Report and Recommendation of the President to the Board of Directors

Sri Lanka Project Number: 40050 October 2007

Proposed Loan People’s Republic of : Urban Environmental Improvement Project CURRENCY EQUIVALENTS (as of 3 October 2007)

Currency Unit – (CNY) CNY1.00 = $0.13 $1.00 = CNY7.51

ABBREVIATIONS

ADB – Asian Development Bank AP – affected person CMG – municipal government COD – chemical oxygen demand EIA – environmental impact assessment EMP – environmental management plan FIRR – financial internal rate of return FYP – Five Year Program IA – implementing agency JPG – Jilin provincial government JWSSD – Jilin Water Supply and Sewerage Development LIBOR – interbank offered rate O&M – operation and maintenance PIA – project implementing agency PLG – project leading group PMO – project management office PPMS – project performance management system PRC – People’s Republic of China PSP – private sector participation RP – resettlement plan SEIA – summary environmental impact assessment SOE – statement of expenditures SRB – Basin SRBPCP – Songhua River Basin Water Pollution Protection and Control Plan SWM – solid-waste management TA – technical assistance WWTP – wastewater treatment YMG – municipal government

WEIGHTS AND MEASURES km – kilometer km2 – square kilometer m2 – square meter m3 – cubic meter m3/day – cubic meter per day mg/m3 – milligrams per cubic meter

NOTES

(i) The fiscal year (FY) of the Government ends on 31 December. (ii) In this report, “$” refers to US dollars. Vice President C. Lawrence Greenwood, Jr., Operations 2 Director General H. S. Rao, East Asia Department (EARD) Director R. Wihtol, Social Sectors Division, EARD

Team leader S. Penjor, Principal Financial Analysis Specialist, EARD Team members M. Gupta, Social Development Specialist, EARD X. Peng, Principal Counsel, Office of the General Counsel S. Popov, Senior Environmental Specialist, EARD Y. Li, Urban Economist, EARD CONTENTS Page

LOAN AND PROJECT SUMMARY i

MAPS

I. THE PROPOSAL 1 II. RATIONALE: SECTOR PERFORMANCE, PROBLEMS, AND OPPORTUNITIES 1 A. Performance Indicators and Analysis 1 B. Analysis of Key Problems and Opportunities 3 III. THE PROPOSED PROJECT 7 A. Impact and Outcome 7 B. Outputs 7 C. Special Features 8 D. Project Investment Plan 9 E. Financing Plan 10 F. Implementation Arrangements 11 IV. PROJECT BENEFITS, IMPACTS, AND RISKS 14 A. Project Impacts and Benefits 14 B. Social Dimensions 15 C. Financial Aspects 17 D. Economic Aspects 18 E. Environmental Aspects 18 F. Project Risks and Mitigation Measures 19 V. ASSURANCES 19 A. Specific Assurances 19 B. Condition for Disbursement 20 VI. RECOMMENDATION 20

APPENDIXES

1. Design and Monitoring Framework 21 2. Urban Sector Analysis 26 3. External Assistance 29 4. Cost Estimates and Financing Plan 31 5. Flow of Funds and Onlending Arrangements 34 6. Implementation Schedule 35 7. Procurement Plan 37 8. Summary Resettlement Plan 43 9. Summary Poverty Reduction and Social Strategy 50 10. Financial Analysis 53 11. Economic Analysis 56 SUPPLEMENTARY APPENDIXES (available on request)

A. Policy Dialogue B. Detailed Description of Project Components and Subcomponents C. Design Optimization Analysis D. Detailed Cost Estimates E. Financial Management Assessment F. Outline Terms of Reference for Consultants G. Health Impact Analysis H. Project Sustainability Assessment I. Detailed Financial Analysis J. Detailed Economic Analysis K. Full List of Assurances LOAN AND PROJECT SUMMARY

Borrower People’s Republic of China (PRC)

Classification Targeting Classification: Targeted intervention Sector: Multisector (water supply, sanitation, and waste management; energy) Subsector: Integrated Themes: Inclusive social development, environmental sustainability, sustainable economic growth Subthemes: Human development, urban environmental improvement, fostering physical infrastructure development

Environment Category A. A summary of the environmental impact assessment was Assessment circulated to the Board of Directors of the Asian Development Bank (ADB) along with the environmental management plan on 17 May 2007, and uploaded to the ADB website on 18 May 2007.

Project The Project is a key urban infrastructure initiative of the Jilin provincial Description government (JPG). It is classified as a targeted intervention because it contributes to achieving Millennium Development Goal 7, Target 10, which calls for the halving of the proportion of people without access to safe drinking water and improved sanitation by 2015. The Project will help to (i) reduce water pollution, (ii) protect water resources, (iii) address water shortage (through recycling effluent) and meet the demand for high quality treated water through 2012, (iv) control nonpoint source of pollution through effective solid-waste management (SWM), (v) reduce through reduction in coal consumption and more efficient central heating, (vi) promote sustainable economic development, and (vii) improve the environment and living conditions in Changchun and Yanji cities in Jilin province. The Project has three components, seven subcomponents, and 35 activities. The components are (i) an improved and expanded water supply, wastewater services, and SWM in Changchun; (ii) an improved and expanded water supply and wastewater facilities in Yanji; and (iii) improved air quality in Yanji through a more efficient central heating system. The Project will also involve capacity development and training on project management, institutional and wastewater management, and tariff analysis for all the project implementing agencies (IAs). The Project supports the Government’s 11th Five Year Program which includes goals of improving living conditions and health in cities and promoting sustainable economic development.

Rationale The project cities of Changchun (with an urban population of 3.2 million) and Yanji (420,400) are located along the Songhua River Basin (SRB). The SRB is the third largest river basin in the PRC, and it covers sections of Jilin and provinces and the autonomous region of . The Songhua River is severely polluted with organic chemicals, heavy metals, and conventional pollutants, and this constrains sustainable economic development in the region. The Yitong and Yongchun rivers in Changchun flow into the SRB and are highly polluted due to inadequate wastewater treatment in Changchun. The Yanji section of the Buerhatong River is also heavily polluted as it goes from east to west and empties into the . Given that the present landfill site in Changchun will be ii fully utilized within 2 years, there is urgent need for construction of a new domestic solid-waste treatment facility to effectively control nonpoint source of pollution in the SRB. Jilin province, therefore, has a critical role to play in integrated water and wastewater management and SWM in the SRB. The Project will contribute significantly towards control of water pollution in the Yitong and Yongchun rivers, the upstream section of the SRB, and the Buerhatong River. The Project will also help to solve the current water shortage problems in the project cities and meet the future demand for high quality treated water.

In 2002, during the processing of the Water Supply Project ($100 million), extensive dialogue was conducted with the Government on addressing pollution control in the SRB. Consequently, ADB provided a technical assistance (TA) project for the Songhua River Basin Water Quality and Pollution Control Management. The TA project, which was considered highly successful, provided strategic policy inputs to the SRB Water Pollution Prevention and Control Plan (SRBPCP). The SRBPCP is a Government-approved action program to set pollution control targets from 2006 to 2010, requiring that urban environmental pollution and ecological damage be controlled by 2010. The ongoing Jilin Water Supply and Sewerage Development (JWSSD) project, with an ADB loan of $100 million, is the first major ADB investment directly addressing pollution control in the SRB. It will help Changchun achieve a 70% wastewater treatment rate by 2010. The proposed Project, which is the second project and follows the priority list of the SRBPCP, will help Changchun achieve an 80% wastewater treatment rate by 2012. The Project will also help Yanji city achieve a wastewater treatment rate of 95% by 2012.

ADB will implement a TA for an ensuing project in 2008, the Songhua River Basin Water Pollution Control and Management Project, which has an indicative ADB loan of $200 million. This would be the third major investment in the context of the SRBPCP, and the ADB’s fourth in the SRB. This comprehensive strategic approach to addressing pollution control in the SRB is a good model for replication elsewhere in the PRC.

Yanji will shortly start constructing a new cogeneration (heat and power) plant which is expected to be completed by 2010, allowing complete coverage of the city with a central heating service. The closure and replacement of the 318 polluting coal-based boilers by the proposed Project would result in a major improvement in the air quality of Yanji, which would contribute significantly to public health in Yanji city. However, to fully realize the benefits of this facility, the heating distribution system needs to be upgraded and treated wastewater effluent is required for plant cooling.

Impact and The impact of the Project is to enhance the urban environment and improve Outcome public health and quality of life for urban residents in the cities of Changchun and Yanji by (i) increasing wastewater coverage, (ii) enhancing SWM, (iii) improving the supply of potable water, and (iv) reducing air pollution. The outcome of the Project will be improved water supply, wastewater management, SWM, and efficient central heating in Changchun and Yanji. iii Cost Estimates The investment cost of the project is estimated at $352.68 million equivalent, including taxes and duties.

Financing Plan Amount Source ($ million equivalent) % of Total Asian Development Bank 100.0 28 Changchun municipal government 81.7 23 Yanji municipal government 33.4 10 Cofinancing: Domestic Commercial 137.6 39 Banks Total 352.7 100 Source: Asian Development Bank estimates.

ADB will provide a loan of $100 million to finance 28% of the project cost including financing charges during construction. The Government will finance 72% through a combination of water and wastewater tariffs ($35 million), Changchun municipal government (CMG) and Yanji municipal government (YMG) budget sources, and domestic loans from PRC banks.

Loan Amount and ADB’s loan of $100 million will come from its ordinary capital resources and Terms will be provided under ADB’s London interbank offered rate (LIBOR)-based lending facility for US dollar loans. The loan will have a 25-year term including a grace period of 5 years, an interest rate based on ADB’s LIBOR-based lending, a commitment charge of 0.35% per year, and such other terms and conditions as set forth in the draft Loan and Project Agreements.

Allocation and The Government of the PRC will relend the loan proceeds to the JPG, Relending Terms which will onlend the loan proceeds to CMG and YMG. All transactions will have the same terms and conditions as the ADB loan. CMG and YMG will onlend the loan proceeds to the IAs serving the project cities on the same terms and conditions as the ADB loan. The IAs will assume the foreign exchange and interest rate variation risks for the ADB loan.

Period of Until 30 June 2013 Utilization

Estimated Project 31 December 2012 Completion Date

Implementation The JPG has established a project leading group (PLG) led by the vice- Arrangements governor. The members include representatives of the Jilin Development and Reform Commission, Jilin Construction Bureau, and Jilin Finance Bureau, of CMG and YMG, and concerned agencies. The PLG will meet periodically to provide policy guidance, facilitate interagency coordination, and resolve any institutional problems affecting project implementation. The Project Management Office (PMO) for the ongoing JWSSD project will continue as the PMO for the proposed Project and as the secretariat of the PLG. The PMO will coordinate with the project implementing units established in CMG and YMG, and will monitor implementation progress made by IAs.

Executing Agency Jilin Provincial Government iv Procurement All procurement of goods and works shall be carried out in accordance with ADB's Procurement Guidelines (2007, as amended from time to time). Contracts for goods estimated to exceed $1.0 million and contracts for works estimated to exceed $10.0 million will be procured using international competitive bidding (ICB) procedures. Contracts for goods and contracts for works estimated to be equal to or less than the above ICB values, but more than $100,000, shall be procured on the basis of national competitive bidding procedures in accordance with the PRC Tendering and Bidding Law (1999), subject to modifications agreed with ADB. Contracts for goods and works estimated to cost $100,000 or less will be procured using shopping procedures.

Consulting About 18 person-months of international consultant expertise and 108 Services person-months of national consultant expertise will be required. Expertise will be needed in (i) construction supervision and quality control; (ii) resettlement monitoring; (iii) pipeline, water, and wastewater treatment ; (iv) SWM facilities; (v) heating systems, network construction, and improvement; (vi) ADB procurement procedures and reporting requirements; (vii) social and environmental monitoring; (viii) tariff analysis; (ix) quality control; and (x) project performance management system (PPMS). The international consultants will also provide training and capacity development in (i) water supply and wastewater treatment planning, (ii) water resources and quality management, (iii) financial management, (iv) environmental monitoring and management, and (v) PPMS. The scope and extent of consulting services take account of the loan consulting and capacity-development support provided under the ongoing JWSSD project. The consultants will be recruited in accordance with ADB’s Guidelines on the Use of Consultants (2007, as amended from time to time).

Project Benefits The Project will benefit about 3.6 million urban residents in the cities of and Beneficiaries Changchun and Yanji, whose living conditions and public health standards will be improved by (i) improved quality of water supply and wastewater services, (ii) a reduction in nonpoint source pollution through increased SWM capacity, (iii) a reduction in the incidence of waterborne diseases such as diarrhea and hepatitis A to below 2006 levels (to be monitored through the PPMS), (iv) a reduction in the risk of respiratory diseases by improving the central heating system and cutting utilization of coal by 40% or 298,000 tons per heating season, and (v) water savings of 700,000 cubic meters (m3) per heating season through water reuse and a reduction in unaccounted-for water. The Project will result in improved management and utilization of water resources in the upper SRB and the Buerhatong River, bringing positive downstream and transjurisdictional benefits in the province of Heilongjiang. The water quality improvements in the SRB and Buerhatong River will also contribute to (i) integrated water resource management and pollution control, (ii) the basin-wide management program, and (iii) transboundary pollution prevention and control.

The Project will secure the provision of reliable drinking water to Changchun and Yanji. The recycling of wastewater will reduce water pollution and address the water shortage problem. This will also have a catalytic effect on encouraging the replication of similar optimal and cost- effective approaches to addressing water pollution and water shortage. v

Of the total beneficiary population, about 240,000 persons (or 5.54%) are classified as poor measured by the weighted average local urban poverty line of CNY1,925 per year. Major social measures to protect urban residents from falling into poverty include (i) a living allowance for laid-off employees, (ii) insurance, and (iii) a social support program under the minimum living-standard scheme. Further, CMG and YMG have agreed to implement poverty reduction measures, including (i) lifeline tariffs, (ii) providing water bill discounts or cash rebates amounting to 50% of monthly water bills for households living below the poverty line, and (iii) connecting the poorest households to tap water in Changchun and Yanji. The Project will create a minimum of 810 permanent jobs for the operation of the facilities, and 3,880 jobs during the 5-year construction period. Follow-on multiplier effects are expected to create an additional 5,000 full- time jobs. About half of the construction jobs are unskilled jobs that are most likely to be filled by currently unemployed persons. Public health benefits will accrue through (i) a reduction in waterborne and airborne diseases, (ii) savings on medical treatment costs, and (iii) improved workforce productivity.

The Project is technically sound, affordable to beneficiaries, and financially and economically viable with a financial internal rate of return of 9.0% (higher than the real weighted average cost of capital of 3.52%) and a base-case economic internal rate of return of 23.8%, which is well above the economic opportunity cost of capital of 12%.

Risks and The following risks could affect timely implementation and economic Assumptions viability, and reduce the available benefits of the Project: (i) amendments and changes to the Changchun and Yanji master plans; (ii) a lack of proper operation and maintenance of project facilities; (iii) ineffective organizational structures and inadequate capacity of the IAs, which could result in inefficient project development and delayed implementation; (iv) delays in the provision of counterpart funding; (v) failure of CMG and YMG to increase water, wastewater, solid-waste, and heating tariffs to meet cost recovery targets; and (vi) unforeseen land acquisition and resettlement issues, which could constrain the efficient implementation of the project works and the restoration of livelihoods of the affected persons. The Project does not have any unusual technical risks.

The project components will use standard technology that conforms to international standards. Specific construction risks will be mitigated by the use of experienced consultants to prepare designs and monitor project implementation. o o 123 00'E 129 00'E

JILIN URBAN ENVIRONMENTAL IMPROVEMENT PROJECT IN THE o o 46 00'N PEOPLE'S REPUBLIC OF CHINA 46 00'N

Baicheng

BAICHENG

Songyuan H E I L O N G J I A N G I N N E R M O N G O L I A Yushu

Dehui Nongan CHANGCHUN

Jiutai

Changchun Jilin

SIPING Shuangyang JILIN

YANBIAN Siping Yanji

Liaoyuan

LIAOYUAN

o Project Area o 42 00'N 42 00'N Provincial Capital Project City Baishan County Seat L I A O N I N G Tonghua River Prefecture Boundary N Provincial Boundary International Boundary

Boundaries are not necessarily authoritative. 02040 60 80

Kilometers 721aHR 07-2016a a 1 Map

o o 123 00'E 129 00'E JILIN URBAN ENVIRONMENTAL IMPROVEMENT PROJECT IN THE PEOPLE'S REPUBLIC OF CHINA

Changchun Shitoumen Reservoir

Xi Lake Changchun No. 5 WTP and Distribution Main - 300,000 m3 /d treatment plant Bay Reservoir Yingyuelan - 25.5 km water transmission main Reservoir - 58.15 km distribution main, - One booster pumping station

Changchun Jingyue Changchun Domestic Wastewater Treatment Plant Solid Waste Management - 100,000 m3 /d WWTP - 2600 t/d sanitary landfill - 54.36 km sewer pipelines - 300 m3 /d leachate treatment plant Xinlicheng Reservoir - 34.2 km stormwater pipelines - One transfer station - 36 km wastewater interceptor - 30 solid waste transport trucks

Subproject Location N Road River City/ Boundary 0510 Boundaries are not necessarily authoritative. Kilometers 721bHR 07-2016b a 2 Map Map 3 3 3 Yanji Effluent Reuse and Yanji WTP and Network Upgrade and Expansion Sewerage Upgrade and Expansion - 60,000 m /d treatment plant - 10.1 km water transmission main - 9 km distribution main, - 37.7 km water supply networks - 50,000 m /day tertiary wastewater plant - 16.1 km water reuse transmission main - 40 km sewerage networks, including newpipe, existing pipe replacement Subproject Location Road Railway River Service Area City/Municipality Boundary Boundaries are not necessarily authoritative. IN THE

Yanji R. PEOPLE'S REPUBLIC OF CHINA JILIN URBAN ENVIRONMENTAL IMPROVEMENT PROJECT JILIN URBAN ENVIRONMENTAL

N Buerhatong R. Buerhatong Yanji YANJI MUNICIPALITY Heating Plant and Power Plant Urban Areas of Yanji Municipality Yanji Existing Heating Network for the Second Heating Network for Planned Yanji Combined Heat - 77.6 km heating pipe networks, including new pipe and existing pipe replacement: and - 57 heat exchange stations - 44,00 km heating pipe network - 35 heat exchange stations - 1 booster pumping station

07-2016c HR I. THE PROPOSAL

1. I submit for your approval the following report and recommendation on a proposed loan to the People’s Republic of China (PRC) for the Jilin Urban Environmental Improvement Project.

2. In line with its long-term goals for the urban sector of improving living conditions, expanding the supply of clean water, and enhancing wastewater treatment coverage, the Government of the PRC requested the Asian Development Bank (ADB) to help increase the water supply, wastewater treatment, and solid-waste management (SWM) capacity in Changchun, and water supply and wastewater treatment capacity and energy efficient central heating in Yanji in Jilin province in the northeast of the PRC. The Project is consistent with ADB’s water policy1 and will help the PRC achieve Millennium Development Goal 7, target 10 which calls for a halving of the proportion of people without access to safe drinking water and improved sanitation by 2015. This report is based on the findings of the Loan Appraisal Mission and discussions with the central and local governments, relevant agencies, and community organizations. The design and monitoring framework is in Appendix 1.

II. RATIONALE: SECTOR PERFORMANCE, PROBLEMS, AND OPPORTUNITIES

A. Performance Indicators and Analysis

3. Since the PRC initiated economic reforms in 1978, rapid urbanization has accompanied significant economic progress. The urban population has grown from 160 million in 1975 to about 562 million in 2005, and the urbanization rate increased from 17% to 43%. The rate is expected to reach 47% in 2010, 50% in 2015, and 55% (or about 700 million) in 2030. The Government’s Agenda for Economic Reform and Social Development in the New Century2 aims to accelerate urbanization and the development of towns and cities, particularly in metropolitan areas. The increasing urban population, industrialization, and economic development are straining the overloaded infrastructure and contributing to widespread pollution and environmental threats in the PRC’s cities. In particular, cities in the north and west experience widespread pollution due to the discharge of untreated wastewater, improper management of solid wastes, and inefficient burning of coal for heating. Without significant investment there will be a deterioration in the quality of life for urban residents, degradation of the urban environment, and inefficient economic development.

4. Municipal water supply in the PRC has increased steadily in the past decade. In 2005, total water production was 29.8 billion cubic meters per day (m3/day) and sales were 25.8 billion m3/day, with unaccounted-for water at 15% of total water production. Industrial water sales account for 35.4% of water sold and domestic sales account for 56.4%, while other sales are 8.2%. The national average water use was 365 liters per person per day; domestic consumption was 220 liters per person per day. In most large cities in the PRC more than 90% of all urban households have access to piped water. However, this coverage indicator obscures shortages in many cities of good quality raw water supply, water supply delivery capacities, and wastewater treatment facilities. The Government has classified more than 300 cities as water-short, with 108 having serious water problems and more than 60 being critically short of water. The situation has been exacerbated by the pollution of raw water sources by the discharge of inadequately treated agricultural, municipal, and industrial wastewater.

5. The PRC’s urban areas face environmental threats from pollution of rivers, lakes, and underground aquifers by untreated water. In 2004, about 48.2 billion cubic meters (m3) of

1 ADB. 2001. Water for All: The Water Policy of the Asian Development Bank. Manila. 2 The Government’s long-term vision for development was set out during the 16th Party Congress held in November 2000 and reiterated during the 10th National People’s Congress held in March 2003. 2 wastewater were generated; about 54% of this was from municipal sources and 46% from industrial sources. Currently, about 90% of industrial wastewater is treated before discharge to a municipal sewer. Municipal wastewater is a major contributor to pollution of the PRC’s rivers and lakes. As of 2005, only about 52% of urban wastewater was treated (compared with 34% in 2000); the rest was discharged untreated to rivers and lakes. About 41.8% of the water in the seven major river basins3 does not meet the class III national water quality standard.4 Surface water sources serving municipal water supply systems are polluted to levels unacceptable under water quality standards.

6. In 2005, the PRC generated 156 million tons of solid waste, representing an increase of 32.2% from the 2001 volume of 118 million tons. However, the increase in the treatment capacity has not kept pace with the increased solid-waste volume. In addition to direct adverse impacts on public health, the growing and uncontrolled disposal of solid waste contributes to increasing contamination of groundwater supplies through inadequate leachate collection systems.5

7. In the PRC’s 11th Five Year Program (FYP) covering 2006–2010, the Government has prioritized addressing environmental issues, including water and air pollution, through policy reform, increased investment, and improved urban infrastructure management. Recognizing that adequate environmental protection and pollution controls are essential for sustainable economic growth, the Government has made environmental protection a national priority in its development strategy. In addition to enacting environmental protection laws and implementing regulations that emphasize preventive measures (the polluter-pays principle) and decentralized environmental management, the Government has also undertaken numerous programs for wastewater management.6 These programs included (i) the requirement of industries to treat wastewater to national wastewater discharge standards by the end of 2000, (ii) 5-year plans for to address wastewater collection, treatment, and disposal, and (iii) the development and partial implementation of pollution control plans for the key river basins. The Government has decreed7 that by 2010 the wastewater treatment rate in all the cities in the PRC should not be lower than 60%, and not lower than 70% for major cities with secondary treatment facilities.8 The treatment level required is dependent on the water quality class of the receiving water. To achieve water quality class I, II, or III, secondary wastewater treatment would normally be required.

8. The Government has accorded priority in the 11th FYP to addressing water supply and wastewater treatment issues through policy reform, increased investment, and improved urban infrastructure management. The Government’s strategy focuses on (i) developing water sources; (ii) protecting existing sources by controlling industrial and residential pollution; (iii) controlling over- extraction of groundwater resources; (iv) introducing water-efficient technologies and operations; and (v) using appropriate pricing mechanisms to encourage conservation and generate necessary funds for operation, maintenance, and investment. The Government’s ongoing economic and enterprise reform programs require that all water supply and wastewater projects be financially sustainable and capable of cost recovery.

3 Changjiang ( River), Haihe, Huaihe, Huanghe Liaohe, Songhuajiang, and Zhujiang. 4 The PRC water quality standards have five classes of quality covering about 40 pollution parameters. Class I is pristine, while class V is suitable only for industrial use. Class III is the minimum water quality required for municipal water supply. 5 Leachate is liquid percolated from solid-waste landfills or dumps; it can contain undesirable or toxic chemicals. 6 The Law of the PRC on Prevention and Control of Water Pollution was first adopted in 1984 and amended in 1996. The law was enacted for the purpose of (i) preventing and controlling water pollution, (ii) protecting and improving the environment, (iii) safeguarding human health, and (iv) ensuring effective utilization of water resources. The law also establishes the standards for water environment quality and for discharge of water pollutants, and also defines the planning, supervision, and management of the prevention and control of water pollution. 7 Ministry of Construction. 2000. Urban Wastewater Treatment and Control Technology Advice. PRC. 8 These include cities directly under the central Government, provincial capital cities, and key tourist cities. 3 9. In the PRC, central heating in terms of square meters (m2) recorded an annual growth rate of 16% between 1992 and 2004. Nationwide residential buildings account for about 70% of the total heating space, with commercial and public buildings accounting for the remaining 30%. Heating demand in Jilin province has also grown rapidly during the past decade. In the PRC, over 60 million tons of coal are burned by 500,000 small, inefficient, coal-fired heating boilers every year, resulting in the emission of substantial amounts of sulfur dioxide, carbon dioxide, nitrogen oxide, and total suspended particulates. The majority of urban heating supply comes from these small boilers, creating severe air pollution problems in urban areas. An urban sector analysis is provided in Appendix 2.

B. Analysis of Key Problems and Opportunities

10. Key problems and opportunities include (i) a shortage of good quality drinking water, (ii) inadequate wastewater treatment capacity, (iii) inadequate SWM facilities and services, (iv) land subsidence arising from the overuse of groundwater, (v) making water supply and wastewater treatment self-financing through tariff reforms, and (vi) severe air pollution in urban areas through use of small, inefficient, coal-fired boilers for heating.

11. The Project cities are Changchun (with an urban population of 3.2 million) and Yanji (420,400). Changchun, the capital of Jilin province, is an industrial, , and transportation center in the northeast of the PRC. Major industries include automobile and automobile parts manufacturing, agricultural products and by-products refining, and high-tech manufacturing. Yanji is the capital of the Yanbian Korean bordering Russia and the Democratic People's Republic of . It is the economic center of east Jilin province and is one of the most developed cities in the province. Key industrial sectors include food, pharmaceuticals, textiles, farm machinery, and bus manufacture.

12. Songhua River Basin (SRB). The SRB is the third largest river basin in the PRC after the Yangtze and Yellow rivers. It has an area of 557,000 square kilometers (km2) and a population of 62 million. Major cities such as Changchun and Harbin, as well as the PRC’s largest oil fields, are located in the basin. Agriculture is well developed and there is a large industrial base. The Songhua River catchment area covers portions of three provinces—Jilin and Heilongjiang provinces and the autonomous region of Inner Mongolia. Changchun is located in the upstream part of the Songhua River which flows through Harbin. After Harbin, the river joins the Heilongjiang River, enters Russia, and eventually discharges into the sea.

13. Like other river basins in the PRC, the SRB is seriously polluted and is now acknowledged by the State Environmental Protection Administration as being one of the four most polluted river basins in the PRC. Pollution is recognized as impairing both natural resources and economic development within the region. Water pollution issues within the SRB, especially in relation to the protection of drinking water resources for the municipality of Harbin, have received increased national and international attention due to the recent widely publicized pollution incident in the SRB. The pollution is mainly due to the discharge of untreated or partially treated wastewater in Jilin and Heilongjiang provinces. The Songhua River, which is contaminated with a number of known and suspected trace organic chemicals, metals, and conventional pollutants, is classified by the Government as class IV (falling below class V during the 6–month, low-flow winter season), and is considered unsuitable for municipal domestic use. The river water consistently fails to meet PRC class III standards—the minimum quality required for the water to be used as the source for water supply. In March 2003, ADB approved the Harbin Water Supply Project9 to address the needs of Harbin city, with a population of 3 million, for clean and reliable drinking water from an

9 ADB. 2003. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the People’s Republic of China for the Harbin Water Supply Project. Manila. Several are already receiving the new high quality project water. 4 alternative water source (the Lalin River), since the existing source from the Songhua River was highly polluted. Because of the deteriorating water quality in the Songhua River, the Harbin municipal government expedited construction of the Project, which was completed 1 year ahead of schedule.

14. Project Rationale. The major rivers in Changchun (the Yitong and Yongchun) flow into the SRB. In Yanji, the Buerhatong River crosses the from west to east and eventually empties into the Tumen River. Underdevelopment of wastewater collection and wastewater treatment in Changchun and Yanji to the discharge of untreated wastewater into local rivers, and eventually to the pollution of the Songhua and Tumen rivers. Water quality in the Yitong and Yongchun rivers in Changchun does not meet class V of the PRC Surface Water Quality Standard. Due to the discharge of untreated wastewater into the Buerhatong River, water quality in the Yanji section of the river has deteriorated from class III to class IV. The lack of adequate wastewater management degrades local rivers, poses a threat to public health, and adversely affects the quality of life in Changchun and Yanji. There is an urgent need to expand the sewer network and wastewater treatment capacity in Changchun and Yanji to improve water quality in the Yitong and Buerhatong rivers. The Yanji municipal government (YMG) has just completed the construction of a 100,000 m3/day wastewater treatment plant (WWTP), which will help to achieve 95% treatment of municipal wastewater discharge in Yanji. In order for this capacity to be fully utilized, improvements in the sewer network are urgently required.

15. Changchun and Yanji rely primarily on surface water for their water supply. Their per capita production levels are well within the normal range for the PRC.10 Under normal conditions, water demand is expected to exhaust developed capacity in both Changchun and Yanji by 2010. Both cities experienced water supply problems during a severe episode of drought in 2004, leading to dangerously low water levels in reservoirs and a resulting loss of effective treatment plant capacity. Changchun and Yanji experienced low water pressure and supply interruptions.

16. Changchun has a domestic SWM system featuring domestic waste11 pick-up, extensive informal recovery of recyclable material, and disposal in a managed landfill. Given that the present landfill site will be fully utilized within 2 years, timely construction of a new domestic solid-waste treatment facility is urgently needed.

17. Jilin province has a critical role to play in integrated water and wastewater management, and SWM in the SRB. In 2002, during the processing of the Harbin Water Supply Project, extensive dialogue was conducted with the Government on addressing pollution control in the SRB. Consequently, ADB provided a technical assistance (TA) project for the Songhua River Basin Water Quality and Pollution Control Management.12 The TA project, which was considered highly successful, (i) strengthened the capacity of the Songhua Water Resources Protection Bureau, (ii) assisted the Government in developing a long-term water pollution control plan for the SRB beyond 2010, and (iii) provided strategic policy inputs to the 11th FYP and the SRB Water Pollution Prevention and Control Plan (SRBPCP).13 The SRBPCP is a Government-approved action program to set pollution control targets from 2006 to 2010, requiring that urban environmental pollution and ecological damage be controlled by 2010. The ongoing Jilin Water Supply and Sewerage Development Project (JWSSD),14 with an ADB loan of $100 million, is the first major ADB investment directly addressing pollution control in the SRB. It will help Changchun achieve a

10 211 liters per person per day for Yanji and 327 liters per person per day for Changchun. 11 Domestic waste in the PRC includes residential and institutional waste. 12 ADB. 2002. Technical Assistance to the People’s Republic of China for Songhua River Water Quality and Pollution Control Management. Manila. 13 The SRBPCP was approved by the State Council on 29 March 2006. It is a plan for the SRB and includes the provinces of Heilongjiang, Jilin, , and Inner Mongolia. 14 ADB. 2005. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the People’s Republic of China for the Jilin Water Supply and Sewerage Development Project. Manila. 5 70% wastewater treatment rate by 2010.15 The proposed Project, which is the second project and follows the priority list of the SRBPCP, will complement the JWSSD project and help Changchun achieve an 80% wastewater treatment rate by 2012. The Project will also help Yanji achieve a wastewater treatment rate of 95% by 2012.

18. ADB will implement a project preparatory TA16 for an ensuing project in 2008, for the Songhua River Basin Water Pollution Control and Management Project with an indicative ADB loan of $200 million. This would be the third major investment in the context of the SRBPCP, and ADB’s fourth in the SRB. This comprehensive strategic approach to addressing pollution control in the SRB will serve as a good model for replication elsewhere in the PRC. At the Stockholm World Water Forum (12–18 August 2007), ADB and the Global Water Partnership convened a session to review and share experience on integrated water resource management (IWRM) in river basins, specifically focusing on ADB IWRM projects in the PRC and in Central Asia, including among others, the SRB.17

19. The existing central heating plant in Yanji is supplying heat to the city’s downtown area. It only covers an area of 2 million m2 (or 15% of the city) due to its limited capacity and incomplete heating distribution network coverage. It is inefficient because (i) the retrofitted distribution system that it uses does not allow efficient hot water delivery, and (ii) the plant is an older single purpose design that fails to achieve the efficiencies possible with newer cogeneration (heat and power) plants. The remaining area is heated by approximately 318 small inefficient boilers, resulting in total suspended particulates in the urban area averaging 0.38 milligrams per cubic meter (mg/m3), more than twice the state environmental standard of 0.15 mg/m3. Yanji will construct a new cogeneration plant18 which is expected to be completed by 2010, allowing complete coverage of the city with a central heating service. In this regard, new heating distribution networks that connect the existing central heating plant and the new cogeneration plant with the rest of the city need to be completed to effectively utilize the city’s central heating supply capacity. The proposed Project19 will (i) complete the urgently needed central heating distribution networks for Yanji, (ii) to the closure and replacement of the 318 polluting coal-based boilers,20 and (iii) result in a major improvement in the air quality of Yanji, which will contribute significantly to public health in Yanji.

20. Policy Dialogue. The Project builds on ADB policy dialogue with the Government in several key areas including (i) cost recovery and tariff reform, (ii) wastewater management, (iii) upstream and basin-wide pollution prevention and control, (iv) water conservation, (v) corporate governance and enterprise reform, and (vi) private sector participation.

21. ADB has supported the water tariff reform process through two water tariff TA projects21 with the Ministry of Construction under which the market-oriented National Guidelines on Water Tariffs were developed, promulgated, and implemented. The water tariff TA projects (i)

15 State government policies require that urban environmental pollution and ecological damage be controlled by 2010. Major cities, including provincial capitals, should attain a wastewater treatment rate of 70% by 2010. 16 ADB. 2007. Technical Assistance to the People’s Republic of China for Songhua River Basin Water Pollution Control and Management Project. Manila. 17 Efforts are also being made to disseminate the SRB management approach in the PRC at the World Urban Forum scheduled to be held in in October 2008. 18 The project proposal for the cogeneration plant was approved by the National Development and Reform Commission (NDRC) in 1995. In 2003, the NDRC confirmed that the 1995 approval was still valid. The Feasibility Study Report has been submitted to the NDRC for approval which is expected by December 2007. Construction works will start in 2008 and be completed by 2010. This cogeneration plant is outside the scope of the proposed Project and is being financed domestically. The detailed design work is underway. 19 The central heating component accounts for 13% of the total investment cost of the Project. 20 Originally there were 700 coal-based boilers. YMG has so far closed 382 boilers and the remaining 318 boilers will be closed during implementation of the proposed Project. 21 ADB. 1997. Technical Assistance to the People’s Republic of China for the Water Supply Tariff Study; Manila; and ADB. 1999. Technical Assistance to the People’s Republic of China for the Water Tariff Study II. Manila. 6 strengthened the financial sustainability of municipal water supply companies; (ii) piloted implementation of the national guidelines in the selected case-study cities of , , and ; (iii) recommended financial regulations for water supply companies; and (iv) designed nationwide training programs. The guidelines are being implemented nationwide. Further, an ADB wastewater tariff TA22 developed and recommended national guidelines for wastewater tariffs, including tariff calculation methodologies that allow for full cost recovery, taking into consideration affordability and social constraints. By 2008 the Changchun municipal government (CMG) plans to increase water tariffs from CNY2.1/m3 to CNY2.7/m3 and wastewater tariffs from CNY0.4/m3 to CNY0.8/m3. CMG has scheduled public hearing meetings in 2007 to discuss the proposed water and wastewater tariff increases. YMG has already held a public hearing meeting to discuss increasing the water tariffs from CNY1.6/m3 to CNY3.4/m3, and wastewater tariffs from CNY0.4/m3 to CNY0.8/m3 by 2008. After the second public hearing meeting scheduled for October 2007, the new water and wastewater tariffs in Yanji will become effective in 2008. This indicates Changchun’s and Yanji’s progressiveness in adopting tariff reforms.23 The policy dialogue is in Supplementary Appendix A.

22. The water and wastewater tariff increases under the Project are important steps towards achieving full cost recovery, which is needed to attract private sector participation (PSP) in Changchun and Yanji. An assurance is included requiring CMG and YMG to ensure that water and wastewater tariffs are set at levels that ensures full cost recovery of operation and maintenance (O&M), depreciation, and financial costs including debt service obligations and a reasonable profit margin for water and wastewater treatment. This would ensure full cost recovery at the start of project operations, and financial sustainability of the Project. ADB has also provided technical assistance support to the Government on the use of market-based instruments to enhance private sector partnerships in public utilities, mainly for water supply, wastewater, and SWM.24 This TA provided an analysis of the issues in the context of international best practices and how these could be adopted in the PRC. During project processing, the main features of the ADB-supported Chengdu build-operate-transfer project were discussed with CMG, YMG, and the implementing agencies (IAs); and those involved indicated interest in this modality of private sector involvement for future investments. Completed in February 2002, the build-operate-transfer plant is delivering its contracted capacity to Chengdu municipality, providing an additional source of clean water to its residents. The Nanjing experience of public–private partnership, with public investments supporting an enabling environment for a utility bond issue, was also discussed and disseminated. The Jilin provincial government (JPG) has expressed its interest in exploring a similar approach for Jilin province and requested more detailed information. Further, the PRC Resident Mission and Private Sector Operations Department conducted a seminar in on 25 July 2007 on ADB’s nonsovereign lending modality for the provinces of Heilongjiang and Jilin. The proposed Project will create the environment necessary for eventual PSP by pursuing tariff reform, full cost recovery, enterprise reform, and improved governance; all are prerequisites for private sector involvement. Other forms of PSP, including leasing contracts and joint ventures, were also reviewed. As a result of tariff reforms and increases, the IAs would become financially sustainable, and be able to generate funds for future water and wastewater expansion projects. Consequently, the tariff reforms and capacity building under the Project would contribute to improved governance.

23. External Assistance. External assistance to JPG has principally been provided by ADB and the World Bank. Since 1992, ADB has provided 22 loans totaling $2.5 billion to the PRC for urban development and environment projects (Appendix 3). ADB also has provided about $46.3 million for about 70 TA studies to prepare these projects, and to review and study key issues in water resources, urban water supply, wastewater treatment, pollution control, and heating.

22 ADB. 2001. Technical Assistance to the People’s Republic of China for National Guidelines on the Urban Wastewater Tariffs and Management Study. Manila. 23 Following 2008 water and wastewater tariff increases, further increases are expected by 2012. 24 ADB. 2003. Technical Assistance to the People’s Republic of China for Policy Reform Support. Manila. 7

24. Lessons Learned. ADB’s water supply loan projects in the PRC have generally been well implemented.25 The lessons identified from post-evaluation of water supply and sanitation projects highlight the importance of integrating both supply and demand concerns into the project design. Encouraging broad reforms, such as commercial management, and introducing competition will promote efficient and responsive delivery of water supply and wastewater services. Appropriate pricing policies for water and sanitation services are also required. Lessons from the ongoing JWSSD project was also considered. Other lessons include the need to (i) review technical designs thoroughly; (ii) consider local conditions and constraints; (iii) support financial reform, particularly in establishing autonomous wastewater entities and tariff increases, to ensure sustainability; (iv) strengthen institutions, particularly by giving them managerial autonomy; (v) educate the public in environmental improvement; (vi) consult the public and involve the community; (vii) address resettlement issues early; and (viii) support public–private partnerships in water supply and wastewater treatment.

25. A recently completed performance portfolio review of the water supply, sanitation, and waste management sector26 identified successes and deficiencies, and lessons from portfolio performance. These along with the recently completed PRC Country Assistance Program Evaluation were considered.27 Among the major issues identified were (i) delays in the start-up of projects and in procurement, (ii) weak institutional arrangements for project implementation and sustainable operations, and (iii) a low proportion of civil works financing resulting in loan savings and cancellation of surplus loan amounts. To ensure that there is no duplication of effort, during project processing, lessons learned were taken into consideration by (i) thoroughly evaluating the technical designs and technologies, (ii) ensuring an adequate debt-equity ratio for the project IAs, (iii) undertaking rigorous sensitivity analysis of cash flows and financial and economic analysis, and (iv) incorporating institutional strengthening measures to improve the level of corporate governance taking into account the capacity-development components included in the JWSSD project.

III. THE PROPOSED PROJECT

A. Impact and Outcome

26. The impact of the Project is to enhance the urban environment and improve public health and quality of life for urban residents in the cities of Changchun and Yanji by (i) increasing wastewater coverage, (ii) enhancing SWM, (iii) improving the supply of potable water, and (iv) reducing air pollution. The outcome of the Project will be improved water supply, wastewater management, SWM, and efficient central heating services in Changchun and Yanji.

B. Outputs

27. The Project has three components and related capacity development, broken down into seven subcomponents (outputs) and 35 activities as indicated in the design and monitoring framework. These will contribute to, and support, Changchun’s and Yanji’s 11th FYP and the SRBPCP. The components include (i) improved and expanded water supply, wastewater services, and SWM in Changchun; (ii) improved and expanded water supply and wastewater facilities in Yanji; and (iii) improved air quality in Yanji through a more efficient central heating system. The

25 In the project completion reports, the Water Supply Project was rated “generally successful” and the Environmental Improvement Project, Fuzhou Water Supply and Wastewater Treatment Project, and Creek Rehabilitation Project were all rated “highly successful.” The project performance audit report for the Dalian Water Supply Project rated it “highly successful.” 26 ADB. 2005. PRC: Water Supply, Sanitation and Waste Management Portfolio Performance Review. Final Report. Manila. 27 ADB. 2007. Country Assistance Program Evaluation for the People’s Republic of China: Success Drives Demand for More Innovative and Responsive Services. Manila. 8 Project also includes institutional capacity development for effective and efficient project implementation and management. A detailed description of project components is in Supplementary Appendix B.

28. Component I: The Changchun urban infrastructure component has three subcomponents: (i) water supply, (ii) wastewater treatment, and (iii) SWM. The first subcomponent is the construction of the No. 5 water treatment plant (WTP) with a capacity of 300,000 m3/day, 25.5 kilometers (km) of water transmission pipelines, 58.15 km of distribution network, and two booster pumping stations.28 The second subcomponent is the construction of the Dongnan WWTP with a treatment capacity of 100,000 m3/day, 53.46 km of sewer network, 34.2 km of storm-water pipelines, and 23.5 km of wastewater interceptors. The third subcomponent is the construction of a sanitary landfill facility with a capacity of 2,600 tons per day with a 10-year service life, and an additional expected life of 12 years after expansion.

29. Component II: The Yanji urban infrastructure has two subcomponents: (i) water supply, and (ii) wastewater treatment. The first subcomponent is the construction of a WTP with a capacity of 60,000 m3/day, 10.5 km of raw water transmission pipelines, 9 km of distribution mains, and 35.7 km of water distribution pipelines. The second subcomponent is the construction of an effluent reuse WWTP with a capacity of 50,000 m3/day, 15.1 km of water reuse transmission mains, and 40 km of sewer network.

30. Component III: The Yanji central heating component has two subcomponents, both for central heating. The first subcomponent will provide central heating to an area of 6.97 million m2 south of the Buerhatong River, and includes 42.52 km of heating pipelines, 6.2 km of steam pipelines, 35 heat-exchange stations, and one booster pumping station. The second subcomponent will provide central heating to an area of 9.3 million m2 north of the Buerhatong River, and includes 77.6 km of heating pipelines, and 64 heat-exchange stations.

31. The Project also provides for institutional capacity development for effective project management including (i) providing training to strengthen organizational structures and staff resources to implement, operate, and maintain the project components; (ii) strengthening management practices in human resources, finance, and corporate planning; and (iii) providing managers and service-delivery staff to ensure efficient implementation and sustainability of project benefits. The Project will strengthen institutional capacity to facilitate the adoption of an integrated approach to water resource management, including pollution control.

C. Special Features

32. The Project is a multisector urban environmental improvement project which aims to integrate urban development and environmental management to ensure long-term sustainable growth.

33. Integrated River Basin Management. The proposed Project is not a stand-alone investment, but is an integral part of the basin-wide Songhua water resources management initiative, the SRBPCP, and the Changchun city master plan. The proposed Project will complement the ongoing JWSSD project and provide the critical 10% capacity required for Changchun city to achieve its treatment target of 80% of the wastewater generated by 2012. In Yanji, the Project is an integral part of the Yanji city master plan targeting a 95% wastewater treatment rate by 2011 and related pollution control in the Buerhatong River. The water quality improvements in the SRB and Buerhatong River will also contribute to (i) integrated water resource management and pollution control, (ii) the basin-wide management program, and (iii)

28 Two additional pumping stations will be upgraded. 9 transboundary pollution prevention and control. The Project also includes (i) training in the O&M of water supply and wastewater facilities to ensure effective operation, (ii) monitoring of future performance of O&M of the water and wastewater facilities using a number of indicators outlined in the design and monitoring framework, and (iii) demonstration of the potential economic benefits of an integrated and strategic long-term approach to planning of water supply wastewater and SWM facilities. The proposed Project reflects a continuation of ADB’s effort for the environmental improvement of the SRB following the JWSSD project. Lessons learned from the JWSSD project regarding the integration of wastewater treatment, water reuse, and water resource protection are continued and improved under the proposed Project. Further, the proposed Project focuses on strengthening the environmental management institution and mechanism for seeking continuously improved environmental performance, and initiating a policy dialogue on integrated, water resource and river basin management.

34. Tariff Reform. CMG and YMG have committed to generate funds to finance the water and wastewater subcomponents of the Project from water and wastewater tariff increases estimated at $35 million. This is a major reform in line with ADB’s water policy (see footnote 1). The planned water and wastewater tariff increases (see para. 20) will contribute to (i) water conservation and recycling of industrial water, (ii) financial sustainability of the Project, and (iii) PSP in the water and wastewater sectors in Changchun and Yanji.

35. Optimum Design. Through rigorous least-cost analysis and engineering consulting, the technical design of the Project was optimized. Consequently, the resettlement impact of the Project was reduced by 16%, resulting in a reduction of the resettlement cost. The design optimization analysis is in Supplementary Appendix C.

D. Project Investment Plan

36. The project investment is estimated at $352.68 million equivalent, including taxes and duties. The cost estimates are summarized in Table 1 and detailed in Appendix 4 and Supplementary Appendix D.

Table 1: Project Investment Plan ($ million) Item Total Coste A. Base Costsa 1. Component 1: Changchun Urban Infrastructure a. Changchun Fifth Water Treatment Plant 110.27 b. Changchun Solid Waste Sanitation Landfill 45.54 c. Changchun Dongnan Wastewater Management 42.81 2. Component 2: Yanji Urban Infrastructure a. Yanji Water Supply 16.96 b. Yanji Wastewater Treatment i. Yanji Wastewater Tertiary Treatment Plant and Transmission Main 11.19 ii. Yanji Sewerage Networks Upgrade and Expansion 7.25 3. Component 3: Yanji Central Heating a. Yanji Heat Conveyance from Power Plant 30.57 b. Yanji Heating Pipe 14.16 4. Project Management 1.57 Subtotal (A) 280.32 B. Contingencies Physical b 22.42 Price c 12.28 Subtotal (B) 34.70

10

Item Total Coste C. Financial Charges during Implementation d 37.66

 Total (A+B+C) 352.68 a In May 2007 prices, including taxes and duties. b Computed at 10% for all civil works, and 5% for equipment, training, and consulting. c Computed based on foreign exchange inflation rate of 0.8% in 2007 and onwards and local currency inflation rate of 1.8% in 2007, 2.2% in 2008, and 3.0% in 2009 and onwards; includes provision for potential exchange rate fluctuation under assumption of a exchange rate. d Includes interest and commitment charges for both the ADB loan and domestic bank loans. Interest during construction for the Asian Development Bank (ADB) loan has been computed at the 5-year forward London interbank offered rate (LIBOR) plus a spread of 0.6%. e Includes taxes and duties of $17.81 million. Source: ADB estimates.

E. Financing Plan

37. The Government has requested a loan of $100 million from ADB’s ordinary capital resources to help finance the Project. The loan will have a 25-year term, including a grace period of 5 years, an interest rate to be determined in accordance with ADB’s London interbank offered rate (LIBOR)-based lending facility for US dollar loans, commitment charge, and such other terms and conditions set forth in the draft Loan Agreement. The Government has provided ADB with (i) the reasons for its decision to borrow under ADB’s LIBOR-based lending facility on the basis of these terms and conditions, and (ii) an undertaking that these choices were its own independent decision and not made in reliance on any communication or advice from ADB.

38. The ADB loan will finance 28% of the project cost including the contingencies and financial charges during implementation. Local costs will be financed from water and wastewater tariffs; CMG and YMG budget sources; and domestic loans from PRC banks.29 JPG has issued a commitment letter confirming the counterpart funds including the equity injection, and financing from the domestic commercial banks for the Project. The financing plan is summarized in Table 2.

Table 2: Financing Plan ($ million) Source Project CostsPercentage A. Asian Development Bank (ADB) Loan 100.00 28 B. Changchun Municipal Government 81.70 23 C. Yanji Municipal Government 33.38 10 D. Local Bank Loans 137.60 39 Total 352.68 100 Source: ADB estimates.

39. The Borrower is the PRC. The Government of the PRC will relend the loan proceeds to JPG. In the case of the Changchun Dongnan WWTP, a portion of the loan proceeds will be onlent from JPG to CMG and then to the Jingyuetan Administration Committee, both on the same terms and conditions as those of the ADB loan; this portion of the loan proceeds will then be onlent to the Jingyue district government, and then to Changchun Jingyuetan Tourism Construction Group Limited Company as the IA. In all other cases in Changchun, JPG will onlend another portion of the loan proceeds to CMG on the same terms and conditions as those of the ADB loan; such loan proceeds will then be onlent to the IAs on the same terms and conditions. In the case of the subcomponents in Yanji, the remaining portion of the loan proceeds will be onlent from JPG to the Yanbian Korean Autonomous Prefecture and then to YMG on the same terms and conditions as those of the ADB loan; the loan proceeds will then be onlent to the IAs on the same terms and

29 Industrial and Commercial Bank of China and China Construction Bank. 11 conditions. In all cases in Changchun and Yanji, the IAs will bear the risks of foreign exchange and interest rate variation for their portion of the loan proceeds, and undertake to perform the obligations as provided in the Project Agreement applicable to the IAs. The flow of funds and onlending arrangements are shown in Appendix 5.

F. Implementation Arrangements

1. Project Management

40. The executing agency will be JPG. A project leading group (PLG) was established, headed by the vice-governor of JPG and comprising the heads of the Jilin Development Reform Commission, the Jilin Construction Bureau, and the Jilin Finance Bureau, and the mayors of CMG and YMG. The PLG will provide overall policy guidance, facilitate interagency coordination, and resolve any institutional problems affecting project implementation. A project management office (PMO) was established at the JPG level led by the Jilin Construction Bureau. The PMO will also be the secretariat of the PLG. Project implementing units (PIUs) were established in CMG and YMG, and they will report to the PMO and also coordinate and monitor activities of the project IAs. The PMO already has experience in implementing ADB projects since it is also the PMO for the ongoing JWSSD project. The IAs are limited liability companies incorporated under PRC company law.30 A board of directors will oversee financial and operational matters of each IA including (i) the hiring and firing of senior management, (ii) reviewing staffing and remuneration plans, (iii) reviewing the progress of construction and approving annual construction plans, (iv) reviewing and approving annual financial budgets, (v) reviewing the investment plans and accounts of the IAs, and (vi) approving the procurement of major equipment and civil works contracts. The IAs will increase their staff strength significantly for the construction period and when operations begin.

41. The six IAs are (i) Changchun Water Supply Company for the Changchun water supply subcomponent, (ii) Yanji Water Supply Company for the Yanji water supply subcomponent, (iii) Changchun Jingyuetan Tourism Construction Group Limited Company for the Changchun wastewater management subcomponent, (iv) Yanji Treatment Company for the Yanji wastewater management component, (v) Changchun Municipal Liya Environmental Sanitation and Infrastructure Construction Limited Company for the Changchun SWM subcomponent, and (vi) Yanji Investment and Development Company for the central heating subcomponent. The internal controls and accounting and auditing procedures of the IAs were reviewed through a financial management assessment and these are generally in order and will be fully functional and available for use under the Project for the construction and operational phase of the Project. An assessment was undertaken of the IAs technical and institutional capacities, and these are adequate for project implementation. The IAs will retain the services of design institutes, specialist procurement agencies and construction supervision companies to assist in the implementation activities. The PMO and IAs will have a number of staff trained in project management and relevant ADB procedures during implementation of the Project. The financial management assessment is in Supplementary Appendix E.

2. Implementation Period

42. The Project will be implemented over a period of 5 years from the end of 2007 to 2012 (Appendix 6). The implementation period is estimated based on the project scope and construction technology requirements. The schedule is considered realistic and achievable because the project implementation structure is already in place and preparatory works are underway.

30 PRC Company Law. 1993. 12 3. Procurement

43. All procurement of goods and works shall be carried out in accordance with ADB's Procurement Guidelines (2007, as amended from time to time). Contracts for goods estimated to exceed $1.0 million and contracts for works estimated to exceed $10.0 million will be procured using international competitive bidding procedures. Contracts for goods and contracts for works estimated to be equal to or less than the above international competitive bidding values but more than $100,000 shall be procured on the basis of national competitive bidding procedures in accordance with the PRC Tendering and Bidding Law (1999), subject to modifications agreed with ADB. Contracts for goods and works estimated to cost $100,000 or less will be procured using shopping procedures. More details are provided in Appendix 7.

4. Advance Contracting and Retroactive Financing

44. ADB approved the Government’s request for advance contracting, which includes recruitment of consultants and procurement of goods and civil works, and the request for retroactive financing of eligible expenditures up to $20 million (equivalent to 20% of the ADB loan) incurred before loan effectiveness, but not earlier than 12 months before the signing of the Loan Agreement.31 Advance contracting will include (i) tendering and bid evaluation for civil works contract packages; (ii) preparation of tender documents and bid evaluation for the procurement of materials, plant, equipment, and vehicles; and (iii) recruitment of consultants. The issuance of invitations to bid under advance procurement action will be subject to ADB approval. All advance procurement actions will be undertaken in accordance with the Procurement Guidelines or ADB’s Guidelines on the Use of Consultants (2007, as amended from time to time) as appropriate. YMG has requested retroactive financing for civil works and equipment for part of the water supply and central heating subcomponents of Yanji. Contracts proposed for retroactive financing will be undertaken in accordance with the Procurement Guidelines. The Government, JPG, CMG, YMG, and the IAs have also been advised that approval of advance contracting and retroactive financing does not commit ADB to finance the Project.

5. Consulting Services

45. The Project provides funding for 18 person-months of international consulting services and 108 person-months of national consulting services to support the Jilin PMO, Changchun and Yanji PIUs, and IAs in project implementation management and capacity development. A consulting firm will be recruited in accordance with the Guidelines on the Use of Consultants using the quality- and cost-based selection method (80:20) and requesting full technical proposals. Consulting services are required for (i) project management and construction supervision; (ii) establishing the management information system and project performance management systems (PPMS); (iii) preparing a strategy for reduction of non-revenue water in Changchun and Yanji along with a time- bound action plan; (iv) social, environmental, and resettlement monitoring; (v) financial management; (vi) assisting with private sector participation initiatives; and (vii) improving O&M. Capacity development for the IAs will be achieved through consultant inputs, hands-on training, and domestic and international training financed from the loan. The outline terms of reference for the consulting services is in Supplementary Appendix F.

6. Governance and Anticorruption Policy

46. ADB’s Anticorruption Policy (1998, as amended to date) was explained to and discussed with CMG, JPG, YMG, and the IAs. Consistent with its commitment to good governance,

31 The advance action on the procurement and recruitment of consultants, and the uploading of the general procurement notice to the ADB website, will facilitate the start of the advance action process. ADB management approved advance contracting and retroactive financing on 27 June 2007. 13 accountability, and transparency, ADB reserves the right to investigate, directly or through its agents, any alleged corrupt, fraudulent, collusive, or coercive practices relating to the Project. To support these efforts, relevant provisions of ADB’s Anticorruption Policy are included in the loan covenants and the bidding documents for the Project. In particular, all contracts financed by ADB in connection with the Project shall include provisions specifying the right of ADB to audit and examine the records and accounts of CMG, JPG, YMG, IAs, and all contractors, suppliers, consultants, and other service providers as they relate to the Project. For the Project, CMG, JPG, and YMG will undertake the following anticorruption actions: (i) involve full-time officials from the provincial and municipal discipline investigation bureaus in bidding and construction to enhance construction quality control and supervise effective work; (ii) introduce a dual signing system in which the civil works contract winner also signs an anticorruption contract with the employer; (iii) periodically inspect the contractor’s activities related to funds withdrawals and settlements; (iv) engage the project management consultant to support the PMO and the IAs to ensure good governance, accountability, and transparency in project operations; (v) in consultation with relevant Government ministries, update rules and regulations on local and corporate governance and anticorruption, and enhance transparency of the IAs’ operations; and (vi) disclose audited financial statements and project accounts and contract awards on the project websites of CMG, JPG, YMG, and the IAs.

7. Disbursement Arrangements

47. The loan proceeds for the proposed Project will be disbursed in accordance with ADB’s Loan Disbursement Handbook (2007, as amended from time to time). To facilitate project implementation and funds flow, the imprest account will be set up upon loan effectiveness and will be exclusively used to finance the ADB share of eligible expenditures. The imprest account will be managed by the Jilin Provincial Financial Bureau. The initial advance to be deposited to an imprest account will not exceed either 6 months of estimated expenditures or 10% of the loan amount, whichever is lower. For the large works contracts under the Project, direct payment procedures will apply. If the Government initially funds eligible expenditures from its own resources, the reimbursement procedures will be used. To expedite funds flow and simplify documentation process, the statement of expenditures (SOE) procedure will be used for liquidation and replenishment of imprest accounts and reimbursement of eligible expenditures not exceeding $200,00032 per individual payment. The payments in excess of the SOE ceiling will be reimbursed, liquidated, or replenished based on full supporting documentation.

8. Accounting, Auditing, and Reporting

48. The PMO will prepare and submit semiannual progress reports indicating (i) progress made, (ii) problems encountered during the period under review, (iii) steps taken or proposed to remedy the problems, (iv) the proposed program of activities, and (v) progress expected in the next half year. The IAs will keep records to allow the identification of goods and services financed out of the loan proceeds, following accounting principles and practices prescribed by the Accounting Law33 of the PRC, which requires enterprises to prepare financial statements and generally follow internationally accepted accounting standards. The IAs will maintain separate project accounts and records. The financial statements of the project accounts and the annual corporate financial statements for IAs will be subject to external audit by the CMG and YMG audit bureaus, the Jilin Provincial Audit Bureau, and the State Audit Administration. The audits will be carried out in accordance with regulations for auditing approved by the State Council and will meet ADB requirements. A separate auditor’s opinion on the use of the imprest account and SOE will be part

32 In line with adequate financial capability of the executing agency or IA based on the financial management assessment, the ceiling of the statement of expenditure is identified at a higher level to facilitate disbursement. 33 Accounting Law of the People’s Republic of China was adopted by the Ninth Meeting of the Standing Committee of the Sixth National People’s Congress on 21 January 1985. 14 of the audit reports. The IAs’ annual audited financial statements and audited project accounts will be submitted to ADB no later than 6 months after the end of the fiscal year for the entire implementation period. The Government, CMG, JPG, YMG, and the IAs have been informed about the ADB policy requiring the submission of audited financial statements on time. JPG and the IAs will submit reports and information to ADB concerning the use of the loan proceeds, project implementation, and IA performance. These reports will include (i) semiannual progress reports on project implementation, (ii) annual reports, and (iii) a project completion report not later than 3 months after the completion of the project facilities.

9. Project Performance Monitoring and Evaluation

49. The PPMS indicators, their relevance, and monitoring practicalities were confirmed and agreed with the PMO and IAs during project preparation. These include (i) service levels; (ii) nonrevenue water, water conservation, and treated water quality; (iii) treated wastewater quality and other operational performance measures; (iv) percentage of wastewater collected and treated; (v) solid-waste collection, transportation, and treatment efficiency measures; (vi) air pollution reduction indicators; (vii) public satisfaction with the urban environment; (viii) relevant economic data to monitor project impacts on improved living conditions and economic opportunities; (ix) health and gender data; (x) the incidence of waterborne, vector-borne, and airborne diseases; and (xi) an increase in public awareness of environmental protection.

50. At the beginning of the Project, the PMO and IAs, with the assistance of consultants, will develop comprehensive PPMS procedures to generate systematic data on the inputs and outputs of the subprojects, as well as the agreed abovementioned indicators to be used to measure project impact. The PMO and IAs will (i) refine the PPMS framework, (ii) confirm achievable goals, (iii) confirm monitoring and recording arrangements, and (iv) establish systems and procedures no later than 6 months after loan effectiveness. Under the PPMS framework, baseline and progress data will be reported at regular intervals by the PMO and the IAs, including semiannual reporting of the environmental management plan (EMP). The PMO and IAs will be responsible for analyzing and consolidating the data through their management information systems, established at the time of loan implementation. The PPMS will be designed to permit adequate flexibility to adopt remedial action regarding project design, schedules, activities, and development impacts. The PMO and IAs, with the assistance of the consultants, will monitor and assess activities, and report to ADB semiannually on the physical implementation and financial aspects of the Project from commencement until 2 years after project completion, to ensure that impacts are monitored and reported in line with ADB requirements.

10. Project Review

51. ADB and the Government will jointly review project implementation at least once a year. In addition, ADB and the Government will undertake a comprehensive midterm review 2 years after the start of project implementation. This will include a detailed review of the scope, implementation arrangements, resettlement, achievement of scheduled targets, and progress on the agenda for policy reform and capacity-building measures. Feedback from the PPMS activities will be analyzed.

IV. PROJECT BENEFITS, IMPACTS, ASSUMPTIONS, AND RISKS

A. Project Impacts and Benefits

52. The Project will benefit about 3.6 million urban residents in the cities of Changchun and Yanji, whose living conditions and public health standards will be improved through (i) improved quality of water supply and wastewater services and a reduction in nonpoint source pollution through increased SWM capacity, (ii) a reduction in the incidence of waterborne diseases such as diarrhea and hepatitis A to below 2006 levels (to be monitored through the PPMS), (iii) a reduction 15 in the risk of respiratory diseases by improving the central heating system and cutting utilization of coal by 40% (or 298,000 tons) per heating season, and (iv) water savings of 700,000 m3 per heating season through water reuse and reduction of unaccounted-for water.

53. The Project will result in improved management and utilization of water resources in the upper SRB and the Buerhatong River, bringing positive downstream and transjurisdictional benefits in the province of Heilongjiang. The water quality improvements in the SRB and the Buerhatong River will also contribute to (i) integrated water resource management and pollution control, (ii) the basin-wide management program, and (iii) transboundary pollution prevention and control. By developing drinking water sources from rivers and existing reservoirs instead of relying solely on overexploited groundwater (use of which has reached unsustainable levels), the Project will secure the provision of a clean and reliable water supply for Changchun and Yanji. The proposed extension, replacement, and rehabilitation of water distribution systems will increase the proportion of the population with access to piped water supplies. These improvements in the distribution system will reduce water losses and reduce the risk of contamination of treated water within the distribution system. Recycling wastewater will reduce water pollution and address the water shortage problem. The reliable water supply will reduce the burden on women responsible for domestic duties and caring for the sick.

B. Social Dimensions

1. Land Acquisition and Resettlement

54. Resettlement impacts have been identified and resettlement plans (RPs) have been prepared in accordance with PRC laws and regulations of land acquisition and resettlement and the ADB’s Involuntary Resettlement Policy (1995). The land acquisition and resettlement program is designed to ensure that affected persons (APs) will be better off (or at least no worse off) as a result of the Project. Overall, the land acquisition and resettlement impact for the Project will be significant. A total of one full RP and three short RPs with due-diligence reports have been prepared by the IAs with assistance of the local design institute or university. Based on the scope of impacts identified, the Project will affect 102 households (367 persons) permanently by land acquisition, 377 households (1,388 persons) by temporary land occupation, relocate 232 households (719 persons) due to the demolition of residential structures, and nine nonresidential structures with 49 employees. Of the total APs, 22 households (51 persons) are of Korean ethnicity. A total of 127.49 hectares (ha) of land will be affected permanently (of which 67.03% is farmland), 3,146.25 mu (209.75 ha) of rural collective and state-owned land will be occupied temporarily, and 32,392.3 m2 of residential houses and 4,296.88 m2 of nonresidential structures will be demolished. In addition, associated productive assets, ground attachments, and basic infrastructure and facilities will also be affected.

55. The APs will be compensated and resettled in a timely and adequate manner in accordance with the RPs so that they will be made better off (or at least be no worse off) than they would have been without the Project. To compensate for the economic and income losses, the following measures will be implemented during the resettlement process: (i) the Project owners will give the APs priority to be employed in the activities during the project construction and operation, (ii) land compensation will be used as basic social insurance for the farmers whose land is acquired, and (iii) secondary and tertiary industries (such as auto accessory manufacturing, community services, community medical center, transportation, , and entertainment services) will be expanded to generate employment opportunities and increase incomes of the APs. Vocational training will be provided to the APs to increase their skills. The total costs of land acquisition and resettlement, including contingencies, is estimated at CNY355.59 million or $45.60 million.34 The summary RP is in Appendix 8. JPG, CMG, YMG, and the IAs have implemented ADB’s Public

34 The base resettlement costs excluding contingencies is estimated at CNY240.03 million or $31.75 million. 16 Communication Policy, which requires full disclosure for the resettlement activities by (i) distributing copies of the resettlement information booklet to affected households and village offices on 12 June 2007, (ii) posting the draft RPs in village offices or resident committees on 12 June 2007, and (iii) posting English versions of the draft RPs on the ADB website following their endorsement by JPG and Environment and Social Safeguard Division on 21 June 2007. The final RPs were uploaded on the ADB website on 8 October 2007.

56. ADB requires both internal and external resettlement monitoring and evaluation of the APs during implementation. The IAs will report progress regularly to the PMO, which in turn will summarize the land acquisition and resettlement progress in the semi-annual progress reports to ADB. The PMO will retain the services of a domestic external monitor for this purpose. The monitor will visit the subprojects every 6 months to (i) review resettlement progress and the general welfare of those affected, (ii) make recommendations to resolve any issues or problems, and (iii) provide advice to IAs and local officials. The monitor will pay special attention to vulnerable groups, including women and the poor, to assess whether they have fully regained their standard of living. Monitoring and evaluation reports will be prepared every 6 months during implementation, and annually for 2 years after the completion of resettlement. These reports will be submitted simultaneously to ADB, PMO, and the IAs, and will be uploaded to the ADB website.

2. Poverty Reduction and Social Benefits

57. Poverty and social analysis was undertaken in line with ADB guidelines to collect detailed social information to inform project design and identify poverty reduction and social development objectives, outcomes, and indicators. In addition to the socioeconomic survey, public consultations were conducted with different groups of stakeholders including consumer groups, business communities, government agencies, people affected by the Project, and civil society organizations. A participatory approach was adopted for project design and will continue during project implementation. The poverty and social analysis identified vulnerable groups and opportunities for pro-poor interventions, and recommended social action measures and participation and mitigation plans to achieve positive social benefits. The summary poverty reduction and social development strategy is in Appendix 9.

58. The Project will directly benefit an urban population of 3.2 million in Changchun and 420,400 in Yanji. Of the total direct beneficiary population, about 240,000 or 5.54% (7% in Changchun and 3.85% in Yanji) are classified as poor based on the weighted average local urban poverty line of CNY1,925 per year. The Project will support poverty reduction by (i) providing a safer and more reliable urban water supply; (ii) improving the natural environment through increased wastewater treatment and better SWM; (iii) reducing morbidity due to decreased exposure to waterborne diseases; (iv) reducing the risk of respiratory diseases by improving the central heating system; and (v) providing employment opportunities for the poor. The Project will improve public health by reducing waterborne and respiratory diseases through improved water supply, expanded wastewater and SWM capacity, and a more energy efficient central heating system. The health impact analysis is in Supplementary Appendix G. Provision of clean water will improve the quality of life of the poor and vulnerable by reducing the proportion of household income spent on medical treatment for waterborne diseases. The number of school days and workdays lost due to sickness will also be reduced. Further, the Project will reduce the proportion of household income spent on buying water from private sources and buying storage containers, filters, and other water purifying equipment. Water pressure improvements will greatly enhance the quality of life of households living in apartments and reduce their water pumping costs. The better central heating system will reduce the use of coal by 40%, and this will have positive health impacts, particularly on the poor.

59. The Project will create 3,880 full time jobs during construction, generating about CNY48 million in wages per year. About 30% of the employment opportunities during the construction and 17 operation phases of the Project are expected to be filled by women. Project operations will create 810 full-time permanent jobs. Project-related services, such as procurement of construction materials and equipment, and follow-on multiplier effects will create an additional 5,000 jobs. In the project area, the major social measures to protect urban residents from falling into poverty include (i) a living allowance for laid-off employees, (ii) unemployment insurance, and (iii) a social support program under the minimum living standard scheme. Further, CMG and YMG have agreed to implement poverty reduction35 measures including (i) lifeline tariffs, (ii) water bill discounts or cash rebates amounting to 50% of the monthly water bill for households living below the poverty line, and (iii) connections to tap water for the poorest households in Changchun and Yanji. The Project will promote public awareness through education programs about project benefits, public hygiene, and consumer behavior on water saving and wastewater disposal.

C. Financial Aspects

60. The financial evaluation of the Project was undertaken in real terms using constant 2007 prices. The project cost estimates and financial projections in nominal terms were converted to real terms by adjusting for the projected effects of foreign and domestic inflation and currency fluctuation. Incremental benefits and costs were derived by evaluating the financial position of the IAs under with-project and without-project scenarios. The financial internal rate of return (FIRR) for the Project was computed on an after-tax basis of 9.0%, which compares favorably with the weighted average cost of capital in real terms of 3.52%. The financial analysis is in Appendix 10. The detailed financial analysis is in Supplementary Appendix I. The sensitivity analysis includes examination of the risk that (i) project costs will increase by 10% (resulting in an FIRR of 7.93%), (ii) O&M costs will increase by 10% (resulting in an FIRR of 7.04%), and (iii) revenues will be reduced due to delays in tariff adjustments (resulting in an FIRR of 5.74%). Detailed verification of the local financing plan indicates that the equity contributions are about 1% of annual revenues from CMG and 1.5% from YMG, indicating minimal risk. CMG and YMG have sufficient financial resources to take on responsibility for guaranteeing the loan repayments, and have provided assurances that they accept this risk. An affordability analysis has been undertaken based on proposed tariffs and household income data from the social survey. Tariffs under the Project are considered affordable if the combined average water and wastewater charges are less than 5% of monthly household income. The estimated tariffs on this basis are affordable to the average household (2.0% of monthly income), and also affordable to the poorest 10% of households (less than 3.4% of monthly income before accounting for poverty reduction measures that exist now or that have been committed to).

61. The IAs agreed to minimum levels of financial performance, and these will be included as loan covenants covering capital structure (debt-equity), debt service cover, and liquidity. Financial projections estimate the tariffs required for an appropriate level of financial performance. Periodic tariff reviews will be required to overcome the risk of poor financial performance or of unexpected changes in tariff income. The financial sustainability of the Project was verified through the financial analysis of the IAs. The project sustainability assessment is in Supplementary Appendix H. The financial projections for the IAs indicate that the minimum debt-service coverage ratios and acceptable rates of return on equity will generally be achieved by the Project. To ensure that the Project does not have an adverse fiscal impact on any level of government, retail tariffs were structured on the basis of achieving full cost recovery.

35 The technical assistance study (i) defined poverty levels used in the analysis, (ii) assessed and provided an income and expenditure profile of poor households based on a household survey of 500 households, (iii) evaluated and recommended measures to alleviate the impacts of increased water and wastewater tariffs on the poor, and (iv) assessed the positive impacts of the Project on the poor and low-income beneficiaries. 18 D. Economic Aspects

62. The Project is an integral part of the ongoing provincial, municipal, and river basin environmental programs, contributing significantly to pollution control in the SRB and the Buerhatong River. Public perceptions and preferences were also evaluated using household and business surveys. The analysis demonstrates that water supply, wastewater management, SWM, and efficient central heating rank highest in priority when compared with a range of other public services. A quantitative economic analysis also demonstrates the value of the Project. The economic analysis was conducted for 25 years including project construction, in accordance with ADB’s Guidelines for the Economic Analysis of Projects. Project benefits and costs were estimated on a with-project and without-project basis. Costs were divided into tradable and nontradable costs, and benefits were adjusted to account for non-incremental and incremental benefits. Incremental economic benefits were valued on the basis of willingness to pay. The economic internal rate of return for the components ranges from 15.8% to 28.0%, and is 23.8% for the whole Project, which exceeds the economic opportunity cost of capital, assumed at 12%. The economic analysis is in Appendix 11. The detailed economic analysis is in Supplementary Appendix J.

E. Environmental Aspects

63. The Government has met the requirements of ADB’s Environment Policy (2002). Extensive public consultations involving meetings with stakeholders, focus-group discussions, and surveys were undertaken twice during preparation of the domestic environmental impact assessments (EIAs). The EIAs summarize the environmental impacts, mitigation measures, and monitoring plans. The EMP, prepared as part of the EIA, will guide environmental mitigation and monitoring under the Project. All the EIAs have been approved by the Jilin Provincial Environmental Protection Bureau. The summary environmental impact assessment (SEIA) and the EMP have been confirmed by the Government. The SEIA concludes that the Project will have substantial positive environmental and socioeconomic benefits. The SEIA was circulated to the ADB Board and posted on the ADB website on 18 May 2007. The overall findings of the SEIA and EIAs are that negative impacts on air, water, and the acoustic environment are expected, especially during construction. In general these impacts will be temporary and localized. The proposed mitigation measures are described in the SEIA. These measures will be developed into a detailed EMP in the design and construction phases. The EMPs will be implemented by IAs, monitored and supervised by professional environmental management specialists or companies and local environmental monitoring centers, and reported to the Jilin PMO, Jilin Provincial Environmental Protection Bureau, and ADB.

64. By intercepting direct discharges of raw sewage into the Yitong River and Xinlicheng Reservoir and having them treated in the Dongnan WWTP, the subcomponent will improve (i) the drinking water quality in the Xinlicheng Reservoir from class III to class II, and (ii) the water quality of the SRB by reducing pollution loads of 12,411 tons of chemical oxygen demand (COD) and 547 tons of ammonia nitrogen annually. The Yanji water reuse subcomponent will (i) allow the Yanji WWTP to optimally utilize its capacity, (ii) reduce annual pollutant loads of 1,825 tons COD into the Buerhatong River (which represents a 50% reduction of COD discharge), (iii) conserve 50,000 m3/day (or 18.25 million m3 annually) of fresh water through water reuse. The heating subcomponent will include the replacement of 318 polluting coal-based boilers, resulting in (i) a major air quality improvement in Yanji from class III to class II in the winter season, (ii) a 40% energy saving due to replacement of small energy-inefficient boilers, (iii) a 3–5 times reduction of hot water leakage by upgrading the retrofitted existing heating network, which is estimated to save CNY20 million a year. 19 F. Project Risks and Mitigation Measures

65. The Project does not have any unusual technical risks. Conventional engineering designs with proven records of reliable performance are adopted for water supply, wastewater management, SWM, and central heating supply. During project implementation, the consultants will support the PMO and IAs to ensure delivered equipment and works comply with the design requirements and quality standards. The following risks could affect timely implementation, economic viability, and reduce the available benefits of the Project: (i) amendments and changes to the Changchun and Yanji master plans; (ii) lack of proper O&M of project facilities; (iii) ineffective organizational structures and inadequate capacity of the IAs, which could result in inefficient project development and delays in implementation; (iv) delays in the provision of counterpart funding; (v) the failure of CMG and YMG to increase water, wastewater, solid-waste, and heating tariffs to meet cost recovery targets; and (vi) unforeseen land acquisition and resettlement issues, which could constrain the efficient implementation of the Project works and restoration of livelihoods of the affected persons.

66. Risk (i) will be mitigated by synchronizing the Project design and implementation schedules with other projects planned in Jilin province, which have also provided specific assurances that are covenanted in the Loan Agreement. Risks (ii) and (iii) will be mitigated through the provision of institutional capacity development for the IAs with the support of consultants. Risks (iv) and (v) will be mitigated through covenanted assurances from CMG and YMG on the provision of counterpart funding and regular tariff review and increases. Risk (vi) will be mitigated by strengthening the internal monitoring and supervision by the PMO, municipal PMOs, and the IAs, and by engaging a qualified external agency to monitor and evaluate resettlement. Several other measures will also help mitigate the project risks: (i) the appointment of project implementation and monitoring consultants, including environmental monitoring consultants, (ii) EMP monitoring and mitigation arrangements, (iii) EMP environmental management training, and (iv) specific assurances from CMG and YMG that the project leading group and PMO are retained for the entire loan implementation period and beyond.

V. ASSURANCES

A. Specific Assurances

67. In addition to the standard assurances, the Government, CMG, JPG, YMG and the IAs have provided the following assurances, which will be incorporated into the Loan and Project Agreements. The full list of assurances is in the Loan and Project Agreement, and Supplementary Appendix K.

(i) JPG, CMG, and YMG will also undertake the following anticorruption actions: (a) involve respective concerned agencies with oversight responsibility for each project implementing agency (PIA) in bidding and construction to enhance construction quality control and supervise effective work; (b) introduce a dual-signing system, in which the civil works contract winner signs an anticorruption contract with the employer when they execute the civil works contract; (c) periodically inspect the contractor’s activities related to fund withdrawals and settlements; (d) engage the project management consultant to support the Jilin PMO and the PIAs to ensure good governance, accountability, and transparency in project operations; (e) in consultation with relevant central government ministries update rules and regulations on local and corporate governance and anticorruption and enhance transparency of the PIA’s operations; and (f) disclose a summary of the financial statements and Project accounts, schedules of proposed tariff increases and 20 associated public hearings; and tracking of procurement contract awards on the existing Project website of CMG, and YMG.

(ii) The JPG, CMG, and YMG will ensure that: (a) all land and rights-of-way required by the Project are made available in a timely manner; (b) the resettlement plan will be implemented promptly and efficiently in accordance with their terms; and the provisions of the RP will be implemented in accordance with all applicable PRC laws and regulations, and ADB’s Involuntary Resettlement Policy (1995); (c) all APs are given adequate opportunity to participate in resettlement planning and implementation; and ensure that they will be at least as well off as they would have been in the absence of the Project; (d) timely provision of counterpart funds will be paid for land acquisition and resettlement activities; and (e) any obligations in excess of the resettlement plan budget estimates are met.

(iii) JPG shall, and shall cause CMG and YMG to, ensure that the tariffs for treated water and wastewater services, and heating charged by the concerned IAs are set at a level that ensures full cost recovery of operation and maintenance, depreciation, and financial costs, including debt service obligations, and a reasonable profit margin for the IAs.

B. Condition for Disbursement

68. As a condition for disbursement of the loan proceeds for any subcomponent, the Government will submit to ADB the certification that (i) onlending agreement had been entered into between CMG, YMG and each concerned IA; and (ii) such onlending terms contain the same financial terms and conditions as required in the Loan Agreement and project implementation requirements applicable to the IAs as provided in the Project Agreement.

VI. RECOMMENDATION

69. I am satisfied that the proposed loan would comply with the Articles of Agreement of Asian Development Bank (ADB) and, acting in the absence of the President, under the provisions of Article 35.1 of the Articles of Agreement of ADB, I recommend that the Board approve the loan of $100,000,000 to the People’s Republic of China for the Jilin Urban Environmental Improvement Project from ADB’s ordinary capital resources, with interest to be determined in accordance with ADB’s London interbank offered rate (LIBOR)-based lending facility; a term of 25 years, including a grace period of 5 years; and such other terms and conditions as are substantially in accordance with those set forth in the draft Loan and Project Agreements presented to the Board.

Liqun Vice President

5 October 2007 Appendix 1 21

DESIGN AND MONITORING FRAMEWORK

Design Performance Data Sources/Reporting Assumptions Summary Targets/Indicators Mechanism and Risks Impact Assumptions

Enhanced urban Water quality of the Yitong Monitoring reports of the x Timely implementation environment and improved and Yongchun rivers in Changchun and Yanji of Changchun and public health and quality of Changchun that flow into Environmental Protection Yanji 11th Five Year life for the urban residents the SRB will be improved Bureaus and Water Programs and other in the cities of Changchun from the current class V to Resources Conservancy medium- and long-term and Yanji in Jilin province. class III, and water quality Bureaus, and the State development plans of the Buerhatong River in Environmental Protection x Changchun and Yanji Yanji will be improved from Bureau urban city plans are the current class III to class successfully II by 2015. Air quality indicators to be implemented collected as part of the Incidence of diarrhea drops PPMS Risks below the 2006 level of 1.83 per 1,000 persons in Statistical yearbooks of x Urban growth, including Changchun and 1.10 per Changchun and Yanji influx of migrants, in 1,000 persons in Yanji by cities of Changchun 2015. Annual socioeconomic and Yanji exceeds surveys undertaken as part forecasts and exerts Incidence of hepatitis drops of the PPMS more pressure on below the 2006 level of 1.53 available urban per 1,000 persons in Quarterly reports by the infrastructure Changchun and 1.00 per PMO and IAs x Weak enforcement of 1,000 persons in Yanji by environmental laws and 2015. Municipal government regulations health bureau data on x Lack of effective drinking water quality and environmental quality the incidence of infectious monitoring diseases

Outcome Assumptions

Improved water supply, By 2012 the water supply Wastewater effluent quality x Continued growth in wastewater management, projects in Changchun and quantity monitoring demand for water solid-waste management, provide drinking water to data by EPB supply, wastewater and efficient central heating 105,000 households which management, solid- services in Changchun and did not have access to Annual operational reports waste management, Yanji. supply in 2006. of the solid-waste company and central heating by IA services to achieve full By 2012 the water supply capacity utilization projects in Yanji provide Central heating supply data x Project facilities are drinking water to 52,000 (coverage area and rate of properly operated and households which did not utilization) maintained have access to supply in x Supporting institutional, 2006. Air quality monitoring data tariff, and regulatory mechanisms are put in Wastewater collection and Statistical yearbooks of place for water supply, treatment rate in Changchun and Yanji wastewater Changchun is increased management, central from the 2006 level of 50% Water supply data (rate of heating supply, and to 80% by 2012. utilization, service area SWM. coverage, and flow volume) by IA Wastewater collection and treatment rate in Yanji is ADB project completion increased from the 2006 report 22 Appendix 1

Design Performance Data Sources/Reporting Assumptions Summary Targets/Indicators Mechanism and Risks level of 80% to 95% by Risks 2012. Semiannual progress reports by PMO x Improving the Solid-waste collection, environment of transportation, and Semiannual EMP reports by Changchun and Yanji treatment efficiency is PMO cities is not placed as increased from the 2006 priorities by the local level of 85% to 95% in Quarterly reports by PMO government Changchun by 2012. and IAs x Lack of government support for institutional Air quality is improved in strengthening and the project area by 2012 financial reform with targets to be identified processes by the PPMS. x Existing pollution control measures do Reliable central heating not continue service to 460,000 urban population in Yanji with a coverage area of 16.27 million m2 by 2012 in comparison to the 2006 level of 6.7 million m2.

Outputs Assumptions

1. Component I: Water sales record of the x Effective stakeholder Improved and expanded IAs participation and water supply services, ownership developed wastewater treatment, and Demand and production x Strong support from the SWM in Changchun city. statistics (rate of capacity JPG and Changchun utilization, average and and Yanji governments 1.1 Changchun No. 5 WTP Changchun WTP with maximum day demand of x EPB enforces with additional capacity additional capacity of WSC) environmental 3 and distribution mains 300,000 m /day, water monitoring standards is operational. transmission pipelines, and WSC drinking water quality distribution network monitoring program data Risks operating by 2012. Site inspection and project x Resistance by some 1.2 Dongnan WWTP and Changchun Dongnan implementation reports. stakeholders associated sewers are WWTP with capacity of 3 x Staff of PMO, EA, and operational. 100,000 m /day operating Wastewater system data IA leave after receiving by 2012. (rate of capacity utilization, training influent and effluent flow 1.3 A well-functioning A well-functioning sanitary volumes). Water supply sanitary landfill facility landfill with capacity of data (rate of utilization and is operational. 2,600 tons/day and a 10- flow volumes) year service life, and expected service life of 12 Receiving water quality years after expansion, monitoring program data operating by 2012. Quarterly progress reports, PAMs, MTR, PPMS, and PCR

2. Component II: Improved and expanded Annual financial, operation, water supply services, and performance reports of wastewater treatment in IAs Yanji city. Appendix 1 23

Design Performance Data Sources/Reporting Assumptions Summary Targets/Indicators Mechanism and Risks

2.1 Upgraded and Yanji WTP with a capacity Social, resettlement, and expanded Yanji WTP is 60,000 m3/day is operating poverty monitoring report by operational. by 2012. implementation consultants

2.2 Upgraded and Yanji effluent reuse WWTP Compliance status with expanded Yanji WWTP with a capacity of 55,000 ADB covenant and sewerage network m3/day is operating by are operational. 2012. Quarterly progress reports, PAM, MTR, PPMS, and 3. Component III: PCR Improved Yanji central heating system. Annual financial, operation, and performance reports of 3.1 Yanji thermal power A central heating supply project companies plant heating networks system in south Yanji city is in district south operating by 2012. Semiannual progress of the Buerhatong reports by PMO River are operational. Semiannual EMP reports by 3.2 Yanji heating plant A central heating supply PMO and secondary system in north Yanji city is networks expanding to operational by 2012; Quarterly reports by PMO the north of the 80% of the households’ and IAs existing central coal-fired stoves/boilers for heating network are heating substituted by ADB review missions operational. central heating supply in Yanji by 2012.

Efficiency of the JPG, PMO, and IAs is increased by 2012.

4. Institutional capacity Efficiency of the EA, PMO, development for Project and IAs increased by 2012. Management

The six IAs have functioning boards of directors and operate as independent corporations by 2007.

The IAs provide 65 staff and resources, as indicated in the cost estimates, to implement the Project.

The IAs review and improve policies for cost control, internal financial control every 2 years.

Tariffs are reviewed annually and adjusted as needed to achieve cost recovery by 2014. 24 Appendix 1

Activities with Milestones 1. Component I Input:

1.1 Construction of Changchun No. 5 WTP and Distribution Mains ADB Inputs:

x Activity 1. Design the facilities, undertake land acquisition and resettlement, procure x Provide $100 million equipment and vehicles, and recruit 30 permanent staff. loan with timely 3 x Activity 2. Construct a WTP with a capacity of 300,000 m /day by 2010. disbursement based x Activity 3. Construct 25.5 km water transmission main (diameter 1,400–1,600 mm) by on the construction 2009. plan of civil works. x Activity 4. Construct 58.15 km distribution main (diameter 400–1,600 mm) by 2010. x Activity 5. Construct northern booster pumping station (120,000 m3/day capacity) by JPG and IAs: 2010 and southern booster pumping station (180,000 m3/day) by 2010. x Provide $252.7 1.2 Construction of Changchun Dongnan WWTP million in counterpart funds x Activity 6. Design the facilities, undertake land acquisition and resettlement, procure with timely equipment and vehicles, recruit 35 permanent staff. disbursement based 3 x Activity 7. Construct a WWTP with a capacity of 100,000 m /day by 2011. on the construction x Activity 8. Construct 54.36 km wastewater collection system, and 34.2 km of storm- plan of civil works. water pipelines by 2011. x Activity 9. Construct 23 km wastewater interceptor by 2011.

1.3 Construction of Changchun Domestic Solid-Waste Management Facility

x Activity 10. Design, procure equipment and vehicles, undertake land acquisition and resettlement, recruit 50 permanent staff. x Activity 11. Construct 2,600 tons/day sanitary landfill with 10-year service life and an expected additional life of 12 years after expansion, including a 300 m3/day leachate treatment plant, retention walls, 36,800 m3 regulating tank, and 1.6 km internal roads by 2010. x Activity 12. Construct one transfer station with 2,000 tons/day capacity and associated machinery and equipment by 2009. x Activity 13. Procure 38 solid-waste transport trucks and 25 vehicles to be used in the landfill and transfer station by 2009.

2. Component II

2.1 Construction of Yanji WTP and Network Upgrade and Expansion

x Activity 14. Design, procure equipment and vehicles, complete land acquisition and resettlement, recruit 20 permanent staff. x Activity 15. Construct a WTP with capacity of 60,000 m3/day by 2010. x Activity 16. Install 10.1 km water transmission main (diameter 800 mm) by 2010. x Activity 17. Install 9 km distribution main (diameter 700–1,000 mm) by 2010. x Activity 18. Install 35.7 km water supply networks, including new pipe and existing pipe replacement by 2010.

2.2 Construction of Yanji Effluent Reuse and Sewerage Upgrade and Expansion

x Activity 19. Design, procure equipment and vehicles, civil construction, recruit 20 permanent staff, construct a tertiary wastewater plant with a capacity of 55,000 m3/day by 2010. x Activity 20. Install 16.1 km water reuse transmission main (diameter 500–800 mm) by 2010 x Activity 21. Install 40 km sewerage networks, including new pipe, existing pipe replacement by 2010.

3. Component III

3.1 Construction of Yanji Thermal Power Plant Heating Networks Appendix 1 25

Activities with Milestones

x Activity 22. Provide heating for 6.97 million m2 area by 2010. x Activity 23. Construct 44 km heating pipe networks by 2009. x Activity 24. Construct 35 heat-exchange stations by 2009. x Activity 25. Construct 1 booster pumping station by 2009. x Activity 26. Close 128 small inefficient coal-based boilers by 2008.

3.2 Construction of Yanji Heating Plant and Secondary Networks

x Activity 27. Provide heating for 9.1 million m2 area by 2010. x Activity 28. Install 77.6 km heating pipe networks, including new pipe and existing pipe replacement by 2009. x Activity 29. Construct 57 heat-exchange stations by 2009. x Activity 30. Close 190 small coal-based boilers by 2007.

4. Institutional Capacity development for Effective Project Management

x Activity 31. Complete organizational arrangements for the Jilin PMO to be able to implement the ADB loan by 2012. x Activity 32. Complete necessary organizational arrangements for IA’s (hire staff, set up accounting systems and financial, administrative, and human resource policies and procedures) by 2012. x Activity 33. Develop plans, budgets, and procedures for loan implementation and project control in the PMO. x Activity 34. Complete JPG, PMO, and IA staff training by 2012 (training in ADB procedures, procurement, pollution control and wastewater treatment, solid-waste treatment, environmental monitoring, and financial management). x Activity 35. Establish the PPMS ADB = Asian Development Bank, EA = executing agency, EMP = environmental management plan, EPB = environmental protection bureau, IA = implementing agency, JPG = Jilin provincial government, km = kilometer, m2 = square meter, m3 = cubic meter, mm = millimeter, MTR = midterm review, NCB = national competitive bidding, PAM = project administration memorandum, PCR = project completion report, PMO = project management office, PPMS = project performance management system, SRB = Songhua River Basin, SWM = solid waste management, WSC = water supply companies, WTP = water treatment plant, WWTP = wastewater treatment plant. 26 Appendix 2

URBAN SECTOR ANALYSIS

A. Water Supply

1. Current Status of Water Supply. Jilin province faces the same water shortage issue that is common among all northern People’s Republic of China (PRC) provinces. As the provincial capital, Changchun Municipality relies on four municipal water treatment plants (WTPs) with a total capacity of 930,000 cubic meters per day (m3/day) to provide the urban area with adequate water for domestic and industrial use. The daily water demand has averaged around 980,000 m3/day and has been increasing for the past 4 years. Newly developed urban areas in Changchun frequently experience low water pressure due to the increased water demand and insufficient local water supply capacity. In the central urban area, many residential areas still do not have 24-hour water supply. Yanji relies on the Baishi WTP to serve its urban area. Other self-supply facilities also exist in the city to extract groundwater for use by the urban residents. The total water supply capacity is approximately 110,000 m3/day. The average water demand in the city increased from 99,000 m3/day in 2001 to 109,800 m3/day in 2006. This sharp increase is challenging the city’s limited water supply capacity. Many households are not covered by the existing distribution system or do not receive 24-hour water supply service due to inadequate water supply capacity. Moreover, aged distribution pipelines in Yanji have resulted in large water losses through leakage.

2. Government Response. The activities required to be completed in the 11th Five Year Program (FYP) to strengthen Changchun’s water supply system include (i) the construction of the No. 5 WTP and the development of the proposal for the No. 6 WTP, (ii) renovation of the water supply facilities within the urban area to ensure a 24-hour water supply, (iii) upgrading of 455 kilometers (km) of water supply pipelines, and (iv) water supply capacity to reach 1,456,000 m3/day by 2018. The activities to be completed to strengthen Yanji’s water supply system include (i) completion of the Yanji Reservoir project, (ii) upgrading of 37 km of water distribution pipelines, and (iii) preservation of natural forests in the upstream regions of the Wudao and Yanji reservoirs to safeguard drinking water sources.

3. Project Response. The Changchun No.5 WTP and distribution mains subcomponents will increase the city’s water supply capacity by 300,000 m3/day after its completion by the end of 2011. The Changchun Dongnan wastewater treatment plant (WWTP) subcomponent includes the construction of 36 km of wastewater interception mains, which will collect wastewater that currently flows into the drainage area impacting the Xinlicheng Reservoir. The Yanji WTP and network upgrading subcomponent will increase the water supply capacity in Yanji by 60,000 m3/day, and improve 36.5 km of the current water distribution system.

B. Wastewater Management

4. Current Status of Wastewater Management. The volume of wastewater discharged in Changchun in 2005 was 218.324 million m3, and the wastewater treatment rate was 49%. There are currently four WWTPs in Changchun: (i) the Beijiao WWTP (primary treatment facility, 390,000 m3/day); (ii) the Xijiao WWTP (150,000 m3/day); (iii) the No. 1 Automobile Manufactory WWTP (25,000 m3/day); and (iv) the Shuangyang WWTP (25,000 m3/day). As of 2005, the length of the sewer network in Changchun was 2,169.2 km. The volume of domestic wastewater discharged in Yanji was 67,000 m3/day in 2004 and 66,000 m3/day in 2005. The wastewater in Yanji was discharged directly into the Buerhatong River before the Yanji WWTP started operations at the end of 2006. The Yanji WWTP (100,000 m3/day) is currently the only municipal WWTP in Yanji. The length of sewer network in Yanji was 166 km in 2004 and 177 km in 2005. Appendix 2 27

Underdevelopment of wastewater facilities in both Changchun and Yanji leads to the deterioration of water quality in local rivers, poses a threat to public health, and adversely affects the quality of life in Changchun and Yanji. Water quality in the Yitong and Yongchun rivers in Changchun does not meet class V of the National Water Quality Standard. Water quality in the Yanji section of the Buerhatong River has deteriorated from class III to class IV.

5. Government Response. The Changchun 11th FYP aims to achieve a wastewater treatment rate of 70% by 2010. The subsequent target is to achieve a wastewater treatment rate of 80% by 2012. The volume of wastewater discharged from the downtown area of Changchun is projected to reach 1.407 million m3/day by 2010, and the wastewater treatment rate will be increased to 80%. Two WWTPs are planned—the Dongnan WWTP and the South WWTP— with an aggregate capacity of 250,000 m3/day (Phase I). The existing Beijiao WWTP will be upgraded to a secondary treatment plant and the capacity will be expanded to 390,000 m3/day. About 350 km of drainage network will be established or replaced. The capacity of the Yanji WWTP will be expanded and this will improve the wastewater treatment rate to 95% set in the 11th FYP, and this includes installation of 30 km of wastewater collection mains along the Buerhatong River bank and 82 km of wastewater collection network in the urban area.

6. Project Response. The proposed WWTPs and effluent reuse subcomponents under the Project will contribute to (i) a significant reduction of discharge loads into the Yitong River in Changchun and the Buerhatong River in Yanji by intercepting direct discharges of raw sewage, (ii) improvement of the water quality of the Yitong River and Xinlicheng Reservoir in Changchun and the Buerhatong River in Yanji, and (iii) improvement of sanitation and hygiene conditions in both cities.

C. Domestic Solid-Waste Management

7. Current Status. The only existing sanitary landfill in Changchun has a design capacity of 2,500 tons per day. A medical waste disposal center was put into operation in 2006 to treat the medical waste from the city. In addition, a night-soil treatment center with a capacity of 100 tons per day is under construction and will be put into operation in 2007 to treat the night-soils collected from the urban area. During the past 5 years, the Jilin provincial government (JPG) has accorded high priority to improving its solid-waste management facilities.

8. Government and Project Response. The construction of the Changchun sanitary landfill is a major undertaking by the Government and is designed to deal with the growing problems associated with domestic solid-waste disposal. The design capacity of 2,600 tons per day accounts for about 18% of the total domestic solid-waste generated in Jilin province, and this contributes significantly to the Government’s domestic solid-waste sanitary disposal goals. The project subcomponent includes (i) a 2,600 tons per day sanitary landfill with 10-year service life (a total of 22 years after expansion in the future) with related retention walls, a 300 m3/day leachate treatment plant, a landfill gas collection and emission control system, 1.6 km of roads inside the landfill, and associated machinery and equipment; (ii) one transfer station with 2,000 tons per day capacity and associated machinery and equipment; and (iii) 30 solid-waste transport trucks.

D. Central Heating

9. Status of Central Heating in Yanji. Jilin province has a relatively long winter and accordingly needs heating for 170 days per year. The existing central heating plant in Yanji is supplying heat to the city’s downtown area. The plant services an area of only 2 million square 28 Appendix 2 meters (m2) (15% of the city) due to its limited capacity and incomplete heating distribution network coverage. It is inefficient because (i) the retrofitted distribution system that it uses does not allow efficient hot water delivery, and (ii) the plant is an older single purpose design that fails to achieve the efficiencies possible with newer cogeneration (heat and power) plants. The remaining city area is heated by approximately 318 small inefficient boilers, resulting in total suspended particulates in the urban area averaging 0.38 milligrams per cubic meter (mg/m3), more than twice the state environmental standard of 0.15 mg/m3. Yanji will construct a new cogeneration plant1 which is expected to be completed by 2010, allowing complete coverage of the city with a central heating service. In this regard, new heating distribution networks that connect the existing central heating plant and the new cogeneration plant with the rest of the city need to be completed to effectively utilize the city’s central heating supply capacity. The proposed Project will (i) complete the urgently needed central heating distribution networks for Yanji, (ii) lead to the closure and replacement of the 318 polluting coal-based boilers,2 and (iii) result in a major improvement in the air quality of Yanji, which will contribute significantly to public health in Yanji city. Coal is the predominant energy source in Yanji and it accounts for 98% of all consumed fuel (coal consumption is 1.1 million tons per year). Recent air quality monitoring indicates that the air quality in Yanji could be characterized as class III in winter. During winter air quality deteriorates significantly due to pollution from the inefficient coal-based boilers. The total suspended particulates in winter exceed the environmental standard, posing a threat to public health. Incidents of acute carbon monoxide poisoning due to inefficient coal combustion at local sources have occasionally been registered.

10. Project Response. The Yanji central heating component has two subcomponents. The first subcomponent will provide central heating to an area of 6.97 million m2 south of the Buerhatong River, and includes 42.52 km of heating pipelines, 6.2 km of steam pipelines, 35 heat-exchange stations, and one booster pumping station. The second subcomponent will provide central heating to an area of 9.3 million m2 north of the Buerhatong River, and includes 77.6 km of heating pipelines and 64 heat-exchange stations.

1 The project proposal for the cogeneration plant was approved by the National Development and Reform Commission in 1995. In 2003, the National Development and Reform Commission confirmed that the 1995 approval was still valid. This cogeneration plant is outside the scope of the proposed Project and is being financed domestically. 2 Originally there were 700 coal-based boilers. To date, the Yanji municipal government has closed 382 boilers and the remaining 318 boilers will be closed during the implementation of the proposed Project. Appendix 3 29

EXTERNAL ASSISTANCE

Date of Amount No. Name Approval ($ million) A. Loans 1205 Environmental Improvement Project 10 Dec 92 103.00 1270 and Environmental Improvement Project 25 Nov 93 140.00 1313 Dalian Water Supply Project 20 Sep 94 160.00 1336 Beijing Environment Improvement Project 29 Nov 94 157.00 1490 Anhui Environmental Improvement Project 26 Nov 96 28.00 1491 Anhui Environmental Improvement Project (Industrial Component) 26 Nov 96 112.00 1543 Xian-- Environmental Improvement Project 24 Sep 97 156.00 1544 - Water Supply (Phase I) Project 24 Sep 97 100.00 1636 Fuzhou Water Supply and Wastewater Treatment 30 Sep 98 102.00 1692 Rehabilitation Project 29 Jun 99 300.00 1797 Wastewater Treatment and Water Resources Protection 11 Dec 00 130.00 1985 Province Wastewater Management Project 19 Dec 02 82.36 1995 Harbin Water Supply Project 11 Mar 03 100.00 1996 Wastewater Management Project 25 Apr 03 83.00 2175 Jilin Water Supply and Sewerage Development 27 Jun 05 100.00 2176 Fuzhou Environmental Improvement 8 Jul 05 55.80 2207 Henan Wastewater Management and Water Supply 18 Nov 05 100.00 2237 Basin Pollution Control Project 31 May 06 80.00 2239 Urban Environmental Upgrading Project 5 Jun 06 100.00 2240 Wuhan Wastewater and Stormwater Management Project 5 Jun 06 100.00 2297 Nanjing Qinghuai River Environmental Improvement 18 Dec 06 100.00 2328 Anhui Urban Environment Improvement 24 Apr 07 150.00 Subtotal (A) 2,539.16 B. Advisory Technical Assistance 987 Institutional Strengthening of National Environmental Protection Agency 10 Jun 88 0.34 1436 Environmental Impact Assessment and Training 10 Dec 90 0.60 1464 Management of Environment and Natural Resources in 11 Jan 91 0.60 1772 Institutional Strengthening of the Qingdao Environmental Protection 30 Oct 92 0.60 1835 Haihe Basin Environmental Management and Planning Study 31 Dec 92 1.24 1916 Institutional Strengthening of the Environmental Protection Bureau 28 Jul 93 0.45 1988 Environmental Impact Assessment and Training Phase II 18 Nov 93 0.90 2015 Urban Environmental Improvement Planning 14 Dec 93 0.48 2090 Legislative Reform for Protecting the Environment and Natural Resources 18 May 94 0.50 2210 Capacity Building of the Beijing Municipal Environmental Protection 29 Nov 94 0.60 Bureau 2398 Improving Environmental Monitoring and Enforcement in Henan 15 Sep 95 0.09 2456 Pilot Environmental Plans for Selected Medium-Size Cities 4 Dec 95 0.60 2504 Seminar on BOT in Water Supply Sector 22 Dec 95 0.10 2505 Strengthening the Environmental Standards and Enforcement 22 Dec 95 0.60 2693 Formulation of Integrated Environmental Management Plans for the Chao Lake Basin 26 Nov 96 0.80 2726 Water Quality Management for Suzhou Creek 23 Dec 96 0.60 2726 Water Quality Management for Suzhou Creek (Supplementary) 13 Feb 98 0.40 2751 Capacity Building of Wastewater Treatment Operations in Anhui 27 Jan 97 0.20 2773 Water Supply Tariff Study 24 Mar 97 0.60 2804 BOT Chengdu Water Supply Project 2 Jun 97 0.60 2817 Strategic Operations for the Water Sector 26 Jun 97 1.18 2873 Improvement of Environmental Management in Shanxi Province 24 Sep 97 0.94 2906 Leadership Training on Urban Environmental Management in Key Cities 3 Nov 97 0.60 2951 Promotion of Market-Based Instruments for Environmental Management 16 Dec 97 0.70 2975 Environmental Impact Assessment Training and Curriculum Development 31 Dec 97 0.60 3079 TA Cluster to the PRC for the Promotion of Clean Technology 29 Sep 98 3.50 3095 Hai River Basin Wastewater Management and Pollution Control 10 Nov 98 0.57 3211 Improving Environmental Management in Suzhou Creek 29 Jun 99 0.84 3250 Water Tariff Study II 3 Sep 99 0.95 3377 Urban Poverty Study 27 Dec 99 0.41 30 Appendix 3

Date of Amount No. Name Approval ($ million) 3447 Strengthening Urban Solid Waste Management 25 May 00 0.60 3588 Transjurisdiction Environment Management (TA Cluster) 11 Dec 00 2.10 3749 National Guidelines for Urban Wastewater Tariffs and Management Study 25 Oct 01 0.90 4061 Songhua River Water Quality and Pollution Control 10 Jan 03 1.00 4095 Policy Reform Support 11 April 03 0.15 4215 Safe Drinking Water and Sanitation for the Rural Poor 12 Nov 03 0.40 4335 Town-Based Urbanization Strategy Study 06 May 04 0.75 4694 Urban Poverty Strategy Study II 23 Nov 05 0.30 4702 Study on Sustainable Urbanization in Metropolitan Regions 28 Nov 05 0.50 Subtotal (B) 27.89 C. Project Preparatory Technical Assistance 1549 Qingdao Environmental Improvement Project 18 Jun 91 0.10 1831 Tangshan and Chengde Environmental Improvement Project 31 Dec 92 0.10 1852 Dalian Water Supply Project 10 Mar 93 0.10 1917 Beijing Environment Improvement Project 28 Jul 93 0.60 2187 Anhui Environmental Improvement Project for Wastewater Component 19 Oct 94 0.28 2445 Xian-Xianyang-Tongchuan Environmental Improvement Project 16 Nov 95 0.50 2770 Fuzhou Water Supply and Wastewater Treatment 14 Mar 97 0.60 2901 Shanxi Environment Improvement Project 21 Oct 97 0.59 3049 Zhejiang-Shanxi Water Supply (Phase II) 21 Jul 98 0.54 3095 Hai River Basin Wastewater Management and Pollution Control 10 Nov 98 0.57 3215 Heilongjiang Water Supply 1 Jul 99 1.00 3216 Tianjin Wastewater Treatment and Water Resources Protection 2 Jul 99 0.80 3488 Hebei Province Wastewater Management Project 30 Aug 00 0.85 3571 Harbin Water Supply 12 Dec 00 0.72 3638 Wuhan Wastewater Treatment 19 Mar 01 0.50 4014 Fuzhou Environmental Improvement Project 5 Dec 02 0.60 4223 Shandong Hai River Basin Pollution Control Project 21 Nov 03 0.60 4227 Jilin Water Supply and Sewerage Development 26 Nov 03 0.65 4233 Henan Wastewater Treatment 3 Dec 03 0.80 4385 Guangxi Nanning Urban Infrastructure Development Project 3 Sep 04 0.56 4436 Wuhan Wastewater and Storm-Water Management 18 Nov 04 0.70 4617 Nanjing Environmental Improvement Project 19 Jul 05 0.60 4628 Hefei Urban Environment Improvement 15 Aug 05 0.75 4804 Jilin Urban Infrastructure Project 22 Jun 06 0.50 4805 Municipal Infrastructure and Environmental Improvement Project 23 Jun 06 0.80 4808 Qingshuihai Water Supply Project 29 Jun 06 0.60 4818 Urban Development Project 19 Jul 06 0.50 4930 Xinjiang UrbanTransport and Environmental Improvement Project 11 May 07 0.70 4959 Small Cities and Towns Development Demonstration Sector Projects 6 Aug 07 1.70 4960 Guangxi Urban Development Project 9 Aug 07 0.50 4971 Songhua River Basin Water Pollution Control and Management Project 28 Sep 07 1.30 Subtotal (C) 19.71 Total for Technical Assistance (B+C) 47.60 BOT = build-operate-transfer, PRC = People’s Republic of China, TA = technical assistance. Source: Asian Development Bank. Appendix 4 31 100.0 4.8 5.2 79.5 56.3 3.2 2.1 8.7 4.0 0.4 31.3 12.9 12.1 12.7 22.7 10.6 0.1 32.6 352,683,938 315,023,252 14.6 16,960,536 9.4 11,193,053 10.0 18,442,294 13.7 30,569,029 0.0 11,825,910 22,880,584 33.4 280,316,758 54.6 18.5 45,542,201 42,812,959 11.0 7,249,241 16.8 14,155,827 41.6 198,618,572 45.3 110,263,412 14.7 44,724,856 13.6 80,127,686 a 39.0 115,088,311 115,088,311 Domestic Commercial Banks 40.6 30.6 2,481,512 1,047,442 48.8 1,845,537 49.9 4,201,919 9,635,523 35.9 93,626,878 8.3 38.2 24,887,567 7,908,753 76.9 798,095 71.6 2,379,450 29.9 82,718,460 51.5 10,908,418 35.6 49,922,140 56.8 6,581,369 63.4 0 0.0 37,289,682 Table A4.1: Components Financiers by COST ESTIMATES PLAN AND FINANCING 7,588,932 1,570,500 Amount % Amount % Amount % Amount % 56,488,433 85,982,150 12,745,390 27,923,217 85,982,150 Asian Development Bank Development Asian Government Total 28.4 137,595,627 113,952,791 12.0 5,578,117 11.6 10,136,211 28.4 59,411,679 19.1 39,261,184 44.7 60.0 6,890,129 3,429,708 41.1 9,007,825 36.3 15,261,886 28.5 100.0 25,398,097 0 0.0 0 0.0 1,570,500 30.7 100,707,730 37.0 43.3 3,787,475 16,363,020 34.8 41,296,051 100.0 36.6 23,642,836 0 0.0 0 0.0 371,004 Item Yanji Heating Pipe Heating Yanji CurrencyLocal 1,640,166 0 0.0 13,245,061 Foreign ExchangeForeign 0 0.0 0 11,825,910 2. Yanji Wastewater Treatment Plant Treatment Wastewater Yanji 2. and Plant Treatment Tertiary Wastewater Yanji 6,715,903 3. Yanji Central Heating Plant Power from Conveyance Heat Yanji 11,105,224 1. Yanji Water Supply 7,588,895 Changchun Dongnan Wastewater Management Wastewater Dongnan Changchun 18,541,186 Commitment ChargesCommitment 371,004 Includes taxes and duties estimated at $17.81 million. Main Transmission Expansion and Upgrade Networks Sewerage Yanji 873,029 Total Project Costs Subtotal (A) B. Yanji Urban Infrastructure Subtotal (B2) C. Project Management Total Project Base Costs A. Changchun Urban Infrastructure ChangchunNo. 5 Water Treatment Plant 21,080,088 Changchun Solid Waste Sanitation Landfill Sanitation Waste Solid Changchun 16,867,159 Subtotal (B) Total DisbursementTotal 100,000,000 Financial Charges During Construction Interest During Implementation 13,646,846 Source: Asian Development Bank estimates. a Contingencies Subtotal (B3) Subtotal 32 Appendix 4 Total

11,825,910 32.6 352,683,938 33.4 280,316,758 315,023,252 28.6 89,860,027 27.5 93,490,158 100.0 97.6 100.0 23,442,530 100.0 24,008,777 31,754,499 213,033 0.3 117,104,016 100.0 100.0 1,896,283 237,416 57.6 100.0 100.0 3,704,199 100.0 5,981,383 792,722 100.0 511,555 2,756,416 11,825,910 22,880,584 13,245,061 39.0 115,088,311 35.9 93,626,878 115,088,311 Domestic Commercial Banks 63.6 100.0 307,636 0 0.0 3,630,131 100.0 0 0.0 566,247 24.5 25,733,405 27.4 25,733,405 2.4 23,442,530 9,635,523 63.4 0 0.0 37,289,682 0 0.0 566,247 1,570,500 Amount % Amount % Amount % Amount 42,120,925 Asian Development Bank Government 28.4 137,595,627 30.7 100,707,730 113,952,791 36.1 74,505,655 46.9 22,005,697 100.0 0 0.0 0 0.0 371,004 45.1 25,635,828 100.0 100.0 42.4 0 0 0 0.0 0.0 0.0 0 2,133,699 0 0.0 1,244,500 326,000 36.6 23,642,836 Table A4.2: Disbursement Financiers Accounts by Local Currency Commitment ChargesCommitment 371,004 Interest During ImplementationInterest During 13,646,846 Item Installation 0 0.0 3,630,131 Equipment/Materials and InstallationEquipment/Materials 0 0.0 0 0.0 23,442,530 Civil Works 0 0.0 566,247 Equipment and Materials 42,120,925 PMO management expenses - ADB funded expenses - ADB management PMO Training 326,000 0 0.0 0 0.0 237,416 Implementation consulting services - ADB funded consulting services - ADB Implementation 1,244,500 Implementation supervision - funded supervision local Implementation 0 0.0 0 0.0 1,896,283 Foreign Exchange Foreign Total Disbursement 100,000,000 Subtotal (B) C. Civil Works A. Civil Works 42,290,725 B. Equipment and Materials Subtotal (C) D. Land Compensation and Resettlement Acquisition E. Environment Protection 0 0.0 0 0 0.0 0.0 31,754,499 0 0.0 213,033 F. Supervision and Training Implementation Subtotal (F) G. Survey, Research, Design, and Consulting ServicesH. and Expenses Bidding Documents I. AuditingJ. Production Production Preparation and Trial K. and Others Project Management EA/IAs Total Base Costs Project 0 0.0 0 0 0 0 85,982,150 0.0 0.0 0.0 0.0 0 0 0 5,981,383 0 0.0 0.0 0.0 0.0 511,555 2,756,416 792,722 0 0.0 0 0.0 0 Contingencies Contingencies Total Costs Project 85,982,150 Financial Charges During Construction During Charges Financial ADBAsian =Development Bank, EA = executingagency, IA = implementing agency, PMO= project management office. Source: ADB estimates. Appendix 4 33

315,023,252 280,316,758 352,683,938 110,263,350 45,542,200 42,812,959 198,618,509 16,960,536 11,193,053 7,249,241 80,127,749 1,570,500 18,442,294 30,569,092 22,425,346 12,281,148 37,289,682 371,004 14,155,827 44,724,919 85,982,213 97,808,123 111,825,973 21,080,088 16,867,159 18,541,186 56,488,433 7,588,895 6,715,903 873,029 6,878,577 4,947,333 7,588,932 11,105,287 1,640,166 13,646,846 12,745,453 27,923,280 a 89,183,262 28,675,041 24,271,773 142,130,076 9,371,641 4,477,150 6,376,212 0 23,642,836 1,570,500 15,546,769 7,333,815 10,853,362 19,463,805 12,515,661 31,979,466 0 371,004 52,204,469 Yuan US$ 2,180,864,873 194,334,545 2,450,881,396 217,215,129 2,743,881,533 240,857,965 857,849,345 354,318,319 333,084,822 1,545,252,486 131,952,969 87,081,959 56,399,097 12,218,490 290,113,725 143,481,056 237,827,537 174,469,190 95,547,333 2,886,412 110,132,335 347,959,872 623,393,897 0 12,218,490 Local ForeignLocal Total Local Foreign Total 84,439,159 248,800,242 406,150,768 1,105,772,476 164,003,088 131,226,496 144,250,426 439,480,010 59,041,602 52,249,728 6,792,169 53,515,330 106,172,460 59,041,897 86,399,135 12,760,495 38,490,250 99,159,630 217,243,129 Table A4.3: Components Project Cost Summary Cost Project Components A4.3: Table Changchun Dongnan Wastewater Management Wastewater Dongnan Changchun 188,834,396 1. Yanji Water Supply Water 1. Yanji 72,911,367 2. Yanji Wastewater Treatment Plant Treatment Wastewater 2. Yanji and Plant Treatment Tertiary Wastewater Yanji 34,832,231 Price Contingencies ChargesCommitment 57,057,083 0 2,886,412 Physical ContingenciesPhysical 120,953,860 3. Yanji Central Heating Central 3. Yanji Plant Power from Conveyance Heat Yanji Yanji Heating Pipe 151,428,402 97,371,840 Includes taxes and duties estimated at $17.81 million. at $17.81 estimated duties and taxes Includes Item A. Changchun Urban Infrastructure Urban Changchun A. Plant Treatment 5 Water No. Changchun 693,846,257 Changchun Solid Waste Sanitation Landfill Sanitation Waste Solid Changchun 223,091,823 Subtotal (A) Subtotal B. Yanji Urban Infrastructure Yanji Urban B. MainTransmission Expansion and Upgrade Networks Sewerage Yanji 49,606,928 Subtotal (B2) Subtotal C. Project Management C. Project Implementation During Interest 183,941,265 Total Baseline CostsTotal Baseline 1,511,923,244 668,941,629 Total Project Costs 1,689,934,187 760,947,209 Total Costs to Costs be FinancedTotal 1,873,875,452 870,006,081 Subtotal (B) Subtotal Source: Asian Development Bank estimates. Bank Development Asian Source: a Subtotal (B3) Subtotal 34 Appendix 5

FLOW OF FUNDS AND ONLENDING ARRANGEMENTS

Asian Development Bank Ministry of Finance ADB/Counterpart/Local Bank Funds onlending ADB/Local Bank Repayment Direct Payments to Jilin Provincial Finance Consultants and Suppliers Bureau

onlending

Counterpart Changchun Municipal Yanji Municipal Counterpart Funding Finance Bureau Finance Bureau Funding

onlending onlending

Implementing Agencies

Yanji Water Supply Co. Changchun Water Yanji WTP and Network Supply Co. Upgrade and Expansion Changchun No. 5 WTP and Distribution Mains

Changchun Jingyuetan Tourism Yanji Sewerage Commercial Construction Group Treatment Co. Commercial Lending Limited Co. Yanji Effluent Reuse and Lending Changchun Dongnan Sewerage Upgrade and WWTP Expansion

Changchun Municipal Liya Environmental Yanji Investment and Sanitation and Development Co. Infrastructure > Yanji Thermal Power Construction Limited Plant Heating Networks Company > Yanji Heating Plant Changchun Domestic and Secondary Solid Waste Networks Management

WTP = water treatment plant, WWTP = wastewater treatment plant. Source: Jilin provincial government. Appendix 6 35

2007 2008 2009 2010 2011 2012

1 2 3 4 2 3 4 1 2 3 4 1 4 4 1 2 3 2 3 4 1 2 3 1 IMPLEMENTATION SCHEDULE IMPLEMENTATION and Expansion rage Upgrade rage Upgrade ork Upgrade and Expansion ork Design and Tender Documentation Tender Invitation, Assessment, and Contract Award Civil Works Construction Testing and Commissioning Design and Tender Documentation Tender Invitation, Assessment, and Contract Award Civil Works Construction E&M Equipment Installation Testing and Commissioning Design and Tender Documentation Tender Invitation, Assessment, and Contract Award Civil Works Construction E&M Equipment Installation Testing and Commissioning Design and Tender Documentation Tender Invitation, Assessment, and Contract Award Civil Works Construction E&M Equipment Installation Testing and Commissioning Design and Tender Documentation Tender Invitation, Assessment, and Contract Award Civil Works Construction Testing and Commissioning Design and Tender Documentation Tender Invitation, Assessment, and Contract Award Civil Works Construction E&M Equipment Installation Testing and Commissioning Item Mains and Distribution Changchun No. 5 WWTP A. WWTP Dongnan B. Changchun Domestic Solid Waste Management C. Changchun Sewe Reuse and D. Yanji Effluent and Netw WWTP E. Yanji F. Yanji Thermal Power Heating Networks Plant 36 Appendix 6

2007 20082007 2009 2010 2011 2012

1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 2 3 4 1 2 3 2 3 4 1 4 1 2 3 4 1 2 3 3 4 1 2 1 Design and Tender Documentation Tender Invitation, Assessment, and Contract Award Civil Works Construction E&M Equipment Installation Testing and Commissioning E&M = electrical and mechanical, treatment plant. wastewater WWTP= Source: Asian Development Bank estimates. Item Networks Secondary Heating Plant G. Yanji Appendix 7 37

PROCUREMENT PLAN

Table A7.1: Project Information Country People’s Republic of China Name of Borrower PRC Project Name Jilin Urban Environmental Improvement Project TA Reference TA 4804-PRC Date of Effectiveness Amount $100,000,000 Of which committed Executing Agency Jilin Provincial Government Approval Date of Original Procurement Plan Approval of most recent Procurement Plan Media for Publication for Local Advertisements Period Covered by this Plan June 2007 – March 2009

Table A7.2: Procurement Thresholds for Goods and Related Services, Works, and Supply and Install Procurement Method Threshold (Value $) International Competitive Bidding (ICB) Worksa > 10,000,000 ICB Goods > 1,000,000 National Competitive Bidding (NCB) Worksb > 100,000 NCB Goods > 100,000 Shopping Works ” 100,000 Shopping Goods ” 100,000 Exceptional Methods None anticipated a For ICB, prior review and approval by Asian Development Bank (ADB) of procurement documents, bid evaluation reports, and proposed awards of contracts is required. b For NCB, the first draft English language version of the NCB procurement documents should be submitted for ADB review and approval regardless of the estimated contract amount. Remaining procurement documents under NCB are subject to post review. ADB will review the bid evaluation report and award of contract on a retroactive basis. Source: Jilin project management office.

Table A7.3: Procurement Thresholds for Consultant Services Procurement Method Threshold (Value $) Quality- and Cost-Based Selection (QCBS) > 200,000 Consultants Qualifications Selection (CQS) > 100,000 Least-Cost Selection (LCS) ” 100,000 Alternative Methods No alternative methods are proposed

Table A7.4: List of Indicative Contract Packages

A. Subproject: Changchun No.5 WTP and Distribution Mains Procurement Expected Date of ADB Contract No. Contract Description Method Advertisement Review

Civil Works   Construction of all structures of the WTP except for supporting CCWT/0.1 NCB April – June 2008 Post and internal structures of the water purification unit Construction of supporting and CCWT/0.2 internal structures of the water NCB May – July 2008 Post purification unit 38 Appendix 7

Procurement Expected Date of ADB Contract No. Contract Description Method Advertisement Review

Procurement and installation of all pipelines for treatment process and heating in the WTP; CCWT/0.3 installation of cables and lighting NCB Jan – March 2009 Post facilities in the WTP; earth work and roads in the WTP; landscaping in the WTP. Installation of water distribution CCWT/0.4 pipelines NCB July – Sep 2008 Post M & E   Procurement of all treatment CCWT/2.1 process equipment in the WTP ICB Sep – Dec 2008 Prior Procurement of heating equipment in the Shitoukoumen Reservoir intake water pumping station, CCWT/2.2 NCB Jun-08 Post Fangniugou booster pumping station, the WTP, and Southern booster pumping station Installation, connecting, and CCWT/2.3 testing of all high and low-voltage NCB Sep – Dec 2008 Post electrical equipment in the WTP Procurement, installation, connecting, and testing of all metering devices and auto-control equipment in the Shitoukoumen CCWT/2.4 ICB Sep – Dec 2008 Prior Reservoir intake water pumping station, Fangniugou booster pumping station, the WTP, and Southern booster pumping station

B. Subproject: Changchun Dongnan WWTP

Expected Date Procurement ADB Contract No. Contract Description of Method Review Advertisement

Civil Works  Procurement and installation of all CCWWT/1.1 PCCP pipes for wastewater NCB Dec 2008 – Jan 2009 Post interception mains Procurement and installation of CCWWT/2.2 PCCP pipes for sewer pipelines NCB Dec 2008 – Jan 2009 Post (DN500) Procurement and installation of CCWWT/3.3 PCCP pipes for sewer pipelines NCB Dec 2007 – Jan 2008 Post (DN600-1200) CCWWT/4.4 Construction of pumping stations NCB Jan – Mar 2009 Post Construction of the WWTP’s CCWWT/5.5 Oxidation Ditch and Secondary NCB Jan – Mar 2008 Post Sedimentation Tanks Construction of WWTP’s CCWWT/6.6 NCB Jan – Mar 2008 Post Remaining Structures M & E   Procurement and installation of CCWWT/2.1 equipment in pumping stations Shopping April - May 2008 Post Procurement and installation of all CCWWT/2.2 equipment in the WWTP ICB April - May 2008 Prior Appendix 7 39

Expected Date Procurement ADB Contract No. Contract Description of Method Review Advertisement

Procurement of analyzing devices, CCWWT/2.3 office equipment, transport Shopping April - May 2008 Post vehicles, and furniture

C. Subproject: Changchun Domestic Solid Waste Management

Procurement Expected Date of ADB Contract No. Contract Description Method Advertisement Review

Civil Works  Sanitary landfill civil works, including garbage dam, flood/drainage ditch, water stop dam, drainage box culvert, CCMSW/0.1 NCB Jan – Mar 2008 Post equalization basin, wastewater storage tank, monitoring wells, landfill general area earth works, landfill gas venting wells, etc. M & E   Procurement of machines, CCMSW/2.1 equipment and vehicles for landfill NCB May – July 2008 Post Procurement of landfill mechanical equipment including CCMSW/2.2 NCB May – July 2008 Post compactors, bull dozers, and loaders Procurement of equipment for landfill leachate treatment plant including water treatment CCMSW/2.3 NCB May – July 2008 Post equipment, NF membrane, electrical equipment, and instruments Procurement and construction of materials for liner system 1 and CCMSW/2.4 system 2 including membranes, NCB May – July 2008 Post geotextile, bentonite blankets, draft tubes and draft air tubes Procurement and construction of materials for liner system 3, system 4 and system 5 including CCMSW/2.5 NCB May – July 2008 Post membranes, geotextile, bentonite blankets, draft tubes and draft air tubes Procurement of transport vehicles and containers for solid waste CCMSW/2.6 NCB May – July 2008 Post transfer stations including unloading vehicles and carriers.

D. Subproject: Yanji Effluent Reuse and Sewerage Upgrade and Expansion

Procurement Expected Date of ADB Contract No. Contract Description Method Advertisement Review

Civil Works  YJWWT/0.1 The effluent reuse plant NCB Dec 2007 – Jan 2008 Post Equipment installation for the YJWWT/0.2 NCB Dec 2007 – Jan 2008 Post effluent reuse plant YJWWT/0.3 Cast pipeline installation NCB Dec-07 Post 40 Appendix 7

Procurement Expected Date of ADB Contract No. Contract Description Method Advertisement Review

Reinforced concrete pipeline YJWWT/0.4 NCB Dec 2007 – Jan 2008 Post installation YJWWT/0.5 Water reuse pipelines NCB Dec 2007 – Jan 2008 Post M & E YJWWT/2.1 Media in aeration tanks NCB May – July 2008 Post YJWWT/2.2 Water pumps and air blowers NCB May – July 2008 Post YJWWT/2.3 Filtration tanks NCB May – July 2008 Post Electrical equipment, automation YJWWT/2.4 NCB May – July 2008 Post systems and instruments Other equipment for the effluent YJWWT/2.5 NCB May – July 2008 Post reuse plant YJWWT/2.6 Cast iron pipe NCB May – July 2008 Post YJWWT/2.7 Reinforced concrete pipe NCB May – July 2008 Post

E. Subproject: Yanji WTP and Network Upgrade and Expansion

Procurement Expected Date of ADB Contract No. Contract Description Method Advertisement Review

Civil Works  Installation and testing of pipes for NCB Jun – Aug 2007 YJWT/1.1 a Prior transmission mains Installation and testing of pipes for NCB Jun – Aug 2007 YJWT/1.2 a Post distribution mains Installation and testing of NCB Jun – Aug 2007 YJWT/1.3 Post upgraded and expanded networks Installation works inside of the NCB Jun – Aug 2007 Yanji WTP including engineering YJWT/1.4 Post installation, commissioning and test running M & E  Procurement of all equipment and NCB Dec 2007 – Feb 2008 YJWT/2.1 main materials for the Yanji WTP Prior Procurement of electrical NCB Dec 2007 – Feb 2008 YJWT /2.2 equipment, automation system Post and instruction for the Yanji WTP Procurement of all laboratory NCB Dec 2007 – Feb 2008 YJWT /2.3 analysis instruments and main Post materials for the Yanji WTP Procurement of imported NCB Dec 2007 – Feb 2008 YJWT/2.4 equipment at the Yanji WTP. Post

a Phase 1 procurement for NCB Nov 2007 – Feb 2008 YJWT/2.5 transmission mains Post Phase 2 procurement for NCB Nov 2008 – Feb 2009 YJWT/2.6 transmission mains Post Procurement for distribution mains NCB Nov 2008 – Feb 2009 YJWT/2.7 a Post Phase 1 procurement of goods NCB Nov 2007 – Feb 2008 and materials needed for the YJWT/2.8 Post network upgrade and expansion component Phase 2 procurement of goods NCB Nov 2008 – Feb 2009 and materials needed for the YJWT/2.9 Post network upgrade and expansion component Appendix 7 41

Procurement Expected Date of ADB Contract No. Contract Description Method Advertisement Review

Procurement of PE pipes needed NCB Nov 2008 – Feb 2009 YJWT/2.10 for the network upgrade and Post expansion component

F. Subproject: Yanji Thermal Power Plant Heating Networks

Procurement Expected Date of ADB Contract No. Contract Description Method Advertisement Review

M & E  Procurement of directly buried pre- insulated hot water pipeline package YJCH1/2.1 NCB Jan – Mar 2008 Post 1 including a DN 1000 pipeline at the length of 2,568 m Procurement of directly buried pre- insulated hot water pipeline package YJCH1/2.2 NCB Jan – Mar 2008 Post 2 including a DN 1000 pipeline at the length of 2,568 m Procurement of directly buried pre- insulated hot water pipeline package YJCH1/2.3 NCB Jan – Mar 2008 Post 3 including a DN 1000 pipeline at the length of 2,568 m Procurement of directly buried pre- insulated hot water pipeline package YJCH1/2.4 NCB Jan – Mar 2008 Post 4 including a DN 1000 pipeline at the length of 2,568 m Procurement of directly buried pre- insulated hot water pipeline package YJCH1/2.5 NCB Jan – Mar 2008 Post 5 including a DN 1000 pipeline at the length of 2,568 m Procurement of directly buried pre- insulated hot water pipeline package YJCH1/2.6 NCB Jan – Mar 2008 Post 6 including a DN 900 pipeline at the length of 2,880 m Procurement of directly buried pre- insulated hot water pipeline package YJCH1/2.7 7 including a DN 900, a DN 800, a NCB Jan – Mar 2008 Post DN 500 and a DN 400 pipelines at the total length of 5,222 m Procurement of directly buried pre- insulated hot water pipeline package YJCH1/2.8 8 including a DN 700, a DN 350 and NCB Jan – Mar 2008 Post DN 150 pipelines at the length of 5,706 m Procurement of directly buried pre- insulated hot water pipeline package YJCH1/2.9 9 including a DN 600, a DN 300 and NCB Jan – Mar 2008 Post a DN 200 pipelines with at the total length of 7,401 m Procurement of directly buried pre- insulated hot water pipeline package YJCH1/2.10 10 including a DN 450 and a DN NCB Jan – Mar 2008 Post 250 pipelines at the total length of 8,478 m 42 Appendix 7

Procurement Expected Date of ADB Contract No. Contract Description Method Advertisement Review

Procurement of butterfly valves with various diameters ranging from 159 YJCH1/2.11 NCB Jan – Mar 2008 Post mm - 920 mm at a total number of 78 Procurement of directly buried pre- insulated hot water pipeline package YJCH1/2.12 11 including a DN 400 and a DN NCB Jan – Mar 2008 Post 150 pipelines at the total length of 3,313 m Procurement of directly buried pre- insulated hot water pipeline package YJCH1/2.13 11 including a DN 400, a DN 350, NCB Jan – Mar 2008 Post and a DN 200 pipelines at the total length of 2,846 m

G. Subproject: Yanji Central Heating Plant and Secondary Networks

Contract Procurement Expected Date ADB Contract Description No. Method of Review Advertisement M & E   Procurement of directly buried pre- insulated pipelines package 1 with YJCH2/2.1 NCB Jun – Aug 2007 Post various nominal diameters ranging from 50 mm – 300 mm Procurement of directly buried pre- insulated pipelines package 1 with YJCH2/2.2 various nominal diameters ranging NCB Jun – Aug 2007 prior from 25 mm – 350 mm and accessories

H. Consulting Services Contract Expected Date Contract Procurement ADB Contract Description Amount of No. Method Review ($ million) Advertisement Consulting services: project implementation, management, FTP under JPCS1.1 1.57 Nov 2007 Prior and related capacity building QCBS and training FTP = full technical proposal, ICB = international competitive bidding, m = meter, mm = millimeter, M & E = mechanical and electrical, NCB = national competitive bidding, QCBS = quality- and cost-based selection, WTP = water treatment plant, WWTP = wastewater treatment plant. Source: Jilin Project Management Office. Appendix 8 43

SUMMARY RESETTLEMENT PLAN

1. The Project is composed of seven subprojects in Changchun and Yanji cities, all of which will require some land acquisition and population resettlement. The resettlement planning and implementation is designed to ensure that the affected persons (APs) will be better off (or at least no worse off) as a result of the Project. Overall, the land acquisition and resettlement impacts of the Project will be significant. A total of two full resettlement plans (RPs), three short RPs, and two short RPs with due-diligence reports have been prepared.

2. The impacts of the Project are summarized in Table A8.1. In total, about 128 hectares (ha) of land will be permanently acquired by the Project, of which 67% is classified as farmland. Permanent land acquisition will affect 102 households (367 persons). The Project will also require the temporary acquisition of 210 ha of land, of which 41% is farmland, and affect 377 households (1,388 persons). A total of 232 households (719 persons) will be relocated and about 32,392 square meters (m2) of residential houses will be demolished. Nine enterprises and shops with a total of 49 employees will be affected and 4,297 m2 of nonresidential structures will be dismantled. In addition, some productive assets, ground attachments, and public infrastructure and facilities will be affected, including electric poles, toilets, fences, hand-pumped wells, doors, pig pens, platform, toilets, barns, greenhouses, and asphalt roads, and trees. Of the total affected population, 711 households (2,491 persons) affected are rural residents, and 32 persons urban residents, owners of structures with or without certificates, and private business owners. Of the total APs, 22 households (51 persons) are Korean living in Yanji city.

3. In order to avoid or minimize land acquisition and resettlement, there was close consultation with the local officials and village and street committees during the preliminary and final feasibility study stages.

4. Compensation for the permanent land loss is based on the Land Administration Law of People’s Republic of China (PRC) (1998) and the State Council Decision to Deepen Reform and Strictly Enforce Land Administration (Document 28, dated November 2004). The house demolition is based on the Provincial and Municipal Urban Housing Demolishment Administration Regulations. The RPs prepared comply with PRC laws and regulation of resettlement and the Asian Development Bank’s (ADB’s) Involuntary Resettlement Policy (1995). Based on consultations with local governments and those affected, and general practice in Changchun and Yanji cities, a set of compensation standards was adopted by the respective city project management offices (PMOs) and implementing agencies (IAs). The resettlement principles established for the Project are that (i) land acquisition and involuntary resettlement should be avoided or minimized where feasible by developing and comparing a series of design alternatives; (ii) compensation and entitlements provided are based on market value or replacement value and must be adequate to allow those affected to at least maintain their preproject standard of living, with the prospect of improvement; (iii) land temporarily occupied and the period for disruption are to be kept to a minimum; (iv) all the people affected (legal and illegal) are to be taken into consideration and accounted for; (v) the per capita landholding after land acquisition will be sufficient to maintain the previous livelihood standard; (vi) where land allocation per capita is not sufficient to maintain the previous livelihood standards, other income- generating activities will be provided for; (vii) a preferential policy will be provided to vulnerable groups in such things as compensation, payment of special fund, minimum living guarantee, and employment; (viii) all those affected will be adequately informed about eligibility, compensation rates and standards, livelihood and income restoration plans, and project timing; and (ix) close monitoring and timely actions will be carried out to identify and resolve any problems. 44 Appendix 8

5. In accordance with the PRC national, provincial, and municipal policies and regulations for land acquisition, house demolition, and resettlement, together with ADB policies and guidelines, the PMO and IAs have conducted public consultations, negotiation, and information disclosure sessions with the APs, villages, and county governments during the project preparation stage. During meetings, interviews, focus-group discussions, public consultation workshops, and community consultation meetings, local representatives have participated in the planning and concerns have been integrated into the RPs. The draft RPs were distributed or disclosed to the affected counties, townships, villages, and affected persons on 12 June 2007, and resettlement information booklets have been disseminated to all the APs. This booklet has confirmed (i) the project-affected areas, (ii) the implementation schedule and framework, (iii) the compensation standards for land acquisition and other assets, (iv) relocation assistance, (v) the livelihood rehabilitation strategy, and (vi) dispute resolution procedures. JPG, CMG, YMG, and the IAs have implemented ADB’s Public Communication Policy, which requires full disclosure for the resettlement activities by (i) distributing copies of the resettlement information booklet to affected households and village offices on 12 June 2007, (ii) posting the draft RPs in village offices or resident committees on 12 June 2007, and (iii) posting English versions of the draft RPs on the ADB website following their endorsement by JPG and Environment and Social Safeguard Division on 21 June 2007. The final RPs were uploaded on the ADB website on 8 October 2007. The respective project IAs will establish project resettlement units for supervising implementation, continuing public consultation, monitoring progress, and responding to grievances. The grievance redress procedures are well established and explanations will be included in the resettlement information booklets.

6. For land acquisition, land compensation will be paid in cash to the affected villages to be used as basic social insurance for the farmers whose land is newly acquired; resettlement subsidies and standing crops will be paid to the APs. For residential houses and nonresidential (enterprises and shops) structures to be demolished, compensation will be paid to owners, including those without certificates. The payment will be made in cash according to the appraised value of the property. The households that have to relocate will also receive a relocation allowance. Compensation for standing crops, auxiliaries, and other assets will also be paid directly to the APs. Income losses resulting from reduced production or sales and wages caused by the Project will be compensated for in cash.

7. The resettlement strategy encompasses (i) the replacement of housing, and (ii) the restoration of livelihoods and income. For people losing housing in rural areas, there are two resettlement options: (i) to receive cash compensation, or (ii) to receive cash compensation plus provision of a house plot for house construction by the APs themselves. Assistance will be provided to construct new houses or find available housing close to their original homes, if that is their preference. The respective municipal PMOs, IAs, and local governments will provide necessary assistance for house construction and relocation during resettlement implementation.

8. The measures for economic rehabilitation include (i) provision of employment opportunities during the project construction and operational phases, (ii) provision of basic social insurance to the APs whose land is acquired, (iii) development of crops with higher economic value, (iv) promotion and development of new enterprises and self-employed secondary and tertiary businesses (such as auto accessory manufacturing, community services, transportation, entertainment, and catering services), and (v) provision of technical training to the APs to increase their skills. Relocated enterprises and shops will be provided with the options of compensation and resettlement. The same shops will reemploy the affected employees. Appendix 8 45

9. Based on the survey results, seven vulnerable people (including four disabled, one elder and two poor persons) are affected due to the construction of Changchun Domestic Solid Waste Management. For the vulnerable people, the respective municipal PMOs and IAs will establish a special fund at CNY2,000 per person for them to improve their living standards. The fund will be paid as a one-time cash payment. In addition, the vulnerable households will receive CNY140 per month as a municipal living guarantee from the municipal civil affairs bureau. The PMO and IA will supervise implementation to ensure these vulnerable persons receive adequate compensation, housing arrangements, special funds, and municipal living guarantee, and assistance to restore their living conditions and incomes.

10. Each PMO will have at least two full-time staff responsible for land acquisition, and each IA will have at least two full-time staff responsible for resettlement. The staff from each subproject resettlement unit will be responsible for coordinating the planning, implementation, financing, and monitoring of land acquisition and resettlement. They will work closely with relevant village officials, land administration bureaus, and house demolishment offices, and will be responsible for supervision and monitoring of resettlement (including the delivery of entitlements, selection of new housing sites, restoration of incomes, provision of replacement land, and other economic measures). A training program will be organized for the resettlement officers.

11. The cost estimate for land acquisition and resettlement is $45.6 million, equivalent to CNY355.59 million in 2007 prices, including contingencies. Resettlement implementation will be scheduled to precede the subproject construction schedules. Most resettlement activities will occur between February 2008 and December 2009. Resettlement implementation will be completed prior to subproject construction. Detailed measurement surveys will be conducted in each village, neighborhood, and enterprise and shop, and the compensation contracts will be negotiated and signed with village committees, households, and enterprises. Based on these surveys, the resettlement plans will be updated and submitted to ADB for review and approval.

12. Internal and external monitoring of RP implementation will be conducted. Monitoring methodologies are specified in the RPs. Internal supervision and monitoring will be done by each IA to ensure compliance with the provisions of the RP. The PMO and IAs have agreed to a set of supervision milestones with ADB to ensure timely and effective implementation of resettlement activities (see Table A8.2). External monitoring and evaluation will be carried out by an independent agency under contract to the PMO and IAs. External monitoring reports will be forwarded directly to both the PMO and ADB.

Table A8.1: Resettlement Supervision Milestone No. Resettlement Tasks Target Responsible Agency Deadline Status A. Disclosure 1. Information booklet 711 AFs, 2 IAs May 07 Planned enterprises and 7 shops 2. Approved RP 5 villages Respective MG 1 June 07 Planned 3. RP posted on ADB website IAs/respective municipal 10 Jun 07 Planned PMOs and respective MGs / ADB B. Approval of RP and Budget $45.6 million Respective MG 10 Jun 07 Planned C. Agreements 1. Compensation rates 5 villages IAs / respective municipal Jun 07 In process PMOs and respective MGs 2. Households - Changchun 508 AFs IAs / respective municipal Feb 08–Dec Planned PMOs 09 46 Appendix 8

No. Resettlement Tasks Target Responsible Agency Deadline Status 3. Households - Yanji 203 AFs IAs / respective municipal Feb 08–Dec Planned PMOs 09 4. Enterprises and shops 2 enterprises IAs / respective municipal Feb 08–Dec Planned and 7 shops PMOs 09 D. Detailed Measurement Survey Recheck IAs / DIs / LAB 31 May 07 Planned

E. Detailed Plans 1. Village rehabilitation plans 5 villages IAs / DIs / respective Mar 08–Dec Planned municipal PMOs 09 2. Enterprise / shop relocation 2 enterprises IAs / respective municipal Mar 08–Dec Planned plans and 7 shops PMOs 09 3. Plan for vulnerable group 7 persons IAs/respective municipal Mar 08–Dec Planned PMOs 09 4. Training plans for APs 711 AFs IAs/respective municipal Mar 08–Dec Planned PMOs 09 F. Establishment of PLG/IAs / respective Aug 06–Oct To be done Implementation Capacity municipal PMOs / LAB / 07 Others G. Monitoring and Evaluation 1. Baseline survey 711 AFs IAs / DIs / respective Nov 06 Completed municipal PMOs 2. Set up internal supervision As per RP IAs / respective municipal Jun–Jul 07 Planned PMOs 3. Hiring external monitor IAs / respective municipal Sept 07 Planned PMOs 4. Internal monitoring reports Quarterly IAs / respective municipal Jun 08 First Report PMOs 5. External monitoring reports Semi-annual IAs / respective municipal Jun 08 First Report PMOs /IMA Dec 08 Second Report 6. Resettlement completion reports 1 report IAs / IMA As work is completed 7. Evaluation reports Two IAs / respective municipal Dec 09 Dec First Report PMOs / IMA 10 Second Report H. Documentation of Consultation IAs / VCs Ongoing I. Documentation of Grievances IAs / VCs Ongoing J. Flow of Funds / Compensation 1. To IAs 50% of funds Respective MG Feb 08–Nov Pending 2010 2. To LAB 50% of funds IAs Feb 08–Nov 2010 3. To affected villages 50% of funds IAs Feb 08–Nov 2010 4. To affected households 50% of funds IAs / VCs Feb 08–Nov 2010 ADB = Asian Development Bank, AF = affected family, AP = affected person, = design institute, IA = implementing agency, IMA= independent monitoring agency, LAB = Changchun Land Administration Bureau, MG = municipal government, PLG= Project Leading Group, PMO = project management office, RP = resettlement plan, VC = village committee. Appendix 8 47 0 0 People Affected 0 0 Affected Households ) 0 0 0 0 0 0 2 (m Total Area 0 0 People Affected 0 0 Affected Households 0 0 (ha) Of which Farmland 0 0 (ha) Area Total 121.02 81.42 236 898 5 0 People Affected 2 0 Holds House- Affected 0 0.59 (ha) Of which Farmland 1.2 1.06 0.59 0 1.06 0.59 (ha) 60.25 34.79 46 192 0 0 26,043.30 0 0 155 460 30,941.30 81.42 146.22 187 561 236 898 45.47 87.50 85 318 Area Total 3 t/d t/d 0 0 0 0 0 t/d 0 0 0 t/d 0 0 0 0 m km km /day 11.52 9.05 24 91 0 9.05 24 91 11.52 0 /day 0 0 0 0 0 /day /day 0 0 11.66 4,898 101 0 32 0 /day /day 3 3 3 3 3 m m m Table A8.2: Summary of Land Acquisition and Resettlement Impacts Table A8.2: Summary 23 km 0 0 0 0 0 0 0 0 km 0 0 23 0 0 8.2 800 150 km 0 0 0 0 25.2 0 0 0 0 0 km 0 0 150 25.5 km 1.22 0.45 13 30 1.22 km 25.5 72.7 km 0 0 0 2,000 1,100 2,600 63,700 120,000 180,000 Quantity Units Engineering Works Acquisition Permanent Land Acquisition Land Temporary Residential House Demolition Project

Activities (ii) Two (ii) Two transfer stations (i) WTP 300,000 m (ii) Water (ii) Water transmission main (iii) Water distribution main (ii) Wastewater collection system and drainage system (i) WTP 100,000 m (i) Sanitary landfill, including: Leachate treatment plant, Dams, Regulating tank, roads Inside (iii) Wastewater Interceptor (iv) Northern Booster Pumping Station; (v) Southern Booster Pumping Station Subtotal (A) Project Component A. Changchun City 3. Changchun Domestic Solid Waste Management 2. Changchun Dongnan Wastewater Treatment 1. Changchun No. 5 WTP and Distribution Main 48 Appendix 8 People Affected Affected Households ) 0 0 0 0 0 31 110 110 0 31 2 (m Total acquired in 2004 and a due been conducted by Economic Area People Affected Affected Households (ha) Of which Farmland (ha) 12.14 0.39 252 72 10.49 3.02 35 102 Area Total People Affected Holds House- Affected (ha) Of which Farmland /day = cubic meter per day, no. = number, t/d = ton per day. no. = number, t/d = cubic meter per day, /day 3 (ha) 39.99 39.99 17 49 63.53 4.01 141 490 1,451 4.01 63.53 490 158 141 45 39.99 17 49 39.99 Area Total 127.49 85.46 102 367 209.75 85.43 377 1388 32,392.30 85.43 209.75 232 719 1388 377 85.46 102 367 127.49 /day - - - - 0 0 - - 0 /day 0 0 0 0 0 0 - - 0 /day 0 0 0 0 3 3 9 km 0 0 km 9 0 0 0 40 km 0 0 km 40 44 km 0 0 0 0 0.6 0.6 34 136 1,181 39 11 0.6 136 0.6 34 0 0 km 44 0 0 0 0 no. 0 35 0 0 0 35.7 km 0 0 km 35.7 16.1 km 0 0 km 16.1 39.96 16 43 39.96 km 10.1 0 0 0 0 0 0 plementing agencies, June 2007. 55,000 m = square meter, m 2 Quantity Units Engineering Works Acquisition Permanent Land Acquisition Land Temporary Residential House Demolition 60,000 m 60,000 b a Project

Activities WTP Sewerage Networks 0 0 0.03 1 6 0.03 0 0 no. 0 0 PS 1 40.30 0 Booster 270 0 0 Heating pipe 0 3 9 km networks 77.6 Tertiary Tertiary wastewater plant Water supply networks Heating pipe networks Heat exchange stations Water reuse Water transmission main Water transmission main Water distribution main

Total Subtotal (B) A total of 39.96 ha of farmland was acquired in February 2007 with 16 households or 43 persons affected and a due diligence has A total of 20.303 ha of land (9.329 ha paddy land, 9.169 ha dryland, and 1.805 ha other land) for tertiary wastewater plant was diligence has been conducted Economic by and Management Institute of in February 2007 and Management Institute of Tongji University in February 2007. Network Upgrade and Expansion 4. Yanji Effluent 4. Yanji Reuse Plant and Transmission Main Thermal 6. Yanji Power Plant Heating Networks Heating 7. Yanji Plant Secondary Heating Networks Project Component City B. Yanji ha = hectare, km kilometer, m a b Source: Resettlement plans im by 5. Yanji WTP, WTP, 5. Yanji Appendix 8 49 CNY10,000 $1 Million CNY10,000 $1 Affected Villages / Villages Communities ected People Resettlement Costs Total Urban Rural Total Workers Workers Affected Number ) 0 0 0 0 0 0 1 14,143.59 18.13 14,143.59 0 0 0 0 1 0 0 0 0 0.01 5.50 0 0 0 0 0 0.63 490.60 0 0 0 0 0 0.55 425.42 0 2 Enterprises and Shops Enterprises and Shops Aff Total 123 2 0 0 0 0.06 47.46 0 (m 282.88 6 17 17 0 17 1 16,377.77 21.00 16,377.77 17 17 0 17 282.88 6 1 Table A8.2: Summary of Land Acquisition and Resettlement Impacts Table A8.2: Summary Total 3,891.00 1 32 32 32 0 1 4,069.00 5.22 32 4,069.00 0 32 32 3,891.00 1 1 Area plementing agencies, June 2007. Total 4,296.88 9 49 49 32 17 3 35,559.34 45.60 35,559.34 3 17 32 49 49 9 4,296.88 Total Subtotal (A) (A) Subtotal 4,173.88 7 49 49 32 17 3 34,590.36 44.35 Subtotal (B) 123 2 0 0 0 1.25 968.98 0 Subtotal Project Component Changchun City A. 1. Changchun # 5 Water Plant and Treatment Distribution Main 2. Changchun Dongnan Treatment Wastewater 3. Changchun Domestic Solid Management Waste City B. Yanji Reuse Plant Effluent Yanji 1. Main Transmission and Plant, Treatment Water Yanji 2. Upgrade Network and Expansion Thermal Power Plant3. Yanji Heating Networks Heating Plant Yanji 4. Secondary Heating Networks Source: Resettlement plans im by 50 Appendix 9

SUMMARY POVERTY REDUCTION AND SOCIAL STRATEGY

A. Linkages to the Country Poverty Analysis Is the sector identified as a national priority Yes Is the sector identified as a national priority Yes in country poverty analysis? in country poverty partnership agreement? No No

Contribution of the sector or subsector to reduce poverty in the People’s Republic of China (PRC):

The Project will directly benefit an urban population of 3.2 million in Changchun and 420,400 in Yanji. Of the total direct beneficiary population, about 240,000 or 5.54% (7% in Changchun and 3.85% in Yanji) are classified as poor, based on the weighted average local urban poverty line of CNY1,925 per year. The Project will benefit the urban residents through (i) improvements to water supply infrastructure, (ii) the disposal of wastewater, (iii) better solid-waste management facilities, and (iv) an improved energy efficient central heating system. The Project will contribute to poverty reduction through increased quality of life by reducing the incidence of waterborne and airborne diseases, and providing employment opportunities during construction and operation of the project facilities, with anticipated effects on economic development.

The Project will assist with the country’s progress in meeting Millennium Development Goal 7, target 10 to halve the proportion of people without access to basic sanitation by increasing coverage of the Changchun and Yanji wastewater system by 2015. It will contribute to reductions in medical costs incurred as a result of contracting waterborne and airborne diseases in Changchun and Yanji. Health benefits are expected to be disproportionately realized by women as they are more vulnerable to waterborne diseases due to greater contact with water from household responsibilities (especially cooking and washing), and are most responsible for care of the young and old. The annual health benefit to be gained directly from the urban environmental improvement in both Changchun and Yanji is estimated at CNY189 million.

B. Poverty Analysis Targeting Classification: Targeted intervention

A poverty and social analysis was undertaken in line with Asian Development Bank (ADB) guidelines to collect detailed social information necessary to inform project design, and identify poverty reduction and social development objectives, outcomes, and indicators. The analysis identifies vulnerable groups and opportunities for pro-poor interventions, and recommends social action measures, participation, and mitigation plans to achieve positive social benefits. The characteristics of low-income or vulnerable households in the project area are (i) where the head of the household is a long- term, laid-off former state-owned-enterprise worker, often with children of school age; (ii) households headed by women; (iii) households containing one or more disabled or chronically sick person; and (iv) members are part of the floating population, usually from rural areas and living in poor conditions.

The major social measures to protect urban residents from falling into poverty include (i) a living allowance for laid-off employees, (ii) unemployment insurance, and (iii) a social support program under the minimum living standard scheme. Further, the Changchun municipal government (CMG) and Yanji municipal government (YMG) have agreed to implement poverty reduction1 measures including (i) lifeline tariffs, (ii) water bill discounts or cash rebates amounting to 50% of the monthly water bill for households living below the poverty line, and (iii) connections for the poorest households to tap water in Changchun and Yanji. The Project will promote public awareness and education programs about project benefits, public hygiene, and consumer behavior on water saving and managing wastewater disposal.

The Project will support poverty reduction by (i) providing safer and more reliable urban water supply, (ii) improving the natural environment by increased wastewater treatment and improved solid-waste management, (iii) reducing morbidity due to decreased exposure to waterborne diseases, (iv) reducing the risk of contracting respiratory diseases by improving the central heating system, and (v) providing employment opportunities for the poor. The Project will create 3,880 full time jobs during construction, generating about CNY48 million in wages per year. The poor and women will fill half of these jobs. Project operations will create 810 full-time permanent jobs directly, generating about CNY11.56 million in wages per year. Project-related services, such as procurement of construction materials and equipment, and follow-on multiplier effects will create an additional 5,000 jobs.

C. Participation Process Is there a stakeholder analysis? Yes No

Stakeholder analysis has been conducted during the poverty and social assessment. The primary stakeholders of the Project area are urban residents, the floating population, affected persons, industries and businesses, the executing agency (EA)

1 The technical assistance study (i) defined poverty levels used in the analysis, (ii) assessed and provided an income and expenditure profile of poor households based on a household survey of 500 households, (iii) evaluated and recommended measures to alleviate the impacts of increased water and wastewater tariffs on the poor, and (iv) assessed the positive impacts of the Project on the poor and low-income beneficiaries. Appendix 9 51 and implementing agencies (IAs); secondary stakeholders of the Project include relevant government agencies, such as the Civil Affairs Bureau, Poverty Reduction Office, Health Bureau, and All Women’s Federations. During the Project design, a household survey of 1,500 households was conducted. The participatory approaches for the poverty and social impact assessment included stakeholder consultation workshops, focus-group discussions, and key informant interviews, and these were used to gain a better understanding of the demands, needs, and interests of the stakeholders.

Three rounds of public consultations in the project areas were carried out to prepare the environmental impact assessment (EIA) and the resettlement plans. The public consultations and information disclosure included (i) introducing the Project components to the stakeholders; (ii) soliciting ideas, suggestions, comments, concerns, and critiques on the potential environmental implications of the Project; and (iii) presenting the findings of the EIA and resettlement plans, summarizing potential environmental impacts and mitigation measures, and providing answers raised by workshop participants. Public consultations and information disclosure of resettlement plans were conducted during surveys, community meetings, interviews, and workshops. The results of these meetings and the concerns of the affected persons, particularly the poor and women, were integrated into the resettlement plans, which also describe the public consultation plan and grievance process.

Is there a participation strategy? Yes No

Public consultation and participation have been the core element of the project design and will continue during the project implementation, monitoring, and evaluation. Ongoing consultations will also be carried out by the IAs to understand and meet the evolving needs and expectations of the users as well as increase the awareness of the public, especially the beneficiaries, about the benefits of the Project, and encourage the active involvement of local communities to maximize their support to the Project, promote environmental protection, and raise the social acceptance of tariff increases. Public consultations will be held during the project implementation to discuss and obtain feedback on tariff adjustments and affordability for consumers and other key stakeholders, particularly the poor. Existing participatory policies that rely on public hearings to gain approval for tariff adjustments will provide the mechanism for these consultations. The public consultation and participation will be carried out throughout the whole process of the EIA and environmental management plan implementation. The consultations, including a grievance mechanism, will continue during land acquisition and resettlement so that the problems and needs of affected persons are properly addressed in a timely manner before the project implementation.

D. Gender Development Strategy to maximize impacts on women:

Results from the household surveys and focus-group discussions indicate that women are primarily responsible for collection of household water, wastewater disposal and management, household garbage disposal and management, heating provision, and care for the sick and elders. Time and efforts spent on these activities will reduce the time available for women to engage in income-generating activities, family entertainment, or leisure. The poverty and social assessment indicated that women strongly support the Project. Women have perceived that the Project will improve the urban living environment, create employment opportunities, and reduce the incidence of waterborne and airborne diseases. To maximize the project benefits, women will be given priority in the employment and training opportunities generated from the project construction and operation phases. A proactive employment program for women will be adopted by the IAs. Over 20% of the employment opportunities will be filled by women during the project construction phase and 20% during the operation phase.

Has an output been prepared? Yes No

E. Social Safeguards and Other Social Risks Significant/ Not Significant/ Plan Item None Strategy to Address Issues Required Resettlement Significant The resettlement plans for seven project components have been prepared in accordance with the PRC Land Full Not significant Administration Law (1998), the State Council Decision to Deepen Reform and Strictly Enforce Land Administration Short (2004) and ADB’s Involuntary Resettlement Policy None (1995) to ensure the affected persons will be made better off (or at least not worse off) as a result of the None Project. Affordability Significant Affordability for the poor has been assessed based on the proposed tariffs and household income data of the Yes Not significant socioeconomic household survey. The average households, and households in the lowest income class, No will not have a problem with affordability of a tariff None increase since the share of income expended for the 52 Appendix 9

Significant/ Not Significant/ Plan Item None Strategy to Address Issues Required services is below the 5% benchmark. Impacts on households in the lowest income bracket can be potentially significant but will be mitigated through the existing tariff reduction and subsidy program. Labor Significant The construction and operation of the Project will generate about 5,100 person-years of employment Yes Not significant opportunities during the project construction and 810 full- time jobs during the operation of the Project to the local No beneficiaries. The closure of 318 small boilers will affect None about 452 workers. Reemployment plans have been prepared by the project implementing agencies (PIAs) to ensure that all the affected workers will be reassigned to other similar jobs or retrained for other jobs. The affected workers will not be financially worse off than they would have been in the absence of the Project. The Jilin provincial government (JPG) will ensure that no job and income losses occur.

Indigenous Significant There is a large Korean ethnic group (60% of the Yanji Peoples population) in Yanji. are the dominant cultural Yes Not significant and economic group in the Yanbian Korean Autonomous Prefecture. Koreans migrated to the area 200–300 years No ago from the Democratic People’s Republic of Korea None and have thrived there ever since, maintaining their culture and language. The is common in the workplace, including local government offices. Korean is taught in schools and Korean newspapers are widely available. The Korean community maintains close economic ties with the Republic of Korea, and officials with the Civil Affairs Bureau consider the Korean community to be somewhat better off economically than other groups. In Changchun, 96.5% of the targeted population belongs to the Han ethnic group while other ethnic groups have similar customs and economic activities. The minority people will benefit from the increased and improved urban infrastructure facilities and services.

Project land acquisition and resettlement has affected, or will affect, 22 Korean households (51 persons). However, they are much better off than their income could have several times increase as they have used or will use the compensation payment from land acquisition to make arrangements to get employment in Korea or invest in small businesses. As a result, there are no negative impacts on them due to land acquisition and resettlement. If any negative impact on minority populations is identified during the Project implementation, special policies and considerations will be provided to them in line with the Chinese policies on minority people and the ADB’s social safeguard policies.

Other Risks and/or Significant Health and safety training will be provided to the Yes Vulnerabilities construction workers. The Project Management Office Not significant will ensure that contractors involved in the project No implementation receive and disseminate information on health and safety issues. Employees involved in the None Project will be protected in accordance with PRC labor laws and other regulations and guidelines issued by CMG and YMG. Appendix 10 53

FINANCIAL ANALYSIS

A. Introduction

1. The financial analysis was prepared in accordance with the Financial Management and Analysis of Projects of the Asian Development Bank (ADB).1 An assessment of financial performance was completed for the implementing agencies (IAs) that operate as enterprises. The financial analysis of the Project is completed for those IAs that will operate revenue- generating project components. The analysis determines the level of cost recovery that is required to service the ADB loan and achieve financial health.

2. The financial evaluations of project components were carried out in real terms using 2007 prices. The financial internal rate of return (FIRR) was determined using incremental annual cash flows over 25 years of operations. The residual value of physical assets is assumed to equal its remaining book or depreciated value at the end of the evaluation period. The evaluation was carried out for the project components and the combination of project components that feature cost recovery through tariffs. All cost and revenue projections were prepared using a pro forma financial modeling approach.

B. Historical Tariffs In Changchun and Yanji

3. An effective tariff mechanism is needed to ensure sufficient contributions from beneficiaries to support operation and maintenance (O&M) and to finance overhead costs including debt servicing. In addition, it is necessary to ensure adequate and timely provision of counterpart funds during project implementation. In accordance with the central government’s policies, all local governments are expected to charge reasonable fees for sewage treatment. In principle, water and wastewater tariffs should be established based on the cost of operating facilities and the affordability by consumers. In cities where profitability is not possible, local governments are encouraged to set a minimum wastewater tariff that can cover O&M costs.

4. Water and Wastewater Tariff in Changchun. Historical water and wastewater tariffs in Changchun from 2000 to 2006 are presented in Table A10.1.

Table A10.1. Wastewater and Water Tariff in Changchun (CNY/m3) 2000 2001 2002 2003 2004 2005 2006 Wastewater tariff Domestic 0.15 0.40 0.40 0.40 0.40 0.40 0.40 Industries, public institutions 0.30 0.80 0.80 0.80 0.80 0.80 0.80 Special industries 0.50 2.00 2.00 2.00 2.00 2.00 2.00 Tap water tariff Domestic 1.85 2.10 2.10 2.10 2.10 2.10 2.10 Industries, public institutions 3.87 3.80 3.80 3.80 3.80 3.80 3.80 End-user tap water tariff Domestic 2.00 2.50 2.50 2.50 2.50 2.50 2.50 Industries, public institutions 4.17 4.60 4.60 4.60 4.60 4.60 4.60 Source: Changchun Water Supply Company.

5. Solid-Waste Charges in Changchun. Capital expenditures and the O&M costs related to urban solid-waste collection and treatment were financed by government subsidies. The

1 ADB. 2004. Financial Management and Analysis of Projects. Manila. 54 Appendix 10

Changchun municipal government (CMG) introduced a new tariff system on urban solid-waste collection on 26 September 2005. According to the new system, each urban household is charged CNY7 per month and public establishments is charged CNY44 per ton for solid-waste disposal. The new tariff system was effective on 1 October 2005.

6. Water and Wastewater Tariff in Yanji. A wastewater tariff, approved by the Jilin provincial government (JPG), was introduced in Yanji in 2000. The Yanji municipal government (YMG) increased the wastewater tariff in 2003 and 2006 after holding public meetings and receiving required approvals. The current wastewater tariff is CNY0.40 per cubic meter (m3) for domestic users, CNY 0.80 per m3 for public institutions and industries, and CNY1.60 per m3 for special industries (Table A10.2). The wastewater tariff is levied and collected based on the water sold.

Table A10.2. Wastewater and Water Tariff in Yanji (CNY/m3) 2001 2002 2003 2004 2005 2006 Wastewater tariff Domestic 0.10 0.10 0.30 0.30 0.30 0.40 Industries, public institutions 0.30 0.30 0.50 0.50 0.50 0.80 Special industries 0.50 0.50 0.80 0.80 0.80 1.60

Tap water tariff Domestic 1.60 1.60 1.60 1.60 1.60 1.60 Public institutions 2.80 2.80 2.80 2.80 2.80 2.80 Industries 2.80 2.80 2.80 2.80 2.80 2.80 Services 4.50 4.50 4.50 4.50 4.50 4.50 Special industries 7.00 7.00 7.00 7.00 7.00 7.00 Construction 6.00 6.00 6.00 6.00 6.00 6.00

End-user tap water tariff Domestic 1.70 1.70 1.90 1.90 1.90 2.00 Public institutions 3.10 3.10 3.30 3.30 3.30 3.60 Industries 3.10 3.10 3.30 3.30 3.30 3.60 Services 4.80 4.80 5.00 5.00 5.00 5.30 Special industries 7.50 7.50 7.80 7.80 7.80 8.60 Construction 6.30 6.30 6.50 6.50 6.50 6.80 Source:

7. Heating Tariff in Yanji. The heating tariff in Yanji increased from CNY22 per square meter (m2) to CNY26 per m2 for residential apartments, CNY30 per m2 for schools, and CNY35 per m2 for commercial premises, industries, and public institutions on 1 October 2005.

C. Major Assumptions

8. A value-added tax rate of 6% is applied to the sales revenue; sales taxes and surcharges of a total of 10% on top of the value-added tax are also levied. An income tax rate of 25% is used in the financial analysis for all the subprojects, except the ones with solid-waste and wastewater management components, for which an income tax rate of 15% is used.

9. Annual average depreciation costs have been computed at 4.17% of the book value of fixed assets at the end of the implementation period for each subproject until the net book value of fixed assets becomes zero after 24 years of operation. An amortization rate of 8% is applied to the original book value of the total intangible assets and deferred assts. The depreciation and Appendix 10 55 amortization costs are calculated based on the items’ book values in nominal terms at the end of the implementation period in accordance with the People’s Republic of China’s (PRC) accounting standards. Costs of consumables, electricity, and other expenses are adjusted annually according to the proposed capacity-utilization rate. All O&M costs are calculated in nominal terms in financial statement projections, adjusted by the local inflation rates projected by ADB. The O&M costs are calculated in real terms in the discounted cash flow analyses.

10. In the financial statement projections, loans to be obtained from ADB and local commercial banks are included as debt. The balance of the total investment to be financed by the government is included as equity injection. The proposed ADB loan has a 25-year term, including a 5-year grace period. The interest rate will be based on the London interbank offered rate (LIBOR) plus a spread. As of 17 May 2007, the 6-month LIBOR was 5.36%, and the 5-year fixed swap rate was 5.11%. By adding 60 base points to the 5-year fixed swap rate, the expected interest rate of the ADB loan will be 5.71%. The commitment fee is assumed to be 0.35% and the front end fee is assumed to be waived.2 The cost of local bank loans is 7.20% and the opportunity cost of equity is assumed to be 8.00% in accordance with the government’s guidelines and the equity cost used in similar ADB projects in the PRC. ADB’s Guidelines for Financial Governance and Management of Investment Projects specify that the appropriate discount rate for discounted cash flow analyses is the weighted average cost of capital (WACC), which represents the cost incurred by the project entity in raising the capital to implement a project. The WACC for the Project as a whole was calculated as 3.52% (Table A10.3).

Table A10.3. Project Weighted Average Cost of Capital Amount Share of Weighted Cost Source of Funds (CNY million) Project Cost (%) of Capital (%) Asian Development Bank 770 27.90 1.20 Government 685 24.80 1.22 Domestic Bank 1,300 47.20 1.10 Weighted Average Cost of Capital 3.52 Source: Project preparatory technical assistance estimates.

D. Financial Internal Rate of Return

11. The after-tax FIRR for the overall Project is estimated at 9.0% for the base-case scenario and varies between 6.61% and 11.51% for the project subcomponents. These returns compare favorably to the WACC of 3.52%. The sensitivity analysis tests the following three scenarios: (i) project costs increase by 10%, (ii) O&M costs increase by 10%, and (iii) revenue reduces by 10% due to delay of tariff adjustments. The resulting financial internal rates of return for the three scenarios are 7.93% for scenario (i), 7.04% for scenario (ii), and 5.74% for scenario (iii). The sensitivity analysis suggests that tariff reform and improved financial management, particularly cost control, are the most important factors to assure a successful project outcome. JPG, CMG, and YMG have confirmed that the government plans to progressively increase water and wastewater tariffs, introduce a solid-waste tariff, and strengthen tariff collections in both project cities. Suitable assurances from the government are included in the loan document to ensure tariff reforms in the project cities.

2 Based on 1% waiver of the entire front-end fee on all new sovereign loans approved by the ADB Board of Directors from 1 July 2007 up to and including 30 June 2008. 56 Appendix 11

ECONOMIC ANALYSIS

A. Introduction

1. The economic analysis covers project justification, general parameters for economic analysis, project costs and benefits, least-cost analysis, and calculations of the economic internal rate of return (EIRR). The EIRR is calculated for each of the Project’s seven subcomponents (Table A11.1) and for the Project as a whole.

Table A11.1: Served Districts and Primary Benefits of Project Subcomponents Subcomponent Districts Served Nature of Benefits A. Changchun city 1. Changchun WTP No.5 and Networks East section of Supply water for urban domestic purposes Changchun

2. Changchun Dongnan WTP and Sewage Southeast section of Manage wastewater, reduce health costs, Networks Changchun contribute to SRB environment

3. Changchun Solid-waste Management East of Changchun Reduce health costs, meet solid-waste disposal demand B. Yanji city 1. Yanji Effluent Reuse and Sewage Networks Henan District of Yanji Manage wastewater, reduce industrial Upgrade and Expansion water costs 2. Yanji WTP and Networks Upgrade and Hebei District of Yanji Supply water, improve sanitation, meet Expansion incremental water demand

3. Yanji Thermal Power Plant Heating Networks Henan District of Yanji Improve central heating service, reduce air pollution, reduce health costs 4. Yanji Heating Plant Secondary Heating Hebei District of Yanji Improve central heating service, reduce air Networks pollution, reduce health costs

SRB = Songhua River Basin, WTP = water treatment plant. Source: Asian Development Bank project preparatory technical assistance staff estimates.

B. Project Justification

2. Many cities in Jilin province experience widespread pollution because of (i) the discharge of untreated wastewater, (ii) improper management of solid waste, and (iii) the inefficient burning of coal for heating. Meanwhile, shortages of safe drinking water are common. The central government has classified more than 300 cities as “water short,” 108 as having serious water problems, and more than 60 as being critically short of water. Changchun city is included in the list of cities that are critically short of water. Sustainable development requires that Jilin province strengthens its capacity to manage its utility services to (i) formulate integrated urban plans, and (ii) monitor and enforce environmental regulations.

3. The Project comprises water supply and wastewater management in Changchun and Yanji, domestic solid-waste management in Changchun, and central heating in Yanji. The Project will help improve the urban environment and achieve long-term sustainable development in Changchun and Yanji by (i) enhancing the quality of water resources; (ii) strengthening water supply, wastewater, and domestic solid-waste management; and (iii) improving urban air quality. In the project design, alternative locations and specifications for the Appendix 11 57 wastewater treatment plants, sewer networks, water treatment plants, pumping stations, solid- waste landfills, and central heating networks were considered.

C. General Parameters

4. The economic analysis was conducted by comparing situations with-project and without- project. The study period covers 25 years including 5 years of construction from 2007 to 2011. Economic benefits and costs are denominated in domestic price numeraire and expressed in constant 2007 prices. Tradable components are converted to economic prices using a shadow exchange rate of 1.013, and nontradable components are valued at domestic market prices. A shadow wage rate of 0.8 was applied to the wage of unskilled labor to account for unemployment and underemployment.

D. Costs

5. Project costs include capital investment costs and operation and maintenance (O&M) costs. Costs were allocated to tradable and nontradable goods and services, and skilled and unskilled labor. Appropriate conversion factors (shadow exchange rate and shadow wage rate) were applied accordingly. Transfer payments, including taxes and interests, are excluded from the economic costs, while physical contingencies are included.

E. Project Benefits

6. The Project is expected to benefit 3.6 million urban residents (3.2 million in Changchun and 0.40 million in Yanji). The Project’s primary benefits will include (i) improved wastewater collection and treatment services for about 300,000 people in Changchun and 26,300 people in Yanji, (ii) provision of an alternative low-cost supply of water to industrial users in Yanji through the reuse of treated wastewater effluent, (iii) reduced coal consumption and environmental costs due to reduced air pollutant emissions in Yanji, (iv) improved water supply treatment and distribution services for about 1.2 million people in Changchun and 118,800 people in Yanji, (v) improved solid-waste collection and treatment in Changchun, and (vi) human health benefits such as reductions in morbidity and mortality due to airborne and waterborne diseases.

7. Benefits associated with the improved water supply treatment and distribution services in Changchun and Yanji include (i) the provision of 24-hour service in the areas currently experiencing interrupted service, (ii) increased water pressure in the distribution systems, (iii) improved drinking water quality, (iv) reduced risk of exposure to waterborne pathogens in the tap water, and (v) reduced water leakage. Indirect benefits for domestic beneficiaries include the elimination of financial costs incurred to cope with the interrupted water supply service and a general enhancement of the life quality.

8. The impacts associated with the improvements in wastewater collection and treatment include (i) reduced discharge of untreated wastewater into the river streams, (ii) reduced frequency of acute surface water contaminations, and (iii) reduced hydraulic loading of treated wastewater effluent to the receiving streams. Benefits that are derived from these impacts include (i) improved aquatic environment in local river systems, (ii) reduced risk of human and livestock exposure to waterborne pathogens, (iii) reduced transboundary aquatic pollution, and (iv) improved drinking water supplies in Changchun and Yanji.

9. Benefits of the central heating component will result primarily from (i) more efficient heat production than using the existing small boilers and (ii) the reduction in environmental costs due 58 Appendix 11 to reduced air pollution from the boilers. The proposed central heating systems will significantly improve the air quality in Yanji during winter by reducing emissions of air pollutants and dispersing the remaining waste gas through tall chimneys.

10. For solid-waste management, the existing landfill of Changchun will be filled in 18 months, although the period can be extended somewhat if necessary. Construction of a new domestic solid-waste treatment facility is urgently needed. The benefits associated with the solid-waste management component are primarily derived from the improved local environment and reduced pollution.

11. Benefits of all the project components are calculated using a willingness to pay approach. Estimation of the willingness to pay uses the contingent valuation method, which has been widely used in environmental and natural-resource valuations. The contingent valuation method uses survey techniques to elicit individuals’ willingness to pay for the hypothetical provision of a public good or willingness to accept compensation for a hypothetical loss. These monetary values are then aggregated and used in cost-benefit analyses of public interventions that potentially increase social welfare. A two-stage regression with a special treatment of zero responses in the survey is conducted. The regression results for this Project indicate that the willingness to pay for wastewater treatment is CNY0.85 per ton, for water supply CNY3.50 per ton (CNY2.50 per ton for Yanji), and for central heating CNY30 per square meter (m2) of building area per heating season.

F. Least-Cost Analysis

12. The least-cost analysis uses two methods: (i) the lowest average incremental economic cost approach is used for the components where there is a measurable output, such as the Yanji Water Treatment Plant and Yanji Effluent Reuse Plant subcomponents; and (ii) the lowest present value of economic cost approach is used for the subcomponents of water supply and sewer networks construction and upgrade, where a measurable output is unavailable. All costs and outputs are derived from a with-project and without-project comparison, and discounted at the economic discount rate of 12%. The least cost conclusions are indicated below.

(i) For the landfill location, the Mogugou option is found to be cost effective compared to the Fufengshan option. (ii) For the solid-waste treatment process, the landfill process is found to be better than the fired mixed landfill process. (iii) For the tertiary wastewater treatment, the filtration pitcher process is found to be cost effective compared to the filtration tank process. (iv) For pipe materials, the least-cost analysis confirms the reinforced concrete pipe as a recommended option against the HDPE pipe. (v) For the water transmission pipeline layout routine, the preferred option is the pipeline from the Yanji River, compared to the pipeline from the Chaoyang River. (vi) For the water transmission pipe material, the cast-iron pipe is marginally better than the PCCP pipe.

G. Economic Internal Rate of Return

13. The EIRR is calculated for each Project subcomponent (Tables A11.2 to A11.5) and for the whole Project (Table A11.6). The EIRR ranges from 15.8% to 28.0% for subcomponents and 23.7% for the whole Project. Sensitivity analysis shows that the EIRR for the whole Project will decrease to (i) 21.4% if the Project experiences a capital cost overrun of 10%, (ii) 20.5% if Appendix 11 59 the Project experiences an O&M cost overrun of 20%, (iii) 19.1% if the Project benefits are reduced by 10%, (iv) 21% if the Project experiences a commissioning delay of 1 year, and (v) 13.6% if (i), (ii), and (iii) all happen together. A risk analysis based on 1000 Monte Carlo simulations shows that the probability of the EIRR being below 12% is less than 5%. The financial analysis (Appendix 10) of the Project’s six revenue-generating subcomponents indicates that all of them will be financially viable and sustainable. The Government, through its general budget, will provide subsidies to the implementation agencies of the nonrevenue- generating subcomponents to cover their O&M costs.

Table A11.2: Economic Internal Rate of Return of Wastewater Treatment Subcomponents NPV EIRR Subcomponent (CNY million) (%) Changchun Dongnan WWTP and Sewage Networks 240 22.0 Yanji Effluent Reuse and Sewage Networks Upgrade and 90 21.3 Expansion EIRR = economic internal rate of return, NPV = net present value, WWTP = wastewater treatment plant. Source: Asian Development Bank project preparatory technical assistance staff estimates.

Table A11.3: Economic Internal Rate of Return of Water Supply Subcomponents NPV EIRR Subcomponent (CNY million) (%) Yanji WTP and Networks Upgrade and Expansion 169 27.0 Changchun WTP No. 5 and Networks 658 23.7 EIRR = economic internal rate of return, NPV = net present value, WWTP = wastewater treatment plant. Source: Asian Development Bank project preparatory technical assistance staff estimates.

Table A11.4: Economic Internal Rate of Return of Central Heating Subcomponents NPV EIRR Subcomponent (CNY million) (%) Yanji Heating Plant Secondary Heating Networks 105 24.4 Yanji Thermal Power Plant Heating Networks 473 28.0 NPV = net present value, EIRR = economic internal rate of return. Source: Asian Development Bank project preparatory technical assistance staff estimates.

Table A11.5: Economic Internal Rate of Return of Solid-Waste Management Subcomponent NPV EIRR Subcomponent (CNY million) (%) Changchun Solid-Waste Management 41 15.8 EIRR = economic internal rate of return, NPV = net present value. Source: Asian Development Bank project preparatory technical assistance staff estimates. 60 Appendix 11 23.8% 1,783.7 (800.98) (657.54) Benefits NPV = EIRR = r supply subcomponent, Management WSS WSS Solid Waste Solid WSS

nji Yanji Changchun Changchun Net Plant Power Heating Heating Secondary Reuse net present value, O&M = operationsnet present value, O&M = and maintenance, WSS = wate

Table A11.6: Economic Internal Rate of Return Table A11.6: Economic (constant 2007 prices, domestic numeraire, CNY million) 657.54 5.76 821.73 20.75 265.47 730.41 383.19 527.30 114.83 415.05 481.45 114.83 441.18 42.39 114.83 45.68 442.24 114.83 52.46 48.96 37.73 277.01 442.88 229.95 114.83 65.57 37.73 369.18 48.96 442.88 65.57 114.83 306.6 37.73 369.18 48.96 32.07 203.08 383.25 114.83 69.94 37.73 369.18 48.96 383.25 69.94 55.73 37.73 369.18 383.25 282.80 69.94 37.73 369.18 56.85 383.25 57.90 514.99 636.24 59.03 640.67 60.23 641.24 61.35 642.37 68.85 (311.58) 430.90 430.90 114.83 48.96 430.90 114.83 430.90 48.96 114.83 69.94 430.90 37.73 369.19 48.96 383.25 114.83 69.94 48.96 37.73 369.19 114.83 383.25 69.94 48.96 37.73 369.19 383.25 69.94 37.73 369.19 383.25 69.94 37.73 369.19 383.25 593.01 593.01 593.01 593.01 593.01 442.88 442.88 114.83 48.96 442.88 114.83 48.96 444.77 114.83 69.94 37.73 369.19 48.96 444.77 383.25 114.83 69.94 37.73 369.19 48.96 430.90 383.25 114.83 69.94 37.73 369.19 48.96 430.90 383.25 114.83 69.94 37.73 369.19 48.96 430.90 383.25 114.83 69.94 62.55 37.73 369.19 48.96 430.90 383.25 114.83 643.58 69.94 63.68 37.73 369.19 48.96 430.90 383.25 114.83 644.70 69.94 64.88 37.73 369.19 48.96 430.90 383.25 114.83 645.90 69.94 66.08 37.73 369.19 48.96 430.90 383.25 234.49 114.83 645.21 69.94 37.73 369.19 48.96 430.90 813.62 383.25 114.83 69.94 37.73 369.19 48.96 383.25 114.83 69.94 37.73 369.19 48.96 383.25 69.94 37.73 369.19 383.25 69.94 37.73 369.19 383.25 593.01 593.01 593.01 593.01 593.01 593.01 593.01 593.01 Costs Benefits Investment Costs Effluent WWTP Year Capital O&M Total Changchun Yanji Yanji Ya 2009 2010 2011 464.95 2012 144.10 2013 66.40 2014 2015 2016 2029 2030 2031 2032 2033 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2007 2008 657.54 815.97 WWTP = wastewater treatment plant. WWTP = wastewater ( ) = negative, EIRR = economic internal rate of return, NPV = Source: Asian Development Bank technical assistance consultants estimate. Appendix 11 61

H. Distribution Analysis and Poverty Impact Indicator

14. As a result of the Project, some stakeholders lose and others gain. At a discount rate of 12%, the economy will gain CNY139.7 million, which is mainly from income taxes (Table A11.7). Laborers will gain CNY10.3 million because the Project pays wages in excess of the economic opportunity cost of labor. Consumers will gain CNY3,233.5 million because they can avail themselves of increased quantities of water, wastewater treated, and heating at a lower cost than without the Project. The share of net economic benefits of the Project accruing to the poor is 12.1%. Since the ratio is higher than the poverty ratio in the project area (estimated at 7.4%) the analysis concludes that the Project will support pro-poor economic growth. The share of 12.1% does not include indirect benefits of the Project.

Table A11.7: Distribution of Project Benefits and Poverty Impact Accounts Beneficiaries Financial Economic Difference Government Item Accounts Accounts Consumers Economy Labor Total Benefits 4,001.2 7,234.7 3,233.5 3,233.5 Costs Capital Costs 1,679.9 1,702.9 23.0 (23.0) Operating 2,117.1 2,154.1 37.0 (37.0) Costs Labor 57.9 47.6 (10.3) 10.3 Income Taxes 199.8 0.0 (199.8) 199.8 Total Costs 4,054.6 3,904.5 (150.0) Net Benefits (53.4) 3,330.1 3,383.5 3,233.5 139.7 10.3 3,383.5 Poverty Impact Beneficiaries in Financial and Economic Accounts 3,233.5 139.7 10.3 3,383.5 Net Financial Benefits (53.4) (53.4) Total 3,233.5 86.3 10.3 3,330.1 Proportion of 12.0% 17.0% 15.0% 10.0% Poor Benefits to Poor 388.0 14.7 1.5 404.2 Poverty Impact Ratio 12.1% ( ) = negative. Source: Asian Development Bank project preparatory technical assistance staff estimates.