs to the project implementing agencies (or project companies), and finally to contractors or suppliers. For Mianyang, the Bank loan proceeds will flow from SFB to its MFB, to its two district finance bureaus, to the project companies, and finally to contractors or suppliers. The Bank loan will be signed between the Bank and the People’s Republic of China through its Ministry ofFinance (MOF), and on-lending agreements for the Bank loans will be signed between MOF and Sichuan Provincial Government through its SFB and then between SFB and various MFBs, between MFBs and district finance bureaus, and finally between MFBs and implementing agencies. Exact on-lending arrangements will be dependent on each municipality. The constitution of counterpart funds will be appropriations from municipal and district governments.

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

Audit Arrangements 4. The Bank requires that project financial statements be audited in accordance with standards acceptable to the Bank. In line with other Bank financed projects in China, the project will be audited in accordance with International Auditing Standards and the Government Auditing Standards of the People’s Republic of China. The Sichuan Provincial Audit Office has been identified as the auditor for the project. Annual audit reports will be issued by the above audit office and subject to reviews by the China National Audit Office (CNAO). The Bank currently accepts audit reports issued by CNAO or provincialh-egional audit bureaus and offices for which CNAO is ultimately responsible.

54 5. The annual audit report of project's consolidated financial statements will be due with the Bank within six months after the end of each calendar year. This requirement is stipulated in the loan agreements. The responsible entity and timing are summarized as follows:

Audit Report Submitted by Due date Consolidated project financial PPMO June 30 I statements I I I

6. In addition, annual audit reports on financial positions and operating results of the following companies and agencies will be due to the Bank within six months after the end of each calendar year: Mianyang Sanjiang Construction Investment Co., Ltd. Mianyang Science and Education Pioneer Investment Co., Ltd. Suining Economic and Technology Development Zone Management Commission

7. Receiving the financial statements from these entities is not a fiduciary requirement, but will promote sustainability by permitting the easy identification of problems. The requirements for this audit will not be included in the loan covenants, but rather in Schedule 2 of the Project Agreement.

FUNDS FLOW AND DISBURSEMENT ARRANGEMENTS

8. Funds flow for the Bank loan will follow Bank and MOF requirements. One designated account (DA) will be established and managed by the SFB. The funds flow is as follows:

MFB of Suining Economic and b Suining b Technology Development Area Management Commission

B A B N MFB of Yibin Urban K b Yibin b Construction P i Pi Investment Co., Ltd. Panzhihua

55 9. Counterpart funds will include appropriations from municipal and district governments. With the exception ofPanzhihua, appropriations will be provided to implementing agencies through various municipal finance bureaus. The Panzhihua Municipal Finance Bureau will centrally manage project funds (including counterpart funds and World Bank loan proceeds) and make payments directly to contractors and suppliers based on applications submitted by their companies.

10. Bank loan proceeds will be disbursed against eligible expenditures per the following table.

Amount Of % the Loan Allocated Of Expenditures Category (Expressed in Dollars) to be Financed

(1) Civil Works 70%

Part A - 1, Mianyang 47,910,000 Part A - 2, Suining 28,800,000 Part A - 3, Yibin 28,300,000 Part A - 4, Panzhihua 67,990,000

(2) Goods 1,000,000 100%

(3) Consultants’ Service 6,000,000 100%

TOTAL: 180,000,000

11. Four disbursement methods - reimbursement, advance, direct payment, and special commitment - are available for the project. The SOE limits will be set up in line with the procurement post-review threshold, as follows: (i)all contracts for goods estimated to cost the equivalent ofUS$300,000 or less; (ii)all contracts for civil works estimated to cost the equivalent ofUS$4 million or less; (iii)consultant contracts estimated to cost US$lOO,OOO (firm)/$50,000 (individual) or less.

12. One Designated Account (DA) will be established in the SFB. The authorized allocation ofthe DA is proposed not to exceed US$12 million.

13. SFB will be directly responsible for the management, monitoring, maintenance, and reconciliation of the SA activities ofthe project. Supporting documents required for Bank disbursements will be prepared and submitted by respective project implementing entities through two district finance bureaus for Mianyang, and through municipal PMOS in each city, then through the Municipal Finance Bureaus to PPMO and SFB for final verification and consolidation, before sending to the Bank for further disbursement processing. The flow of the withdrawal applications is as follows:

56 Approval by by MPMO Company Economic Zone Finance Bureau by MFB of Mianyang Mianyang

Pioneer Park Finance Bureau

Suining Economic and Approval L+ Technology by MPMO Approval 0 Development Area b of Suining + byMFBof - R Management Suining L D

0 B A Yibin Urban Approval Approval N Construction b byMPMO + byMFB of - K Investment Co., Ltd. of Yibin Yibin -

Panzhihua Urban Approval Construction by MPMO Approval Investment b of + byMFBof - Management Co., Ltd. Panzhihua Panzhihua

FINANCIAL MANAGEMENT AND REPORTING ARRANGEMENTS

Risk Analysis and Conditions

14. The following risks with corresponding mitigating measures have been identified:

Risk Risk Incorporated Risk Conditions of Rating Mitigating Measures Negotiations, board r or Effectiveness Modest See the following mitigating measures utilized in the project. Modest It is the first time for the four cities to implement the Bank-financedproject. Therefore, the FM training to all the financial staff should be arranged before loan effectiveness. Close monitoring by task team is required to ensure that all these new implementing agencies be provided with Bank procedures and familiar with the requirements. Project Level Modest The project will be simultaneously implemented in four cities of Sichuan province. Intensive supervision and strong coordination by the provincial

57 PMO is very important. Close monitoring and intensive supervision by the Bank task team from initial preparation stage throughout the whole implementation process is necessary to ensure the smooth and efficient Droiect imdementation.

The task team will work with the PMO and the implementing agencies at all levels to improve their budget execution and monitoring. Accounting I Low Accounting policies and procedures are already in place. Checking mechanism by the task team at the initial implementation stage to ensure effective functioning ofinformation system has been set up. This should be followed up by regular supervision missions. Internal Modest See the details in paragraphs 20-23 Control below. Though no internal audit arrangement was made for the project, disbursement documents will be reviewed by the finance bureaus at the various levels. Funds Flow Modest The task team will ensure that mechanism be in place to ascertain that Bank loan and counterpart funds will be released to the ultimate beneficiaries timely and avoid bottleneck in disbursements. Financial Low The format offinancial statements is Reporting stipulated by the MOF and all the project entities will use this format for project financial reporting. Auditing- Low The external auditor, the Sichuan Provincial Audit Office, has extensive experience with previous Bank projects.

Accordingly, the overall FM risk-rating of this project is modest. The task team will monitor the project FM risk during project implementation.

Implementing Entities 15. A Leading Group headed by a Vice-Governor has designated Sichuan Construction Commission (SCC) as the agency responsible for project management. SCC organized the Provincial Project Management Office (PPMO) to prepare and execute the project for SUEP, and this PPMO will also take responsibility for SUDP. PPMO has demonstrated its strong capacity and extensive experience in managing World Bank financed projects though ongoing Sichuan Urban Environment Project (SUEP). Each city 58 will have its own coordinating PMO and project implementation will be conducted by relevant entities. The detailed organization chart is as follows:

1 1 Suining Yibin Urban Panzhihua Mianyang Mianyang Economic and Construction S anj iang Science and Technology Investment Construction Construction Education Development Co., Ltd. Investment Investment Pioneer Management Co., Ltd. Investment Management Co., Ltd. Co., Ltd. Commission c 16. Having an adequate project accounting staff with appropriate educational backgrounds and work experiences is one factor critical to successful implementation of the project’s financial management. Based on a review ofeducational backgrounds and work experiences of staff occupying financial and accounting positions in the implementing entities (both “project” and “entity”), the task team notes that staff are qualified for and appropriate to the work they are expected to assume.

17. To strengthen financial management capacity and achieve a consistent quality of accounting work, the task team suggested that a project financial management manual (the Manual) be prepared. The Manual will provide detailed guidelines on financial management, internal controls, accounting procedures, fund and asset management, and withdrawal application procedures. The Manual has been finalized and will be distributed to all relevant financial staff before loan effectiveness.

18. As most financial staff are new to Bank projects, a well-designed and focused training program in project financial management should be provided prior to project effectiveness by the PMO. The training will ensure that all financial and accounting staff have a good understanding ofthe following:

0 The Bank’s financial management policies and disbursement procedures

0 Fund, asset, and contract management

0 Format and content ofproject financial statements

0 Audit requirements On-lending and repayment management

59 Budgeting 19. Although the project’s cost table has been prepared and the project will prepare an annual implementing plan, the project’s budgeting system is usually not well maintained or monitored. The Bank project team will work with related entities to improve their budgeting systems during project implemenation.

Accounting 20. The project’s administration, accounting, and reporting systems will be set up in accordance with Circular #13 “Accounting Regulations for World Bank Financed Projects”, issued in January 2000 by the MOF. The circular provides in-depth instructions on accounting methods for project activities and covers the following: Chart ofaccount Detailed accounting instructions for each project account Standard set ofproject financial statements Instructions on preparing project financial statements.

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

0 Balance Sheet Summary of Sources and Uses of Funds by Project Component Statement ofImplementation ofLoan Agreement Designated Account Statement Notes to the Financial Statements

22. Each implementing agency will manage, monitor, and maintain its respective project accounting records. Original supporting documents for project activities will be retained by the implementing entities. In addition, each implementing agency will prepare financial statements, which will then be submitted to the PPMO. The PPMO will review and approve these financial statements. Subsequently, the PPMO will prepare consolidated project financial statements (format in accordance with the aforementioned Circular #13 agreed with MOF) and include them in progress reports submitted to the Bank on a regular basis for review and comment.

23. The implementing entities will use the computerized financial management system, User Friend (Yong You) or Golden Butterfly (Jin Die), both ofwhich are well- established Chinese accounting software packages approved by the MOF for this project. The task team will closely monitor the accounting work, especially in the initial stage to ensure complete and accurate financial information is provided in a timely manner.

60 Internal Control and Internal Auditing 24. Accounting policies, procedures, and regulations were issued by the MOF and the project will follow these instructions closely. The funds flow will be arranged and monitored by the finance bureau and based on expenditure reimbursements.

25. There is no formal independent Internal Audit department for the project. However, this will not impact the project’s financial management as PPMO management and monitoring, and annual external audits, will ensure that financial management controls are functioning appropriately.

Conditionality 26. There are no additional financial covenants or conditions proposed by the Bank Financial Management Specialist, other than the standard financial covenants described in the legal document (e.g., maintaining project accounts in accordance with sound accounting practices, audit requirements, and SOE).

Supervision Plan 27. The supervision strategy on Financial Management for this project is based on its FM risk rating; which will be evaluated on regular basis by the Bank Financial Management Specialist in consulation with the Task Team Leader.

61 Annex 8: Procurement CHINA: SICHUAN URBAN DEVELOPMENT PROJECT

A. General

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

2. Procurement of Works: Works procured under this project would include: i)under the Mianyang component; construction of23.6 km of local access roads and associated bridges, sewers, drainage, and landscaping to expand the park area in Pioneer park; a 2.6 km section ofthe Second Ring Road (2RR) that will pass through Pioneer park, including an interchange between the 2RR and Yingbin Avenue, and construction of24.5 km of local access roads within Phases A & C in the SEDZ, together with associated drainage infrastructure and landscaping; ii)under the Suining component; construction 25 km of access and distributor roads, bridges, river course improvements, sewers, and landscaping in the Xining District Development Area, and construction of 8.5 km ofthe Xining road; iii)under the Yibin component; construction of a 6.7 km distributor road (Route A) and a 3.5 km extension road (Route B); iv) under the Panzhihua component, development of river embankments and embankment landscaping, construction of sewer interception networks on the north and south banks ofthe Jinsha river, construction ofa new section ofthe Bin Jiang Road, and construction ofthe Bing-Ren road and associated tunnels.

3. Works estimated to cost equal to or more than US$15,000,000 equivalent per contract will be procured under International Competitive Bidding (ICB) procedures; works estimated to cost less than US$15,000,000 equivalent per contract under National Competitive Bidding (NCB) procedures, and works estimated per contract to cost less than US$lOO,OOO equivalent under Small Works procedures. Procurement forms will include Chinese Model Bidding Documents (MBDs) and Bank's Standard Bidding Documents (SBDs) when an appropriate MBD is not available. Pre-qualification procedures may be applicable to contracts estimated to cost equal to or more than US$lO million.

4. Procurement of Goods: Contracts for goods are expected for IT equipment for the GIS and Urban Management Information System (UMIS) under the TA component. ICB, NCB, or shopping procedures shall be used. Goods estimated to cost equal to or more than US$500,000 per contract shall be procured under ICB procedures; goods estimated

62 to cost less than US$500,000 equivalent per contract under NCB procedures, and goods estimated per contract to cost less than US$lOO,OOO equivalent under Shopping procedures. Procurement will be undertaken with the Bank’s SBDs for ICB, and with Bank-approved Chinese MBDs (those dated May 1997 and issued by the MOF) for all NCB contracts. When MBDs are used, all revisions to Bank SBDs since 1997 will be incorporated into the MBDs.

Selection of Consultants 5. Consulting services to be procured under this project will focus on the following areas and needs: project management, construction supervision, UMIS, GIs, and monitoring of resettlement and environmental conditions during the construction. Consulting services from firms will be procured under Quality-and-Cost-Based Selection (QCBS) procedures. Services for the project estimated to cost less than US$200,000 equivalent per contract will be procured under Consultant Qualification (CQ) procedures. Services for tasks that meet the requirements set forth in section 5.1 of the Consultant Guidelines may be procured under Individual Consultants procedures in accordance with the provisions ofparagraphs 5.1 through 5.4 ofthe Consultant Guidelines.

6. Shortlists ofconsultants who will provide services estimated to cost less than US$300,000 equivalent per contract may be composed entirely ofnational consultants in accordance with the provisions ofparagraph 2.7 of the Consultant Guidelines. The Bank’s Standard Request for Proposals for Selection ofConsultants (dated May 2004) will be used.

B. Assessment of agency capacity to implement procurement

7. Procurement activities will be carried out by Sichuan Provincial Project Management Office, and the respective municipal project implementation units (PIUs), including municipal construction investment companies in Mianyang, Sunning, Yibin, and Panzhihua.

8. The PIU-related agencies and companies are staffed as follows: (i> Mianyang Science-Education Innovation Investment Company Limited: a company deputy manager with 18 years ofexperience as a civil engineer is leading a team ofthree engineers; (ii) Mianyang SED2 an assistant manager with 12 years management experience is leading a team with four engineers; (iii) Suining Economic and Technology Development Zone: the vice director of the project management unit has 20 years of experience in civil construction, and one regular PMO chief is leading a team offour engineers; (iv) Yibin Urban Construction Investment Company Limited: a company deputy manager with 15 years ofconstruction experience; the chief engineer is leading with their team of six engineers; and

63 (VI Panzhihua Urban Construction Investment Management Company Limited: the company director and chief engineer with 13 years construction experience are leading a team of 15 engineers. Most team members have experience in domestic bidding procedures, a few have participated in foreign-funded projects, but all are participating for the first time in a Bank project. Proposed measures from the action plan will gradually build and strengthen team capabilities in handling procurement under Bank Procurement Guidelines.

9. An assessment ofImplementing Agency capacity to carry out procurement for the project was done by the Bank project team from October 3 1 to November 4,2005, and November 28 to December 2 2006. The assessment reviewed the project’s organizational structure, under which procurement will be conducted by implementation units in Mianyang, Suining, Yibin, and Panzhihua. Outsourcing assistance for the project will be provided by experienced procurement agents and design institutes, and a local construction supervision consultant. In conclusion, the assessment determined that the organizational structure will adequately support procurement management.

10. An assessment ofthe project’s key procurement-related issues and risks identified inadequate World Bank project experience as the most pressing concern. Corrective measures proposed and agreed to mitigate this risk include: (1) a project component is included that offers consulting services in project management; (2) several experienced design institutes and a experienced tendering companies (CNCCCC International Bidding Company) have been recruited for project procurement implementation; (3) the PMO will arrange additional trainings on Bank procurement policies and procedures for staff in the PMO, PIUs, and design institutes; and (4) PMO study tours to similar Bank-financed projects in China will be planned and conducted before project implementation.

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

C. Procurement Plan

12. The Borrower, at appraisal, developed a procurement plan for project implementation which provides the basis for the project’s procurement methods. This plan (Attachment 1: Annex 8) was agreed by the Borrower and Project Team on July 18, 2006, and is available at the PMO’s and each PIU’s office. The plan will also be made available in the project’s database and on the Bank’s external website. The Procurement Plan will be updated, with the agreement ofthe project team, annually, or as required to reflect actual project implementation needs and improvements in institutional capacity

D. Frequency of Procurement Supervision

13, In addition to the “prior-review’’ supervision carried out in Bank offices, a capacity assessment of the Implementing Agency is recommended once every six or 12 months, and supervision missions in the field will be undertaken, as needed, to review procurement actions.

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

Procurement Method’ Expenditure Total Cost Category ICB NCB Other’ N.B.F. 1. Works - 247.84 - - 247.84 - (173) - - (173) 2. Goods - 1.oo - - 1-00 - (1.OO) - - (1.OO) 3. Services - - 6.00 - 6.00 - - (6.00) - (6.00) Total - 248.84 6.00 - (174) (6.00) -I- Notes: 11 Figures in parentheses are the amounts to be financed by the loan. All costs include contingencies. 21 Includes civil works and goods to be procured through national shopping, consulting services, training, and technical assistance services.

Table AI : Consultant Selection Arrangements (optional) (US$ million equivalent)

Selection Method Consultant Services Tota! QCBS QBS SFB LCS CQ Other N.B.F. Expenditure Category cost A. Firms 5.60 0.00 0.00 0.00 0.40 0.00 0.00 6.00 (5.60) (0.00) (0.00) (0.00) (0.40) (0.00) (0.00) (6.00) B. Individuals 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) Total 5.60 0.00 0.00 0.00 0.40 0.00 0.00 6.00 (5.60) (0.00) (0.00) (0.00) (0.40) (0.00) (0.00) (6.00) ’ 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 parentheses are the amounts to be financed by the Bank Loan.

65 Table 6:Thresholds for Procurement Methods and Prior Review

Expenditure Contract Value Threshold Procurement Contracts Subject to Prior Review Category (US$ thousand) Method (US$ thousand 1 1. Works Equal to or Above 15,000 ICB All contracts (if any)

Less than 15,000 NCB All contracts equal to or above 5,000 (184.41 million)

Less than 100 sw First contract of each PIU (if any) 2. Goods Equal to or Above 500 ICB All contracts (if any)

Less than 500 NCB All contracts equal to or above 300 (1 million)

Less than 100 Shopping First contract of each PIU (if any)

3. Services Equal to or above 200 (firms) QCBS All contracts (5.60 million)

Less than 200 (firms) CQ First contract or above 100 (0.2 million)

Individual consultant Other All contracts equal to or above $50,000 (if any) Total value of contracts subject to prior review: $ 191.21 million Overall Procurement Risk Assessment: Average Frequency of procurement supervision missions One every 6 or 12 months proposed: (includes special procurement supervision for post- review/audits)

E. Retroactive Financing

14. Advance contracting may be applied for the first batch ofworks contracts under the Mianyang, Suining, Panzhihua, and Yibin project components. Part ofthe respective expenditures incurred within one year before the signing date ofthe Loan Agreement can be retroactively financed. The estimated retroactive financing expenditures under this project will total about US$lO million. Procurement will be carried out in accordance with the Bank’s Guidelines, and the related Bank conditions on land resettlement must be satisfied first.

15. The proposed advance contracts are under tight implementation schedules. As such, timely procurement is critically important to meeting the project schedules. Accordingly, it is agreed that that the respective MPMOPIUwill advance contract awards through “retroactive financing.” In other words, the MPMO/PIU will award contracts prior to the Bank loan’s signing, initially pay from their own budgets, with expenditures reimbursed after the Bank loan becomes effective. To ensure retroactive financing, the Bank emphasized the following policy requirements: (a) the pertinent procurement process must conform with Bank guidelines, and receive all necessary “prior reviews” and approvals from the Bank; (b) expenditures should be incurred after project identification and within one year before the expected signing date for the Bank loan; (c)

66 the amount ofretroactive financing should not be higher than 20% ofthe Bank loan’s amount; and (d) payments made in expectation ofretroactive financing are at the borrower’s risk, and do not commit the Bank to grant a loan for the project or financing such payments.

67 Attachment 1 Proposed Sichuan Urban Development Project Contracts Packaging Plan (July 18, 2006) 1 21 3 14 5 6 7 Prior I Ref. Con. Estimated Proc. Contract Description Post Start Date End Date No. No. cost Method Review

(US$ (mmlddlyy) (mmlddlyy) million) 1 Mianyang Component Southern Economic A-l - Development Zone

S143 and SIO-S14Roads, underground pipes and 5.765 NCBIWorks Prior 09/15/08 12130/09 MJ1 I lighting I 2 MJ2 S8-1, SIO-1 Roads, underground pipes and lighting 5.265 NCBIWorks Prior 0911 5106 0411 5/08

3 MJ3 S8-2, S10-2 Roads, underground pipes and lighting 8.166 NCBIWorks Prior 09/15/07 12/30/08

S6, S7 & S9 Roads, underground pipes and 4 3.895 NCBIWorks Post 0511 5/07 12l30l08 MJ4 I lighting S15, S16, S17 Roads, underground pipes and 5 5.904 NCBlWorks Prior 0911 5/06 0913 010 8 MJ5 I lighting I Storm water pipes and extension of canal in 6 MJ6 1.428 NCBlWorks Post 0110 1/07 09130/09 I Fuwengyan I - 7 MJ7 I Plazas and road landscaping I 2.578 NCBlWorks Post 04/15/08 12130109 - 8 MJ8 Roads landscaping 1.188 NCBIWorks Post 04/15/07 12130109

9 MJ9 I Traffic management works I 0.484 NCBIWorks Post 12/15/06 12/30/09

Sub-total 34.614 A-2 I Mianyang, Component - Pioneer Park Zone I Cross bridge (including road, bridge, underground 10 MKl 3.075 NCBIWorks Post 0 113 1I07 07130108 I pipes, and lighting) I Road section K22 (including road, bridge, 11 14.714 NCBlWorks Prior 02/28/08 1213 1/09 underground pipes, and lighting) - Road section K15 - K21 ( including road, bridge, 12 3.728 NCB/Works Post 12/15/05 0713 1/07 - underground pipes, lighting and landscaping) 13 2.742 NCBIWorks Post 09/01/06 08/01/08 foundation, underground pipes, and lighting)

Roads K3, K4, K7, K8. K10 and K11 (including 14 MK5 4,616 NCBlWorks Post 09/01/06 0810 1I08 I road foundation, underground pipes, and lighting) Roads K13 & K14 (including road, pipelines, and 15 NCBIWorks Post 08101106 0610 1109 - management system 16 1.541 NCBIWorks Post 0 1/O 1108 12/01/09

Sub-total I 33.963 ittachment 1 'roposed Sichuan Urban Development Project :ontracts Packaging Plan (July 18,2006)

Suining Component

No.1 road in Xining District (all works) 03/31/06 1010 1/07

Roads No. 3 (section A) ,4,6, 18 in Xining area ( 09/01/06 03/01/08 all works) and section A of Xining road (all works)

Roads No. 2 (section in B) ,8, 13, 14, 15 Xining 7.178 NCB/Works Prior 0313 1/07 10/01/08 area (all works) and wastewater pump room I I Roads No. 2 (section 5, 16, 17,19 and 20 in A), 4.499 NCB/Works Post 0313 1/08 10/01/09 Xining area (all works) I I Area 3 (section B) in Xining District including 4.329 NCBiWorks Post 0313 1/09 10101 /lo fl roads No. 9, 10, 11,21, and 20 (all works) I I Section B of Xining road ( roads, drainage and 22 S6 06/31/08 10/30/10 culverts) and No. 7 road in Xining area (all works)

Duangjiyan Embankment, railings and culversts 6.468 NCBiWorks Prior 03/31/07 10/01/08

Landscaping works including squres 0313 1/09 1oio 1/10 Sub-total a39.601 1 I Yibin Component

Section A O+OOO-3+740: road, bridge, drainage 25 YA1 10/01/06 06/30/07 I and embankment, landscaping

Section A 3+740-6+688.51: road, bridge, drainage 26 I YA2 NCBiWorks Prior 07/01/07 11/30/08 and landscaping 8.84 Section B O+OOO-1+840: right retaining walls, NCBiWorks Prior 01/15/06 08/15/06 curbs at riverside and landscaping 9.87 Section B Ot000-1+840: pavement, drainage, NCBiWorks Post 10/0 1/07 11/30/08 curbs opposite to riverside and landscaping 2.13 Section B 1+840-3+521.21: roads, bridges, NCBIWorks Prior 12/0 1/06 07/30/07 drainage and landscaping 9.36

Sub-total 40.956

Panzhihua Component

Embankment and landscaping along the river 6.838 NCBIWorks Prior 11/01/06 12/01/09 (Xinzhuang Brigde - Midi Bridge, 14 km)

Embankment and landscaping along the river (Midi 11/01/06 12/01/09 bridge - Jinjiang Railway station, 16 km)

Significant sight, Dukou Bridge Xiajiang Riverside (both banks), Datidao Xiajiang (south bank), two 8.347 NCB/Works Prior 04/01/07 04/30/08 rivers confluent point (north bank), front of Jinshajiang Riverside (south bank) Road along the river (upper section of Bin Jiang ll fP4 Road (including road, bridge, landscaping of road, 6.913 NCBIWorks Prior 09/01/06 09/30/07 stormwater pipe under the road) ll

69 Attachment 1 Proposed Sichuan Urban Development Project Contracts Packaging Plan (July 18,2006) Wastewater pipelines (Qingxiangping wastewater 34 collection network, 13.273 km, pipeline No. 1-1 3.560 NCB/Works Post 1 02/30/07 12/30/08 - and No. 9) Wastewater pipelines (Qingxiangping wastewater 35 collection pipe network, 13.273 km, pipeline No. 1- 2.549 NCBiWorks 09130/07

Interception Work (Area 54 Bincaogang 36 pw7 - 1.174 NCBIWorks 12/30/09 wastewater collection network, 8.523 km ) - Rear section of Bing-Ren Road, Dusongliangzi tunnel , 11 10 m in length, section A 585 m ( 37 PB8 8.435 NCB/Works Prior 10/01/06 04/30/08 K6+489.74 - K7+160) and section B 525 m (K6+536.36 + K7) Rear section of Bing-Ren Road, Basijing tunnel , 1779 m in length, section A 898 m (K7+160 38 PB9 - 12.526 NCBiWorks Prior 10/15/06 04/30/08 K8+572 and section B 881 m (K7+130 - K8+515), including structure Rear section of Bing-Ren Road (1545m road foundation, section A K7+61 K7+290, K8+188 39 PB1o - - 11.171 NCB/Works 04/30/08 K8+572, section B K7+55 - K7+207, K12+400 - K13+180 Rear section of Bingren Road (Kuachonggou Bridge, 420 m, K9+860 K10+280; Kuarenhegou 40 PBl - 13.215 NCB/Works 04/30/08 Bridge, K13+220 - K13+280, small bridge and road foundation of 3557 m) Rear section of Bing-Ren Road (road surface layer, 41 PB12 9096 m including asphalt concrete , plant 2.015 NCB/Works 10/30/09 - separation belt, traffic signs, and guard rail)

42 PB13 Interxchange Bridge at 49 KM Place 13.023 NCBiWorks 10/30/09

Lighting and traffic control system, utility lines for 43 gas, power, water and communications 4.096 NCB/Works 10/30/09 - 98.647

E 1 Institutional Development and Capability Building Project Management and Construction Supervision 44 TAl 3.300 QCBS Prior 09/01/06 1213 1/09 I for 4 Cities 1 45- TA2a Independent EAP Monitoring, 4 Contracts, One for - 0.200 1213 1/09 48 2d EachCity CQ

49 Independent RAP Monitoring in 4 Cities 0.200 CQ 1213 1/09

50 1.390 QCBS 1213 1/09 - 51 0.450 NCB/Goods 613 1/07 - GIS/MIS consultant services for Mianyang & 52 GIS2a 0.910 QCBS 12/3 1/09 Suining

GISiMIS software &hardware for Mianyang & 53 GIS2b 0.550 NCBiGoods 6/3 1/07 I Suining (two contracts) I Sub-total 7.000

70 Attachment 1 Proposed Sichuan Urban Development Project

Total of ICB/Works: 0 contracts 0.000

Total of NCB/Works: 43 contracts 247.840

Total of NCB/Goods: 2 contracts 1.000

Total of QCBS Contracts: 3 contracts 5.600

Total of CQ Contracts: 5 contracts 0.400

Total of Prior Review Contracts: 191.212

Total of Post Review Contracts: 63.628

71 Annex 9: Economic and Financial Analysis CHINA: SICHUAN URBAN DEVELOPMENT PROJECT

A. Economic Analysis

1. Quantitative economic analyses were conducted on the urban area development and urban transport components that have quantifiable economic benefits. Least cost analyses and qualitative impact analyses were conducted for other project components with non-quantifiable benefits.

Urban Area Development Components in Mianyang and Suining 2. The objectives ofthese components are to provide new urban land for city development and to relieve congestion in core city areas in: (a) two major urban development areas (Pioneer Park, and the Southern Economic Development Zone) adjacent to the city center in Mianyang; and (b) the Xining District Area in Suining, adjacent to the old downtown area.

3. Methodology. In China, the absence ofmarket prices for rural land at the fringes ofcities is one ofthe most challenging problems in calculating the ERR in the urban area development component. The price paid for land currently is based on the assumption that land is mainly a productive input, and consists ofcompensation for crops and for the floor area of farmers’ housing, plus a land compensation fee and resettlement subsidy paid to the collective, calculated on the basis ofthe average annual agricultural yield of land over three years, multipliedby a factor established by the Land Administration Law. Rural land is owned by collectives; farmers have 30-year rights to use the land pursuant to contracts with the collective. As this is the general practice throughout China, it is difficult to assess the value of specific suburban land being used as inputs for land development projects. While there is no market price for undeveloped suburban land based on free market transactions, there is a competitive market for apartments and office space that is produced and traded every year in large quantities. The price offloor space construction is also based on competitive bidding.

4. The economic analysis of the urban land components builds on the detailed financial model developed for their financial viability assessment (see Section B of Annex 9Einancial Analysis). The calculations were based on the residual land pricing model. The cost ofraw land is acquired through the government administrative formula, which is based on compensation for past income and on replacement cost ofhousing, but does not reflect market prices for land. Accordingly, the calculation of the economic rate of return includes the opportunity cost ofthe undeveloped land, derived from the residual price of land calculated in the financial model. The model uses the market price for floor space and the price ofconstruction to derive the residual value ofland, net ofall cost of development and buildings on it.

5. This market price includes the value ofundeveloped land and the value added by the land developer. To calculate the ERR, the model splits this value between developer and the undeveloped land seller; this split can vary from a 50/50 ratio to lower rates in

72 favor ofthe seller when entry to the land development market is easy and when the undeveloped land is scarce. This ratio can be split in favor ofthe developer when market entry is restricted. The model assumes that this split ratio is 50/50 between the seller and developer. The resulting price ofundeveloped land in the sites’ area, which is well inside the urban perimeter, is above the price ofagricultural land in the area (the compensation price for land paid by government, based on the number ofyears of agricultural production value. The market price should be closer to a price ofagricultural land in the areas far from urban areas).

6. The model extrapolates the residual pricing method to industrial land for office development. The price ofindustrial land and floor space are, however, much more idiosyncratic, and the demand for office space is more sensitive to a one-time big land buyer who can alter the market instantly (e.g., as in the case ofMianyang, a television manufacturing plant). In addition, while office and residential space are commonly traded, the frequency oftransactions with industrial land and office floor space is more irregular.

Table 9.1. Project Indicators for the Urban Area Development Components in Mianyang and Suining

1 2 3 4 5 I I I I I 7 Area of proposed land development schemes Km2 11.9 3.51 8 of which Industrial area Ya 27% 9 Percent increase in built area 96 22% 7% IDTotal population in proposed schemes 149,700 53,000 1 I percent of emsting population 13?h 7% I2 Population of schemes as number of years of demo growth 4.20 1 I.oo 13 Average density in proposed schemes piha 126 I 161

7. Incremental Benefits. The expected incremental benefits from the urban area development components are substantial. The expected direct benefits are significant increases offloor aredcapita, municipal tax collection, and surplus revenue. Various environmental and aggregate economic benefits generated by these investments, which will grow with the project, were not possible to quantify, attribute, and monitor directly, such as increases in net values ofadjacent land areas, improved traffic, and improved green city areas. The opening ofnew areas will provide a number of facilities, in particular large parks, to be shared by the entire city.

8. Economic Rate of Return. The following are the ERR ofthe three urban area development components (Table 9.l(a)). Pioneer Park in Mianyang: ERR 7.4%; Southern Economic Development Zone in Mianyang: ERR 7.2%; Xining District Area in Suining: ERR 7.4%. These ERRSare conservative estimates, as these were calculated based on cash flow only, and do not include other benefits mentioned above, which will be accrued by the project, but are impossible to monetize. With these benefits, the expected economic returns will be significantly higher than estimated.

73 Table 9.l(a). ERR for the Three Urban Area Development Components ERR % FRR YO Land compensation and resettlement actually paid per gross m2 (RMB/M2) Mianyang SEDZ 7.2 11.8 65 Mianyang Pioneer Park 7.4 13.1 60 Suining Xining Distrrict 7.4 9.9 115

9. The ERRSare lower than the FRRs in all three schemes due to a small average under-pricing ofland cost, as land compensations are based on household size and area of the built houses, rather than on total land holdings. However, farmers are resettled with full salable land use rights in the new sites, and the market value of their apartments or plots are not included in the above table, only the amount actually disbursed.

10. The market value ofdeveloped land as established by the residual method is higher than the expected auction market value as included in the FRRs (see the Financial Analysis section ofthe land component in this Annex). In addition, substantial sunk costs incurred in previous land development in Mianyang significantly reduced investment costs for the financial analysis, resulting in a higher FRR. This provides a safety margin for the project.

11. It should be also noted that the above ERR calculations were conducted on residential land only and extrapolated to industrial and office development land. It was not possible to find convincing data on office floor space market prices, nor on industrial floor space. In general, the residual method is valid for residential and office areas as the end products are relatively easily compared. The price ofindustrial land and floor space is much more idiosyncratic from city to city, in particular in smaller towns where the demand ofa one time big land buyer (such as a car manufacturing plant, or in the case of Mianyang, a television manufacturing plant) can significantly alter the market overnight. In addition, while office and residential space is commonly traded and is advertised by real estate brokers, industrial land and floor space are the objects offewer transactions and are not normally revealed by brokers. The detailed data on the ERR calculation ofthe land components is available in the project file.

12. Impact of Possible Distorted Landprices on Urban Development in China. In many urban projects in China, the probable under-pricing ofundeveloped land - compared to its potential market value - has serious economic consequences, even when it appears to give an acceptable ERR when corrected. The distortion to the economy caused by the large difference between the price paid and the probable real value ofland represents a serious misallocation ofresources, which represents a tax on the entire economy. From an urban planning point of view, it contributes to expanding the footprint ofcities more than would be economically justified, resulting in infrastructure and transport inefficiencies. It also encourages lax land use practices inside land development schemes. While the SUDP is not intended to address this fundamental distorted land pricing mechanism in China, SUDP will help the project cities to develop land as efficiently as possible by adjusting the compensation formula closer to market prices.

74 13. Affordability of Apartments Developed on the Three Sites. While creating affordable housing for the poor in the three sites is not the main objective ofthe land c~mponent,~it is, however, necessary to test the affordability ofthe housing which will be likely be developed on the sites. The price ofhousing is dependent on the price of land. The projected price ofresidential land on the three sites is based on an average floor area ratio (FAR) of 1.8, which will be used on the three sites. Some parts ofthe sites with less favorable locations could be zoned at a higher FAR, reducing the land price component ofthe apartments to be built. We have tested the affordability by using a market price for housing based on the average FAR of 1.8. The affordability is measured by calculating the price to income ratio ofapartments ofdifferent sizes for households with an income equal to the median for the city, and equal to 50 percent of the median income. The households’ income distribution is not available in the project cities. The results are as follows:

Table 9.2. Affordability of Apartments on the 3 Sites

Affordability of apartments developed on the 3 sites

Mianyang SEDZ Price of an apartment of Median Income Price/income ratio

50% of median income Price/income ratio

Mianyang Pparks Price of an apartment of 54,000 I 78,000 I 102.000 Median Income 22,000 22,000 22.000 Pricelincome ratio 2.45 3.55 4.64

50% of median income 11,000 Pricelincome ratio

Suining Xining Price of an apartment of Median Income 18,000 Price/income ratio

50% of median income 9,000 9,000 9,000 Pricelincome ratio 6.25

7 While the urban area development components of SUDP are not designed to develop land for low income households, these components could indirectly contribute to the improvement ofliving conditions of lower income households living in city centers by alleviating excessive density in city centers. Many low income households, particularly rural migrants, live in crowded city centers, because ofaccess to working places.

75 14. The smaller apartments in Mianyang are clearly affordable to households around the median income; however, they are barely affordable to households making 50 percent ofthe median (we do not know what percentile corresponds to this income). In Suining, where incomes are significantly lower than in Mianyang, the smaller apartments are not affordable to households at or below half ofthe median income. A higher floor area ratio in some blocks (say, FAR=2.25) could improve affordability. Given that the three areas are provided with large city parks and open space along rivers, an increase in density in some blocks will not create an environmental nuisance. In general, it is thought that the new apartments created in the three zones would be attractive to households already established'in the city and living in the older quarters, which typically have higher incomes. The construction ofnew apartments in the new areas under the proposed project should significantly lower the purchase price or rent ofolder apartments in the older parts ofthe city. In addition to the stock provided at market prices, the resettlement sites for farmers, a majority ofwhom probably have incomes below the city's median, will constitute a new stock of about 6,100 apartments.

Urban Transport Components 15. Objective of the Components. The objective of the urban transport network improvement components is to allow the four project cities to: (a) improve cities' strategic traffic function; (b) reduce congestion and traffic in core and downtown areas; (c) reduce travel time and vehicle operating costs; and (d) improve reliability ofpublic transport services.

16. Methodology. The five urban transport components, which serve a strategic traffic function in their respective cities, have been evaluated using transport analytical techniques based on time and vehicle operating cost savings calculated relative to the "do-nothing" scenario. The travel demand forecasting methodology is based on standard four-step transport models. They were applied in each city to calculate traffic demand and assess road user benefits. The models comprise the following components: trip generatiodattraction, trip distribution, modal split, and trip assignment. Model calibration was based on the results ofcitywide vehicle travel Origin and Destination (OD)-surveys and traffic counts at screen lines and checkpoints, conducted in recent years in each city. The economic analysis used Net Present Value methods and all estimated costs and benefits reflect 2005 prices.

17. Benefits. The incremental benefits ofthe planned strategic roads in the four cities are: (a) savings in passenger travel time; (b) savings in vehicle operating costs; (c) savings in accident-related costs; and (d) savings in environmental costs (noise and air pollution). Due to the lack of appropriate data, only savings in passenger travel time and vehicle operating costs have been taken into account. This assumption probably understates the benefits ofthe investments and is conservative.

18. Forty percent of the average hourly wage was assumed as the value oftime. This was calculated for each city as the GDP per capita divided by the number ofyearly working hours. Average vehicle operating costs per kilometer traveled were estimated for

76 different vehicle categories (e.g., small passenger cars, buses, light goods vehicles, heavy goods vehicles, etc.).

19. The estimation ofthe travel time saved and vehicle-kilometers saved was based on the standard four-step transport models to simulate network traffic performance for the scenarios with and without the proposed road components. For each forecast year (e.g., 2009,2014,2019,2024 and 2029), the differences between scenarios with and without the new roads in total travel time spent, and total travel distances, were calculated. Each vehicle category's share of total vehicle-kilometers saved was then calculated, and multiplied by the respective average vehicle operating cost, which resulted in vehicle operating costs saved for each category. The savings in passenger travel times were calculated accordingly, taking into account average vehicle occupancy for each vehicle category and using the values oftime estimated above.

20. ERR and Sensitivity Analysis. Cost estimates ofprojects at the planning stage usually have an accuracy ofk20 percent. Uncertainties with respect to estimated benefits can be much higher. They depend on many unknowns such as the future development of population, employment, car ownership, travel behavior, etc. To check the project's economic viability, sensitivity analysis with variations in costs and benefits ofthe project were carried out. Variations ofbenefits implicitly take into account uncertainties of the many other factors mentioned above.

Discount rate =lo% Discount rate =12% NPV (million RMB) NPV (million RMB) Discounted costs 187.0 179.8 Discounted travel time savings 87.8 71.1 Discounted vehicle operating cost savings 197.3 159.8 Net Present Value (NPV) 98.1 51.0 ERR 14.5 'Yo

Discount rate = 10% Discount rate = 12% (a) Cost level to reduce NPV to 0 >150% 128% (b) Benefit level to reduce NPV to 0 65% 78% Cost: 76% Benefit: 50% Cost: 63% Benefit: 50% Combine (a) and (b) to reduce NPV to 0 Cost: 92% Benefit: 60% Cost: 77% Benefit: 60% (Examples) Cost: 122% Benefit: 80% Cost: 90% Benefit: 70% Cost: 133% Benefit: 90% Cost: 102% Benefit: 80%

NPV (million RMB) 10% NPV (million RMB) 12% Discounted costs 50.3 48.4 Discounted travel time savings 34.0 28.5 Discounted vehicle operating cost savings I 76.6 64.2 Net Present Value (NPV) 60.2 44.3 I ERR 13.8 'Yo

77 Table 9.6. Suining Xining Road: Sensitivity Analysis (Switching Values) Discount rate = 10% Discount rate = 12% (a) Cost level to reduce NPV to 0 >150% >150% (b) Benefit level to reduce NPV to 0

NPV (million RMB) NPV (million RMB) 10% 12% Discounted costs 61.9 60.1 Discounted travel time savings 117.7 83.8 Discounted vehicle operating cost savings 27.5 26.5 Net Present Value (NPV) 83.3 50.3 ERR 18.4 Yo

Discount rate = 10% Discount rate = 12% (a) Cost level to reduce NPV to 0 >150% >150% (b) Benefit level to reduce NPV to 0 <50% 56% Cost: 92% Benefit: 50% Combine (a) and (b) to reduce NPV to Cost: 119% Benefit: 50% Cost: 111% Benefit: 60% 0 (Examples) Cost: 140% Benefit: 60% Cost: 129% Benefit: 70% Cost:>146% Benefit: 80%

NPV (million RMB) 10% NPV (million RMB) 12% Discounted costs 519.8 506.0 Discounted travel time savings 406.9 295.9 Discounted vehicle operating cost savings 370.7 313.4 Net Present Value (NPV) 257.8 103.3 ERR 13.8%

Table 9.10. Panzhihua Bing-Ren Road: Sensitivity Analysis (Switching Values) Discount rate = 10% Discount rate = 12% (a) Cost level to reduce NPV to 0 149% 1110/ (b) Benefit level to reduce NPV to 0 68% 83% Cost: 75% Benefit: 50% Cost: 72% Benefit: 60% Combine (a) and (b) to reduce NPV to Cost: 89% Benefit: 60% Cost: 85% Benefit: 70% 0 (Examples) Cost: 106% Benefit:70% Cost: 96% Benefit: 80% Cost: 119% Benefit: 80% Cost: 108% Benefit: 90% Cost: 135% Benefit: 90%

78 Table 9.11. Yibin: Route A Discount rate = 10% Discount rate = 12% NPV (million RMB) NPV (million RMB) Discounted costs 285.2 280.0 Discounted travel time savings 51.0 42.4 Discounted vehicle operating cost savings 393.4 327.2 Net Present Value (NPV) 159.3 89.6 ERR 15.5%

Table 9.12. Yibin: Route A: Sensitivity Analysis (Switching Values) Discount rate = 10% Discount rate = 12% (a) Cost increase to reduce NPV to 0 >150% 132% (b) Benefit reduction to reduce NPV to 0 64% 77% Cost: 78% Benefit: 50% Cost: 64% Benefit: 50% Combine (a) and (b) to reduce NPV to 0 Cost: 94% Benefit: 60% Cost: 79% Benefit: 60% (Examples) Cost: 109% Benefit: 70% Cost: 93% Benefit: 70% Cost: 125% Benefit: 80% Cost: 106% Benefit: 80%

Wastewater Component 22. Objectives. The objective ofthe component is to help develop comprehensive wastewater collection systems in three catchments areas that will be connected to an existing Wastewater Treatment Plant (WWTP) and a new WWTP to be constructed under BOT arrangement.

23. Methodology. Calculation ofERR was not applicable, as the benefits are difficult to quantify, and least-cost analysis was undertaken instead. As part of the process, alternatives on timing ofconstruction, location, and capacity ofnew wastewater plants were compared on the basis oftechnical, economic, demographic, and environmental criteria. The plant locations were decided among limited available sites along the river to find areas that do not require pumping station construction, and use gravity for sewage water flow, thus economizing both investment and operational costs.

24. Benefits. Benefits from wastewater related investments are difficult to quantify, particularly those relating to environmental and public health improvements. Non- quantifiable benefits include environmental and public health improvements.

25. ERR and Sensitivity Analysis. NIA

Scenic Improvement (a) Embankment in Panzhihua

26. Objectives. The major objectives ofthis component are environmental improvements, prevention ofsoil erosion and solid waste dumping, removal of debris, and greening and landscape improvements. The direct objective ofthis component is to increase and improve the recreational amenities in the scenic area, improve city livability, and generate tourist flows from non-city residents and tourism-related employment. The embankment eventually will also prevent economic damage from infrequent floods (once

79 every 50 years); however, given their low probability, no indirect benefits were considered for flood protection.

27. Methodology. As most project benefits are non quantifiable, the project investment was decided based on least-cost analysis. Indirect benefits identified also include municipal revenue from newly acquired land for development along the project area, and appreciation ofland and real estate values along the riverbank outside the project area. The embankment, together with the development ofthe riverbank, is expected to double the land and real estate values in nearby residential areas. The fiscal impact was estimated based on the projected appreciation of the land values and real estate values captured by the municipality as revenue through land transfer fees, construction, and sales taxes.

28. Benefits. The main benefits from the embankment and the scenic improvements are an improved urban environment and landscape by eliminating soil erosion and further dumping ofwaste, rubbish, slag, and industrial solid scraps into the Jinshajiang River. The indirect benefits are associated with the fiscal impact of the additional municipal land generated for development along the river, and appreciation ofthe projected residential land and real estate in the area. An estimated additional one-time revenue inflow of 7 1 million RMB will be generated for the municipality as a result of additional land clean up, and transfer ofsmall parcels of salable land along the river, as well as through land transfer fees, construction, and sales taxes generated from development and appreciation ofadjacent residential areas. These benefits would also increase over time as the area becomes more developed, assuming the “with” project case. Further benefits would accrue from consumer surpluses from enjoyment ofthe scenery along the embankment. Also a significant increase in tourist revenue is projected to result in an additional 300 million RMBIyear, a significant part ofwhich will be associated with scenic riverbank improvements, which is difficult to attribute and measure as a tangible benefit.

29. ERR and Sensitivity Analysis. NIA

(b) Route B in Yibin

30. Objectives. The objectives ofthis component are to: (a) extend the existing river- bank wall and two-lane local road along the area, which has the highest population concentration in the city; (b) provide scenic improvements to the riverbank; and (c) open up some small areas ofriverside to land development.

3 1. Methodology. Most project benefits are non quantifiable, and therefore project investment was decided based on least-cost analysis. Additional indirect benefits include municipal revenue from the appreciation ofland and real estate values along the riverbank outside the project area currently under development. The embankment, together with the scenic development ofthe riverbank, and Road B, are expected to double the land values in nearby residential areas. The fiscal impact was estimated based on the projected appreciation ofthe land and real estate values captured by the municipality as revenue through land transfer fees, construction taxes, and sales taxes.

80 32. Benefits. This component will benefit the city transport network by adding to the inner city ring road and better integrating the old city district. The main benefits will be increased tourist flows and revenue captured from sales taxes from non-city residents, consumer surplus from enhanced traffic convenience, enjoyment and hedonic upgrades with effects on adjacent land and real estate values. An increase in land values by 2.6 times in the areas along the riverbank, and in residential real estate values by two times, is projected by 2009. Total additional fiscal revenue generated from the development of the land adjacent to Road Byand the embankment area, is estimated to be a non-recurrent 993 million FWB, captured through land transfer fees, and construction and business taxes partially attributable to this investment component.

33. ERR and Sensitivity Analysis. NIA

B. Financial Analysis

34. Financial analyses have been conducted on the urban area development components in Mianyang and Suining, including the financial standings oftheir implementing agencies, and the wastewater system in Panzhihua. In addition, the financial positions ofthe municipalities were analyzed.

Urban Land Development for Multi-Purpose Use in Mianyang and Suining 35. The financial analysis ofthe three urban area development components were conducted using a model linking land use, land and infrastructure costs, projected sale prices ofland, cash flow, and Financial Rate ofReturn (FRR). In addition, independent of the land pricing assumption made in the model, the model derives the price of land from current market prices for residential and commercial floor space using the residual method, as a way of crosschecking the soundness of the pricing assumptions.

36. The use ofthe model allows calculating alternative values ofthe FRR when alternative parameters are selected. Sensitivity analysis can be run quickly to test alternative values ofland use, including floor area ratios, infrastructure costs, phasing of construction and land sales, etc. The various iterations ofthe model corresponding to the three land development components are available in the project file. The key land use costs and price indicators are shown in Table 9.13.

81 Table 9.13. Indicators for the Three Land Development Components

lndlcatoro for SUDP land development Component

Southen

1 2 3 4 5 6 7 Residential ha 190 118 117 424 8 of which residenbal for resetlement ha 18 16 18 50 9 Commercial, offices ha 35 126 47 208 10 Industrial ha 85 136 221 11 Roads ha 61 104 67 293 12 Open space parks and water bodies ha n w 83 213 13 Community facilibes ha 36 21 38 94 ld I I I I I I I 15 Cost of on site infrastructure by m2 of salable land RmWm2 116 118 223 16 Cost of land acquisibon /reseUement per m2 of salahle land Rmblm2 98 75 184 17 Total land and development cost per mZ of salable land RmWrri2 213 193 407 18 I I I I I

20 21 &era36 Frqcctea sae price of salable land (Rrnblm2) Rm~In2 291 240 489 22 Deve aprnent 5iirp1~5 96 27% 20% 17% 23 Interest Durinj Ccnstr~coonas 96 cf infrasl recoverable ccsts % 5.8% 6.4% 5.3% 24 Financia rate of rentrn 46 13.1% 11.80h 9.996 25 Economi.: fiate of retm % 7.2% 7.4% 7.4%’

37. The ratio of salable land differs markedly between Mianyang and Suining. The small salable area in Suining is due to a large park along a canal serving the core city. This large park contributes to the relatively high land development cost per m2in Suining (line 10 ofTable 9.13). The total development cost in Suining is significantly higher than in Mianyang because ofthe higher cost for land acquisition and resettlement.

The projected population in the model is obtained by using the formula:

(FAR ]X [Res.Area] X [Av. Hsld Size] population = Av. Apt. Size where: FAR is the floor area ratio as regulated by the Master Plan Res. Area is the residential area Av. Hsld. Size is the average household size in the city as given in the census Av. Apt. Size is the average apartment size to be built by developers purchasing the land

The populations calculated by the formula for the three schemes may differ from the norms of the master plan, but are more realistic as they reflect the design and regulation within the schemes themselves.

82 38. Demand. The table below summarizes the evolution ofthe projected land use during the period of SUDP implementation and construction of superstructure. The urban areas in Mianyang and Suining are growing at a faster pace (6% and 5% respectively) than population because offive main factors: (i)demographic growth coming from migration from rural areas; (ii)new household formation among the already urbanized population; (iii)increases in residential floor area consumption per person; (iv) growth of the service and retail sector; and (v) growth ofthe industrial sector. SUDP sites will provide about 40% ofthe projected demand for land in Mianyang, and 19% in Suining during the project period.

Table 9.14. Land Use in the Three Land Components

1 Laird Use in SUDP and demand for land

39. Sites location and spatial issues. The sites selected for development in SUDP are located closer to city centers than the fringes ofurbanization in both cities. The current spatial policy implicit in the master plans of cities like Mianyang and Suining could be summarized as follows: (i)redevelopment ofolder areas; and (ii)consolidation ofunder- used areas and agricultural enclaves within the existing urbanized radii. The location of SUDP sites in Mianyang and Suining are part ofthis policy. Both sites are part ofa consolidation in-fill strategy rather than an extension ofbuilt-up areas farther away from city centers. In Mianyang, the current built-up area expands up to 14 km from the city center, while SUDP sites are between 2.5 and 7 km for SEDZ, and between 3 and 9 km for Pioneer Park. In Suining, the built-up area expands up to 11 km from the center, while the Suining site is located between 1 and 5 km from the center. Both sites are therefore part ofa consolidation of existing semi-developed rural enclaves, rather than development ofbuilt-up areas farther from city centers. The gross densities used in SUDP in the two cities (1 78 p/ha in Mianyang and 141 p/ha in Suining) are high by international standards, and are consistent with the stated urban policy in China ofmaintaining compact cities with reduced footprints.

40. Alternatives modes of urban development considered. Two alternative urban development strategies were considered: the first one minimizes further forcible resettlement, and the second is more demand driven to reduce the municipality's financial

83 exposure.

41. The first strategy would consist in developing only primary (trunk) infrastructure and letting farmers develop land by themselves in areas adjacent to this infrastructure. The second strategy, inspired by the one used in Bangalore in India to develop high tech campuses, consists in letting the private sector develop self-sufficient areas at their own expense in the form oflarge condominiums at the periphery ofcities.

42. The first strategy was rejected because: (i)cost recovery ofthe initial municipal investment would be difficult; (ii)current Chinese law in any event severely limits the use ofcollectively-owned land for non-agricultural purposes unless the land is first acquired by the State and converted to urban land; (iii)farmers would have difficulties accessing capital because current law vests ownership ofrural land in collectives and not individual farming households (although households hold 30-year contractual rights over their land, these rights are not mortgageable); and (iv) this strategy enlarges the footprints of cities, requiring costly infrastructure development and maintenance and increasing travel time and costs.

43. The second strategy was rejected because: (i)the current legal framework does not allow the private sector to develop land at its own expense; and (ii)even if a law was passed to make this possible, the private sector would tend to develop land farther away from existing built-up areas, resulting in distortion in city structure, and increasing motorization and trip length.

44. Compensation Price vs. Market Price. In SUDP, the compensation system used to pay for rural land to be developed is not based on market prices, as there are currently no legal possibilities ofdeveloping a land market in China that would allow the direct sale of land between rural and urban users. The price paid for undeveloped land under the current Chinese compensation system reflects the agricultural production (or rent) value to the present users ofthe land and the replacement value ofthe houses they occupy. By contrast, a compensation system based on market prices would reflect the future use value ofthe land rather than the capitalized rent under current use. We found, however, that in the case oflifetime allowances, when various elements ofthe compensation package were added and capitalized, the total compensation mimicked more or less what we could project using market prices. This is due to the fact that compensation is very much linked to densities, and farmers are located in higher density clusters the closer they are to city limits than in areas farther away. The following table provides an example of the compensation package corresponding to an average parcel size, and average house floor size in Suining. The value ofthe total compensation is about 173 RMB/m2,which is not very different from what the market price would be at this distance from the city center. The potential market price for undeveloped land has been derived from market transaction prices for apartments in Suining.

84 Example of compensation for land and housing in Suining for an average household

Package for a household of 3 persons average household size 2 91 Occupying an average of 1.161 35 m2 of land With a house of 125 93 m2 Discount value 4%

Total ComPensation Package

L Compensation for Land (Lifelong allowance) Capitalized pension Per month Per year years child 120 1.440 60 32.578 Adult 1 90 1,080 40 21.376 Adult 2 90 1.080 40 21.376 300 3,600 [-]Rmb Compensation price per m2 of land

1. Compensation for house demolished

New apartment floor area 125.93 rnZ New apartment market value 1000 Rmblm2

:, Tatal compensation

Compensation for land (lifelong allowance) 75,330 64.86 Rmblm2

Compensation for housing 125.930 108 43 'I Total compensation value I 201,260 J 17330 'I

45. Internalfinancial rate ofreturn. The internal financial rate ofreturn is slightly higher than the internal economic rate ofreturn in all three schemes due to slight differences between compensation costs based on replacement value, and market prices based on future value. The rate ofreturn is calculated on the basis ofthe cash flow during the project period from the start of construction to the final sale of land. The cash flow includes interest during the entire period ofnegative cash flow, whether the money is borrowed from the World Bank, or whether the land developer uses its own capital. In this latter case, it is assumed that the opportunity cost ofcapital is the same as the Bank's rate ofinterest. The cash flow is calculated net of inflation for costs and on the basis of current prices for land, without any escalation during the project period. It is our opinion that developed land prices have equal chances ofrising and falling in the next ten years.

46. While the projects do not include any building construction, the market price of construction is used to calculate - independently from the project team's assumptions - the price of land using the residual method. The difference in EAR between the three projects and the different ratio ofresidential and industrial land explain the large variations in land prices calculated using the residual method. In Pioneer Park, the business area has a FAR of 3.5 as compared to 1.5 in SEDZ. This high FAR isjustified in view ofthe transfer ofa large number ofoffices from the overcrowded traditional center to the business area ofPioneer Park.

85 47. The average auction land price projected in the project is lower than the price obtained through the residual method. This indicates that current pricing is rather conservative. As the land will be auctioned, it is possible that at auction a price closer to the residual price would be obtained, if the market price for floor space was realistically evaluated.

48. Financial Standings of Two Land Investment and Management Companies. Mianyang Sanjiang Construction Investment Co., Ltd. (‘MSCIC ’) and Mianyang Science and Education Pioneer Investment Co., Ltd. (‘MSEPIC’) will implement the urban area development components in the Southern Economic Development Zone and in Pioneer Park, respectively, in Mianyang.

49. MSCIC was established in October 2001 to develop rural land now located in the SEDZ for industrial, commercial, and residential uses. It is a state enterprise owned by Mianyang South Economic Development Zone (SEDZ), which is the administrative unit of the Fucheng District under the Mianyang Municipal Government.

50. As of the end of September 2005, MSCIC developed and sold a total land area of around 166 ha, including around 37% of Sections B & D of the SEDZ (454 ha). MSCIC concentrated on construction activities until 2004. It started capturing returns from its investments in 2005, increasing revenue from RMB62 million in 2004 to RMB180 million in 2005. MSCIC expected to record net income of RMB64 million in 2005 after recording a net income loss of RMB2 million in 2004. Under the current favorable market for urban land sales, MSCI will continue to generate sufficient cash flow to serve the counterpart fund requirements of SUDP. At the end of 2004, its total assets were RMB996 million, of which its long-term liabilities were RMB513 million. MSCIC’s capital structure was sound with a 2004 debt to equity ratio of 60/40.

5 1. MSEPIC was established in July 2001 to develop rural land now located in the Pioneer Park for industrial, commercial, and residential uses. It is a state enterprise owned by the Pioneer Park Administrative Commission, which is the administrative unit of the Mianyang Municipal Government.

52. Since the beginning of its operation in 2001 until the end of September 2005, MSEPIC developed and sold a total land area of 108 ha. The area developed and sold by MSEPIC is 15% of the total area of Pioneer Park (around 720 ha). It is estimated that MSEPIC generated revenue of RMB91 million in 2005, and is expected to substantially increase its revenue to RMB160 million in 2006. After the project starts in 2006, MSEPIC is expected to generate sufficient cash flow to serve the fund requirements of the project. At the end of 2004, MSEPIC’s total assets were RMB366 million, of which long-term liabilities were RMB103 million. MSEPIC’s capital structure was sound with a debt to equity ratio of41/59 in 2004. The financial statements of MSCIC and MSEPIC are available in the project files.

53. The detailed data of the financial analysis of the land components is available in the project file.

86 Wastewater Component 54. Currently, the Panzhihua Municipality has two wastewater treatment plants with treatment capacity of 50,000m3 per day, covering 65% ofthe total water supply served by the Panzhihua Water Affairs Group Company (PWAC). The population is projected to increase by 25% by 2015. To meet growing demand, the 2005 Wastewater Master Plan envisages operating two new water treatment plants in 2010 and 2014. The Bank funded sewer network will be built in parallel with the construction ofthe first ofthe two new water treatment plants. The WWTP will be built and operated under a BOT arrangement over 25 years. The major features ofthe wastewater system in Panzhihua are summarized Table 9.15.

Table 9.15. Key Indicators for Projected Demand Growth of Panzhihua WWT

55. Financial Projections. Since its start ofoperation in 2004, the wastewater system in Panzhihua has incurred operating losses (including depreciation before debt service) due to a low wastewater tariff and poor coverage. To improve this financial situation, Panzhihua increased the wastewater tariff in August 2005 from RMBO. 151 m3 to RMB0.3O/m3 for domestic users, and from RMB0.201m3 to RMB0.40 m3 for industrial users. Even with this adjustment, PWAC will not be able to achieve full cost recovery. During SUDP’s appraisal, the Bank mission agreed with the Panzhihua Municipality and PWAC on a further increase to the wastewater tariff to achieve full cost recovery (at least RMB0.40/m3 in 2007 and RMB0.80/m3 in 2009 for domestic users, and at least RMB0.50/m3 in 2007 and RMB0.90/m3 in 2009 for industrial users). The financial model ofthe wastewater system is available in the project file.

56. Affordability. Two urban household groups are considered in the affordability analysis: (a) the average income group; and (b) the low income group (bottom quintile), As shown in Table 9.15, the combined cost ofwater and wastewater for a low income household is projected to be at most 3.4%. These percentages are well within the generally accepted guideline that the total cost ofany household’s water supply and sanitation services should not exceed 5.0% ofhousehold income. The tariff increase scenario is thus affordable.

87 Low Income: Wastewater 7 10 10 10 10 10 10 Water 49 65 65 65 65 65 71 Total 56 75 75 75 75 75 81

Low Income: Wastewater 0.3% 0.4% 0.4% 0.4% 0.4% 0.4% 0.4% Water 2.3% 3.0% 2.9% 2.8% 2.7% 2.6% 2.7% Total 2.6% 3.4% 3.3% 3.2% 3.1% 2.9% 3.1%

Municipal Finance 57. Municipal finance conditions were analyzed in Mianyang, Suining, Panzhihua, and Yibin, as well as: in Mianyang, within the Fucheng District Government, the Administrative Commission of Southern Economic Development Zone, and the Administrative Commission ofPioneer Park; and in Suining, the Administrative Commission ofSuining Economic and Technological Development Zone (‘SETDZ’). The objective ofthese analyses was to evaluate whether the participating municipalities, or other municipal entities, are financially in good positions to provide counterpart funds, pay debt services, and operate and maintain assets financed under this project. All relevant details are available in the project file.

58. Methodology. For this analysis, historical data and supplemental narratives were collected for last five years (from 2000 to 2004). Total fiscal revenue and total current expenditures were projected based on the trends of the last three years to calculate a surplus, which is used as an indicator to gauge the capacity ofmunicipal finance entities in connection with counterpart funds, debt service payments, and operation and maintenance costs required in the Bank project. The Bank would request all the municipal finance entities to give first priority to Bank requirements in application of surplus funds. Assuming a case where lower administrative entities of municipal government should fail to perform, the capacity ofmunicipal governments was also analyzed.

59. Analysis. The results of the analysis indicate that all project municipalities and their implementing agencies will be able to: (i)provide project counterpart funds; (ii) cover operation and maintenance costs; and (iii)pay debt services from the surplus revenue. Detailed analysis ofeach municipality is provided below.

88 Mianyang 60. Southern Economic Development Zone Component. The urban area development component in the Southern Economic Development Zone will be financed by the Fucheng District Government and the Administrative Commission ofthe Southern Economic Development Zone. The results ofthis analysis show that the counterpart funds will account for 5% to 26% ofFucheng District Government's surplus and 3% to 3 5% ofthe Administrative Commission for Economic and Technological Development Area's surplus.

Table 9.17. Fucheng District Finance

* Excluding World Bank project expenditure ** Southen Economic Development Zone

Table 9.18. Administrative Commission of Southern Economic Development Zone

* Excluding World Bank project expenditure ** Southen Economic Development Zone

6 1. The urban area development component in Pioneer Park will be financed by the Mianyang Municipal Government and the Administrative Commission ofPioneer Park. It includes the Second Ring Road, part ofwhich will be financed by the Bank. The analyses demonstrate that counterpart funds will account for less than 5 1% ofthe Administrative Commission of Pioneer Park's surplus (see Table 9.19). The Mianyang Municipal Government is capable ofproviding the required funds. Table 9.20 demonstrates its capacity to support all Mianyang project components, including the Southern Economic Development Area and Pioneer Park. The total funds required for the

89 entire Mianyang project component will not exceed 28% of the surplus of the Mianyang Municipal Government.

Table 9.19. Administrative Commission of Pioneer Park

* Excluding World Bank project expenditure ** Pioneer Park Subcomponent

Table 9.20. Mianyang Municipal Finance

* Excluding World Bank project expenditure ** Mianying Component, includingthe part of 2nd Ring Road outside Pioneer Park

Panzhihua 62. Panzhihua Component. This component will be fully financed by the Panzhihua Municipality. The results ofthe evaluation of Panzhihua’s capacity are presented below; counterpart fund requirements account for 2% to 8% ofthe current surplus level.

90 Table 9.21. Panzhihua Municipal Finance

* Excluding World Bank project expenditure ** Panzhihua Component

Suining 63. Suining Component. This component will be financed by the Administrative Commission of Suining ETDZ (SETDZ), and the Suining Municipality. As Table 9.22 shows, SETDZ is not in a position to provide the required funds from its current revenue base; SETDZ will need to harness land sales revenue to satisfy project requirements. Table 9.23 shows SETDZ is expected to generate over RMB 800 million from land sales over the next five years, which is sufficient to meet the Bank’s fund requirements.

Counterpart funds - 278.0% 1034.5% 612.3% 338.8% 91.6% - Debt Service payments - 60.2% 64.8% 59.3% 51.0% 37.6% 63.5% Operation & maintenance - 12.9%

91 Table 9.23. Land Sales Projections by Suining Economic Development Zone SUDZ Cash Flow from Land Sales

Total Land Sales

* Suining Component

64. Table 9.24 shows that the Suining Municipal Government will be able to provide all funds required for the Suining Component, including for SETDZ. The fund requirements of the Suining Component will not represent more than 72% of the Suining Municipal Government’s revenue surplus. In the letter to the Sichuan Provincial Government, the Suining Municipality stated that it would satisfy its SETDZ obligations in case of a default ofthe SETDZ.

Table 9.24. Suining Municipal Finance

* Excluding World Bank project expenditure ** Suining Component

Yibin 65. Yibin Component. This component will be fully financed by the Yibin Municipality. It is projected that the funds required for the project will represent less than 12% of the surplus generated by the Yibin Municipal Government.

92 Table 9.25. Yibin Municipal Finance

* Excluding World Bank project expenditure ** Yibin Component

93 Annex 10: Safeguard Policy Issues CHINA: SICHUAN URBAN DEVELOPMENT PROJECT

This Annex describes environmental and social impacts and management plans for SUDP.

A. Environmental Impacts and Environmental Management Plans

Background 1. This section describes environmental impacts and environmental management plans of SUDP. The discussion is based on the Environmental Impact Assessment (EIA) and Environmental Management Plan (EMP) reports (together referred to as the Environmental Assessment (EA)) for each ofthe four project cities, as prepared by the Academy ofEnvironmental Sciences (SCES) and Chengdu Hydropower Investigation & Research Institute (CHIN), respectively. The EA documents identify potential environmental benefits and consequences ofthe project, propose measures to avoid, mitigate, or otherwise compensate negative environmental impacts during construction and operation, and allow incorporation ofappropriate measures in the design to mitigate negative impacts to minimum and acceptable levels.

2. The EA has been prepared on the basis ofthe country’s legal and policy framework for pollution control and environmental protection, master plans and environmental plans ofthe four project cities, the fish habitat protection plan of the upper Yangtze River, as well as applicable World Bank safeguard policies. Applicable regulatory discharge and environmental standards have been used as the primary reference to determine the extent and level ofimpacts.

3. Technically, the EA applies methodologies set out in various technical guidelines issued by the State Environmental Protection Administration (SEPA). The scope ofthe project covered by the EA is based on project feasibility study reports for each ofthe project components prepared by the Southwest Municipal Design and Research Institute, and the Chengdu Municipal Engineering Design Institute, for the four project cities.

Environmental Benefit 4. The proposed project will bring about positive impacts and benefits to the environment and communities in the four project cities, including reduced wastewater discharges, improved environmental aesthetics, improved transportation networks, and thus reduced urban traffic congestion and associated motor vehicle emissions, and improved city landscapes, including better parks and green areas.

Analysis of Alternatives 5. Alternatives were considered during the preparation of the feasibility studies for each component, with the objective ofminimizing the environmental impacts of each component.

94 Environmental Impacts and Mitigation 6. Project components will potentially cause a variety ofshort-term construction and longer-term operational impacts. A series ofmitigation measures has been planned to reduce the impacts to acceptable levels during construction and operation. Mitigation monitoring procedures have been established and the organizations responsible for this monitoring have been designated.

7. Details ofmitigation measures, their locations, timeframes, and responsible agencies for their implementation and supervision, have been provided in the EMP. The EMP covers such areas as water management, air quality control, noise management, construction waste management, erosion mitigation, construction runoff management and water storage, orientation ofroads and paths, traffic management, and speed control. EMP annexes contain guidelines on site clearance, construction methodologies, and debris disposal.

Environmental Management and Monitoring 8. An EMP has been developed as a separate and stand alone document for each of the four project cities. These EMPs address policies and applicable environmental standards, environmental management systems, mitigation measures, monitoring plans, institutional arrangements, capacity building and estimated costs for the mitigation measures and monitoring programs for both the construction and operation phases.

9. There will be three layers oforganization that will be responsible for the project’s environmental performance. The first level comprises project preparation, implementation, and management organizations that have paramount responsibilities for environmental performance. These organizations include the PPMO, city governments, MPOs, and project implementing agencies. The second layer consists of contractors, and construction supervision and third party supervisiodmonitoring agencies. The third level is made up ofenvironmental law enforcement and similar regulatory agencies, such as SEPA, the Sichuan Environmental Protection Bureau (EPB), local branches of EPBs in each project city, the Fisheries Bureau, Forest Bureau, and, finally, the State Yangtze River Upper Reaches Rare and Special Fish Protection Area Administration.

10. The Mianyang and Suining components will develop a new urban subdivision and new areas in Economic Development Zones. The basic infrastructure in these new zones, namely roads and sewers, will be integrated into its respective city system and managed by the relevant Economic Development Zone department. Three Economic Development Zones have complete, experienced, and fully functioning agencies to coordinate municipal infrastructure and environmental management, including, for example, SUDP activities, or indirect offshoots of SUDP, such as, in Mianyang, comprehensive urban developments in the Economic Development Zones, or increased population in Suining’s new area.

95 11. All project cities will engage specialists in environmental supervision. The supervision will involve regular monthly meetings and review ofsite environmental reports, diaries and records, as well as regular site inspections and investigations.

12. The EMP includes environmental monitoring programs for the project’s construction and operation phases. The parameters to be monitored include resettlement, noise, dust, water quality, and solid waste disposal. There will be a two-tiered monitoring system: (i)daily and routine monitoring, primarily during the construction phase; and (ii)regulatory compliance monitoring in both the construction and operation phases. During the construction phase, daily monitoring will be conducted mainly through visual observations of airborne dust, discharges ofrunoff to rivers (etc.), as well as measurements using equipment such as hand-held noise meters.

13. Periodic monitoring by professional monitoring stations using standard methods recognized by regulatory authorities will also be conducted. Proper training ofcontractor and construction supervision staff in environmental monitoring, as well as ongoing supervision ofand assistance to these staff will be provided by environmental professionals. Monitoring reports will be compiled once every three to six months, summarizing all findings. The reports will be submitted to the project proponent, as well as relevant agencies and the World Bank. During the operation phase, noise levels will be monitored once every three to six months.

14. To ensure environmental performance, the EMP emphasizes institutional capacity building. That is, the EMP proposes detailed programs for personnel training besides the standard recipe ofmanagement and supervision organizations overseeing environmental decision making, monitoring, reporting, and mitigation. The training will target professional, managerial, and technical personnel from governments, environmental institutions, project and operational units, and construction supervision units to enhance awareness ofapplicable regulations. Mandatory environmental trainings will also be held for contractors and construction supervisors prior to commencement of construction. The training will cover basic environmental protection and pollution control, project city EIAs and requirements oftheir EMPs, methodologies for site environmental management and monitoring, and reporting requirements.

15. Semi-annual project progress reports furnished by the PPMO will include environmental monitoring reports, as per the formats in the EMP annexes.

Public Consultation and Information Disclosure 16. Two rounds ofpublic consultations were carried out during the EA: the first round when the EA terms ofreference (TOR) was prepared between October 2004 and May 2005, and the second round when the draft EA reports were completed between June and October 2005. The primary techniques used during these consultations were public opinion surveys with constituent questionnaires, supplemented by interviews and public meetings with key impacted groups and individuals. Relevant government and non-government organizations and experts from academic and other professional institutions on various environmental and socio-economic issues were also consulted.

96 17. The public was fully aware ofthe proposed project and expressed their general support. The predominant concern from the impacted public was increased noise followingproject implementation. The church community was concerned about structural safety, relocation of offices and dormitories, land occupation, visual impacts, etc. Other concerns expressed by the public were increased airborne dust during construction, the location ofasphalt mixers, motor vehicle air emissions, landscaping, community severance, resettlement, cultural relics, wetland protection, etc.

18. The EA team also met with experts from cultural and fisheries bureaus and universities. The experts provided their opinions on environmental and cultural relic issues, and provided recommendations from their technical points ofview.

19. The EA team responded to these concerns by requiring dust control measures during construction, noise insulation windows and noise barriers at sensitive receptors where permanent noise increases are expected, large scale landscaping programs where more new trees are planted than those felled during the project, and structural strengthening of church buildings. Public concerns on resettlement, relocation, and livelihood rehabilitation were addressed with appropriate measures in the RAP.

20. To comply with EIA process requirements ofthe Chinese government and the Bank, the completed draft EIA and EMP reports were released in public places in the project area, including libraries, EA team offices, local project owner offices, neighborhood committees, and on cities’ websites. The public can access and review these reports at these places. In addition, information on the project and the availability of these reports were advertised in the Mianyang Daily, Panzhihua Daily and Panzhihua Evening News, Suining Daily and the Yibin Evening News, which are all major and widely distributed newspapers. The EA team plans to disclose the final EA reports in public places once completed.

B. Social Impacts and Action Plans

Project Introduction 21. This section reviews potential impacts related to land acquisition and relocation, and the arrangements proposed in the Resettlement Action Plans (RAPS)to mitigate them where they could negatively affect PAPS.Consistent with World Bank Operational Policy 4.12 on Involuntary Resettlement, the objectives ofresettlement planning are to minimize land acquisition and resettlement and to ensure that incomes and living standards are improved, or at least restored, for all persons adversely affected by the project.

Project Composition 22. The proposed Sichuan Urban Development Project consists oftwo major parts: wastewater management and transportation systems in Mianyang, Panzhihua, Suining, and Yibin. In wastewater management, the project will increase sewerage services in underserved areas. In transportation, the project will support construction oflocal access roads for urban land development (along with sewers and drainage facilities), as well as trunk roads. Details on the sub-projects that involve resettlement are summarized in the table below:

97 City Project Activities Involving Resettlement Mianyang (a) construction of 2 1 km of local access roads and associated bridges, sewers, drainage, and landscaping forming the development of the Pioneer Park (483 ha); (b) construction of a 2.6 km section ofthe Second Ring Road (2RR) with an interchange between 2RR and Yingbin Avenue; (e) construction of24.5 km oflocal access roads with associated drainage infrastructure and landscaping forming the development of the Southern Economic Development Zone (SEDZ/560 ha). Suining (a) 25.26 km ofaccess and distributor roads, bridges, river training, sewers and landscaping forming the Xining District Development Area (351 ha) (b) Xining Road connecting Xining District to the North Station (8.5 km) Yibin (a) Route A (6.9 km) on the north (left) bank ofthe Minjiang River (b) Route B on the south (right) bank ofthe Jinshajiang River comprising a 3.5 km extension ofthe existing riverbank wall and two-lane local road Panzhihua (a) Bing-Ren Road comprising a 6.72 km section of4-lane road (b) Bin Jiang Road involving construction of a 2.7 km ‘missing section’ ofthe riverside Bin Jiang Road (e) Sewerage construction in city core areas (d) River embankment and city beautification including cleaning up debris, construction of embankments, landscape improvement at four scenic spots, plantation oftrees and bushes along the Jinsha River.

Resettlement Impacts 23. A Resettlement Action Plan (RAP) was prepared to address all adverse impacts in each city. Key impacts are the following: The project will require 5,369 mu ofland area, ofwhich 786 mu, or 14.6% of the total, are State-owned, and 4,538 mu, or 85.4%, are collective-owned; The project will require the relocation of 3,046 households and 396 non- residential units (enterprises, shops, and non-profit institutions); The impact on non-residential units is expected to be temporary and relatively minor for most PAPS;few are expected to lose employment because of the project; Beyond the standard lifetime allowances, special additional allowances will be provided to six households in Suining who are dependent on agriculture for over 75% oftheir total income, and whose income after resettlement is anticipated to be lower than their current income, to ensure that they can maintain their current level ofincome from agricultural production and other sources; The total number ofpeople to be affected by land acquisition and relocation is 8,909; A total of 620.61 million RMB, about 21% ofthe total project cost, will be paid for resettlement compensation, and rehabilitation.

98 24. A breakdown ofmajor impacts by municipality is provided in the table below.

Table 10.1. Major Resettlement Impacts of the Project

[House demolition (m2) 1171,177172,841

!demolition

25. The project authorities undertook a socioeconomic survey in each municipality during project preparation. The survey revealed widespread support for the project. Suggestions on improving the project and minimizing adverse impacts were also received, and have been incorporated in planning for the project.

Legal and Policy Framework for Resettlement and Land Acquisition 26. The legal basis for land acquisition and resettlement planning includes national, provincial, and municipal laws and regulations. Relevant national laws or regulations include the Land Administration Law (1998), and the Administrative Regulation on Urban Building Demolition and Relocation (2001). The most recent relevant municipal regulations were issued in 2003.

99 27. In China, all urban land is owned by the State, and all rural land is owned by village collectives. As a result, there are two types ofland acquisition for this project. The first type is acquiring collective-owned rural land. Compensation and other forms of assistance stipulated in the Land Administration Law must be provided to collectives losing land, along with payments to individual households for their fixed assets and crops. The second type ofland acquisition is the acquisition of land use rights within the developed urban areas. In this second case, the acquiring agency or unit must provide adequate compensation or resettlement housing for displaced families and affected enterprises.

28. When collective-owned farmland is acquired, the fbture land user pays compensation for land, loss ofcrops, and attached properties, as well as a resettlement subsidy. Following the revised Land Administration Law, compensation is calculated based on the following principles:

0 Land compensation will be assessed as 6-10 times the average annual output value per mu, for the three years prior to acquisition of the land; The resettlement subsidy varies depending on the size ofthe agricultural population to be resettled. It is usually assessed as an additional 4-6 times (but cannot exceed 15 times) average annual output; If compensation and resettlement subsidies are still insufficient to maintain the affected people’s original living standards, resettlement subsidies may be increased, but cannot exceed a multiplier of30 times the average output value of the requisitioned land; If, after all above regulations have been applied, the affected population still has not been able to restore their level oflivelihood and standard ofliving, additional support should be provided by the municipality to ensure that this occurs.

29. Those affected by urban demolition are to be compensated by exchanging property rights, direct asset replacement, or cash compensation, or a combination ofthese measures. Although no one is expected to lose employment permanently under SUDP, some people will lose wages or profits during a transitional period. They will be entitled to transitional support.

Background Work for the Resettlement Action Plans 30. In all four cities considerable work has been done to identify those people and assets affected by the project. In each city there have been multiple rounds ofpublic consultations (see individual RAPSfor full details) during which potential project affected people have been fully informed ofthe likely impacts of the project and had the opportunity to express their opinions and concerns about the design ofthe project and, specifically, about the resettlement plans.

3 1. In addition to extensive consultations for each city, the following work has been done:

0 Land acquisition surveys. Surveys were conducted to establish the amount and

100 kind ofland to be affected by the project. The surveys measured the present conditions ofland, and the locations ofploughed land, vegetable gardens, garden plots, forest land, house sites, and grasslands. Surveys were carried out in both rural and urban areas, for both collective- and state-owned land.

0 Buildings with associated assets surveys. These surveys assessed all housing, buildings, and other structures to be affected by the project. The surveys compared the accuracy ofhouse property and land-use certificates against actual findings. All facilities belonging to affected populations were registered, including grain tanks, methane tanks, wells, enclosing walls, tombs, piggeries, retaining walls, mosaic or granite floors, wooden dado, roller shutters, folding doors, stoves, fixed cement chopping boards, special roofing or facing tiles, sunning grounds, planting sheds, and other related assets.

0 Surveys of enterprises, units and shops. A survey and assessment ofthe kinds, locations, and sizes of enterprises, shops, businesses, commercial entities, and related institutions were conducted over the project area. Surveys also measured employee numbers, scales ofoperation, turnover and gross receipts, and identified whether premises are owned, rented, or leased, etc. Scattered tree survey. Each impacted area was surveyed to identify the number and location oftrees, including, but not limited to, fruit and other productive trees. Sizes and numbers were noted, and all trees associated with affected households were listed.

0 Special facilities survey. Surveys itemized assets such as water systems and supplies, power facilities and communication facilities, so any interruption to such facilities can be remedied following construction.

Social and Economic Survey 32. In addition, an in-depth socioeconomic survey was conducted in each ofthe project cities. These surveys assessed the socio-economic conditions in the countryside, city, township (town, farm), and village, and in resettlement areas. The surveys addressed the following areas:

0 Basic conditions ofthe areas affected by project, including current socioeconomic conditions and plans for local development. Basic economic data on local areas was collected from statistical and other documents from departments ofplanning and statistics, and other municipal and provincial sources. Data categories included total output value, total income, gross output value ofindustry and agricultural revenue, income levels oflocal populations, agricultural production and related activities, seeded areas, per mu yield, and state ofplowed land. This information provides an overview of local social and economic conditions.

0 The present condition of economic activities and production among local residents in the areas to be affected by land acquisition and where buildings are to be removed. This includes those affected by land acquisition as well as those affected by structure demolition. Survey items included sex, age, occupation, income, and source ofincome, level of education, and skill level ofhousehold members, type ofland tenure, and related social, economic, and demographic

101 information. Analysis ofcommunity residents who were formerly rural residents. This analysis will help draw lessons from past activities to improve implementation of resettlement and related activities.

RAPs and Their Implementation 33. Based on the above work, a Resettlement Action Plan was developed for each city in conformity with the requirements ofWorld Bank OP4.12, Involuntary Resettlement. The basic principle ofthe RAPs is to minimize resettlement wherever possible, and, where resettlement cannot be avoided, to provide a plan for the resettlement and rehabilitation ofthe PAPSso that they will be compensated for their losses, and their standards of living will be improved, or at least restored to the pre-project levels, in a sustainable manner. In addition, affected productive resources (including shops and enterprises) and public facilities will also be improved or at least restored to their current levels. The full details are available in the individual RAPS.Resettlement Policy Frameworks were also prepared for Mianyang and Suining which essentially extend the approaches taken in the RAPSto cover non-Bank-funded activities that were determined to be linked to the Bank-funded project under the relevant provisions ofparagraph 4 of OP 4.12. Some ofthe key elements ofthe RAPSare:

Compensation Standards 34. Based on analysis ofreplacement values ofvarious categories ofaffected assets, a set ofcompensation standards has been adopted for the project, as outlined below:

Table 10.2. Compensation Standards for Land Acquisition and House Demolition House Demolition (Y/m2) Brick- Brick- Earth- City Land Acquisition concrete wood wood Mianyang’ Y 1 lO/man/month x 12 months x 25 230 170 60 years Suining2 YlOO/man/month x 12 months x 30 320 3 00 280 years Panzhihua3 Y 19,80O/mu for paddy-- or 320 180 120 Y 13,00O/person Yibin4 Y36,500/mu for cultivated land 510 420 60

1. Actual prices paid for housing are greater and include allowances for special construction features in original as well as in-kind payments for new housing, including roof tiles, outside tiles, etc., adding approximately Y30/m2 to the compensation level. Most housing is self-built. Rates above do not include additional payment for walls (brick and earth), concrete pads on grounds, stoves, dung pits, methane-generating pit, wells, fences, tombs and pig sheds. 2. Rates above do not include additional payments for livestock sheds, fences, cesspits, methane pits, wells, water ponds, sweet potato cellars, stone embankments, and tombs. 3. Actual prices paid are higher and are awaiting provincial approval. In particular, prices paid for eartWwood housing are about twice the “official” level. Rates above do not include additional payments for fences, methane-generating pits, concrete pads on grounds, and dung pits. Compensation ofland acquisition in Panzhihua is calculated in two ways. Ifthe per capita land holding is more than 0.3 mdperson, the productive value ofpaddy or dry land is applied. In cases where land holding capacity is less than 0.3 mdperson, Y 13,000 is paid to each affected person who will then be

102 converted to urban hukou. For instance, if the land-holding capacity is 0.25mdperson, four persons will be affected from the one mu ofland expropriated, hence Y13,OOOiperson x 4 persons shall be paid for the one mu ofland. 4. In Yibin, urban structures will be compensated at 1120Y/m2 for frame structures, 1040Y/m2 for block structures, 800Y/m2 for half-timber structures, 680Y/m2 for composite structures, 400Y/m2 for illegal structures, and 320Y/m2 for simple structures (eartldwood). Rates above do not include additional payments for grain tanks, methane tanks, wells, enclosing walls, tombs, piggeries, retaining walls, mosaic or granite floors, wooden dado, roller shutters, folding doors, stoves, fixed cement chopping boards, sunning grounds, planting sheds and toilet fixtures. In addition, land is allocated for the construction ofnew houses.

35. The Net Present Value ofthe total compensation for a typical household was calculated and compared with the theoretical market value ofthe land. This analysis indicates that the total compensation that a typical household will receive is close to the theoretical market value ofthe land to be acquired (See Annex 9: Economic and Financial Analysis, for details).

36. In all four cities, compensation rates are established for different uses of land. For example, in Panzhihua compensation rates for land utilized for different purposes are as follows:

Groups Item (yuadmu) Times (yuan/mu) Huaguo Paddy field 1650 12 19800 (the per capita Irrigated land 1500 12 18000 cultivated land Dry land 1280 10 12800 area is 0.61mu) Garden land 2500 10 25000 Woodland 400 10 4000 Other land 3 00 Yuejin (the per capita cultivated land area 1s 0.22 mu and the 13000 yuadone person affected 2 19 persons will be converted into non-agricultural residents, and 61 persons will be resettled with su&lus land) No 2 group in Shaba village (the per capita cultivated land area 13000 yuadone person is 0.24 mu and the affected 208 persons will be converted into non-agricultural residents, and 62 persons will be resettled with surplus land)

37. Similarly, comparable rates are established in other cities. Compensation is also broken down based on type oftree and or crop. The following presents a compensation schedule for Yibin for fiuit trees and other plants. Similar schedules were prepared by the other three cities and are included in their respective RAPS. Table 10.4. Yibin: Compensation for Fruit Trees and Other Plants

Orange, pear and apple

103 Other fruit trees

Nursery garden Sapling 1500-2000 Small tree 2000-2500 P

RAP Implementation 38. Each RAP outlines in detail the steps to be taken to minimize social impacts of resettlement and to adequately compensate and provide resettlement assistance to project affected persons. Steps will be taken at all stages ofproject planning, design, and implementation to ensure effective and efficient implementation ofthe RAPS.

In the project planning and design stage 39. Project construction will result in land acquisition, house demolition, and resettlement in all four cities, and will unavoidably affect living and production conditions oflocal residents. During the project planning and design stage, steps were taken to alleviate project impacts on local social and economic conditions, including:

0 Design alternatives were considered to minimize disruption during the construction phase and land acquisition and resettlement impacts, and maximize positive impacts on local social and economic conditions.

0 Efforts were made to reduce the amount of construction, shorten the construction period, and efficiently schedule housing demolition and subsequent construction ofnew housing.

40. To minimize the impact(s), wherever possible project construction and land acquisition and housing demolition will be implemented stage by stage. For example, in Mianyang, land acquisition and housing demolition work will start in Qunwen village in August 2006, and in the Nata community ofthe EDZ in June 2007; land acquisition and housing demolition work will start in late 2006 in the Xinglong community, and in June 2007 in Xiyuan community ofPioneer Park. Works in Suining, Panzhihua, and Yibin will also be staggered to minimize impacts ofconstruction.

104 In the project construction stage 41. Just prior to and during project construction, a variety ofmeasures will be taken to ensure the full involvement ofproject affected people, and to ensure that the impacts on project affected people are minimized to the extent possible. Steps include:

0 Continuing Public Participation. An additional round ofpublic consultations will be held several months before land acquisition and housing demolition begin to prepare the project affected people. Before construction begins, notices displaying the construction start date will be made public, as well as construction schedules and the compensation criteria for resettlement, building demolition, and land acquisition. This will ensure that information will be available to the public and project affected people on construction plans and activities. Adopting dust and noise-reducing measures. To keep project construction sites clean and reduce the impact ofconstruction on their surroundings, water spraying and other steps will be taken to dampen dust and reduce this common nuisance. Noise reduction measures, including restricting when construction can take place, will also be implemented. Contractors will be required to remove excavated soil and rock in a timely fashion via well-planned mucking routes, while preventing overloading ofvehicles, and adopting measures to avoid spillage ofrock and soil along access roads. Treatment of wastes produced at Construction sites. Since the project construction period will be long, many construction workers will work, and much rubbish and wastes will be produced at the construction sites. The contractors and employers should remove and properly dispose ofrubbish and waste in a timely and responsible manner according to local environmental and sanitation regulations to keep the sites clean and prevent health and other problems.

0 Use of local labor and suppliers. During project construction, priority will be given to using local suppliers ofconstruction materials and local transportation services, and local labor shall be given first priority for employment so that PAPS can benefit from project activities.

During the RAP implementation stage 42. Where housing demolition and land acquisition are inevitable, the following measures will be taken to reduce their impact on local residents:

0 Strengthen and update basic data collection, and in-depth analysis ofexisting and future development and local social and economic conditions - all performed in compliance with the procedures, processes, and activities called for in the RAPS.

0 Enhance internal and external monitoring, and establish effective information feedback mechnisms and channels (particulary regarding actions specified in the RAP). Efforts shall be made to shorten the information handling cycle to ensure problems with land acquisition and demolition are resolved in a timely and effective fashion.

0 Contractors are required to adopt effective measures to minimize impacts of project construction on local businesses, shops, and agricultural production 105 systems.

43. No one is expected to lose employment permanently because ofproject activities, even those who lose cultivated land. Measures for rehabilitation include: Redistribution ofnewly opened land by villages;

0 Job creation by villages who hold land compensation funds;

0 Employment by the project entities;

0 Job training and placement services provided by the Resettlement Offices in the respective cities; Payment ofsocial security by villages; Payment ofminimum living allowances by the local government; and Access to additional benefits for those converted from rural to urban hukou.

44. Markets are available for affected shops to relocate to. For enterprises subject to structural demolition, two options will be provided. Enterprises can either rebuild their structures within the area if enterprises are partly affected, or receive cash compensation for relocation in the assigned area as set forth in the Urban Master Plan. The relocation site will be selected during consultations between the project authorities and the affected enterprises.

45. The project will also impact public infrastructure. Compensation based on the infrastructure’s replacement value will be paid to the relevant government agencies or local governments to restore the affected infrastructure and services.

Institutional Arrangements 46. The PPMO will coordinate key issues with the MPMOs in the four cities. Implementation responsibilities will be assigned to the Urban Construction and Investment Companies in Panzhihua and Yibin, and to the Management Committees of the Economic Development Zones in Mianyang and Suining. Routine tasks will be undertaken by officials and specialists in these PMOs. Training will be provided to improve implementation capacity ofthe relevant agencies. An independent agency will be invited to monitor resettlement implementation. The reporting system, with internal monitoring by city PMOs and external monitoring by the invited independent agency, will be used to develop appropriate inputs for the semi-annual progress reports.

Community Participation and Public Disclosure 47. Municipal and project design staff consulted with the potentially affected communities to identify resettlement impacts, formulate resettlement policies, and prepare resettlement plans. The total number ofpeople involved reached 3,357 in four cities (Le., Mianyang: 1,560; Panzhihua: 660; Suining: 285; Yibin: 852). This has allowed impacts to be minimized and identification ofremedial plans acceptable to the affected persons. Participation will continue during resettlement implementation.

106 48. Information on the project and the resettlement program has been, and will continue to be made public in the project affected areas, published in local newspapers and on television programs. To ensure that affected persons are informed about compensation standards, rehabilitation measures, and grievance procedures, resettlement announcements have been posted in affected villages and neighborhoods. As required by Bank policies, the full RAP has been made available in city PMOS. Announcements on the availability of resettlement documents were made as follows: Panzhihua Daily on October 10, 2005 Mianyang Evening on September 24,2005 and September 30,2005 Suining Daily on September 29,2005 Yibin Daily on September 29, 2005

Additional disclosure will be carried out following full approval ofthe project.

49. Each city now has a plan for ongoing involvement ofproject affected people and other stakeholders in project implementation. In addition to public consultations, various avenues for public participation are required during preparation and implementation of the resettlement and land acquisition plans and have been carried out in the four cities or will be carried out during implementation. These principal kinds ofactivities are: In standard Chinese, printing resettlement booklets and publicizing relevant policies, rights, compensation standards, appeal procedures, and resettlement action plans; Formal village meetings to ratify compensation disbursement methods and house reconstruction plans; Detailed site measurements and surveys to measure and reach agreement on final property losses incurred by each affected householdenterprise; Issuance ofquestionnaires, convocation ofpublic symposia, and in-house interviews ofvulnerable households, etc.; Issuance of the Resettlement Implementation Plan to local governments for their comments; and Ongoing meetings with affected people to explain progress, gain input on project implementation, and solicit recommendations for improvement ofthe process.

Monitoring and Evaluation 50. To ensure that land acquisition and resettlement complies with relevant requirements, both internal and external monitoring and evaluation programs will be carried out during and after project implementation. Important monitoring elements include assessing whether land acquisition and housing demolition activities meet expectations, and assessing progress on RAP implementation, such as the extent to which identified problems or misunderstanding are effectively addressed.

107 5 1. The “internal” and “external” elements will be combined to assess the RAP implementation process (e.g., disbursement offunds, settlement of grievances, progress on house relocation and land redistribution) and the extent to which the RAPs primary objective - the maintenance or enhancement of current social and economic conditions of PAPs - are achieved in the years following the acquisition of their land or property. Such monitoring will include regular household surveys, rapid appraisals and surveys to determine levels of satisfaction ofthe PAPs with the implementation progress ofthe RAPS.

52. The overall objective of internal monitoring and supervision is to ensure that resettlement implementation is in accordance with the approved RAP. Specific objectives are to: (i)check the achievement ofmilestones in the acquisition and resettlement process, including preparatory phases, against the planned time schedule and budget; (ii)ensure that channels ofcommunication and consultation between the administrators and affected persons are established and operate smoothly; (iii)ensure that compensation payments to affected persons are paid in full and in a timely manner; (iv) verify that the processing ofgrievances takes place within the set time limits; (v) closely monitor adherence to the lawful allocation ofacquisition and resettlement monies to avoid corruption, and (vi) closely monitor levels ofsatisfaction, and concerns, ofthe PAPs during, and following implementation.

53. The objectives ofexternal monitoring and evaluation are to: (i)confirm whether or not the livelihoods ofthe PAPSare restored or reach their former level after completion of land acquisition and resettlement activities; (ii)if not, identify the reasons this has not occurred; (iii)assess the overall efficiency, effectiveness, impact (including behavioral responses), and sustainability ofthe policies and practices of land acquisition and resettlement involved in the project; and (iv) draw lessons for future projects.

54. In each city a timetable for reporting the findings ofboth internal and external monitoring has been established, and details are presented in individual RAPS.

Grievance Procedures 55. All four RAPSinclude extensive grievance procedures designed to ensure PAPs have easily accessible avenues through which to express their concerns, complaints, or suggestions about the way in which the RAPs are implemented. In general, during implementation of land acquisition and the resettlement, if affected populations have any trouble, problems, grievances or discontent regarding land acquisition, housing demolition, compensation payments, and/or resettlement, they can appeal to any of: (1) the village committee and communities’ committee meetings; (2) the employer; (3) the independent monitoring institution; (4) the street office; (5) the petition-letter handling departments ofcity and district government; and (6) the discipline check committee and the audit section. PAPs can also initiate legal proceedings.

Resettlement Cost and Implementation Schedule 56. Based on preliminary data, the project resettlement budget is estimated at 621 million RMB, including monitoring costs and contingency allowances. Estimated resettlement costs are included in the project budget. The project owner has agreed to

108 bear all resettlement costs, even if they exceed budget estimates. The resettlement budget in each city is showed in the table below:

Table 10.5. Budget for Resettlement I Resettlement Cost I Urban Infrastructure I I

- SEDZ 86.61 Panzhihua 36.11 875.53 4% - Bin Jiang R. 4.97 - Bing-Ren R. 31.14 Suining 152.89 489.71 31% -Xining District 141.23 -Connection R. 11.65 Yibin 245.48 573.23 43% I -ASection I 145.44 I I I - B Section 100.04 Total 620.61 2764.47 22%

57. Based on the proposed project timetable, resettlement implementation will be carried out from 2006 to 2008. To ensure effective resettlement implementation, all resettlement-related activities will be completed at least one month prior to commencement ofconstruction in any given area.

Linkage 58. According to O.P. 4.12 on Involuntary Resettlement, Bank resettlement policy applies to activities that are: (i)directly and/or significantly related to the Bank-assisted project; (ii)necessary to achieve the Bank project’s objectives; and (iii)carried out contemporaneously with the Bank funded project. The Bank team identified the following linked activities, and reviewed the relevant RAPS,actual implementation records in these areas when resettlement or land acquisition had already taken place, and the Resettlement Policy Framework in cases where resettlement actions will take place in the future. The Bank team is satisfied the linked activities’ policies comply with OP 4.12.

(i) Panzhihua. The Qingxiangping WWTP is linked to the project, and will be built contemporaneously with project implementation. The land that is acquired will affect 13 people, who will suffer loss of land, but there will be no housing demolition and no physical displacement ofpeople. RAP meets the Bank’s OP 4.12.

(ii) Yibin. There are two linked areas. The first is related to the Route A Road -the Yangwan WWTP, which is expected to be completed by the end of2006. Land acquisition and relocation for the Yangwan WWTP have been completed, and 87 people were affected by land acquisition and/or house demolition. Compensation was essentially identical to that established under the Bank project. The Bank did due diligence on the resettlement process, including visits oflocal consultants to the site to interview affected people, and found the process fully satisfactory and in line with Bank policy.

109 The second area is the link between Route B and the Nanan WWTP. Both the link and the WWTP have already been completed. About 50 people were affected by land requisition and house demolition. Housing was built for those who had to be relocated, and all have now moved into new houses. The policies on which the resettlement work was based are the same as those for the Yangwan Wastewater Treatment Plant, and have been reviewed by the Bank, and found to be in compliance with Bank policy. The resettlement work was carried out successfully, without no disputes or unresolved issues.

(iii) Mianyang. (a) 2nd Ring Road: There is linkage between the Bank and municipality-funded sections of the Second Ring Road. The municipal portion of the Second Ring Road will be covered by the Resettlement Policy Framework which has been agreed with Mianyang. Mianyang will prepare a draft RAP by March 3 1,2007, for the municipal portion. (b) Pioneer Park and Southern Economic Development Zones. Linkage exists between the Bank funded road and drainage construction (Zone l),and the land to be served by these roads and drainages (Zone 2) in Pioneer Park and the Southern Economic Development Zone. Mianyang will prepare the RAPs for the linked land areas and seek the Bank’s non-objection for these RAPs before implementation ofthe resettlement activities.

(iv) Suining: Finally, the land development ofthe Xining District Area in Suining was determined to be linked to the Bank-funded road and drainage construction, and a Resettlement Policy Framework has also been agreed for application to that development.

Resettlement Implementation of the Ongoing Sichuan Urban Environment Project 59. A resettlement assessment undertaken by the independent consultant in December 2004 demonstrated that resettlement under the ongoing Sichuan Urban Environment Project (SUEP) was successful. Affected people were satisfied with the compensation policies and rehabilitation program. The resettlement objective ofrestoring and improving the livelihoods of the project affected people was met. No resettlement issues remain.

Indigenous People 60. The Status Report on Minority Nationalities (MN) was prepared based on a census survey ofethnic minorities in Sichuan Province and the project area. Details are summarized in the table below:

City Minority Nationalities in City Minority Nationalities in Project Area Mianyang Hui, Tibet, and 37 other MN which No represent 3.07% of total population Panzhihua Yi, Lisu, Hui, and other 37 MN which 263 people in 104 households of represent 14% of total population which 80 households are intermarried with Han Suining MN represent 0.54% of total population No Yibin Miao, Yi, Hui, and other 21 MN which No represent 1.6% of total population Sichuan The 53 minority nationalities represent 5% of the total population

6 1. The survey showed that minority nationalities in the project area ofPanzhihua share a similar living modality and production pattern with the Han. The definition of indigenous peoples stated in the Bank’s OP 4.10 therefore does not apply.

Social Assessment on Affordability of the Wastewater Tariff 62. Financial analysis on the wastewater operations in Panzhihua confirmed the affordability ofits wastewater tariff among lower income households. Furthermore, Panzhihua Municipal Government issued a preferential policy according to which urban poor households pay 50% ofthe standard wastewater tariff (see Annex 9: Economic and Financial Analysis, for details).

111 Annex 11: Project Preparation and Supervision CHINA: SICHUAN URBAN DEVELOPMENT PROJECT

Planned Actual PCN review 09/01/2004 09/15/2004 Initial PID to PIC 09/09/2004 10/28/2004 Initial ISDS to PIC 09/09/2004 11/04/2004 Appraisal 12/12/2005 11/20/2005 Negotiations 05/15/2006 07/20/2006 BoardRVP approval 09/07/2006 Planned date of effectiveness 11/15/2006 Planned date ofmid-term review 02/28/2009 Planned closing date 12/3 1/2013

1, Key institutions responsible for preparation ofthe project are the following. Sichuan Project Management Office (PMO) and PMOSin Mianyang, Panzhihua, Suining, and Yibin Sichuan Provincial Construction Bureau and Municipal Construction Bureau 0 Sichuan Provincial Development and Reform Commission Mianyang, Panzhihua, Suining, and Yibin Municipal Governments

0 Ministry ofFinance National Development and Reform Commission

Enhanced Project Supervision 2. Given the complex nature ofrural-to-urban land conversion and the scope of resettlement expected in Mianyang and Suining beyond the Bank’s 2006-201 1 construction period, the Bank will considerably enhance supervision in the following two areas:

0 Land Resettlement: Special Supervision Team: In addition to the Bank’s standard supervision missions, a special supervision team will be established to oversee the urban area development components in Mianyang and Suining. This team, led by the project’s Task Team Leader, will include social scientists, lawyers, and urban economists. An additional supervision budget will be provided to support this team.

Continuous Supervision bevond the Proiect Construction Period: Although the construction of Bank-funded infrastructure will be completed by the end of201 1, the Bank will continue to supervise the urban area development components until 2013, when the developed land plots are expected to be sold.

112 3. Bank staff and consultants who worked on the project included:

I I Leader I I Rose Ampadu Program Assistant EASUR Axel Baeumler Sr. Private Sector Development INFVP Specialist Mary Dutch Sr. Program Assistant EASUR Carlos Ricardo Lead Counsel LEGEA Escudero Yi Geng Financial Management Specialist EAPCO Daniel Gibson Sr. Social Scientist EASSD Lixin Gu Co-Task Team Leader, Senior Urban EASUR Environment Specialist Shunong Hu Hydraulic Engineer EASUR Hiroichi Capacity Building Coordinator EAPVP Kawashima Zhefu Liu Senior Social Develonment SDecialist EASSD Jonathan Mills Senior Counsel LEGEN Lindsav 1 1 Margaret Png Senior Counsel LEGEA Chongwu Sun Senior Environmental Specialist EASEN Ivan Velev Comorate Straterrv Officer EASIN

Edward Dotson Transport Specialist EASTR Dragica Fridl Team Assistant EASUR

Martin Fox Transport EngineerI Consultant Bruce Harris Social Scientist EASSD Eddie Hum Wastewater / Treatment Plant Engineer Consultant Kaori Ikeda Institutioflinancial Analyst EASUR Takashi Kadota GIS Specialist Consultant Naoko Kataoka Operation Expert EASUR Dahong Li Environment Management Specialist Consultant Mike McEnery Municipal Engineer Consultant Edouard Motte Municipal Engineer EASUR Wu Ning Financial Analyst Consultant Anthony Urban Specialist Consultant Pellemini Muanza Nicole Team Assistant Consultant Sangamay Jun Sat0 IT/Information Specialist Consultant Richard Sansom Municipal Engineer Consultant Masato Sawaki Financial Analyst Consultant Jayasankar Management Expert Consultant Shivakumar

Sawako Takeuchi Economic / Financial Analyst Consultant Yukiko Uchiyama Operation Expert EASUR Paul Widmer Transport Economist Consultant Chen Xing Interpreter Consultant Xilin Zheng Counsel LEGAF

114 Annex 12: Documents in the Project File CHINA: SICHUAN URBAN DEVELOPMENT PROJECT

1. Project Concept Note, September 2005 2. Aide Memoire November, 2003 3. Aide Memoire May, 2004 4. Aide Memoire October, 2004 5. Aide Memoire May, 2005 6. Aide Memoire July, 2005 7. Aide Memoire September, 2005 8. Terms ofReference for TA for GIS/MIS 9. Environmental Assessment 10. Environmental Assessment Summary 11. Resettlement Action Plans 12. Procurement Capacity Assessment 13. Financial Management Assessment 14. Panzhihua wastewater system master plan, September 2005 15. BOT Service Agreement 16. Financial Projections ofthe Wastewater Department of Panzhihua Water Affairs Company 17. Business Licenses and Charters ofthe Implementing Agencies 18. Financial Projections of Pioneer Park, Mianyang 19. Financial Projections of SEDZ, Mianyang 20. Financial Projections ofXining District. Suining 21. Financial Projections of the Project Municipalities (Mianyang, Suining, Yibin, Panzhihua) 22. Documents on the decision of the establishment ofEDZ (NDRC, Provincial and Municipal level) 23. Resettlement Committee: Agenda and Minutes ofthe Meeting 24. Land Administration Law 25. Decision ofthe State Council on In-Depth Reform Concerning the Strict Land Management (State Council Document N0.28. 2004) 26. Demand, compensation for land and pricing issues in SUDP, March 29 ,2006 27. Detailed Project Cost Estimate Tables 28. Detailed Project Implementation Schedule 29. Preliminary Designs

115 Annex 13: Statement of Loans and Credits CHINA: SICHUAN URBAN DEVELOPMENT PROJECT

Difference between expected and actual Original Amount in US$ Millions disbursements Project ID FY Purpose IBRD IDA SF GEF Cancel. Undisb. Orig. Frm. Rev’d PO57933 2005 CN-TAI BASIN URBAN ENVMT 61.00 0.00 0.00 0.00 0.00 55.77 3.32 0.00 PO67828 2005 CN-Renewable Energy Scale-up 87.00 0.00 0.00 0.00 0.00 87.00 0.00 0.00 Program PO68752 2005 CN-Inner Mongolia Highway & Trade 100.00 0.00 0.00 0.00 0.00 100.00 0.00 0.00 Conid PO69862 2005 CN - Agricultural Technology Transfer 100.00 0.00 0.00 0.00 0.00 100.00 2.20 0.00 PO71094 2005 CN - Poor Rural Communities 100.00 0.00 0.00 0.00 0.00 100.00 0.00 0.00 Development PO75730 2005 CN-HUNAN URBAN DEV 172.00 0.00 0.00 0.00 0.00 172.00 7.00 0.00 PO81161 2005 CN-CHONGQING SMALL CITIES IIP 180.00 0.00 0.00 0.00 0.00 180.00 0.00 0.00 PO86505 2005 CN-NINGBO WATER & ENVMT 130.00 0.00 0.00 0.00 0.00 130.00 0.00 0.00 PO81346 2005 CN-LIUZHOU ENVIRONMENT 100.00 0.00 0.00 0.00 0.00 100.00, 0.00 0.00 MGMT PO65035 2004 CN-Gansu & Xinjiang Pastoral 66.27 0.00 0.00 0.00 0.00 55.26 10.62 0.00 Development PO65463 2004 CN - Jiangxi Integrated Agric. Modem. 100.00 0.00 0.00 0.00 0.00 93.44 12.84 0.00 PO66955 2004 CN-ZHEJIANG URBAN ENVMT 133.00 0.00 0.00 0.00 0.00 121.82 -4.43 0.00 PO69852 2004 CN-Wuhan Urban Transport 200.00 0.00 0.00 0.00 1.00 188.00 154.20 0.00 PO84003 2004 CN-GEF GUANGDONG PRD URB 0.00 0.00 0.00 10.00 0.00 10.00 0.40 0.00 ENV PO81749 2004 CN-Hubei Shiman Highway 200.00 0.00 0.00 0.00 1.00 167.41 28.41 0.00 PO77615 2004 CN-GEF-Gansu & Xinjiang Pastoral 0.00 0.00 0.00 10.50 0.00 9.50 3.30 0.00 Develop PO77137 2004 CN-4th Inland Waterways 91.00 0.00 0.00 0.00 0.46 90.09 6.55 6.04 PO75728 2004 CN-GUANGDONGIPRD UR ENVMT 128.00 0.00 0.00 0.00 0.64 120.72 1.26 0.00 PO75602 2004 CN-2nd National Railways (Zhe-Gan 200.00 0.00 0.00 0.00 1.00 186.00 17.00 17.00 Line) PO75035 2004 CN - GEF-Hai Basin Integr. Wat. 0.00 0.00 0.00 17.00 0.00 15.41 2.88 0.00 Env.Man. PO73002 2004 CN-Basic Education in Westem Areas 100.00 0.00 0.00 0.00 0.00 86.30 36.87 0.00 PO58847 2003 CN-3rd Xinjiang Hwy Project 150.00 0.00 0.00 0.00 0.00 80.16 30.16 0.00 PO76714 2003 CN-2nd Anhui Hwy 250.00 0.00 0.00 0.00 0.00 207.79 35.79 0.00 PO67337 2003 CN-2nd GEF Energy Conservation 0.00 0.00 0.00 26.00 0.00 14.40 25.10 0.00 PO68058 2003 CN-Yixing Pumped Storage Project 145.00 0.00 0.00 0.00 0.00 129.16 1.86 0.00 PO70441 2003 CN-Hubei Xiaogan Xiangfan Hwy 250.00 0.00 0.00 0.00 0.00 89.49 -10.51 0.00 PO70191 2003 CN-SHANGHAI URB ENVMT APLl 200.00 0.00 0.00 0.00 0.00 177.29 28.29 0.00 PO40599 2003 CN-TIANJIN URB DEV I1 150.00 0.00 0.00 0.00 0.00 139.51 13.28 0.00 PO70459 2002 CN-Inner Mongolia Hwy Project 100.00 0.00 0.00 0.00 0.00 56.17 9.17 0.00 PO64729 2002 CN-SUSTAINABLE FORESTRY DEV 93.90 0.00 0.00 0.00 0.00 52.06 14.90 0.00 PROJECT PO58846 2002 CN-Natl Railway Project 160.00 0.00 0.00 0.00 0.00 24.55 19.55 0.00 PO68049 2002 CN-Hubei Hydropower Dev in Poor 105.00 0.00 0.00 0.00 0.00 60.47 27.47 0.00 Areas PO60029 2002 CN-GEF-Sustain. Forestry Dev 0.00 0.00 0.00 16.00 0.00 11.45 9.40 0.00 PO71147 2002 CN-Tuberculosis Control Project 104.00 0.00 0.00 0.00 0.00 65.37 23.57 0.00 PO58845 2001 CN-Jiangxi I1 Hwy 200.00 0.00 0.00 0.00 54.77 30.05 27.82 0.00

116 PO56596 200 1 CN-Shijiazhuang Urban Transport 100.00 0.00 0.00 0.00 0.00 73.15 64.75 0.00 PO5651 6 200 1 CN - WATER CONSERVATION 74.00 0.00 0.00 0.00 0.00 21.97 13.47 0.00 PO56199 2001 CN-3rd Inland Waterways 100.00 0.00 0.00 0.00 0.00 54.99 16.49 0.00 PO5 1859 200 1 CN-LIAO RIVER BASIN 100.00 0.00 0.00 0.00 0.00 40.70 28.10 0.00 PO45915 200 1 CN-Urumqi Urban Transport 100.00 0.00 0.00 0.00 0.00 34.47 34.47 0.00 PO47345 200 1 CN-HUAI RIVER POLLUTION 105.50 0.00 0.00 0.00 0.00 67.54 -37.96 0.00 CONTROL PO64730 2000 CN - Yangtze Dike Strengthening 2 10.00 0.00 0.00 0.00 0.00 93.03 93.03 -0.27 Project PO58844 2000 3rd Henan Prov Hwy 150.00 0.00 0.00 0.00 0.00 34.36 29.36 0.00 PO58843 2000 CN-Guangxi Highway 200.00 0.00 0.00 0.00 19.70 30.88 36.58 0.00 PO64924 2000 CN-GEF-BEIJING ENVMT I1 0.00 0.00 0.00 25.00 0.00 22.67 23.01 13.44 PO56424 2000 CN-TONGBAI PUMPED STORA 320.00 0.00 0.00 0.00 100.00 65.46 118.86 0.00 PO49436 2000 CN-CHONGQING URBAN ENVMT 200.00 0.00 0.00 0.00 3.70 125.37 100.07 0.00 PO45910 2000 CN-HEBEI URBAN ENVIRONMENT 150.00 0.00 0.00 0.00 0.00 81.61 48.61 0.00 PO45264 2000 CN-SMALLHLDR CATTLE DEV 93.50 0.00 0.00 0.00 0.00 0.74 -0.16 0.00 PO42109 2000 CN-BEIJING ENVIRONMENT I1 349.00 0.00 0.00 25.00 0.00 255.73 213.85 0.00 PO41268 1999 CN-Nat Hwy4/Hubei-Hunan 350.00 0.00 0.00 0.00 0.00 32.81 32.81 0.00 PO36953 1999 CN-HEALTH IX (Shiyong Wang, Back- 10.00 50.00 0.00 0.00 0.40 24.43 23.72 5.27 UP) PO41890 1999 CN-Liaoning Urban Transport 150.00 0.00 0.00 0.00 0.00 5.57 5.57 -2.1 1 PO42299 1999 TEC COOP CREDIT IV 10.00 35.00 0.00 0.00 0.00 28.63 -18.23 0.00 PO43933 1999 CN-SICHUAN URBAN ENVMT 150.00 2.00 0.00 0.00 0.00 65.20 97.22 38.72 PO46051 1999 CN-HIGHER EDUC. REFORM 20.00 50.00 0.00 0.00 0.00 3.81 5.41, 0.00 PO46564 1999 CN - Gansu & Inner Mongolia Poverty 60.00 100.00 0.00 0.00 13.30 11.21 20.80 -12.42 Red. PO46829 1999 CN-RENEWABLE ENERGY 100.00 0.00 0.00 0.00 0.00 2.62 89.62 2.62 DEVELOPMENT PO49665 1999 CN-ANNING VALLEY AG.DEV 90.00 30.00 0.00 0.00 0.00 7.36 8.49 -11.51 PO50036 1999 Anhui Provincial Hwy 200.00 0.00 0.00 0.00 9.60 5.53 15.13 0.00 PO3 8 12 1 1999 CN-GEF-RENEWABLE ENERGY 0.00 0.00 0.00 35.00 0.00 18.93 34.38 17.50 DEVELOPMENT PO58308 1999 CN-PENSION REFORM PJT 0.00 5.00 0.00 0.00 0.00 0.52 0.50 0.00 PO57352 1999 CN-RURAL WATER N 16.00 30.00 0.00 0.00 0.00 10.50 10.27 10.27 PO51888 1999 CN - GUANZHONG IRRIGATION 80.00 20.00 0.00 0.00 0.00 14.56 14.93 0.00 PO51856 1999 ACCOUNTING REFORM & 27.40 5.60 0.00 0.00 0.00 14.38 14.29 0.00 DEVELOPMENT PO51705 1999 CN-Fujian I1 Highway 200.00 0.00 0.00 0.00 0.00 39.24 39.24 0.00 PO03619 1998 CN-2nd Inland Waterways 123.00 0.00 0.00 0.00 37.00 7.80 44.80 7.80 PO03614 1998 CN-Guangzhou City Transport 200.00 0.00 0.00 0.00 20.00 82.81 102.81 82.81 PO03606 1998 ENERGY CONSERVATION 63.00 0.00 0.00 22.00 0.00 19.20 15.40 0.00 PO35698 1998 HUNAN POWER DEVELOP. 300.00 0.00 0.00 0.00 161.90 4.62 166.52 3.51 PO03566 1998 CN-BASIC HEALTH (HLTH8) 0.00 85.00 0.00 0.00 0.00 23.09 20.29 0.00 PO3 6414 1998 CN-GUANGXI URBAN ENVMT 72.00 20.00 0.00 0.00 13.48 50.29 63.17 4.75 PO40 185 1998 CN-SHANDONG ENVIRONMENT 95.00 0.00 0.00 0.00 1.40 10.18 11.58 0.51 PO46952 1998 CN - FOREST. DEV. POOR AR 100.00 100.00 0.00 0.00 0.00 6.42 -92.01 7.99 PO51736 1998 E. CHINNJIANGSU PWR 250.00 0.00 0.00 0.00 86.00 21.06 107.06 11.97 PO03539 1998 CN - SUSTAINABLE COASTAL 100.00 0.00 0.00 0.00 2.06 38.52 40.58 3.38 RESOURCES DEV. PO45788 1998 CN-Tri-Provincial Hwy 230.00 0.00 0.00 0.00 0.00 15.14 15.14 0.00 PO03637 1997 CN-NAT'L RURAL WATER 3 0.00 70.00 0.00 0.00 0.00 0.41 3.62 3.20 PO03650 1997 TUOKETUO POWEWINNER 400.00 0.00 0.00 0.00 102.50 22.56 125.06 22.56 PO36405 1997 CN - WANJIAZHAI WATER TRA 400.00 0.00 0.00 0.00 75.00 10.57 85.57 10.57 117 PO44485 1997 SHANGHAI WAIGAOQIAO 400.00 0.00 0.00 0.00 0.00 50.10 50.10 49.65 PO34618 1996 CN-LABOR MARKET DEV. 10.00 20.00 0.00 0.00 0.00 2.85 4.95 0.00 PO03594 1996 CN - GANSU HEX1 CORRIDOR 60.00 90.00 0.00 0.00 0.00 68.25 67.43 2.05 PO03639 1995 CN-SOUTHWEST POVERTY 47.50 200.00 0.00 0.00 0.01 0.15 24.21 24.21 REDUCTION PROJECT PO03540 1994 CN-LOESS PLATEAU 0.00 150.00 0.00 0.00 0.00 0.00 -0.68 0.00 PO03632 1993 CN-ENVIRONMENT TECH ASS 0.00 50.00 0.00 0.00 0.00 0.04 0.61 0.29 Total: 10,722.07 1,112.60 0.00 186.50 704.92 5,028.67 2,571.16 325.80

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

Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic.

~ 2002 ASIMCO 0.00 10.00 0.00 0.00 0.00 10.00 0.00 0.00 2003 Anjia 0.00 2.00 0.00 0.00 0.00 2.00 0.00 0.00 2004 Antai 40.00 0.00 0.00 30.00 30.86 0.00 0.00 23.14 2003 BCIB 0.00 0.00 11.60 0.00 0.00 0.00 0.00 0.00 2005 Babei 11.00 5.00 0.00 0.00 0.00 5.00 0.00 0.00 1999/00/02 Bank of Shanghai 0.00 24.67 0.00 0.00 0.00 24.67 0.00 0.00 2002 CDH China Fund 0.00 7.15 0.00 0.00 0.00 2.03 0.00 0.00 2003 CSMC 0.00 8.92 0.00 0.00 0.00 8.92 0.00 0.00 2004 CUNA Mutual 0.00 12.00 0.00 0.00 0.00 1.47 0.00 0.00 1998 Chengdu Huarong 5.16 3.20 0.00 5.47 5.16 3.20 0.00 5.47 1992 China Bicycles 4.50 0.00 0.00 0.00 4.50 0.00 0.00 0.00 2004 China Green Ener 20.00 0.00 0.00 0.00 11.50 0.00 0.00 0.00 2004 China I1 28.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2004 China Re Life 0.00 1.54 0.00 0.00 0.00 1.54 0.00 0.00 1994 China Walden Mgt 0.00 0.01 0.00 0.00 0.00 0.01 0.00 0.00 2004 Colony China 0.00 16.07 0.00 0.00 0.00 3.47 0.00 0.00 2002 Darong 10.00 1SO 0.00 8.00 6.67 1SO 0.00 5.33 1994 Dynamic Fund 0.00 5.64 0.00 0.00 0.00 3.99 0.00 0.00 2005 Fang Xin SHMT 6.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2005 Fang Xin Limited 0.00 5.00 0.00 0.00 0.00 5.00 0.00 0.00 2005 Fang Xin SHDX 3 .OO 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2005 Fang Xin SHPM 3 .oo 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2005 Fang Xin SZFX 3.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2004 Fenglin 19.00 0.00 6.00 18.00 12.45 0.00 6.00 11.62 2003 Great Infotech 0.00 3.22 0.00 0.00 0.00 2.52 0.00 0.00 2005 HiSoft Tech 0.00 4.00 0.00 0.00 0.00 3.00 0.00 0.00 2002 Huarong AMC 9.00 2.51 0.00 0.00 9.00 0.49 0.00 0.00 2004 IB 0.00 52.18 0.00 0.00 0.00 52.18 0.00 0.00 2002 IEC 0.00 0.00 20.00 0.00 0.00 0.00 0.00 0.00 2004 Jiangxi Chenming 60.00 12.90 0.00 0.00 30.00 12.90 0.00 0.00 1998 Leshan Scana 2.92 0.00 0.00 0.00 2.92 0.00 0.00 0.00 2001/05 Maanshan Carbon 1 1.oo 1 .oo 0.00 0.00 0.00 0.00 0.00 0.00 2001/05 Minsheng Bank 0.00 2.80 0.00 0.00 0.00 2.79 0.00 0.00 118 2001 NCCB 0.00 26.58 0.00 0.00 0.00 26.46 0.00 0.00 1996104 Nanjing Kumho 34.00 2.23 0.00 0.00 34.00 2.23 0.00 0.00 2001 New China Life 0.00 13.21 0.00 0.00 0.00 5.83 0.00 0.00 2005 New Hope 0.00 0.00 45.00 0.00 0.00 0.00 0.00 0.00 1995 Newbridge Inv. 0.00 0.39 0.00 0.00 0.00 0.39 0.00 0.00 2005 North Andre 15.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1997 Orient Finance 0.00 0.00 4.76 5.95 0.00 0.00 4.76 5.95 2003 PSAM 0.00 1.93 0.00 0.00 0.00 0.00 0.00 0.00 2003 SAIC 12.00 0.00 0.00 0.00 5.00 0.00 0.00 0.00 2000 SEAF SSIF 0.00 3.95 0.00 0.00 0.00 1.29 0.00 0.00 2004 SIBFI 0.00 0.08 0.00 0.00 0.00 0.08 0.00 0.00 1998 Shanghai Krupp 24.50 0.00 0.00 52.49 24.50 0.00 0.00 52.49 1999 Shanxi 12.61 0.00 0.00 0.00 12.61 0.00 0.00 0.00 2002 Sin0 Gold 0.00 4.00 0.00 0.00 0.00 4.00 0.00 0.00 1995 Suzhou PVC 0.00 2.48 0.00 0.00 0.00 2.48 0.00 0.00 Wanjie High-Tech 12.19 0.00 0.00 0.00 12.19 0.00 0.00 0.00 2004 Wumart 0.00 3.90 0.00 0.00 0.00 3.90 0.00 0.00 2004 X Colony China 0.00 0.84 0.00 0.00 0.00 0.17 0.00 0.00 2003 XACB 0.00 19.94 0.00 0.00 0.00 3.25 0.00 0.00 2004 Xinao Gas 25.00 10.00 0.00 0.00 25.00 10.00 0.00 0.00 1993 Yantai Cement 1.53 0.00 0.00 0.00 1.53 0.00 0.00 0.00 2003 Zhengye-ADC 15.00 0.00 0.00 7.00 11.59 0.00 0.00 5.41 2002 Zhong Chen 0.00 5.00 0.00 0.00 0.00 5.00 0.00 0.00 Total portfolio: 387.41 275.84 87.36 126.91 239.48 211.76 10.76 109.41

Approvals Pending Commitment FY Approval Company Loan Equity Quasi Partic. 2005 BCCB 0.00 0.06 0.00 0.00 2005 Babei Silk Tie 0.00 0.00 0.00 0.01 2005 BioChina 0.00 0.01 0.00 0.00 2004 CCB-MS NPL 0.00 0.00 0.00 0.00 2005 Changyu Group 0.00 0.02 0.00 0.00 2004 Chenming LWC 0.00 0.00 0.00 0.16 2004 China Green 0.00 0.00 0.01 0.00 2005 Fang Xin SHDX 0.00 0.00 0.00 0.00 2005 Fang Xin SHMT 0.01 0.00 0.00 0.00 2005 Fang Xin SZFX 0.00 0.00 0.00 0.00 2005 Five Star 0.00 0.00 0.01 0.00 2002 Huarong AMC 0.02 0.00 0.00 0.00 2002 IEC 0.00 0.00 0.01 0.00 2005 MS Shipping 0.02 0.01 0.00 0.00 2004 NCFL 0.00 0.00 0.02 0.00 2003 Peak Pacific 2 0.00 0.01 0.00 0.00 2004 SIBFI 0.00 0.00 0.00 0.00 2002 SML 0.00 0.00 0.00 0.00 2002 Sino Mining 0.01 0.00 0.00 0.01 2005 Vetroarredo 0.01 0.00 0.00 0.00 2002 Zhong Chen 0.00 0.00 0.00 0.03 Total pending commitment: 0.07 0.1 1 0.05 0.21

119 Annex 14: Country at a Glance CHINA: SICHUAN URBAN DEVELOPMENT PROJECT

East Lower. POVERTY and SOCiAL Asia & rniddie- China Pacific income Development dlamond' 2003 Population, mid-year (millions) 1,288.4 1,855 2,655 Life expectancy GNi per capita (Atlas method, US$) 1,100 1,080 1,480 GNi (Atlas method, US$ billions) 1,411.6 2.01 1 3,934 Average annual growth, 199743 T Population (%) 0.8 1.o 0.9 Labor force (%) 0.9 1.1 1.2 GNi Gross per primary Most recent estimate (latest year available, 1997-03) capita nroilment Poverty (% ofpopulation below national poveriy line) 5 Urban population (% of total population) 39 40 50 Life expectancy at birth (years) 71 89 89 1 infant mortality (per 1,000 live birihs) 30 32 32 Child malnutrition (% of children under 5) 10 15 11 Access to improved water source Access to an improved water source (% ofpopulation) 75 76 81 illiteracy (% ofpopulation age 15+) 9 10 10 Gross primary enrollment (% of school-age population) 114 111 112 -China Male 114 112 113 1 ~ Lower-middle-incomegrow Female 114 111 111

KEY ECONOMiC RATiOS and LONG-TERM TRENDS 1983 1993 2002 2003 I Economic ratios. GDP (US$ billions) 227 4 431.8 1,266.1 1,412.3 Gross domestic investmentlGDP 33 8 43.3 40.4 44.4 Trade Exports of goods and services/GDP 83 17.1 28.9 34.3 Gross domestic savings/GDP 345 41.8 43.4 47.0 ~ Gross national savings/GDP 35 1 41.8 43.2 47.6 1 7 Current account baianceiGDP 17 -2.1 2.8 3.2 Domestic ~ interest paymentsiGDP 02 0.6 0.3 0.3 - investment l savings Total debtlGDP 42 19.9 13.3 13.7 Total debt service/exports 10 1 9.4 7.9 7.2 Present value of debtlGDP 12.8 Present value of debtlexports 41.8 indebtedness 1983-93 199343 2002 2003 200347 (average annual growth) GDP 95 86 8.3 9.1 7.7 -"China

GDP per capita 79 76 7.6 8.4 7.0 ~ Lower-middle-incomegroup Exports of goods and services 68 156 29.4 26.8 12.3

STRUCTURE of the ECONOMY 1983 1993 2002 2003 Growth of Investment and GDP ('A) (% of GDP) Agriculture 33.0 19.9 15.4 14.6 30 T I industry 44.8 47.4 51.1 52.3 20 Manufactunng 36.5 34.5 35.4 39.3 ~,o Services 22.4 32.7 33.5 33.1 I Pnvate consumption 51.3 45.2 43.4 40.4 General government consumption 14.1 13.0 13.2 12.6 imports of goods and services 7.5 18.6 25.9 31.8

1983-93 1993-03 2002 2003 of exports and Imports (*A) (average annual growth) Agriculture 4.2 3.4 2.9 2.5 I Industry 11.9 10.4 9.8 12.6 Manufacturing 11.5 10.3 10.0 17.0 Services 10.7 8.2 7.5 6.6 Private consumption 11.0 7.1 6.3 6.6 General government consumption 9.7 8.5 7.0 5.5 Gross domestic investment 9.2 9.3 13.7 19.8 Imports of goods and services 9.9 13.4 27.5 24.8

Note: 2003 data are preliminary estimates. * The diamonds show four key indicators in the country (in bold) compared with its income-group average. if data are missing, the diamond will be incomplete.

120 China

PRICES and GOVERNMENT FINANCE 1983 1993 2002 2003 Inflation (Oh) Domestic prices (77 change) 4- Consumer prices 4.5 14.7 -0.8 1.2 Implicit GDP deflator 1.1 14.6 -0.6 2.2 Government finance (% of GDP, includes current grants) Current revenue 23.0 13.7 18.3 18.7 '4 - Current budget balance .. 2.2 1 .o 1.3 -GDP deflator *CPI Overall SurDlusldeficit -0.7 -0.7 -3.3 -2.5 L I TRADE 1983 1993 2002 2003 Export and Import levels (US$ mill.) (US$ millions) Total exports (fob) 22,226 91,744 325,565 438,228 I 1500.000 Food 2,853 8,399 14,623 17,533 I Fuel 4,666 4,109 8,372 11,110 Manufactures 12,606 75,078 297,085 403,560 300,000 + Total imports (cif) 21,390 103,959 295,203 412,760 Food 3,122 2,206 5,237 5,959 Fuel and energy 111 5,819 19,285 29,214 Capital goods 3,988 45,023 137,030 192,869 97 98 99 W 01 Export price index (1995-100) 41 81 76 62 Import price index (1995=100) 69 88 86 95 Exports .Imports Terms of trade (1995=100) 60 93 90 86

BALANCE of PAYMENTS 1983 1093 2002 2003 Current account balance to (US$ millions) GDP (YO) 1 Exports of goods and services 24,804 102,643 365,395 485,003 Imports of goods and services 22,545 111,776 328,013 448,924 'T Resource balance 2,259 -9,133 37.383 36,079 Net income 1.158 -1,284 -14,945 -7,838 Net current transfers 511 1,172 12,984 17,634 Current 'account balance 3,928 -9,245 35,422 45,875 Financing items (net) -1,233 11,012 40,085 71,148 Changes in net reserves -2,695 -1,767 -75,507 -1 17,023 97 98 99 W 01 02 03 I Memo: Reserves including gold (US$ millions) .. 27,336 297,735 416,208 Conversion rate (DEC, locaVUS$) 2.6 8.0 8.3 8.3

EXTERNAL DEBT and RESOURCE FLOWS 1983 1993 2002 2003 (US$ millions) Composition of 2003 debt (US$ mill.) Total debt outstanding and disbursed 9,609 85,928 168,337 193,567 IBRD 4 4,549 11,254 10,657 A 10,657 IDA 67 5,160 9,423 10,314 B 10314 Total debt service 2,691 10,166 30,596 37,064 IBRD 3 544 2,981 2,690 0 72 96 IDA 1 38 180 219 Composition of net resource flows Official grants 73 272 311 Official creditors 623 4,615 -1,206 -3,092 Private creditors 363 8,217 -4,550 -1,769 Foreign direct investment 916 27,515 53,074 55,507 Portfolio equity 0 3,818 F 69,145 Wolld Bank program Commitments 438 2,315 1,058 1,250 1 A - IBRD E - Bilateral Disbursements 71 1,845 2,020 1,616 , B - IDA D -Other multilateral F - Pnvate Principal repayments 0 248 2,502 2,459 IC-IMF G - Short-ten Net flows 71 1,597 482 -843 Interest payments 3 333 660 450 Net transfers 68 1,264 -1,142 -1,293

Development Economics 9/21/04

121

MAP SECTION

98° 100° 102° 104° 106° 108° 110° 112° 114°

CHINA 34° QINGHAIQINGHAIQ I N G H A I 34° GANSUG A N S U To Lanzhou SICHUAN URBAN DEVELOPMENT PROJECT

Huang

He SHAANXI SICHUAN URBAN DEVELOPMENT SHAANXIS H A A N X I PROJECT CITIES SICHUAN ENVIRONMENT DEVELOPMENT To Baoji PROJECT CITIES NATIONAL ROADS AND HIGHWAYS Nyikog To Xi'an SECONDARY ROADS

RAILROADS ° Y 32 along Qu Jialing AIRPORTS ° 32 Jiang RIVER PORTS Do Qu RIVERS

To Lhasa Jiang Jiang PROVINCE CAPITAL Min MianyangMianyang PROVINCE BOUNDARIES Jiang

Qu DeyangDeyang Fu INTERNATIONAL BOUNDARY

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Jiang CHONGQINGCHONGQING Litang ZigongZigong ang

Tangy Qu Luzhou HEILONGJIANG LuzhouLuzhou Yibin MONGOLIA YibiYibin L HUNANH U N A N O JILIN HUNAN G N O M LIAONING DEM. PEOPLE’S REP. OF KOREA BEIJING E I Beijing ° N 28 TAINJIN REP. HEBEI OF ° KOREA 28 To Lijiang SHANXI SHANDONG Yellow Jinsha GUIZHOU Sea NINGXIA QINGHAI Jiang GANSU

R JIANGSU GUIZHOUG U I Z H O U SHAANXI HENAN Jiang YUNNANY U N N A N A YUNNAN Jinsha ANHUI SHANGHAI HUBEI M SICHUAN East ZHEJIANG CHONGQING China 0 50 100 150 200 XIZANG N JIANGXI Sea HUNAN

NOVEMBER 2005 KILOMETERS ANMARA To Kunming GUIZHOU FUJIAN Y Panzhihua This map was produced by the Map Design Unit of The World Bank. IBRD 34137 Panzhihua YUNNAN TAIWAN MYM YUNNANY U N N A N Panzhihua The boundaries, colors, denominations and any other information shown GUANGDONG MYANMAR GUANGXI on this map do not imply, on the part of The World Bank Group, any HONG KONG MACAO judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries. VIETNAM To Kunming LAO South MYANMAR PEOPLE'S China Sea 98° 100° 104° 106° 108° 110° DEM. HAINAN PHILIPPINES THAILAND REP. 98° 100° 102° 104° 106° 108° 110° 112° 114°

CHINA 34° QINGHAI ° To Lanzhou GANSU 34 SICHUAN URBAN DEVELOPMENT PROJECT

Huang

He SICHUAN URBAN DEVELOPMENT SHAANXI PROJECT CITIES SICHUAN ENVIRONMENT DEVELOPMENT To Baoji PROJECT CITIES NATIONAL ROADS AND HIGHWAYS To Xi'an Nyikog SECONDARY ROADS

RAILROADS ° Y 32 along Qu

Jialing AIRPORTS ° 32 Jiang RIVER PORTS Do Qu RIVERS

To Lhasa Jiang Jiang PROVINCE CAPITAL Min Mianyang PROVINCE BOUNDARIES Jiang

Qu Deyang Fu INTERNATIONAL BOUNDARY

Jiang

To Wanxian Dadu He XIZANG CHENGDU HUBEI Suining

Tu o 30° Jiang ° Jiang 30 112° 114° To Lhasa Chang

CHONGQINGW u Leshan He Min Jiang RUSSIAN FEDERATION

Jiang CHONGQING Litang Zigong ang

Tangy Qu HEILONGJIANG Luzhou

MONGOLIA YibiYibinn L HUNAN O JILIN G N O M LIAONING DEM. PEOPLE’S REP. OF KOREA BEIJING E I Beijing ° N 28 TAINJIN REP. HEBEI OF ° KOREA 28 SHANXI SHANDONG Yellow Jinsha Sea To Lijiang NINGXIA QINGHAI Jiang GANSU JIANGSU GUIZHOU SHAANXI HENAN Jiang YUNNAN Jinsha ANHUI SHANGHAI HUBEI SICHUAN East ZHEJIANG CHONGQING China 0 50 100 150 200 XIZANG JIANGXI Sea HUNAN

NOVEMBER 2005 KILOMETERS ANMARANMAR GUIZHOU FUJIAN IBRD 34137 To Kunming This map was produced by the Map Design Unit of The World Bank. YUNNAN TAIWAN MYMY YUNNAN Panzhihua The boundaries, colors, denominations and any other information shown GUANGDONG MYANMAR GUANGXI on this map do not imply, on the part of The World Bank Group, any HONG KONG MACAO judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries. VIETNAM LAO South MYANMAR PEOPLE'S China Sea 98° 100° 104° 106° 108° 110° DEM. HAINAN PHILIPPINES To Kunming THAILAND REP.

Map 1a: City of Mianyang and Project Areas

Map 1b: Urban Expansion and Project Areas in Mianyang

Map 1c: Project Areas Defined in the Loan Agreement: Pioneer Park

Map 1d: Project Areas Defined in the Loan Agreement: Southern Economic Development Zone

Map 2a: City of Suining

Map 2b: Build-up Areas and Project Area in Suining

Map 2c: Project Areas Defined in the Loan Agreement: Xining District Area

Map 3: Satellite Image of Yibin

Map 4: Satellite Image of Panzhihua