World Bank Document

Document of The World Bank

Public Disclosure Authorized Report No: ICR00004259

IMPLEMENTATION COMPLETION AND RESULTS REPORT (IBRD-76920, IBRD-79370)

ON A

Public Disclosure Authorized LOAN

IN THE AMOUNT OF SDR 63 MILLION (US$ 150 MILLION EQUIVALENT)

TO THE

PEOPLE’S REPUBLIC OF CHINA

FOR A

YUNNAN URBAN ENVIRONMENT PROJECT Public Disclosure Authorized

April 23, 2018

Global Water Practice China Country Management Unit East Asia and Pacific Region

Public Disclosure Authorized

The World Bank (P096812)

ABBREVIATIONS AND ACRONYMS

AF Additional Financing COD Chemical Oxygen Demand FY Fiscal Year FYP Five-Year Plan GEF Global Environment Facility IBRD International Bank for Reconstruction and Development IDA International Development Association ICR Implementation Completion Results Report ILBM Integrated Lake Basin Management IO Intermediate Outcome Indicator ISR Implementation Status and Results Report M&E Monitoring & Evaluation MTR Mid-Term Review MS Moderately Satisfactory MU Moderately Unsatisfactory O&M Operation & Maintenance PAD Project Appraisal Document PDO Project Development Objective PIU Project Implementation Unit PMO Project Management Office QEA Quality at Entry Assessment QSA Quality of Supervision Assessment RF Results Framework RMB Renminbi S Satisfactory SDR Special Drawing Rights SIL Specified Investment Loan SWM Solid Waste Management TA Technical Assistance UNESCO United Nations Educational, Scientific, and Cultural Organization USD United States Dollar WTP Willingness To Pay WWTP Wastewater Treatment Plant

Senior Global Practice Director: Guang Zhe Chen Practice Manager: Sudipto Sarkar Project Team Leader: Joanna Masic ICR Authors: Scott Moore Yan Li

The World Bank (P096812)

CHINA Yunnan Urban Environment Project

CONTENTS

Data Sheet A. Basic Information B. Key Dates C. Ratings Summary D. Sector and Theme Codes E. Bank Staff F. Results Framework Analysis G. Ratings of Project Performance in ISRs H. Restructuring I. Disbursement Graph

1. Project Context, Development Objectives and Design ...... 1 2. Key Factors Affecting Implementation and Outcomes ...... 8 3. Assessment of Outcomes ...... 18 4. Assessment of Risk to Development Outcome ...... 29 5. Assessment of Bank and Borrower Performance ...... 29 6. Lessons Learned ...... 31 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners...... 32 Annex 1. Project Costs and Financing ...... 34 Annex 2. Outputs by Component ...... 36 Annex 3. Economic and Financial Analysis ...... 40 Annex 4. Bank Lending and Implementation Support/Supervision Processes...... 41 Annex 5. Beneficiary Survey Results ...... 42 Annex 6. Stakeholder Workshop Report and Results ...... 43 Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR ...... 44 Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders ...... 57 Annex 9. List of Supporting Documents ...... 58 MAP…………………………………………………………………………………...... 59

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A. BASIC INFORMATION Yunnan Urban Country: China Project Name: Environment Project Project ID: P096812 L/C/TF Number(s): IBRD-76920,IBRD-79370 ICR Date: 04/30/2018 ICR Type: Core ICR Financing Instrument: SIL Borrower: CHINA Original Total USD 90.00M Disbursed Amount: USD 130.70M Commitment: Revised Amount: USD 130.70M

Environmental Category: A

Implementing Agencies: Yunnan Provincial Environment Protection Bureau - Foreign Financed PMO

Cofinanciers and Other External Partners:

B. KEY DATES Process Date Process Original Date Revised / Actual Date(s) Concept Review: 09/26/2006 Effectiveness: 09/30/2009

12/03/2007 Appraisal: Additional Financing: 05/27/2010

Approval: 05/05/2009 Restructuring(s): 06/15/2015

12/15/2013 Mid-term Review: 05/31/2013

04/30/2017 Closing: 06/30/2015

C. RATINGS SUMMARY C.1 Performance Rating by ICR Outcomes: Moderately Satisfactory Risk to Development Outcome: Substantial Bank Performance: Moderately Satisfactory Borrower Performance: Moderately Satisfactory

C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry: Moderately Unsatisfactory Government: Moderately Satisfactory

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Implementing Quality of Supervision: Moderately Satisfactory Moderately Satisfactory Agency/Agencies: Overall Bank Overall Borrower Moderately Satisfactory Moderately Satisfactory Performance: Performance:

C.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments (if Indicators Rating Performance any) Potential Problem Project at No Quality at Entry (QEA): None any time (Yes/No): Problem Project at any time Quality of Supervision Yes None (Yes/No): (QSA): DO rating before Moderately Satisfactory Closing/Inactive status:

D. SECTOR AND THEME CODES Original Actual Major Sector/Sector Social Protection Social Protection 18 18 Water, Sanitation and Waste Management Other Water Supply, Sanitation and Waste 18 18 Management Public Administration - Water, Sanitation and Waste 28 28 Management Waste Management 18 18 Sanitation 18 18

Major Theme/Theme/Sub Theme Environment and Natural Resource Management Environmental Health and Pollution Management 45 45 Air quality management 15 15 Soil Pollution 15 15 Water Pollution 15 15 Environmental policies and institutions 5 5 Water Resource Management 5 5 Water Institutions, Policies and Reform 5 5

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Urban and Rural Development Cultural Heritage 7 7 Urban Development 38 38 Urban Infrastructure and Service Delivery 38 38

E. BANK STAFF Positions At ICR At Approval James W. Adams Regional Vice President: Victoria Kwakwa

David R. Dollar Country Director: Bert Hofman

Keshav Varma Practice Manager: Sudipto Sarkar

Takuya Kamata Task Team Leader(s): Joanna Masic

ICR Team Leader: Joanna Masic

Senior Global Practice Director: Guang Zhe Chen

Co Task Team Leader1: Shunong Hu

Co Task Team Leader2: Scott Michael Moore

ICR Primary Author: Scott Michael Moore

ICR Author: Yan Li

F. RESULTS FRAMEWORK ANALYSIS Project Development Objectives (from Project Appraisal Document)

To assist Yunnan Province in improving the effectiveness and coverage of critical urban infrastructure services in selected counties and the effectiveness of lake basin management in Dianchi, through investment in systems for the management of wastewater, water supply, solid waste, river environment and cultural heritage.

Revised Project Development Objectives (as approved by original approving authority) PDO was not revised.

(a) PDO Indicator(s)

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Original Formally Actual Value Target Values Baseline Revised Achieved at Indicator (from Value Target Completion or approval Values Target Years documents) Indicator 1 : People in urban areas provided with access to wastewater services (cumulative) Indicator 1 : People in urban areas provided with access to wastewater services (cumulative) Value Value quantitative or 350,000 806,000 828,800 quantitative or Qualitative) n/a Qualitative) Date achieved 12/31/2009 n/a 04/30/2017 04/07/2017 Date achieved Comments 103% achieved. Comments (incl. % Note: Includes Lijiang, Huaping, Qiubei, Guangnan, Yanshan, & Zhaotong. (incl. % achievement) PO-1 added at restructuring so no original target value available. achievement)

Indicator 2 : People in urban areas with access to solid waste management services (cumulative) Indicator 1 : People in urban areas with access to solid waste management services (cumulative) Value Value quantitative or 182,000 448,000 455,000 quantitative or Qualitative) n/a Qualitative) Date achieved 12/31/2009 n/a 04/30/2017 04/07/2017 Date achieved Comments 102% achieved. Comments (incl. % PO-2 added at restructuring so no original target value available. (incl. % achievement) achievement)

Indicator 3 : People in urban areas provided with access to water services (cumulative) Indicator 1 : People in urban areas provided with access to water services (cumulative) Value Value quantitative or 319,000 404,000 502,000 quantitative or Qualitative) n/a Qualitative) Date achieved 12/31/2009 n/a 04/30/2017 04/30/2017 Date achieved Comments 124% achieved. Comments (incl. % Note: Includes Zhaotong City and Qiubei County . PO-3 added at restructuring so no original target (incl. % achievement) value available. achievement)

Indicator 4 : Improved capacity for Dianchi Lake Basin management Indicator 1 : Improved capacity for Dianchi Lake Basin management Value Value quantitative or Lessons included quantitative or

Qualitative) Lack of in sector 13th Qualitative) Improved Plan completed. Lessons information to FYP, information management and incorporated into 13th FYP, assess pollution system for coordination by information system for load into Dianchi Dianchi Lake in responsible Dianchi Lake in place. Lake and absence place. Findings agencies/bureaus Findings from integrated of planning from for Dianchi as plan incorporated into sector plans towards integrated integrated plan evidenced by under plan for the 13th FYP. lake basin incorporated into regular sharing of management sector plans data among all key under the 13th bureaus involved FYP Date achieved 12/31/2009 06/30/2015 04/30/2017 04/30/2017 Date achieved Comments 100% achieved; lessons included in 13th FYP. Comments (incl. % Note that PO-4 originally emphasized data-sharing; this was revised at restructuring to (incl. % achievement) emphasize completion of an Integrated Lake Basin Management plan (see below). achievement)

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Indicator 5 : Improved management & coordination by responsible agencies/bureaus for Dianchi as evidenced by regular sharing of data among all key bureaus involved Value n/a (No data entered) quantitative or Dropped

Qualitative) n/a n/a Date achieved 12/31/2009 06/30/2015 04/30/2017 04/30/2017 Comments This PO dropped at restructuring and incorporated into PO-4. Online monitoring (incl. % and data-sharing platform developed and in use as of Project close. achievement)

(b) Intermediate Outcome Indicator(s) Original Target Values (from Formally Revised Actual Value Achieved at Indicator Baseline Value approval Target Values Completion or Target Years documents) Indicator 1 : Total Chemical Oxygen Demand (COD) Pollutant Load Reduction (tons/year) Value quantitative or 1800 2100 3815 Qualitative) n/a Date achieved 12/31/2007 n/a 04/30/2017 04/30/2017 Comments 180% achieved, based on full-year data for 2017. This IO was added at restructuring to (incl. % comply with the Core Sector Indicators (2013). The PAD included a related but different achievement) IO, “COD level at main discharge point”, measured in mg/L, for several WWTPs (see below). Indicator 2 : Volume of Municipal Solid Waste (SW) Disposed in Landfill (tons/year) Value quantitative or 143 480 535 Qualitative) n/a Date achieved 12/31/2009 n/a 04/30/2017 04/30/2017 Comments 141% achieved. (incl. % IO-2 was added at restructuring so no original target value available. Original IOs from achievement) PAD were 1) # of new population served by SWM services and 2) amount of SW being nd disposed to sanitary landfills. 2 IO revised to be Core IO (2013). Indicator 3 : Length of river section restored (km) Value quantitative or 0 49.7 51.97 Qualitative) n/a Date achieved 12/31/2009 n/a 04/30/2017 04/30/2017 Comments 103% achieved. (incl. % IO-3 was added at restructuring so no original target value available. achievement) Indicator 4 : Increase in visitors to Lion Mountain Value n/a quantitative or 0 75,000 79,170 Qualitative) Date achieved 12/31/2009 n/a 04/30/2017 04/30/2017

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Comments 106% achieved. (incl. % IO-4 was added at restructuring so no original target value available. The PAD included an achievement) IO “Development of rehabilitation plans in compliance with UNESCO protection codes and other national cultural heritage regulations” (see below). Indicator 5 : Development of Flood Risk Management System for Zhaotong Value quantitative or Flood risk n/a Flood risk management Qualitative) management n/a adopted adopted Date achieved 12/31/2007 n/a 04/30/2017 04/30/2017 Comments 100% achieved. (incl. % IO-5 was added at restructuring so no original target value available. The PAD includes an achievement) IO for “Incidence and severity of floods as compared to historical data in terms of number of people displaced and extent of material damage” (see below).

Indicator 6 : Number of people in urban areas provided with access to Improved Sanitation under the project Value 190,200 319,300 Dropped 320,600 quantitative or Qualitative) Date achieved 12/31/2009 06/30/2016 04/30/2017 12/31/2017 Comments 100% achieved. (incl. % This was a core indicator but was dropped at restructuring. Incorporated in PO-1 following achievement) re-structuring.

Indicator 7 : Number of people in urban areas provided with access to Improved Water Sources under the project Value 270,050 347,600 Dropped 400,000 quantitative or Qualitative) Date achieved 12/31/2009 06/30/2016 04/30/2017 12/31/2017 Comments 115% achieved. (incl. % This was a core indicator but was dropped at restructuring. Incorporated in PO-3 following achievement) re-structuring.

Indicator 8 : Number of population served by solid waste management services (104) Value Songming: 5.56 Songming: 7.36 Dropped Songming: 11.42 quantitative or Xundian: 5.73 Xundian: 7.89 Xundian: 13.69 Qualitative) Luquan: 5.02 Luquan: 7.45 Luquan: 8.77 Lijiang: 16.66 Lijiang: 24.89 Lijiang: 37.9 Funing: 3.52 Funing: 5.22 Funing: n/a (dropped before implementation)

Date achieved 12/15/2007 06/30/2015 04/30/2017 10/31/2014 Comments Achievement ranged from 118% to 173%; average of 150%. This indicator was dropped at (incl. % restructuring. Incorporated in PO-2 following re-structuring. No data is available after achievement) restructuring. Latest data (herein reported) is from ISR17221 12/06/2014.

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Indicator 9 : Amount of solid waste disposed to sanitary landfills (tons/day) Value Songming: 0 Songming: 79.5 Dropped Songming: 125 quantitative or Xundian: 51.61 Xundian: 62 Qualitative) Luquan: 0 Xundian: 70 Luquan: 70 Lijiang: 142.7 Lijiang: 278 Funing: 0 Luquan: 80.5 Funing: n/a (dropped before implementation) Lijiang: 230.1

Funing: 62.10 Date achieved 12/31/2009 06/30/2015 04/30/2017 12/31/2017 Comments Achievement ranged from 87% to 157%; average of 114%. Indicator was dropped at (incl. % restructuring. Incorporated in PO-2 following re-structuring. At Xundian and Lijiang achievement) original amount was disposed to an old landfill replaced by Project-financed sanitary landfill.

Indicator 10 : Operating cost covered by solid waste fee revenues (%) Value Songming: 0 Songming: 103 Dropped Songming: 91 quantitative or Xundian: 0 Xundian: 8.9 Qualitative) Luquan: 0 Xundian: 55 Luquan: 11.2 Funing: 0 Funing: n/a (dropped before Luquan: 121 implementation)

Funing: 100 Date achieved 12/15/2007 06/30/2015 04/30/2017 10/31/2014 Comments Achievement ranged from 9% to 88%; average of 38%. Indicator was dropped at (incl. % restructuring; at restructuring, the definition of cost recovery was modified to include achievement) governments’ subsidies, thus this indicator became unnecessary.

Indicator 11 : Wastewater Management System – Population Served Value Lijiang Town: Ljiang Town: Dropped Lijiang Town: 192,200 quantitative or 166,600 248,900 Huaping: 49,000 Qualitative) Huaping: 0 Qiubei: 72,000 Qiubei: 39,600 Huaping: 56,400 Yanshan: 75,000 Yanshan: 46,500 Guangnan: 120,000 Guangnan: 0 Qiubei: 53,050

Yanshan: 66,200

Guangnan: 68,300 Date achieved 12/15/2007 06/30/2015 04/30/2017 04/30/2017 Comments 77% to 176% achieved; average of 118%. This indicator was dropped at restructuring. (incl. % Data provided by PMO as of Project close. achievement)

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Indicator 12 : Lijiang Ancient Town District, Development Masterplan – Compliance with UNESCO and National Protection Codes (Yes/No) Value quantitative or Y Dropped Y Qualitative) Y Date achieved 12/31/2007 06/30/2015 04/30/2017 04/25/2014 Comments 100% achieved. (incl. % This indicator was dropped at restructuring. No data entered after restructuring; Latest data achievement) (herein reported) from ISR17221 12/06/2014. This indicator was complied with but was dropped at restructuring.

Indicator 13 : Lijiang Ancient Town District, Maintenance of UNESCO World Cultural Heritage Status (Yes/No) Value Y Dropped Y quantitative or Y Qualitative) Date achieved 12/31/2007 06/30/2015 04/30/2017 04/25/2014 Comments 100% achieved. (incl. % This indicator was dropped at restructuring. No data entered after restructuring; Latest data achievement) (herein reported) from ISR17221 12/06/2014. This indictaor was complied with but not deemed a useful indicator to measure subproject implementation.

Indicator 14 : Rainwater Drainage System – Population served Value Yulong: 30000 60000 quantitative or Dropped n/a (no data entered) Qualitative) Date achieved 12/31/2007 06/30/2015 04/30/2017 04/25/2014 Comments This indicator was dropped in 2010 and incorporated into IO-3. No data in ISRs. No data (incl. % on achievement pre-restructuring. achievement)

Indicator 15 : Wastewater Management – COD level (mg/L) at discharge point Value Huaping: 250-400 Huaping: 60 Dropped Huaping: 24 quantitative or Qiubei: 250-400 Qiubei: 60 Qiubei: 30 Qualitative) Yanshan: 250-400 Yanshan: 60 Yanshan: 36 Guangnan: 250- Guangnan: 60 Guangnan: 26 400

Date achieved 12/15/2007 06/30/2015 04/30/2017 10/31/2014 Comments 100% achieved. This indicator was dropped at restructuring. No data is available after (incl. % restructuring. Latest data (herein reported) is from ISR17221 12/06/2014. achievement)

Indicator 16 : Frequency of water monitoring at Wenshan Prefecture Environment Monitoring Station (times/year) Value 6 12 Dropped 12 quantitative or Qualitative)

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Date achieved 12/31/2009 06/30/2010 04/30/2017 04/25/2014 Comments 100% achieved. (incl. % This indicator was dropped at restructuring. No data entered after restructuring; Latest data achievement) (herein reported) from ISR17221 12/06/2014.

Indicator 17 : Wenshan County Environment Monitoring – Percentage of polluters aware of new regulation standards Value 0 100 Dropped 100 quantitative or Qualitative) Date achieved 12/15/2007 06/30/2015 04/30/2017 04/25/2014 Comments 100% achieved. (incl. % This indicator was dropped at restructuring. No data entered after restructuring; Latest data achievement) (herein reported) from ISR17221 12/06/2014.

Indicator 18 : Dianchi Lake Basin Management – Number of monitoring on 3 rivers (times per year) Value 6 8,760 Dropped 2,190 quantitative or Qualitative) Date achieved 12/15/2007 06/30/2015 04/30/2017 12/31/2017 Comments 25% achieved. (incl. % This indicator was dropped at restructuring. Data provided by PMO for full year 2017. achievement) Frequency based on sampling 6x/day, whereas original target assmed 1x/hour.

Indicator 19 : Dianchi Lake Basin Management – Number of monitoring on 14 streams (times/year) Value 0 8,760 Dropped 24 quantitative or Qualitative) Date achieved 12/15/2007 06/30/2015 04/30/2017 12/31/2017 Comments <1% achieved. (incl. % This indicator was dropped at restructuring. Data provided by PMO for full year 2017. achievement) Frequency based on sampling 2x/month, whereas original target assmed 1x/hour.

Indicator 20 : Dianchi Lake Basin Management – Online monitoring and information management carried out (Yes/No) Value N Y Dropped Y quantitative or Qualitative) Date achieved 12/15/2007 06/30/2015 04/30/2017 04/25/2014 Comments 100% achieved. (incl. % This indicator was dropped at restructuring. No data entered after restructuring; Latest data achievement) (herein reported) from ISR17221 12/06/2014.

Indicator 21 : Lake Basin Component, System terminal has capacity to receive & process monitoring data (Yes/No) Value n/a (No data Y Dropped Y quantitative or entered) Qualitative)

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Date achieved 12/31/2009 12/31/2011 04/30/2017 12/31/2011 Comments 100% achieved. (incl. % This indicator was dropped at restructuring. No data entered after restructuring; Latest data achievement) (herein reported) from ISR17221 12/06/2014.

Indicator 22 : Collection of tariffs covers O&M costs and some debt obligations (wastewater) Value n/a (No data n/a (No data Dropped Lijiang: Revenue = quantitative or entered) entered) 1.10RMB/m3 (expenses = Qualitative) 1.76RMB/m3) Yanshan: Revenue = 0.8RMB/m3 (expenses = 1.26RMB Qiubei: Revenue = 0.8 RMB/m3 (expenses unknown) Guangnan: Revenue = 1RMB/m3 (expenses = 1.1RMB/m3) Zhaoyang: Revenue = 1.25RMB/m3 (expenses = 1.26RMB/m3)

Date achieved 12/31/2009 06/30/2015 04/30/2017 04/30/2017 Comments 0% achieved. (incl. % This indicator dropped at restructuring. No data entered pre-restructuring. Wastewater achievement) tariff rate of 0.8RMB defined in Project Agreement (Section 4) and achieved. Lijiang, Chaoyang & Guangnan on track to achieve full cost recovery w/o subsidies.

Indicator 23 : Increase in collection rate of Solid Waste services Value n/a (No data n/a (No data Dropped n/a (No data entered) quantitative or entered) entered) Qualitative)

Date achieved 12/31/2009 12/31/2011 04/30/2017 12/31/2011 Comments This indicator was listed in the PAD but not included in the Project Agreement results (incl. % framework (Annex B). No data in ISRs or entered pre-restructuring. achievement)

Indicator 24 : Incidence and severity of floods as compared to historical data in terms of number of people displaced and extent of material damage Value n/a (No data n/a (No data Dropped n/a (No data entered) quantitative or entered) entered) Qualitative)

Date achieved 12/31/2009 12/31/2011 04/30/2017 12/31/2011

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Comments This indicator was listed in the PAD but not included in the Project Agreement results (incl. % framework (Annex B). No data in ISRs or entered pre-restructuring. Indicator incorporated achievement) in IO-5 (see above).

Indicator 25 : Dianchi protection regulations are revised, approved and enforced Value n/a (No data n/a (No data Dropped Regulations approved in quantitative or entered) entered) September 2012 and Qualitative) enforced since January 1, 2013.

Date achieved 12/31/2009 12/31/2011 04/30/2017 01/01/2013 Comments 100% achieved. This indicator was dropped at restructuring. Data provided by PMO as of (incl. % Project close. achievement)

Indicator 26 : ILBM Master Plan for Dianchi is developed and adopted, particularly conducting water resource carrying capacity of the lake basin Value n/a (No data 100% Dropped 100% quantitative or entered) Qualitative)

Date achieved 12/31/2009 12/31/2011 04/30/2017 04/30/2017 Comments This indicator was dropped at restructuring and incorporated into PO-4. No data in ISRs or (incl. % entered pre-restructuring. However, development and adoption of ILBM Master Plan has achievement) taken place based on data provided by PMO and verified during ICR mission.

G. RATINGS OF PROJECT PERFORMANCE IN ISRs Date ISR Actual Disbursements No. DO IP Archived (USD millions) 0.00 1 12/03/2009 Satisfactory Satisfactory

4.00 2 05/31/2010 Satisfactory Satisfactory

21.58 3 06/27/2011 Satisfactory Satisfactory

28.58 4 04/10/2012 Satisfactory Satisfactory

Moderately Moderately 37.32 5 04/22/2013 Satisfactory Satisfactory Moderately Moderately 43.32 6 11/08/2013 Satisfactory Satisfactory Moderately Moderately 53.49 7 06/24/2014 Satisfactory Unsatisfactory Moderately Moderately 58.60 8 12/06/2014 Satisfactory Unsatisfactory Moderately Moderately 69.80 9 04/21/2015 Satisfactory Unsatisfactory

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Moderately Moderately 71.99 10 06/22/2015 Satisfactory Unsatisfactory Moderately Moderately 82.30 11 12/15/2015 Satisfactory Satisfactory Moderately Moderately 100.03 12 06/24/2016 Satisfactory Satisfactory 109.33 13 12/23/2016 Satisfactory Satisfactory

Moderately 117.15 14 03/14/2017 Satisfactory Satisfactory Moderately Moderately 117.15 15 04/29/2017 Satisfactory Satisfactory

H. RESTRUCTURING (IF ANY)

ISR Ratings at Board Restructuring Amount Disbursed at Restructuring Approved Reason for Restructuring & Key Restructuring in USD Date(s) PDO Changes Made Millions Change DO IP

The Project underwent an Additional Financing on 05/27/2010 to fund an additional Project subcomponent (See Section 1.6). A subsequent Level 2 restructuring took place in 2015. In addition to the reallocation of loan proceeds amongst components due to client decision to finance subcomponents under Component 1 and to use loan savings from cultural heritage management to 06/15/2015 MS MU 71.99 expand sewer restoration, the 2015 restructuring also included (a) a revision of the indicators to better reflect the Project’s scope and context; (b) an extension of the Project’s closing date by 22 months to April 30, 2107 to allow for completion of delayed and newly added subcomponents (c) revision of cost estimates; (d) increase in disbursement percentages for civil works; (e) revison of cost recovery definition in the PA; ; and (f)

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change one project implementing unit and revise another.

I. DISBURSEMENT PROFILE

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1. Project Context, Development Objectives and Design

1.1 Context at Appraisal

1. At appraisal, China’s Yunnan Province was benefiting from years of strong economic growth. Gross Domestic Product (GDP) averaged 8.9 percent between 2000 and 2005. Tourism was a key driver of growth. Tourists were attracted to Yunnan for its scenery and ethnic diversity. Approximately 30 ethnic groups (representing 40 percent of the population) resided in Yunnan. Economic growth was accompanied by rapid urbanization in the Province’s largest cities and a number of county seats, heavily straining existing urban water supply, wastewater treatment, and solid waste disposal infrastructure. The urbanization rate for Kunming Municipality, for example, was 57% in 2005, while the province-wide rate was almost 30%. The strain on sanitation infrastructure was resulting in considerable environmental degradation, especially water pollution. For example, at the time of Project appraisal, the Province-wide wastewater treatment rate was 40.5 percent, far below the national level of about 50 percent.1

2. The Provincial Government was focused on sustaining rapid economic development and reversing environmental degradation. In its 11th Five Year Plan (2007-2012), the Provincial Government outlined a growth strategy centered on exploiting its natural resource base, promoting tourism, and providing basic services to urban residents. The strategy also highlighted the importance of reducing water pollution in the Province’s smaller cities and county seats. The strategy targeted one of the most visible signs of water pollution in the Province, the severe eutrophication of Dianchi Lake. The water quality in Dianchi Lake, Yunnan’s largest lake and a primary water source, had deteriorated from Grade II in the 1980s to Grade V2 by the mid-2000s. One reason for the deterioration in water quality was local authorities’ lack of coordination and capacity to implement pollution control regulations.

3. Sector Details. Yunnan’s urban sector was under-developed at the time of appraisal, especially in the semi-urban county seats that were the focus of the Project. Yunnan’s local governments, which included municipal and county governments, were primarily responsible for the sector, with financial and technical support from the provincial government. County-seat towns, and the county-level governments under whose responsibility they fell, were identified as the focus of the Project because they played a key role in the province’s development strategy at the time of appraisal, as they were expected to absorb a substantial share of rural-urban

1 See Project Appraisal Document, Report No. 41199 – CN. 2 Water quality ratings in China correspond to qualitative standards like “Good” and “Very Good.” Grade V represents water that is not judged as being suitable for human contact or consumption.

migration and employment generation from tourism, natural resource-based manufacturing, trading, and other services. Access to basic urban services, including WW and water supply services, was very low at appraisal. For example, Huaping County in Lijiang Municipality did not have any wastewater treatment plants.3 Meanwhile, as noted above, the province-wide wastewater treatment rate was well below the national average.

4. Rationale for Bank Involvement. The Yunnan Urban Environment Project (YUEP) represented a continuation of the Bank’s prior engagement in the Province. YUEP built upon similar past projects, including the Yunnan Environment Project (P003599), which financed construction of wastewater treatment systems and other urban infrastructure in several cities and attempted to address the eutrophication of Dianchi Lake. In addition, YUEP complemented the Bank’s Global Environment Facility-funded “Lake Dianchi Freshwater Biodiversity Restoration Project” (P068239). YUEP also aimed to replicate the cultural heritage management dimension of the China Yunnan Earthquake Reconstruction Project (P114107).

5. Higher-Level Objectives. The Project’s focus on improving natural resource management and expanding urban wastewater and solid waste management (SWM) services directly supported Pillar Three, To manage resource scarcity and environmental challenges, of the World Bank’s 2006 to 2010 Country Partnership Strategy (CPS) for China (Report No. 35435).4 The Project also directly supported China’s 11th Five-Year Development Plan (2006 to 2010), which included targets for improving water use efficiency and solid waste collection and reducing pollution discharges.5 Finally, the Project’s emphasis on expanding the coverage of urban infrastructure services attempted to help Yunnan Province achieve the Millennium Development Goals pertaining to water supply and sanitation.6

1.2 Original Project Development Objectives (PDO) and Key Indicators

6. The Project Development Objective (PDO) as stated in the Loan Agreement and Project Appraisal Document (PAD) was “to assist Yunnan Province in improving the effectiveness and coverage of critical urban infrastructure services in selected counties and the effectiveness of lake basin management in Dianchi, through investments in systems for the management of wastewater, water supply, solid waste, river environment and cultural heritage.”

7. The original PDO outcome indicator was “Improved management and coordination by responsible agencies/bureaus for Dianchi as evidenced by regular sharing of data

3 See Project Appraisal Document. 4 World Bank. 2006. China - Country partnership strategy . Washington, DC: World Bank. https://hubs.worldbank.org/docs/imagebank/pages/docprofile.aspx?nodeid=7089669 5 NPC & CPPCC National Committee Annual Sessions. 2006. Facts and figures: China’s main targets for 2006-2010. http://www.gov.cn/english/2006-03/06/content_219504.htm 6 See United Nations. 2015. Millennium Development Goals. http://www.un.org/millenniumgoals/environ.shtml

among all key bureaus involved.” This was the only PDO outcome indicator prior to restructuring.

1.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification

8. The PDO was not revised during implementation. In 2015, however, the results framework was substantially modified via a Level 2 Project restructuring. The original outcome indicator concerning Dianchi Lake management was broadened to focus on institutional capacity and inter-jurisdictional cooperation instead of simply data-sharing. In addition, three Project-level outcome indicators (See Table 1 below) were added to measure the Project’s impact on coverage of critical urban infrastructure. These Project-level outcome indicators incorporated several intermediate indicators (IOs) from the pre-restructuring results framework (See Data Sheet).

Table 1. Project Outcome Indicators Before and After Restructuring BEFORE RESTRUCTURING AFTER RESTRUCTURING IMPROVED MANAGEMENT AND Improved capacity for Dianchi Lake Basin management COORDINATION BY RESPONSIBLE AGENCIES/BUREAUS FOR DIANCHI AS EVIDENCED BY REGULAR SHARING OF DATA AMONG ALL KEY BUREAUS INVOLVED N/A People in urban areas with access to wastewater services (cumulative) N/A People in urban areas with access to SWM services (cumulative) N/A People in urban areas provided with access to water services (cumulative)

1.4 Main Beneficiaries

9. The PAD identified Yunnan’s approximately 20.4 million urban residents7 as the primary beneficiaries of the Project. Yunnan’s urban residents in selected Project sites were expected to benefit primarily from improved SWM, WW treatment and access to clean water. The selection of Project sites emphasized Yunnan’s poorer regions; the poverty rates in Project areas were higher than provincial and national averages (See Section 2.1). In addition, the Province as a whole was expected to benefit from the Project’s comprehensive approach to improving urban infrastructure. For example, the cultural heritage management subcomponent was expected to benefit both local residents and tourists at Lion Mountain, while the Integrated Lake Basin Management (ILBM) Plan was expected to substantially improve the overall natural environment (and thus recreational and tourism opportunities) in the Kunming area.

7 Per the PAD, page 16, Yunnan’s total population is some 41 million, of whom approximately half are estimated to live in cities.

1.5 Original Components

10. The Loan Agreement referenced three components, which are summarized below:8

11. Component 1: Urban Environment Infrastructure Development: The objective of this component was to help key counties develop SWM service systems, wastewater and water supply systems, cultural heritage management, riverbank improvement measures, and capacity for environmental monitoring and project management. This component supported the construction of a wide range of works, including wastewater treatment plants (WWTPs), landfills, solid waste transfer stations, and pumping stations (See Annex 2).

12. Component 2: Integrated Lake Basin Management: The objective of this component was to assist the Kunming municipality in establishing better integrated lake management systems for Dianchi Lake through technical assistance (TA) to support policy implementation and the development of monitoring systems. This component supported the construction of several water quality monitoring and data management platforms, TA to Dianchi Lake management authorities, and the development of an ILBM Plan.

13. Component 3: Resettlement: This component was intended to support resettlement of displaced persons in conjunction with the works completed under Component 1.9

1.6 Revised Components

14. The Fiscal Year (FY) 2011 Additional Financing (AF, See Section 1.7) and the 2015 Restructuring included the following adjustments to the Project’s components (See Table 2 and Annex 1).

Table 2. Revised and Additional Subcomponents Note: The Zhaotong Subcomponent, linked to Component 1, was added as part of the AF SUBCOMPONENT ORIGINAL ADJUSTMENT RATIONALE

I.B.2 (ii) Stormwater drainage in Yulong Dropped in 2015 Borrower financed County (US$6.3 million) restructuring. this activity separately. IBRD financing directed to other subcomponents. I.C.1 SWM in Funing County (US$5.2 Dropped in 2015 Borrower financed million) restructuring. this activity separately. IBRD

8 Component 3 did not appear in the PAD due to human error, but was fully incorporated into the project design. 9 No costs were allocated to this component but was instead included in the cost of each subcomponent. Costs were financed by domestic funds rather than loan proceeds.

financing directed to other subcomponents. I.B.3(i) Capacity enhancement for Lion Reduced in 2015 restructuring Reduced because of Mountain (US$44.29 million) to US$10.66 million. delays in confirmation of no objection from National Government and UNESCO10 that led to a reduction in the sub-component’s scope and domestic- financing for several works. Works accordingly reduced and savings reallocated to a new subcomponent, Shuhe Ancient Town sewer expansion. I.B.3(ii) Lion Mountain study tours Dropped in 2015 restructuring Same rationale as (US$0.02 million) above—surplus funds reallocated to new subcomponent, Shuhe Ancient Town sewer expansion. 3.B.2 Support for Resettlement activities Inadvertently left out of PAD, Resettlement financed included in LA and by domestic funds Restructuring Paper and not loan proceeds. SUBCOMPONENT Water supply, WW treatment, and Added as part of AF Added in response to ZHAOTONG riverbank restoration in Zhaotong client demand. (LINKED TO COMPONENT 1)

1.7 Other significant changes

15. As shown in Table 3, the AF introduced a subcomponent under Component 1 for Zhaotong Municipality. This subcomponent aimed to substantially expand access to water supply and wastewater services in Zhaotong given the low quality of service. This subcomponent supported the (1) construction of (i) two water supply plants (US$22.73 million) with a total capacity of 60,000 cubic meters per day to increase the population served by an estimated 194,350 people (from 270,050 in 2010 to 464,400 in 2020); and (ii) a 20,000 meter per day WWTP (US$8.22 million) to expand WW access to an estimated 306,700 people (from 190,200 in 2010 to 496,900 residents in 2020); (2) rehabilitation of 48.2 km of river bank structures (US$27.69 million); and (3) provision of implementation support, including TA, equipment, and training in operation and management (O&M) of water supply and wastewate treatment works (US$1.2 million).11

10 Interventions in this site required approvals from State Administration for Cultural Heritage and UNESCO. 11 See Project Paper, Report No. 53586-CN.

Table 3. Other Significant Changes

AF The Project received an AF of US$60 million to “a) include Zhaotong [municipality] to support water supply, WW treatment and riverbank rehabilitation works and b) 05/27/2010 continue to improve the effectiveness and coverage of critical urban infrastructure services in selected counties through investment in systems for the management of wastewater, water supply and river rehabilitation in Yunnan province.”12 LEVEL II In addition to the changes to the Project-level indicators RESTRUCTURING and subcomponents reflected in Table 1 and 2 06/15/2015 respectively, the restructuring included: (a) a revision of the IOs to better reflect the Project’s scope and context as well as to promote alignment with the Bank’s core indicators. Several indicators originally listed in the RF were dropped (See Data Sheet); (b) an extension of the Project’s closing date by 22 months to April 30, 2017 to allow for completion of delayed works, including the Lion Mountain Cultural Heritage site, Qiubei water supply system, Puzhehei Lake environmental improvements, and Zhaotong civil works, and to provide time to complete additional work in Lijiang financed with loan savings re-directed from the Lion Mountain subcomponent; (c) a revision of cost estimates; (d) the reallocation of loan proceeds amongst categories and sub-components (See Table 4); (e) an increase in disbursement percentages for civil works; and (f) the amendment of the Project Agrrement to include Government subsidies in cost recovery calculations.

16. As further indicated in Table 3, the restructuring included an adjustment of cost estimates as well as a reallocation of loan proceeds. Under the restructuring, US$16.46 million was reallocated between works, goods, and consulting service categories (See Table 4). At the request of the client, the restructuring also redirected US$500,000 from the Zhaotong sub-component to develop a flood risk warning system in Zhaotong. The restructuring further redirected funds (approximately US$7 million) from the two dropped subcomponents to add an additional 20,000 cubic meters per day of wastewater treatment capacity and an additional 68 km of sewage pipelines in Lijiang to serve an additional 41,500 residents by 2020 (See Section 1.6). The restructuring also amended the definition of cost recovery contained in the Project Agreement to, in line with common practice in China, include the Government’s subsidies in the calculation of “revenues.”

12 See Loan Agreement, August 23, 2010, Loan Number 7937-CN.

Table 4. Subcomponent Cost Changes at Restructuring (from Restructuring Paper) SUBCOMPONENT SUBCOMPONENT PRE- POST- NUMBER NAME RESTRUCTURING RESTRUCTURING BUDGET BUDGET ALLOCATION ALLOCATION (US$ MILLION) (US$ MILLION) I.A.1(I) Songming Solid 4.51 4.89 Waste Management (SWM) I.A.1(II) Xundian SWM 4.47 9.17 I.A.1(III) Luquan SWM 4.69 5.4 I.B.1 Lijiang Ancient 12.57 20.94 Town SWM I.B.2(I) Lijiang City 25.37 32.66 Wastewater Treatment (WWTP) I.B.2(II) Yulong County 6.3 0 Drainage I.B.2(III) Huaping Wastewater 7.12 9.34 Treatment (WWTP) I.B.3(I) Lion Mountain 44.29 10.66 Cultural Heritage I.B.3(II) Lion Mountain 0.02 0 Study Tours (Capacity Enhancement) I.B.3(III) Shuhe Ancient Town 0 18.17 Wastewater (WW) I.C.1 Funing County 5.2 7.0413 SWM I.C.2(I) Qiubei County WW 8.55 12.34 I.C.2(II) Guangnan County 4.73 6.04 WWTP/WW I.C.2(III) Yanshan County 4.99 4.4 WW I.C.3(I) Puzhehei Water 3.48 5.3 Environment (WE) I.C.3(II) Funing WE 6.94 8.7 I.C.4 Wenshan Capacity 0.41 0.47 Enhancement I.D Technical Assistance 1.5 0 (Design, Review, Construction, etc) II.A Dianchi Lake 10.98 7.38 Integrated Lake Basin Management CONTINGENCIES 21.98 0 TOTAL COST 178.26 162.89

13 This subcomponent dropped and funds re-allocated to Funing Water Environment subcomponent (I.C.3(II)).

2. Key Factors Affecting Implementation and Outcomes

2.1 Project Preparation, Design and Quality at Entry

17. Background Analysis. The Project directly supported the Provincial Government’s growth strategy, which emphasized enhancing urban environmental services, especially solid waste and wastewater services. The Province was focused on facilitating sustainable urbanization to preserve Yunnan’s natural scenery and environment and to maintain its economic growth rates, especially in the tourism sector. Accordingly, the Project adopted a comprehensive approach to improving the Province’s urban environment, including cultural heritage management aspects. The Project also built on experience from previous World Bank-funded projects like the Yunnan Environment Project (P003599), which highlighted the need for an integrated, inter-agency approach to improving water quality and overall management of Dianchi Lake, a signature part of Yunnan’s natural heritage. 14 Finally, the Project integrated lessons from World Bank knowledge products such as “Stepping Up: Improving the Performance of China’s Urban Water Utilities,” 15 which recommended raising utility tariffs to support sustainable operation of urban infrastucture. The Bank Team also conducted a technical analysis during appraisal that evaluated different wastewater treatment technologies and identified appropriate solutions, such as a hydro-geological assessment to ensure proper siting of landfills for solid waste management.

18. Assessment of Project Design and Quality at Entry. The Project’s PDO was well- aligned with Government and sector priorities. Other elements of the Project design, such as selection of Project sites, were also well-thought-out. The selection of Project sites followed a criteria-focused two-step process, first for the selection of municipalities/prefectures and second for the selection of counties within each municipality/prefecture,16 to ensure that the Project’s investments targeted areas where urban infrastructure services were most needed, the environment was most clearly degraded, and institutional and fiscal capacity was favorable. The Project

14 World Bank. 2006. China - Country partnership strategy . Washington, DC: World Bank. https://hubs.worldbank.org/docs/imagebank/pages/docprofile.aspx?nodeid=7089669 15 See World Bank, Stepping Up: Improving the Performance of China’s Urban Water Utilities.” Washington, DC: World Bank, 2008. 16 Criteria for the first-stage selection were: National and provincial strategic priority economic development areas; high degree of pollution; danger of flood and other issues to be remediated through infrastructure investment; fiscal/budgetary need; inclusion into a group of five high-priority areas; rapid urbanization rates status; status as rural areas or small towns; speed of tourism development; willingness for World Bank financing; institutional capacity; and readiness of Project implementation. Criteria for second-stage selection were: Municipal and provincial/prefectural strategic economic development priority areas; high degree of pollution; urgency; fiscal/budgetary need; urbanization; rural and small town status; tourism development; willingness of World Bank financing; institutional capacity; and readiness of Project implementation. On this basis, the following Project counties and municipalities/prefectures were selected: Kunming Municipality (Luquan, Songming, and Xundian Counties); Lijiang Municipality (Lijiang Ancient Towen, Huaping, and Yulong Counties); and Wenshan Prefecture (Funing, Guangnan, Qiubei, and Yanshan Counties). All four of the Wenshan counties were at appraisal nationally-designated poor counties, while two of the Kunming counties were at appraisal provincially-designated poor counties.

also included an innovative subcomponent on biofiltration plants in Puzhehei to improve water quality at a low cost.

19. However, the “effectiveness” dimension of the PDO was not clearly defined or reflected in the outcome indicators. The PAD and legal documents indicate that “effectiveness” of critical urban infrastructure referred to the financial sustainability of service providers, including by reference to a minimum tariff needed for WWTPs to achieve cost recovery.17 In the Project Agreement, cost recovery is defined in terms of both O&M and debt service payments. 18 This restrictive definition was codified in covenants in the Project Agreement and required that Project implementing utilities (PIUs) have total revenues, defined as the sum of operating and net non-operating revenues, above the sum of O&M costs and the greater of depreciation and debt service amounts in a given year. This restrictive definition was inappropriate for the context given that China’s central and provincial governments regularly and reliably subsidize the provision of urban infrastructure services.

20. Furthermore, the original results framework lacked a Project-level indicator linked to Component 1, and the Project-level indicator linked to Component 2, which was focused on data-sharing, did not fully capture the importance of integrated and inter-jurisdictional management of Dianchi Lake. Overall, the original results framework did not have adequate Project-level outcome inidicators to fully measure achievement of the PDO. Finally, the number of IOs (33 are listed in the PAD, See Annex 3) was excessive.

21. Implementation Arrangements. In line with other Bank-funded projects in China, the Project adopted a three-tiered implementation system involving: (i) the Provincial Government; (ii) municipal and prefectural governments; and (iii) county governments, utilities and investment companies. The Provincial Government assumed overall responsibility for Project coordination through its Project Management Office (PMO), housed in the Yunnan Provincial Environment Protection Department. Municipal governments were responsible for establishing PMOs within local Environmental Protection Bureaus to oversee the performance of three to four implementing agencies at the county level. County-level PIUs were responsible for engineering design and construction supervision, procurement, contract management, implementation of safeguard and fiduciary measures, and monitoring and evaluation (M&E). The PAD noted that the provincial PMO was

17 (i) As per the PAD (refer section 3 on PDO and key indicators - pg 3), ‘for the urban infrastructure component, the key intermediate outcomes are increased access to and improved financial viability of wastewater services and solid waste management…’; (ii) Also, the cost recovery aspect was also deemed important in the design of the operation given there were financial covenants for solid waste and wastewater services, as well as indicators in the results framework.

18 In contrast to the Project Agreement, the Loan Agreement does not specifically define cost recovery.

highly capable and had experience working on previous World Bank-funded projects, and helped to bolster the ability of the sometimes-less capable PIUs to implement the Project. These implementation arrangements helped achieve the Project’s urban infrastructure coverage targets. Senior officials at the county level frequently chaired inter-agency working groups, helping to facilitate construction planning and other permissions, for example. For SWM facilities, ownership was initially vested with specially-created construction entities, but later to be transferred to county-owned enterprises, which were intended to provide sustained fiscal capacity (See Section 3.3).

22. Assessment of Risks. Most of the relevant risks, including those related to dam safety and county and local government fiscal capacity, were identified at design. The Project also identified relevant mitigation measures. For example, to mitigate the fiscal capacity risk, utilities with low tariff rates relative to operating expenses were obliged to comply with a financial covenant in the Project Agreement that required a minimum level of wastewater tariffs to be attained by 2010 and to develop financial capacity improvement plans.19 Two PIUs completed these plans before the start of the Project and all utilities complied with the required minimum tariff levels as per the Project Agreement by the time of the Project’s close.

23. Safeguards. This Project triggered six safeguards: Environmental Assessment (Operational Policy (OP) 4.01), Natural Habitats (OP4.04), Physical Cultural Resources (OP4.11), Involuntary Resettlement (OP4.12), Indigenous Peoples (OP4.10), and Safety of Dams (OP4.37). The Project adequately complied with all safeguard preparation requisites. The Project was classified as Category A. The Environmental Management Plan (EMP) prepared for each Project city/county was comprehensive. Public consultations were carried out with residents of different ethnicities, gender, and socioeconomic backgrounds. Information about the Project and announcements of public meetings were widely disseminated online and in local newspapers in order to facilitate stakeholder engagement.

2.2 Implementation

24. Project implementation was affected by four principal factors: (i) restructuring and subcomponent changes, which paved the way toward achievement of Project objectives in the post-restructuring phase; (ii) implementation delays as a result of weak contract management of some PIUs and slow approval of the cultural heritage management component; (iii) supervision by the Bank Team; and (iv) government commitment and capacity at provincial and local levels. These factors are discussed briefly below.

25. Restructuring and subcomponent changes: Several adjustments made at Project restructuring enhanced the impact of the Project. For example, the cultural heritage subcomponent was substantially delayed due to the need to obtain no objection

19 The required tariff level was 0.8 RMB per cubic meter. See Project Agreement Section IV.

from the State Administration for Cultural Heritage (and address comments from UNESCO). As a result of this delay, some of the proposed investments on Lion Mountain became prohibitively expensive to proceed with. Therefore the investments were downscaled to include only those critically important to improve the environment of the area and the allow safe access of visitors (See Section 1.6). Savings were subsequently re-directed toward expansion of wastewater access in Lijiang City, which helped the Project achieve its objective to expand coverage of critical urban infrastructure services and benefitted the operation of the Project- financed WWTP in Lijiang (See Section 1.7). In Zhaotong Municipality, in response to client demand, funds were directed to an innovative flood warning management system, which was requested by the client and met a critical need for the City to provide flood warning for its rapidly growing urban area. These changes helped increase coverage of urban infrastructure services, ensuring that the coverage aspect of the PDO was met. The AF also helped the Project increase and meet its coverage goals. Restructuring moreover amended the Project Agreement to aid implementation, as described below.

26. Implementation delays: The Mid-Term Review (MTR) conducted in December 2013 identified two primary issues that contributed to implementation delays, namely i) low capacity of some county-level PIUs in contract management; and ii) unexpectedly long time needed to obtain approval for the Lijiang subcomponent (Lion Mountain) from cultural heritage management authorities. Although these issues were eventually resolved, the restructuring extended the Project by 22 months. Overall, though, restructuring substantially aided Project efficacy and the achievement of Project coverage targets, as detailed below. At restructuring the Project Agreement was also amended to allow for government subsidies, which was much more appropriate for the Project context.20

27. Supervision by the Bank Team: The Bank Team ably executed several important supervision tasks, and the 2015 restructuring addressed several important flaws in the original Project design (see above). The Fiscal Year (FY) 2016 procurement post-review documented several instances of non-compliance, including the rejection of a large number of bids based on deviations that could not constitute “substantial non-responsiveness” as specified in World Bank guidelines, which the Bank team helped to correct through intervention by the procurement specialist. Finally, some minor environmental issues were encountered at one of the Project sites (See Section 2.4). However, timely intervention by the Team and detailed coordination with PIUs and the PMO helped ensure that these issues had been corrected by the time of Project’s close (See Sections 2.4 and 5.2). A participatory process was also adopted for the selection of village sanitation technology in

20 Covenants concered cost recovery for water utility financial covenants, financial statements, and dam safety. Cost recovery was defined slightly differently for WW and solid waste, but mandated that operating expenses be met without subsidies. The PA amended the definition of cost recovery so as to define total operating revenues and total revenues “including government subsidies.”

Puzhehei to ensure local needs were addressed in the implementation of the Puzhehei subcomponent.21 Perhaps most important, however, as noted above, the Bank team addressed most of the Project’s initial design flaws at restructuring, paving the way to achieving Component 1 and 2 objectives post-restructuring in combination with subcomponent changes also processed at restructuring.

28. Government commitment and capacity at provincial and county levels: Overall, the Provincial and Local Government Authorities demonstrated commitment to the Project played a key role in facilitating implementation. Vice-mayors frequently chaired the PIU inter-agency working group, helping improve inter-agency coordination and advance smooth implementation. This coordination helped ensure that an environmental issue concerning a leachate spill was quickly resolved (See Section 2.4). Moreover, at the Provincial level, the Government diligently allocated the necessary funds for Project implementation and supported compliance with the Legal Agreement. 22

29. In general, the PMO evidenced a high level of capacity that greatly enhanced Project efficacy and efficiency and ensured that the Project met and in many cases exceeded its coverage targets under Component 1 and lake management objectives under Component 2. However, some gaps were noticeable in the capacity of some county-level PIUs that negatively impacted Project implementation, particularly by causing implementation delays of works, as cited above (See para. 26) and, for example, the mention in one ISR of: “Weak capacity in contract management and supervision” at county level.23

2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization

30. M&E Design. The original M&E design included several indicators to track progress toward improving the coverage of urban infrastructure services as well as improving Yunnan’s urban environment. However, the initial Project design contained two flaws: (i) an excessive number of IOs, many of which were not well- aligned with Project components and which hindered M&E implementation; and (ii) a failure to explicitly define “effectiveness of critical urban infrastructure services.” In the absence of a clear definition of “effectiveness,” a restrictive and inappropriate focus was placed on cost recovery for Project implementing utilities. This definition of cost recovery was not suitable for the context, wherein government subsidies are regularly allocated to support critical urban infrastructure. The Project restructuring addressed most of these issues. Additional Project-level outcome indicators were added to reflect the Project’s focus on increasing the coverage of critical urban infrastructure services as well as on improving institutional capacity for ILBM. The IOs were streamlined to focus on the Project’s

21 Initially biofiltration was considered as an alternative to conventional wastewater treatment plants, but was rejected because it was unclear this technology could meet national water quality standards. However, the biofiltration facility as piloted in Puzhehei where it serves serves a small rural community in which the discharge standards are lower. 22 See Restructuring Paper, Report No. RES18711. 23 ISR Sequence 4, March 29, 2012.

direct scope. The restructuring also adjusted the definition of cost recovery to reflect the Chinese Government's typical practice of subsidizing public services, better reflecting the Project’s context.

31. Although the PDO itself was not changed at restructuring, the results framework was substantially modified in a way that improved M&E implementation and utilization. Several intermediate indicators were dropped and incorporated into three new Project-level indicators. These were: Number of people in urban areas provided with access to improved sanitation, which was incorporated into PO-1 (People in urban areas provided with access to wastewater services); Number of people in urban areas provided with access to improved water sources, which was incorporated into PO-3 (People in urban areas provided with access to water services); and Number of new population served by solid waste management services, which was incorporated into PO-2 (People in urban areas with access to solid waste management services). These helped to assess achievement of the coverage dimension of the PDO. However, the post-restructuring results framework did not include indicators explicitly linked to “effectiveness,” which could have included indicators linked to fiscal sustainability when government subsidies are accounted for. Thus, while the restructuring corrected most M&E design flaws, the definition of effectiveness remained an outstanding issue. Overall, however, the post-restructuring results framework was greatly strengthened and better reflected Project objectives.

32. For example, the Project-level outcome indicator described in the PAD, Improved management and coordination by responsible agencies/bureaus for Dianchi as evidenced by regular sharing of data among all key bureaus involved, was incorporated into PO-4 (Improved capacity for Dianchi Lake management). This new Project-level outcome indicator more accurately captured the underlying issues with respect to Dianchi Lake management, which pertained not simply to data-sharing but also a lack of inter-jurisdictional coordination and capacity more generally. A total of 11 IOs cited in the PAD were dropped during restructuring, and a further five IOs related to volume of waste deposited in landfills, cultural heritage management, water quality, flood protection, drainage, and Dianchi Lake management were revised (See Table 5).24

33. M&E Implementation. Pre-restructuring, the sheer number of indicators was unwieldly and hindered M&E implementation. This was rectified post- restructuring however. County-level PIUs consistently provided data on a timely basis, which the provincial PMO collected along with other data, such as water quality data on landfills and rivers and waterways feeding into Dianchi Lake, relevant to assessing Project outcomes.

24 See Restructuring Paper, Report No. RES18711.

Table 5: Comparison of Pre- and Post-Restructuring Results Framework. Note: PO-level indicators underlined; intermediate indicators in italics.

COMPONENT (FROM PRE- POST- PAD) RESTRUCTURING RESTRUCTURING INDICATOR (FROM INDICATOR PAD) URBAN Number of new population People in urban areas INFRASTRUCTURE served by expanded provided with access to DEVELOPMENT wastewater management wastewater services service URBAN COD level at main Total COD pollutant INFRASTRUCTURE discharge points load reduction (tons/yr) DEVELOPMENT URBAN Collection of tariffs covers Dropped INFRASTRUCTURE O&M costs and some debt DEVELOPMENT obligations URBAN Number of new population People in urban areas INFRASTRUCTURE served by solid waste provided with access to DEVELOPMENT management services solid waste management services URBAN Amount of solid waste Volume of municipal INFRASTRUCTURE being disposed to sanitary solid waste disposed in DEVELOPMENT landfills landfill (tons/yr) URBAN Increase in collection rate Dropped INFRASTRUCTURE (of SWM tariffs) DEVELOPMENT URBAN Incidence and severity of Development of Flood INFRASTRUCTURE floods as compared to Risk Management System DEVELOPMENT historical data in terms of for Zhaotong number of people displaced and extent of material damage URBAN Increased frequency and Dropped INFRASTRUCTURE regularity of water quality DEVELOPMENT monitoring URBAN % targeted pollutant Dropped INFRASTRUCTURE producers aware of new DEVELOPMENT regulatory standards through surveys URBAN n/a Length of river section INFRASTRUCTURE restored (km) DEVELOPMENT URBAN n/a People in urban areas INFRASTRUCTURE provided with access to DEVELOPMENT water services CULTURAL Development of Increase in visitors to HERITAGE rehabilitation plans in Lion Mountain MANAGEMENT compliance with UNESCO protection codes and other national cultural heritage regulations DIANCHI LAKE Improved management Lessons included in MANAGEMENT and coordination by sector 13th FYP, responsible information system for agencies/bureaus for Dianchi Lake in place. Dianchi as evidenced by regular sharing of data among all key bureaus involved

34. M&E Utilization. The results framework was used by both the PMO and the Bank Team to assess implementation progress. In particular, the Bank Team used the coverage indicators to identify and correct potential delays in construction works.25 The revised results framework also benefitted the Provincial Government by greatly increasing the knowledge base pertaining to Dianchi Lake management. The Kunming Municipal Environmental Protection Bureau uses the data generated from the 12 water quality monitoring stations constructed as part of the Project to track progress towards pollution reduction goals. These stations are being used to sample water quality once a month on the basis of 35 separate indicators. The Project also financed the development of information-sharing systems to facilitate data-sharing between the various entities involved in Dianchi Lake management. Information provided by the borrower indicates that this data continues to inform decision-making by these entities, especially related to targeting enforcement of pollution regulations based on water quality data from different streams and waterways feeding into Dianchi Lake (See Section 3.2).

2.4 Safeguard and Fiduciary Compliance

35. Compliance with safeguards was rated Moderately Satisfactory throughout implementation. The Bank received no complaints regarding social and environmental issues and safeguards compliance. However, as discussed below, the Project encountered a minor environmental issue during implementation.

36. Environmental Assessment: Despite the existence of the EMPs, the operation of landfills was sometimes deficient. For example, operators did not consistently spray water to reduce dust. In addition, the Bank Team encountered and corrected a leachate spill at one of the landfills caused by improper O&M procedures. The Team visited the landfill in question and reported that the environmental issues had been satisfactorily resolved and that landfill management training procedures had been conducted. Site visits during the ICR mission to the Luquan County and Songming landfills demonstrated progress in implementing sound O&M, such as regular compaction and groundwater and leachate monitoring. No subsequent environmental issues were reported.

37. Natural Habitats: Several of the Project sites fell within protected areas, notably the Puzhehei National Wetland. For these areas, mitigation measures were incorporated into the EMPs. The environmental monitoring required in the EMPs was conducted for most subcomponents, with the exception of the leachate spill, in a timely manner in order to control potential impacts. The reporting on the safeguard was exemplary, and the reports have been shared with other project teams as a demonstration of good practice. Dedicated staff responsible for implementing the EMPs were stationed at most sites.

25 See for example Aide-Memoire for Third Supervision Mission, April 4 – 9, 2011.

38. Physical Cultural Resources: The potential impact of the Project on physical cultural resources was identified in the environmental assessments completed for each subcomponent; mitigation measures were included in the EMPs and were implemented adequately.

39. Indigenous Peoples: At appraisal it was estimated that approximately 400,000 indigenous people might be affected by the Project. As a result, extensive consultations were undertaken with these populations. An Indigenous Peoples Plan was prepared and implemented. A social assessment report prepared at appraisal concluded that the Project was likely to have a highly beneficial impact on indigenous communities by improving the urban environment, expanding urban spaces, and improving tourism and other economic development opportunities. The assessment also concluded that the risk of tariff increases significantly depressing indigenous peoples’ income was relatively low.26

40. Involuntary Resettlement: At appraisal, the Project estimated that resettlement would take place in 17 villages and would impact 376 households (1,570 people), who were resettled under the client-financed Component 3. Individual Resettlement Action Plans were completed for each subcomponent. Compliance with resettlement policy was assessed to be Satisfactory during supervision missions. The Provincial PMO’s highly competent management was essential to ensuring compliance with applicable Bank policies related to resettlement. The engagement of an external entity, Hohai University, to monitor resettlement efforts also contributed to the Satisfactory rating on compliance with safeguards pertaining to resettlement. The University prepared a report during implementation identifying experiences, lessons learned, and beneficiary feedback, which helped ensure compliance with safeguards. There were no complaints registered from displaced people affected by the Project.

41. Dam Safety: A dam safety review was conducted by an independent dam safety specialist from the Nanjing Dam Safety Center. The specialist recommended remedial and supplementary work at two Project sites. The Provincial PMO ensured that the recommendations were implemented during Project implementation and proper measures in place for future management.

42. Financial Management: Except for minor issues concerning delays in disbursement due to staff changes in the Provincial Finance Bureau, the financial management system for the Project proved to be adequate. The audits revealed no major issues during implementation, and there were no outstanding audit issues at the time of the Project’s closure. The Project closed with a Satisfactory financial management rating.

26 China Cross-Cultural Consulting Center, Sun Yat-sen University. 2007. Social Assessment (Summary Report). Report No. IPP252-V2.

43. Procurement: The appraisal process concluded that the overall procurement risk was modest, and that agencies at all levels had allocated sufficient resources to implement the Project. However, the FY16 post review found a few instances of non-compliance with respect to a bid evaluation that did not constitute substantial non-responsiveness. Bidders were not given the opportunity to make necessary clarifications. As a result, the Bank Team directed the PMO to take remedial actions to prevent recurrence of these issues. These issues were satisfactorily resolved. Overall, the procurement performance throughtout Project implementiton was Satisfactory.

2.5 Post-completion Operation/Next Phase

44. As anticipated in the financial analysis conducted at appraisal, the most significant risk post-completion is, in the eventual absence of subsidies, the fiscal capacity of local governments to continue providing financial support to PIUs. At Project completion, several of the SWM operators remained below cost recovery levels when subsidies are excluded. In China, however, the tariffs are often set below cost recovery rates given that the Government, especially in China’s poorest provinces, subsidizes debt service. In recognition of this reality, the Project team amended the Project Agreement to include government subsidies as part of utilities’ operating revenue. The Loan Agreement, which stresses the provision of support for operation and management of solid waste and wastewater facilities, 27 does not define cost recovery, and was not amended. The strong fiscal position of the Yunnan Provincial Government and Chinese Central Government mitigates cost recovery concerns substantially and indicates that subsidies will be maintained. The urban infrastructure services financed by the Project are central to both governments’ development plans, and both levels of government have proven more than willing to subsidize elements of utility operation, especially debt service, for extended periods. The governments’ active involvement will help ensure that a high quality of service will be maintained post-Project, and in the case of the solid waste operators that have not achieved cost recovery, the planned transfer to county- owned enterprises is likely to assure fiscal sustainability (See Section 3.3). Likewise, the strong commitment of both levels of government to improving environmental protection make it highly likely that funding for the continuation of environmental protection activities under Component 2 post-Project will be secure. The continuing use of data generated by Project-financed monitoring stations for Dianchi Lake Management further suggests these are likely to be maintained by the province well into the future.

27 See Schedule 1, Part 1 e)ii)B).

3. Assessment of Outcomes

3.1 Relevance of Objectives, Design and Implementation

Relevance of Objectives: Substantial

45. The PDO continues to be highly relevant to Yunnan’s development needs given the Province’s continued focus on expanding urban infrastructure provision and enhancing environmental protection. The PDO is aligned with the Provincial Government’s 13th Five Year Plan, 2016 to 2020 (developed to complement that of the Central Government), which emphasizes providing cleaner water and promoting environmental protection.28 The PDO also remains highly relevant to Strategic Theme 1, Supporting Green Growth, in the current Country Partnership Framework.29

Relevance of Design and Implementation Pre-Restructuring: Modest. Post- Restructuring: Substantial.

46. Overall, the Project design was well aligned with the PDO, and the implementation arrangements with the PMO overseeing PIUs helped the Project achieve its primary objectives. The Project’s two primary components targeted two issues, urban infrastructure service provision and Dianchi Lake management, that are of clear and substantial importance for Yunnan’s urban environment. The Project design pre-restructuring, however, had several notable shortcomings related to the results framework. As mentioned earlier, the original results framework lacked a Project- level outcome indicator related to Component 1 and did not adequately define “effectiveness.” Moreover, the initial Project-level outcome indicator for Component 2 emphasized data sharing but did not include other relevant institutional aspects critical to effective ILBM, especially coordination among Dianchi Lake management authorities. Finally, the pre-restructuring definition of cost recovery was overly ambitious given the Government’s typical practice of subsidizing service. These design-related shortcomings negatively impacted the Project’s overall efficacy pre-restructuring. Because of these deficiencies, pre- restructuring relevance of design and implementation is rated Modest.

47. At restructuring, these shortcomings were largely corrected. The revised Project- level outcome indicator concerning lake basin management addressed the broader issue of institutional capacity and inter-agency coordination through preparation of the ILBM Plan and inclusion of lessons learned in the 13th FYP, which guides all

28 Provincial Five-Year Plans closely reflect those of the country as a whole, but emphasize some region-dependent issues. 29 World Bank. 2006. China - Country partnership strategy . Washington, DC: World Bank. https://hubs.worldbank.org/docs/imagebank/pages/docprofile.aspx?nodeid=7089669 See also World Bank. 2012. China – Country partnership strategy. Washington, DC: World Bank. https://hubs.worldbank.org/docs/imagebank/pages/docprofile.aspx?nodeid=67566 (See previous citation note)

local government policy and targets. Indicators related to effectiveness of critical urban infrastructure services, which was indirectly defined in the pre-restructuring results framework in terms of full cost recovery, were dropped from the results framework. Moreover, while the PDO reference to “effectiveness of critical urban infrastructure services” remained undefined and unmodified post-restructuring, cost recovery was redefined in the Project Agreement to include the Government subsidies as part of the utilities’ revenues. Accordingly, post-restructuring relevance of design and implementation is rated Substantial.

3.2 Achievement of PDO

48. The PDO contains two distinct elements: 1) effectiveness and coverage of critical urban infrastructure services; and 2) effectiveness of lake basin management in Dianchi.

Improved effectiveness and coverage of critical urban infrastructure services: Pre- Restructuring: Modest. Post-Restructuring: Substantial.

49. As noted above, Component 1 consists of two distinct elements, effectiveness and coverage. As detailed below, the Project substantially achieved the objective of improving the coverage of critical urban infrastructure services. The Project delivered a comprehensive set of interventions that substantially improved Yunnan’s urban environment. The Project’s achievement with respect to improved effectiveness of critical urban infrastructure services, however, is less clear given the lack of a direct definition of “effectiveness.” However, as of Project close wastewater operators had adopted specified tariff increases, and several wastewater operators were on a predictable path to achieving cost recovery.

50. Although the PAD does not explicitly define “effectiveness of critical urban infrastructure services,” there is evidence in the PAD and the Loan/Project Agreements that shows the relevance of the utilities’ financial conditions to the Project’s objetives. For example, the PAD states that “for the urban infrastructure component, the key intermediate outcomes are increased access to and improved financial viability of wastewater services and solid waste management.”30 There are also IOs on cost recovery in the original results framework. Moreover, the pre- restructuring Project Agreement included financial covenants that required solid waste service providers to achieve a certain level of solid waste tariffs at an early stage of implementation and solid waste and wastewater providers to achieve full cost recovery31 by the Project’s completion. As such, the effectiveness of the urban

30 As noted in Section 1, the financial performance of the service providers were deemed important enough in the Project design that financial covenants were included in the original PAD results framework for solid waste and wastewater services. 31 These covenants specify that each WW implementing utility “Ensure that total operating revenues will be sufficient to cover total operating expenses including provisions for depreciation and the amount by which debt service requirements exceed the provision for depreciation” while SWM implementing utilities were required to “cover total operating

infrastructure services is interpreted as compliance with the financial performance criteria outlined in the legal documents.

51. Improved Effectiveness and Coverage Pre-Restructuring: The Project substantially met the original targets with respect to access to improved water sources, SWM services, and cultural heritage services. As Table 6 illustrates, the achievement of these coverage-related targets was in general high, and in several cases the results exceeded the targets. The Project included a comprehensive set of interventions with respect to solid waste, wastewater, and water supply that improved coverage for many Yunnan residents. However, the Project did not meet a few water service coverage indicators, and fell well short of meeting the three indicators related to improved effectiveness of critical urban infrastructure services. As a result, the pre- restructuring efficacy on the effectiveness and coverage dimension of the PDO is rated as Modest.

52. Improved Effectiveness and Coverage Post-Restructuring: The Project fully achieved the coverage aspect of its development objective post-restructuring, accelerating progress towards meeting its coverage targets and substantially improving urban residents’ access to water, wastewater, and SWM services. The Project achieved the associated post-restructuring Project-level outcome indicators (See Data Sheet), which measured access to these services as a result of the Project. The Project exceeded its target for the “number of people provided with access to wastewater services” indicator by over 20,000 people, a considerable achievement given the low rates of access to wastewater treatment in the Province (See Section 1.1). The Project also exceeded its target for the “number of people with access to SWM services,” providing over 450,000 with SWM services through the construction of sanitary landfills and waste transfer stations. This level of access represented a more than two-fold increase over pre-Project levels. The Project also surpassed the target number of people in urban areas with access to water services by over 100,000 people.

53. In addition, the Project achieved its objective to improve the coverage of critical urban infrastructure services with respect to river environment, cultural heritage, and flood warning. The Project exceeded intermediate objectives for length of river section restored (IO-3, 103 percent achieved), number of visitors to Lion Mountain (IO-4, 106 percent achieved), and development and adoption of a flood risk management system for Zhaotong that provides not only a tool for better management of flood and water resources, but also a template to guide urban development to reduce future flood risk32 (IO-5, 100 percent achieved; See Data Sheet). The selected physical achievements of each subcomponent are also

expenses of garbage collection services, transfer stations, and landfill operations, excluding provision of depreciation for landfill construction capital cost.” As noted earlier, this definition was later amended to allow for government subsidies as part of utility operating revenues. The Loan Agreement was not modified.

32 See Borrowers’ ICR.

summarized in a table in Annex 2. Overall, the Project produced a comprehensive set of interventions that improved wastewater and SWM service coverage, improved lake basin management, reduced flood risk, and improved the quality of the river environment.

54. By the time of Project close, Project cities and counties had instituted wastewater tariffs equal to or greater than the level specified in the original Project Agreement, thereby complying with it (0.8RMB per cubic meter) and, under the revised definition of cost recovery, two of the five SWM Project implementing utilities were able to meet O&M expenses with tariff revenues. The remaining three SWM utilities are expected to be able to meet O&M expenses in the near future when, as has always been planned, their operation is transferred from the construction companies that built them to permanent, county-owned enterprises which will oversee long-term operations (See Section 3.3). Moreover, as noted above, in the context of China achieving full cost recovery is not necessarily a pre-requisite to ensuring the provision of reliable urban infrastructure services. Accordingly, post- restructuring the Project substantially met its effectiveness objectives, and accordingly is rated as Substantial.

Improving the effectiveness of lake basin management in Dianchi: Pre-Restructuring: Substantial. Post-Restructuring: Substantial.

55. Improved Effectiveness Pre-Restructuring: The Project contributed to the establishment of an online data-sharing and information platform as well as a data processing system to monitor water quality. The Project financed construction of three fixed automatic monitoring stations for waterways entering Dianchi Lake, two mobile monitoring vehicles to sample smaller streams and equipment for a water quality laboratory. In addition, 14 fixed water flow monitoring stations were procured or constructed. 33 The Project also completed an ILBM Plan (discussed below) and monitored three major rivers in the Dianchi Lake Basin at a frequency of over 21,000 times per year. Though this is slightly less than originally envisioned due to a change in sampling frequency, the combination of these information and data-collection systems substantially strengthened the capacity of Dianchi lake basin management authorities to cooperate and share data to facilitate better decision making. Moreover, new regulations concerning protection of Dianchi Lake that were related to the ILBM Plan were approved in September 2012 and have been in effect since January 1, 2013. Thus, the pre-restructuring efficacy on the lake basin management dimension of the PDO is rated Substantial.

56. Improved Effectiveness Post-Restructuring: During the restructuring, the IOs in the RF related to lake basin management were dropped and the PO was modified. However, the Project fully achieved both the original and the revised PO targets. In compliance with the revised PO, lessons from the ILBM Plan for Dianchi Lake were incorporated into the Five-Year Plan. Moreover, the completion of the ILBM

33 Data provided by PMO.

Plan represented a major step forward for coordination among Dianchi Lake management authorities as no previous plan existed for the region. Project investments in water quality data collection and sharing, such as construction of the water monitoring equipment described above, moreover provided a knowledge foundation for better lake basin management. Accordingly, post-restructuring efficacy on the lake basin management dimension of the PDO is rated Substantial.

Table 6: Project Achievement by Indicator, Pre- and Post-Restructuring. Note: PO-level indicators underlined; intermediate indicators in italics.

PDO DIMENSION PRE- % OF TARGET ACHIEVED POST-RESTRUCTURING % OF RESTRUCTURING INDICATOR TARGET INDICATOR ACHIEVED

IMPROVED 0-88% Dropped Not EFFECTIVENESS Operating cost (Avg. = 26%) Applicable OF CRITICAL covered by SW fee URBAN revenues INFRASTRUCTURE SERVICES 0% Collection of tariffs Dropped covers O&M costs and some debt obligations (WW) N/A (Dropped before Increase in collection implementation) Dropped rate of SW services

Population served by 77-176% People in urban areas provided 103% WW Management (Avg. = 118%) with access to WW services System 62% 100% Number of people in urban areas provided with access to Improved Sanitation Number of 118-173% People in urban areas provided 102% population served by (Avg = 150%) with access to SWM services SWM services Amount of solid 87-157% 141% waste disposed to (Avg. = 114%) Volume of municipal solid waste sanitary landfills disposed in landfill IMPROVED 80% People in urban areas provided 115% COVERAGE OF People in urban with access to water services CRITICAL URBAN areas provided with INFRASTRUCTURE access to improved SERVICES water sources WW management -- 100% 180% COD level Total COD pollutant load reduction

% of Wenshan 100% polluters aware of Dropped new regulations 100% Dropped Frequency of Wenshan water monitoring 100% 106% Lijiang Development Increase in visitors to Lion Masterplan Mountain

100% Lijiang UNESCO Dropped Status Not available 100% Incidence and Development of Flood Risk severity of floods as Management System for Zhaotong compared to historical data in terms of number of people displaced and extent of material damage Not Available 103% Rainwater drainage Length of river section restored population served

Improved Data Sharing platform in place Improved capacity for Dianchi 100% management & and in use Lake Basin management coordination as evidenced by regular sharing of data among all key bureaus involved 25% Number of Dropped monitoring on 3 rivers (times/yr)

<1% Number of Dropped monitoring on 14 streams (times/yr)

Y Online monitoring Dropped IMPROVED and evaluation EFFECTIVENESS system established (Y/N) OF LAKE BASIN MANAGEMENT Y Data processing Dropped system established (Y/N)

Y Dianchi protection Dropped regulations are revised, approved and enforced

Y ILBM Master Plan Dropped for Dianchi is developed and adopted, particularly conducting water resource carrying capacity of the lake basin

3.3 Efficiency

Rating: Substantial.

57. Efficiency is assessed with respect to three aspects: (i) economic efficiency in terms of economic internal rate of return (EIRR); (ii) financial viability and sustainability; and (iii) administrative and operational efficiency. Each aspect is discussed below.

Economic Efficiency

58. At appraisal, a cost-benefit analysis was carried out utilizing a contingent valuation method based on the responses to a willingness-to-pay (WTP) survey. For each category of investment, namely wastewater collection and treatment, solid waste collection and disposal, and river rehabilitation, a Project town was chosen as a representative site for estimating the EIRR. While wastewater and river rehabilitation investments showed ample estimated returns of 19.934 percent and 18.2 percent respectively, the solid waste investments only showed an estimated EIRR of 5.2 percent. This low EIRR was likely the result of the fact that many peri- urban residents had a surface-level understanding of public sanitation and did not consider the public health implications of poor solid waste collection and management.

59. Following the appraisal-stage methodology, the EIRR of each category of investment was reassessed at completion to reflect: (i) the actual scope of investments in all Project locations; (ii) the actual scope of Project impact; and (iii) the actual Project costs. Although the WTP for each category of investment has almost certainly increased due to rapid growth in income over the Project implementation period, the analysis maintained the WTP from appraisal to be conservative.

60. At completion, all categories of investments yielded higher EIRRs than the estimates at appraisal. (see Table 7 below)

Table 7. EIRR appraisal vs. completion APPRAISAL COMPLETION WASTEWATER 19.9% 24.5% (10.2% cost adjusted) SOLID WASTE 5.2% 7.6% RIVER 18.2% 28.8% REHABILITATION

▪ WW collection and treatment yielded an EIRR of 24.5 percent, higher than the appraisal-stage estimate of 19.9 percent (not to mention the cost-adjusted

34 At appraisal, the cost of wastewater investments was underestimated due to a longer pipeline resulted from the expansion of the wastewater subcomponents as described in Section 1.6. Once factored in, the estimated EIRR on the wastewater at appraisal would decrease from 19.9 percent to 10.2 percent .

estimate, based on predicted equipment and materials costs, of 10.2 percent at appraisal). Two factors contributed to the high EIRR: (i) a higher service ratio in terms of households served per unit of capacity constructed; and (ii) a better cost ratio in terms of total system investment (collection and treatment) per unit of capacity constructed. More people were served at a lower total cost than initially expected.

▪ SW collection and disposal yielded an EIRR of 7.6 percent, higher than the appraisal-stage estimate of 5.2 percent and the prevailing economic discount rate of 6.0 percent. The primary reason for the higher EIRR is a higher service ratio in terms of households served per capacity constructed.

▪ River rehabilitation yielded an EIRR of 28.8 percent, higher than the appraisal- stage estimate 18.2 percent. The primary reason for the higher EIRR is a higher investment-to-service ratio in terms of number of households served per dollar invested.

61. Thus, from the perspective of economic efficiency, the Project’s performance is high.

Financial Viability and Sustainability

62. Both the PAD and Project Agreement placed strong emphasis on the financial viability and sustainability of Project cities/counties and their subordinate implementing utilities in terms of their cost and debt service coverage ratios.35 However, compliance with these provisions is complicated by the fact that the implementing utilities are merely operating companies without ownership of fixed assets registered on their balance sheets. Local governments are responsible for capital investments along with debt service obligations. In essence, local governments provide full capital subsidies to all Project implementing utilities. Under this institutional arrangement – explicitly permitted under the amendment to the Project Agreement in 2015 — (i) any debt service coverage requirement is automatically met; and (ii) utilities only need to recover their O&M expenses to meet the cost recovery requirement.

a. WW: All five Project wastewater utilities comply with the Project Agreement-mandated tariff rate of 0.8RMB per cubic meter; and they also fully recover costs when local government capital subsidies are accounted for (See Table 8).

35 The Project Agreement specifies that a solid waste Project utility’s total revenues, i.e., the sum of its operating and net non-operating revenues, must the sum of its O&M costs and the greater of depreciation and debt service in a given year. The Project Agreement was later modified to allow for government subsidies to be counted as part of utility operating revenue. The Loan Agreement does not define cost recovery, and was not modified.

Table 8. Project Wastewater Utility Reported Revenues and Expenses COUNTIES WITH CURRENT LEVEL CURRENT LEVEL CURRENT LEVEL WW SERVICES OF EXPENSES (AS OF REVENUES OF REVENUES PER PA (W/O SUBSIDIES) (WITH CAPITAL DEFINITION) SUBSIDIES) LIJIANG ANCIENT RMB 1.76/ m3 Average: RMB1.10/ Full cost recovery with TOWN DISTRICT m3 (2017) debt service paid by WWTP Average: RMB 1.89/ government m3/ (Jan. 1, 2018)

YANSHAN O&M approx. RMB Residential: RMB 0.80/ Approximately RMB 0.90/ m3 m3 1.20/ m3 (w/subsidy) Full: RMB 1.26/ m3 Non-residential: n/a QIUBEI n/a Residential: RMB 0.80/ Full cost recovery with m3 (to government) government paid WTTP under management and government paid operating contract management & operating contract) GUANGNAN RMB 1.10/ m3 Residential: RMB 1.00/ Full cost recovery with m3 debt service paid by government ZHAOYANG RMB 1.26/ m3 Residential: RMB Full cost recovery with 1.00/ m3 debt service paid by Non-residential: RMB government 1.25/ m3 http://shuifei.zhutousan .net/zhaotong.html

a. SW: the provisions concerning cost recovery for solid waste utilities were amended at restructuring. In practice, the operator’s revenue is not directly linked to the market tariff. Instead, local governments pay the operator a fixed annual lump sum to cover its O&M costs. During the ICR mission, three operators reported that the subsidies they received from the government were not sufficient to cover their O&M costs, raising some concern with respect to fiscal sustainability in the long-term. However, in all three cases, the operators were construction companies temporarily managing operation of the sites. Once the sites are, as was always planned, conferred to county-owned enterprises, the situation is expected to improve because county-owned enterprises have more direct and reliable access to government financing and revenues (See Table 9).

63. Thus, from the perspective of financial viability and sustainability, the Project’s performance is assessed as Substantial.

Administrative and Operational Efficiency

64. Implementation proceeded smoothly after restructuring, and the Provincial PMO capably addressed several minor issues encountered during implementation including weak contract management capacity in some county-level PIUs (See Section 2.1). However, a longer-than-expected period of time to obtain “cultural heritage” approvals for the Lion Mountain activities did reduce implementation efficiency.

65. Thus, from the perspective of administrative and operational efficiency, the Project’s performance is rated as Modest.

Table 9. Project SW Utility Reported Expenses and Revenues

COUNTIES CURRENT LEVEL CURRENT LEVEL OF WITH SW OF EXPENSES (AS REVENUES (W/O SERVICES PER PA SUBSIDIES) DEFINITION)

SONGMING Annual O&M: RMB Residential: RMB COUNTY SW 800,000 10/HH/month + investment XUNDIAN SW Annual O&M: RMB Residential: RMB 2,070,000 + investment 2/HH/month

LIJIANG SW n/a Residential: RMB 8/HH/month LUQUAN SW Annual O&M: RMB Residential: RMB 1,914,000 6/HH/month + investment

3.4 Justification of Overall Outcome Rating Rating: Moderately Satisfactory

66. Although the Project’s PDO remained unchanged over the life of the Project, several PDO and output indicators were amended during the restructuring. As a result, the Project’s outcome is evaluated against both the pre- and post- restructuring PDO indicators (See Table 10).

Table 10: Relevance, Achievement of PDO and Efficiency Ratings Pre- and Post- Restructuring PRE- POST- RESTRUCTURING RESTRUCTURING RELEVANCE OF Substantial Substantial OBJECTIVES

RELEVANCE OF Modest Substantial DESIGN & IMPLEMENTATION PDO1: IMPROVING Modest Substantial THE EFFECTIVENESS AND COVERAGE OF CRITICAL URBAN INFRASTRUCTURE SERVICES

PDO 2: IMPROVING Substantial Substantial THE EFFECTIVENESS OF LAKE BASIN

MANAGEMENT IN DIANCHI

EFFICIENCY Substantial Substantial

RATING Moderately Satisfactory Unsatisfactory RATING VALUE 3 5 WEIGHT (%) 55 45 WEIGHTED VALUE 1.65 2.25 Final Rating 3.9 i.e. Moderately Satisfactory

3.5 Overarching Themes, Other Outcomes and Impacts

(a) Poverty Impacts, Gender Aspects, and Social Development

67. Poverty Impacts. Poverty reduction was not an explicit objective of the Project. However, at appraisal, four Wenshan counties were nationally designated as poor counties, while two of the Kunming counties were provincially designated poor counties. These designations suggest that the Project disproportionately benefited citizens of urban areas who were poorer than the national and provincial averages.

68. Gender Aspects. The Project did not include a gender component, but stakeholder consultation workshops held as part of the environmental assessment attempted to secure balance in gender representation. Globally, the burden of poor access to water and sanitation is moreover felt disproportionately by women, so it may be expected that Project achievements might disproportionately benefit women, though this was not explicitly evaluated as part of the results framework.36

69. Social Development. Social development was not an explicit objective of the Project. However, in Zhaotong, investments in river bank improvements inspired additional local government investment in walking, jogging, and biking paths along the river banks, enhancing local residents’ quality of life.

(b) Institutional Change/Strengthening

70. The Project’s support of an ILBM Plan strengthened authorities capacity to manage Dianchi Lake. To formulate the Plan, a special management agency was established that brought together several previously disparate and uncoordinated entities. In addition, as a result of the Project, the Dianchi Management Bureau developed several subsidiary plans. The Bureau also engaged external experts to ensure that the Plan reflected international best practice. The Bureau and City’s ownership of the new management strategy was further highlighted by the fact that the Plan was listed as one of the City’s achievements for the year 2016.

36 See U.N. HABITAT, “Sanitation: A Women’s Issue,” http://mirror.unhabitat.org/documents/media_centre/APMC/Sanitation%20-%20A%20womans%20issue.pdf

71. The Project also helped strengthen the capacity of local PIUs. In Zhaotong City, for example, the PIU reported that it had developed and implemented a financial monitoring system for the local government as a result of the Project.

72. The Project supported the development of the first flood warning and management system (via a smart phone application) for the rapidly-growing city of Zhaotong. The application is being used to provide citizens with advance warning of flash floods in low-lying municipal areas.

3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops

Not Applicable

4. Assessment of Risk to Development Outcome

Rating: Substantial

73. The failure of some PIUs to achieve full cost recovery by Project close introduces some degree of risk to the “effectiveness”-related outcomes achieved by the Project. However, these outcomes represent only part of the Project, and the coverage- related outcomes of the Project are not at risk. Moreover, overall, the commitment of the Chinese central and Yunnan provincial governments to maintaining water supply, wastewater, and SWM services remains strong, mitigating the overall risk that services will be substantially disrupted as a result of failure to achieve cost recovery. At the time of Project close all Project cities/counties had adopted the wastewater tariff levels specified in the Project Agreement and were in compliance with the modified definition of cost recovery in the amended, post-restructuring Project Agreement. Furthermore, the fiscal position of SWM operators is expected to improve considerably pending transfer to county-owned enterprises (See Section 3.3).

5. Assessment of Bank and Borrower Performance

(a) Bank Performance in Ensuring Quality at Entry Rating: Moderately Unsatisfactory

74. The Bank Team adequately positioned the Project in the existing policy context and applied thorough technical knowledge to identify the most suitable technologies. The Project’s design also built upon previous projects and lessons learned. The Bank properly identified environmental and social safeguard risks and incorporated adequate mitigation measures in the Project design. Nevertheless, there were significant gaps in the Project’s results framework as originally designed. The pre- restructuring results included no Project-level outcome indicators linked to the

coverage aspects of the PDO and limited the objective of improved effectiveness of lake basin management to increased data-sharing. Finally, effectiveness was not properly defined with respect to critical urban infrastructure services.

(b) Quality of Supervision Rating: Moderately Satisfactory

75. The Team took appropriate steps to respond to implementation challenges, such as the leachate spill from a Project-funded landfill (See Section 2.4). After the leachate spill, the Team directed all landfills financed by the Project to develop O&M procedures and undergo O&M training. Moroever, the Team processed a comprehensive restructuring that successfully addressed flaws in the original Project design, downscaled several subcomponents and redirected funds to higher- priority activities. During this process, the Project Agreement was amended to reflect a more appropriate definition of cost recovery, though this was not reflected in changes to the Loan Agreement. In addition, the Team accommodated client requests for beneficiary-driven subcomponents, such as the Zhaotong flood warning management system. However, effectiveness of urban infrastructure services remained undefined.

76. Based on the Moderately Unsatisfactory Quality at Entry rating and the Moderately Satisfactory Quality of Supervision rating, overall Bank performance is rated as Moderately Satisfactory.

5.2 Borrower Performance (a) Government Performance Rating: Moderately Satisfactory

77. As noted in Section 2.2 there were some challenges to implementation in the pre- restructuring phase due to delays in constructing works. Overall, however, the Yunnan Provincial Government demonstrated commitment to the Project and offered support to the Project when needed. The commitment of county governments was evidenced by the participation of high-level officials, usually the vice-mayor, in site visits and meetings (See Section 2.2).

(b) Implementing Agency or Agencies Performance Rating: Moderately Satisfactory

78. The Provincial PMO exhibited minor shortcomings in procurement processes, including an instance in which the bidding process was not conducted in accordance with Bank procedure (See Section 2.4). However, the Provincial PMO acted properly and professionally in referring this case to the Bank. Overall, the Provincial PMO was responsive to Bank supervision missions and took proper

steps to address issues encountered in implementation. This competence was particularly evident in the Provincial PMO’s satisfactory compliance with all safeguards and promotion of activities that added value to Project investments, such as the Zhaotong flood warning system. Nevertheless, some PIUs at the county level demonstrated capacity gaps, particularly in contract management, leading to delays in the implementation of works.

79. Based on the Moderately Satisfactory Government Performance and Moderately Satisfactory Implementing Agency Performance, overall Borrower Performance is rated as Moderately Satisfactory.

6. Lessons Learned

80. Country Context: One of the most important lessons from this Project is to pay careful attention to the country context in setting financial targets. While the Project design emphasized cost recovery that included debt service obligations (which is usual in World Bank projects), in the Chinese context, it is more important to consider O&M expenses, since provincial and national governments typically finance debt payments for urban infrastructure services. The design of this Project would have been improved, for example, by having realistic indicators tied to the fiscal sustainability of utilities when government subsidies are accounted for. Furhtermore, there should be recognition that full costs are often covered through a combination of tariffs (paid by users) and taxes (through financial support provided by the government) and they both should be adequate and adjusted to meet costs. In this Project, the reliance on financial support from the government was not originally incorporated in the cost recovery plans which led to revisions of the Project Agreement to reflect the actual situation.

81. Comprehensive Approach to Improving Urban Environmental Service Provision: This Project’s successfull expansion of key urban environmental services was notable given its comprehensive approach; the Project included not only key infrastructure like water supply and WWTPs but also cultural heritage management and lacustrine water quality. In principle, there are considerable advantages to attempting to address all of these issues in a comprehensive fashion. But in practice, this comprehensive approach increased the complexity of the Project, and introduced delays, especially with respect to the cultural heritage subcomponent. Future Projects should i) ensure that the implementing agencies have adequate capacity to undertake all facets of the approach, as was for the most part the case with this Project; and ii) through frank dialogue with the client identify highest-priority interventions to ensure all Project subcomponents possess natural synergies that justify simultaneous implementation. Infrastructure development is moreover often not sufficient to fully evaluate the success of a Project long-term, and the results framework should incorporate a range of indicators that reflect

indirect impacts of increased service provision, such as for example exposure to waterborne illnesses which may be expected to be drastically reduced through improved water infrastructure service coverage.

82. Importance of institutional factors, such as inter-institutional coordination, to solve complex environmental challenges : Task teams should devote careful attention to the multiple factors, especially institutional capacity, that underpin effective coordination and management of inter-jurisdictional resources. The Project’s successful development of an ILBM Plan was largely the result of effective coordination between multiple provincial government agencies responsible for management of Dianchi Lake. Future efforts to address complex environmental challenges, such as non-point source pollution, should not underestimate the importance of implementing effective coordination mechanisms. Accordingly, future Projects focused on addressing such issues should include inter-jurisdictional coordination capacity, perhaps defined in terms of representation and frequency of meeting for an inter-jurisdictional commission or body, as a core element of the desing and indicators.

7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners

(a) Borrower/implementing agencies

Overall comments:

It is highly appreciated that the ICR was deliberated and revised by taking PMO’s comments into consideration.

It is still considered that the overall project outcome shall be assessed or evaluated against the post-restructuring result framework and amended LA and PA. As indicated in the revised ICR, the Project fully achieved the coverage aspect of its development objective post-restructuring, substantially improving urban residents’ access to water, wastewater, and SWM services. Moreover, in the context of China achieving full cost recovery is not necessarily a pre-requisite to ensuring the provision of reliable urban infrastructure services, and accordingly, the Project substantially met its effectiveness objectives post-restructuring. The post- restructuring relevance of objectives, relevance of design & implementation, improving the effectiveness and coverage of critical urban infrastructure services, improving the effectiveness of lake basin management in Dianchi and efficiency are all rated as substantial.

Certainly the pre-restructuring indicators could be used for assessment of project design and quality at entry for the purpose of lessons learned. Also, as indicated in the revised ICR, those shortcomings of project design and quality at entry were largely corrected at restructuring.

So, from PMO’s point of view, the overall project outcome shall be rated as Satisfactory, although we don’t fully understand the Bank’s assessment system, especially the scoring criteria.

(b) Co-financiers

Not Applicable

Annex 1. Project Costs and Financing

(a) Project Cost by Component (in USD Million equivalent)

Loan 7692-CN

Component Cost at Project Cost Estimated at Cost at Completion as % Completion Appraisal of Estimated

Urban Environment Infrastructure 156.71 166.46 94% Development

Integrated Lake Basin Management 13.70 11.80 116%

included in components included in components Resettlement above above

Institutional Strengthening & Capacity included in components included in components Building above above

Interests During Construction 0.88 12.77 7%

Front-end Fee 0.23 0.23 100%

Total Project Costs 171.52 191.26 90%

Loan 7937-CN (AF)

Cost at Project Cost Estimated at Cost at Completion as % Component Completion Appraisal of Estimated

Water Supply 54.76 49.58 110%

Wastewater 14.63 17.21 85%

River Rehabilitation 37.69 60.89 62%

included in components included in components Resettlement above above

Institutional Strengthening & Capacity 1.11 1.20 92% Building

Interests During Construction 0.94 8.44 11%

Front-end Fee 0.15 0.15 100%

Total Project Costs 109.28 137.47 79%

(b) Financing Loan 7692-CN Financing Source At Appraisal Revised (US$ Million) (US$ Million) Borrower 88.26 72.89 International Bank for Reconstruction and Development 90 90 Total 178.26 162.89

Loan 7937-CN Financing Source At Appraisal Revised (US$ Million) (US$ Million) Borrower 68.88 64.56 International Bank for Reconstruction and Development 60 60 Total 128.88 124.56

Annex 2. Outputs by Component Component 1. Improving the effectiveness and coverage of critical urban infrastructure services in selected counties

This component was designed primarily to increase access of urban residents to three critical services: wastewater, solid waste management, and water supply. These investments were further expected to help Yunnan meet the challenges of rapid urbanization while also improving environmental quality and quality of life for urban residents. This component depended on proper financial management by local Project implementation units, county governments, and municipally-owned utilities and enterprises, which operated wastewater treatment plants, water supply infrastructure, and waste management services. The following seven outcome indicators were identified in the PAD for measuring the achievement. Three of them are PDO outcome indicators, and the others are intermediate outcome indicators.

PDO Outcome Indicators:

• Cumulative number of urban residents with access to wastewater treatment services • Cumulative number of urban residents with access to solid waste management services • Cumulative number of urban residents with access to water supply services

Intermediate Outcome Indicators:

• Total reduction in Chemical Oxygen Demand pollutants loads achieved under the Project (tons per year)

• Volume of municipal solid waste disposed in landfills (tons per day)

• Length of river section restored (kilometers)

• Increase in number of visitors to Lion Mountain Park (total number of people)

The physical achievements of this component (excluding the AF) are summarized in Tables 11 and 12 below:

Table 11: Project Physical Achievements by Subcomponent (excludes AF)

SUBCOMPONENT LOCATION SELECTED PHYSICAL ACHIEVEMENTS I.A.1.I Kunming 450,000 cubic meter sanitary landfill; 30 ton/day leachate treatment facility; 1 waste transfer station; 300m access road; associated equipment for collection and site operation; closure of existing dumping site. I.A.1.II Kunming 600,000 cubic meter sanitary landfill; 2 waste transfer stations; 70 ton/day leachate treatment station; associated equipment for collection and site operation; closure of existing dumping site.

I.A.1.III Kunming 319,000 cubic meter sanitary landfill; 50 ton/day leachate treatment station; 1 waste transfer station; associated equipment for collection and site operation; closure of existing dumping site. I.B.1 Lijiang 2.19 million cubic meter sanitary landfill; 9 waste transfer stations, 200 ton/day leachate treatment station; 3.95 km access road; associated equipment for collection and site operation; closure of old landfill site. I.B.2.I Lijiang 20,000 cubic meter/day wastewater treatment plant; 311 km of sewers I.B.2.II Lijiang 129.74 km sewer network I.B.2.III Lijiang 6,000 cubic meter/day wastewater treatment plant; 35.74 km sewer network I.B.3 Lijiang 35 high-powered electric lights, Lion Mountain access road, trash receptacles, parking lot; afforestation of 1505m2 and landscape lighting I.C.2.I.A Wenshan 8km water transfer pipe, 6,000 cubic meter/day water pumping station, 14 km water supply pipe I.C.2.I.B Wenshan 6,000 cubic meters/day wastewater treatment plant and 850m access road, 14.8 km sewer network I.C.2.II Wenshan 8,000 cubic meter wastewater treatment plant, 15.29 km sewer network I.C.2.III Wenshan 27.25km sewer network, 4.4 km pressure pipe pipe and channel for discharge of effluent from WWTP, lifting pump of 10,000 tons/day I.C.3.I Wenshan 6.17 km drainage ditches and associated filtration infrastructure I.C.3.II Wenshan 6.6 km river bank restoration, 1548m boardwalk construction, and afforestation of 2322 square meter. I.C.4 Wenshan 1 Environmental monitoring vehicle, 4 emergency protective clothings procured

Component 2. Improving the effectiveness of Dianchi Lake Management

This component was intended to address acute water pollution in Dianchi Lake, which was largely attributed to coordination challenges between the multiple governments and entities charged with improving water quality and managing the lake basin. This component largely took the form of an Integrated Lake Basin Management plan which was formulated through a consultative process and laid out a master vision for development and environmental protection of the lake. This component also financed associated water quality monitoring infrastructure. One PDO outcome indicator was specified to measure progress toward the objectives of this component.

This component, aside from producing a lake basin master plan, also produced an online data-sharing platform and associated access system; installed water quality monitoring equipment; and generated tens of thousands of water quality monitoring records.

PDO Outcome Indicators: • Improved capacity for Dianchi Lake management

Component 3. Resettlement This component was concerned with managing resettlement related to the Project, especially compliance with safeguards. No PDO outcome or intermediate indicators were specified for this component.

Additional Financing

The following subcomponents were added as part of the Additional Financing:

Part 1. Urban Environmental Infrastructure Development

Develop critical urban environmental infrastructure in Zhaoyang District of Zhaotong Municipality as follows:

(a) Development of wastewater and water supply systems, including expansion of wastewater treatment plants; construction of sewage collection and drainage networks; construction of water supply treatment plants and networks and construction of water transmission mains.

(b) Carrying out of investments to improve management of the river environment, including construction and rehabilitation of river embankments, and dredging of rivers, all to mitigate against erosion and floods and control and scale down pollution and restore the river eco- system.

(i) with respect to Zhaoyang District of Zhaotong Municipality, provision of technical assistance and equipment for supervision of environmental infrastructure construction and for environmental monitoring; and

(ii) with respect to other implementing agencies and entities, provision of technical assistance, training courses and study tours to assist in:

(A) detailed engineering design, design review, procurement management and contract supervision;

(B) operation and management of water supply, wastewater and river management facilities; and

Part 2. Resettlement

Carry out resettlement and rehabilitation of Displaced Persons in connection with the implementation of Part 1 of the Project.

Table 12. Project Physical Achievements by Subcomponent under AF

SUBCOMPONENT LOCATION SELECTED PHYSICAL ACHIEVEMENTS (a)(i) Zhaotong 25.79 km water transfer pipe; 2 water treatment plants of 60,000 m3/day; 1 pumping station of 20,000 m3/day; 83.46 km water supply distribution pipes. (a)(ii) Zhaotong 20,000 cubic meters/day extension of wastewater treatment plant and 48.92 km sewer network (b) Zhaotong 45.35 km river rehabilitation; environmental monitoring equipment and waste collection facilities; as well as flood risk management system

Annex 3. Economic and Financial Analysis

Not required.

Annex 4. Bank Lending and Implementation Support/Supervision Processes

(a) Task Team members

Name Title Unit Joanna Mclean Masic Sr Urban Specialist GSU09 Zheng Liu Procurement Specialist GGOPP Fang Zhang Sr Financial Management Specialist GGOEA Dan Xie Program Assistant EACCF Huiying Guo Huiying Guo EACCF Meixiang Zhou Sr Social Development Specialist GSU02 Scott Michael Moore Young Professional GWA02 Shunong Hu Sr Water Engineer GWA02 Sr Water Supply and Sanitation Sing Cho Specialist GWA02 Xin Ren Sr Environmental Specialist GEN2A Eddie Hum Sr Municipal Engineer Consultant Cultural Heritage and Watershed Mantang Cai Specialist Consultant Yan Li Economist and Financial Specialist consultant

Annex 5. Beneficiary Survey Results

Not Applicable

Annex 6. Stakeholder Workshop Report and Results

Not Applicable

Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR

Note: the following is a summary of Borrower’s Implementation Completion Reports for YUEP and the AF provided by the Borrower.

CHINA YUNNAN URBAN ENVIRONMENT PROJECT AND ITS ADDITIONAL FINANCING

SUMMARY OF BORROWER’S IMPLEMENTATION COMPLETION REPORTS

1. Assessment of Project Objective, Design and Implementation 1.1 Key Project Data Country People’s Republic of China Yunnan Urban Environment Project and its Additional Project Name Financing Project Number P096812 / P117819 Loan Number 7692 / 7937-CN Totoal Financing US$ 150 Million (US$ 90 M / US$ 60 M ) A single currency, variable spread loan, with a maturity of Loan Terms 25 years, incl. an 8-year grace period, and a front-end fee of 0.25% Total Estimated Project RMB 2,235.33 Million (RMB 1,300.53 M / RMB 934.80 Investment M) Environmental Category A Dates of Loan/Project July 22, 2009 / August 23, 2010 Agreement Effectiveness Dates September 30, 2009 / November 15, 2010 Original Closing Date June 30, 2015 / June 30, 2016 Extended Closing Date April 30, 2017

1.2 Background 1. Yunnan is endowed with rich natural resources in the agriculture, mining and power sectors as well as in its scenic landscape and cultural heritage. The province’s diverse cultural heritage includes 25 ethnic minority groups comprising 40 percent of its population and contributing to a strong tourism industry. Yunnan has experienced robust economic growth over the past two decades. GDP growth has averaged 8.9 percent. During 2000– 2005, GDP per capita grew from RMB 4,600 to RMB 7,800. Yunnan Province faces urban development issues on two fronts: (i) the need to develop urban environmental infrastructure for future growth promotion in secondary urban centers; and (ii) the need to

reverse environmental degradation in its largest urban centers caused by the robust economic growth in the past. The major aim of Yunnan Urban Environment Project (YUEP) and its Additional Financing (AF) was thus to assist the province in addressing its lagging basic urban infrastructure. 1.3 Assessment of Project Objective 2. The project development objective (PDO) of YUEP and its AF is to assist Yunnan Province in improving the effectiveness and coverage of critical urban infrastructure services in selected counties and effectivenss of lake basin management in Dianchi lake, through investments in systems for the management of wastewater, water supply, solid waste, river environment and cultural heritage. 3. The PDO reflects the problems of lagging basic urban infrastructure and the demands to urgently address them in development of Yunnan Province. The project focus on the construction of municipal wastewater and solid waste collection and treatment facilities and integrated management of river/lake environment while is combined with the improvement of integrated management effectivenss of Dianchi lake basin. It is consistent with the growth strategy set in Yunnan’s 11th Five-Year Plan, the development policies in outline of China’s 11th Five-Year Plan and also the key strategic pillars in the Bank’s Country Partnership Strategy for China. 1.4 Assessment of Project Design 4. The YUEP consists of two pillars: (i) county towns urban environmental infrastructure development; and (ii) integrated lake basin management infrastructure investments. The total project investment is estimated at RMB 1,300.53 million, of which the loan is $90.00 million. Component I: County Towns Urban Environmental Infrastructure Development would help the selected counties in Kunming, Lijiang and Wenshan develop critical urban environment service infrastructure by developments of solid waste management services systems and wastewater and waster supply systems, cultural heritage management, river improvement measures and capacity building for environmental monitoring. Component II: Integrated Lake Basin Management would assist Kunming in establishing more integrated lake management systems in Dianchi Lake basin through technical assistance in policy actions and development of monitoring systems. Refer details to the Project Appraisal Document (Report No.: 41199-CN). 5. The AF components for Zhaotong is estimated at RMB 934.80 million, of which the loan is $60.0 million, including: (a) development of wastewater and water supply systems, including expansion of wastewater treatment plants, construction of sewage collection and drainage networks, construction of water supply treatment plants and networks and construction of water transmission mains; (b) carrying out of investments to improve management of the river environment, incl. construction and rehabilitation of river embankments and dredging of rivers; (c) provision of support for the implementation of project activities. Refer details to the Project Appraisal Document (Report No.: 53586- CN). 6. Project Restructuring. On the premise that the PDO and total loan amount remained unchanged, the project restructuring was made and completed in June of 2015 with approval by the Bank, while the closing dates for both YUEP and its AF were extended to April 30, 2017 .

7. Assessment of project design. In general the project design and preparation are satisfactory: (i) the project focus on construction of municipal wastewater and solid waste collection and treatment facilities and integrated management of river/lake environment, reflecting the issues and demands of Yunnan Province; (ii) the selection of project locations is consistent with local economic and social development masterplan and special plannings, fully reflecting the consensus and will of local government and people; (iii) the alternatives for site selection and process were considered and analyzed in the feasibility studies and the practical technologies available in market used in the project designs; (iv) the project procurement plan (PPP) was feasible and the arrangements for implementation, financial management and disbursement were in accordance with characteristics of the complex and large-scale project. 8. Major issues in project design: (i) financial covenants designed originally for cost recovery of wastewater and solid waste management by tariff/fee revenues were actually difficult to be implemented to meet the requiements and had to be revised in the project restructuring; (ii) the implementing agency (IA) and the Bank’s team were overly optimistic about satisfying the general condition for the subcomponent of Lion Mountain Cultural Heritage Preservation in Lijiang, moreover both sides’ understanding on the condition was quite different during project implementation, which led to a long delay of this subcomponent; (iii) most of IAs and local project management offices (PMOs) at levels of muncipality/prefecture and counties were the first to implement the Bank’s financed project and lacked of knowledge and experiences on project management, but it was lacked of enough training for them in project design. 1.5 Assessment of Project implementation 9. Project Management. The project management chain at three levels of governments was well maintained in general during project implementation. With strong support from provincial leading committee for the project, provincial PMO and local PMOs strengthened communication with the Bank’s team and seriously performanced their respective responsibilties. Overall project management is highly appreciated by the Bank’s team. 10. Procurement Management. The PMOs organized updating of the PPP annually or as needed, urged and guided the IAs to carry out procurement activities according to the PPP approved by the Bank. For YUEP, total of 88 contracts (civils 69, goods 15 and services 4) were awarded with the cumulative prices of about RMB 861.0 million. For AF, total of 24 contracts (civils 18, goods 4 and services 2) awarded with the cumulative prices of about RMB 537.58 million. 11. Implementation of Resettlement Action Plan (RAP). The PMOs, IAs and local related authorities actively coordinated and organized implementation of land acquisition, demolition and resettlement, and there was no incident of any petition or appeal by affected persons during project implementation, which created favorable conditions for the project construction. For YUEP, the permanent land of 959 Mu was acquisited and the houses/structures of 22,200.6m2 demolished, with about 940 Mu and 41,724m2 less than the planned respectively, and the temporary land of 1,174.74 Mu borrowed, with increase of about 506 Mu more than the planned. Total payment of RMB 132.74 million was made for compensation and resettlement. For AF, the permanent land of 224.38 Mu was acquisited and the houses/structures of 6,336 m2 demolished, with about 10 Mu and 1,653 m2 less than the planned respectively, and the temporary land of 2,223.37 Mu borrowed,

with increase of about 968 Mu more than the planned. Total payment of RMB 58.69 million was made for compensation and resettlement. 12. Implementation of Environment Management Plan (EMP). The PMOs, IAs and local related environmental authorities seriously implemented measures proposed in the EMPs of project and reduced short-term adverse environmental impacts during project construction to an acceptable level. There was no significant environmental accident or compliant during project implementation. 13. Financial Management. A relatively stable and complete financial management system was maintained during project implementation: (i) Yunnan Finance Bureau (YFB) established the designated accounts for the project and timely made the reibmursement; (ii) the IAs established the independent account for accounting of the project; (iii) the provincial PMO periodically consolidated the financial statements of subcomponents, and reported it to the Bank in time; (iv) an annual audit was regularly made on implementation of the project, and the aduit reports were submitted to the Bank in time. 14. Performance of Legal Covenants. The PMOs, IAs and related authorities closely cooperated and actively took measures and actions to performance and satisfy legal covenants of the project in terms of the Loan Agreement (LA) and Project Agreement (PA). 15. Monitoring and Evaluation (M&E). The PMOs organized carring out the M&E on project implementation, including: (i) continuous tracking and monitoring implementation progress; (ii) carring out external independent M&E on implementation of RAPs periodically; (iii) monitoring of environmental status during construction and operation; (iv) monitoring and updating of indicators in the Results Framework to reflect the progress of project implementation.

2. Assessment of Outcome against Agreed Objective 2.1 Outcome/achievement of objective 16. Through implementation of the project, a number of urban environmental infrastructures had been built, and then the effectiveness and coverage of urban infrastructure services are further improved in selected counties and the effectivenss of integrated lake basin management of Dianchi lake further improved. The PDO of YUEP and its AF is achieved. 17. For YUEP: (i) 4 new sanitary solid waste landfills and 13 waste collection and transfer stations were built with total capacity of 515 tons/day, while a number of associated equipments were procured for clearning, collection and treatment of solid waste. In project areas, the cumulative number of people in urban areas with access to solid waste management services is increased from 182,000 in 2009 to 453,800 in 2016. (ii) 4 new wastewaer treatment plants (WWTPs) were built with total capacity of 40,000 m3/day, and sewage main and branch collectors and home connectors constructed with total extension of 506.7 km. Additional 27.25 km of sewage system and drainage pipe was constructed and rehabilitated in Yanshan County. In project areas, the cumulative numbe of people in urban areas with access to

wastewater services is increased from 159,800 in 2009 to 485,200 in 2016. (iii) With implementation of Lion Mountain Cultural Heritage Preservation subcomponent in Lijiang, the access road of about 2 km, ecological parking areas of 4,246.83 m2, greeing areas of 1,505 m2 and landscape lighting facilities were completed. The mountain’s ecological environment and landscape were improved and the visitors to the park are increased year by year, reaching about 79,200 person-times in 2016. (iv) Also in Wehshan, (a) the existed No.1 water treatment plant (WTP) was renovated and associated raw water transmission of 8 km, a pump station and distribution network of about 14 km built. The cumulative numbe of people in urban areas provided with access to water services was increased from 49,000 in 2009 to 96,000 in 2016; (b) with implementation of integrated water environment (IWE) management of Puzhehei Lake in Qiubei, 6.17 km of villages’ drainage ditches, 3 soil infiltration treatment systems and 2 surface-flow wetlands with total treatment capacity of 500 m3/day as well as such facilities as garbage collection pits and pins, public and household latrines, etc were constructed, which effectively control major pollution load into the lake and obviously improve the water quality of lake and ecological landscape of lakeshore; (c) under the subcomponent of IWE management of Puting River in Funing, the mainstream and tributaries were rehabilitiated with total lengthe of 6.6 km, which greatly improved the river environment and ecological landscape along rivers, and also make county town’s flood control standard increased from five year to thirty year return; (d) 1 environmental emergency monitoring vehicle including equipments, 1 automatic chemical analyzer and 4 emergency protective clothings were procured under the environment management technical assistance for Wenshan Prefecture, which filled its gap in environmental emergency monitoring apparatus and response capability. (v) Under Component II: (a) with implementation of monitoring and management system for Dianchi Lake basin, 3 water quality automatic monitoring stations and 14 water monitoring stations for rivres into the lake and 1 water quality monitoring station were built, 2 movable water quality monitoring stations (vehicles) and 2 sampling vehicles (incl. equipment) procured, and a total pollutant emission monitoring and management system developed. More than 300,000 of monitoring data have been generating since the stations for Jinjia, Haihe and Luolong rivers were put into operation, providing the data support to environmental management sectors. (b) a long-term integrated management masterplan for Dianchi Lake basin was prepared, in which the idea and tool of international advanced integrated basin management was introduced, an overall strategic and forward-looking planning proposed for the resource development, environmental governance, ecological protection and economic and social development, based on comprehensive development and protection of water resources and subject to constraints of comprehensive carrying capacity of resources and environment in the basin. 18. For AF components: (i) 2 new WTPs were built with total designed treatmnet capacity of 60,000 m3/day,

25.79 km of raw water transmission mains and 83.46 km of water distribution networks constructed, bringing local water supply capacity to 100,000 m3/day. The cumulative numbe of people in urban areas provided with access to water services is increased from 270,000 in 2009 to 400,000 in early 2017. (ii) Expansion of the existed WWTP was completed with capacity of 20,000 m3/day, bringing local treatment capacity to 80,000 m3/day, and 97.92 km of sewage collection networks constructed. The cumulative numbe of people in urban areas with access to wastewater services is increased from 190,000 in 2009 to 320,000 in 2017. (iii) The rivers’ courses in total length of 45.32 km were rehabilitiated, including 40.63 km of embankments constructed or reinforced, 5 bridges constructed or restructured and dredging of rivers at amount of about 520,000m3, which make rivers’ ecological environment improved, and rivers’ flood discharge capacity and flood control standard enhanced. (iv) Also, 78 sets of environmental monitoring equipment and 1 environmental emergency monitoring vehicle were procured, which filled the gap that local has no environmental monitoring capacity; 12 garbage transportation vehicles and collection facilities were procured, which lays a foundation for eliminating urban black-odor water bodies; a flood risk management system was developed, which provides not only a tool for better management of flood and water resources, but also a guidance for urban development to cope with stormwater drainage and flood risk management in future, and moreover further improve local comprehensive ability of disaster prevention and reduction. 2.2 Project cost and financing 19. For YUEP, as of the closing date: • total project investment is completed at RMB 1,154 million, accounting for 88.7% of total estimated project investment; • total amount of loan is disbursed at US$ 72.28 million, equivalent to RMB 471.25 million, accounting for 40.8% of total project investment completed and 80% of the loan amount approved, respectively; • total amount of counterparts is completed at RMB 682.75 million, accounting for 59.2% of total project investment completed. 20. For AF components, as of the closing date: • total project investment is completed at RMB 730.32 million, accounting for 78.1% of total estimated project investment; • total amount of loan is disbursed at US$ 59.45 million, equivalent to RMB 387.20 million, accounting for 53.0% of total project investment completed and 99% of the loan amount approved, respectively; • total amount of counterparts is completed at RMB 343.12 million, accounting for 47.0% of total project investment completed. 2.3 Assessment of project benefits 21. Environmental benefits. Through implementaton of the project: (i) The system for municipal solid waste collection, transportation and disposal is

further improved in project areas. As of the closing date, the cumulative amount of municipal solid waste disposed at landfill has been 1.114 million tons since 4 built sanitary landfills were put into trial operation or operation, making lcoal municipal sanitation and appearance improved and pollution by municipal solid waste reduced. (ii) The system for municipal wastewater collection and treatment is further improved in project areas. As of the closing date, the wastewater has been cumulatively terated at amount of about 55.2 million m3 with removed COD pollution load of about 10,900 tons since 4 built WWTPs and extension of Zhaotong WWTP were put into trial operation or operation, which made contribution to total emission reduction of COD in whole province, and play a promoting role in improving water qualities of Jinsha River system in upper reaches of Three Gorges Reservoir and river system in Pearl River basin. (iii) The situation of sewage discharged directly into rivers was allevated, pollution of municipal solid waste to rivers reduced, and river environment and ecological landscape along rivers improved by integrated river rehabilitation in project areas. (iv) The ecological environment of Lion Mountain was improved, and unique style and beautiful environment of the Ancient Town expanded and extended by cultural heritage preservation, which promots the protection of heritage sites in Lijiang (v) The point and non-point pollution into Puzhehei Lake in Qiubei County was effectively reduced, sanitation conditions of villages in vicinity of lake improved, water quality of the lake improved obviously by integrated environment management of the lake. (vi) Capacity building makes local environmental monitoring and emergency response capabilities improved, and provide scientific data support and supervision means for local environmental protection. (vii) The long-term integrated management masterplan for Dianchi Lake basin would have a positive guiding role in improving fund use efficiency, reducing governance costs and improving the level of basin management. (viii) In short, it has regional and basin eco-environmental status be improved, local urban function improved, and contradiction between urban development and environmental constraints further alleviated, which create a suitable environment for sustainable social and economic development in project counties. 22. Social Benefits. Through implementaton of the project: (i) The system and neworks of local urban environmental infrastructure services are further improved, local construction of urban infrastructure and urbanization accelerated, and subsequently urban function promoted and urban development space expanded. (ii) Local investment environment is improved, which enhances investor’s confidence and attracts investment and provides new opportunity for local economic development, and then enhances local city's competitiveness. (iii) The flood dischareging capacities of river courses are enhanced, local urban flood control standards increased and flood disaster risk reduced by rivers

rehabititation. (iv) In project areas, more permanent jobs are created, and a large number of temporary jobs were added by the construction during project implementation. (v) The capacity building of environmental protection institutions and technical progresses of environmental monitoring, scientific research and management were promoted, the efficiency and effectiveness of government’s environmental management improved and the environmental awareness of residents be further increased in project counties. (vi) A group of project management personnels being familiar with the Bank’s policies and procedures had been trained and their capcities improved by learning and practicing the Bank’s criteria and advanced management mode, which creates favorable conditions for local utilization of foreign capital and international cooperation in future. 23. Economic benefits. Through implementaton of the project: (i) It promotes and increases local tourism development and tourism revenue in project areas. In 2016, Lijiang received a total of about 35.20 million visitors and total revenue was RMB 60.876 billion, with an increase of 15.18% and 25.91% over the same period in 2015, respectively. In Qiubei County, it received a total of about 3 million visitors and total revenue was RMB 1.69 billion in 2015, and 3.11 milliion visitors and revenue of RMB 1.792 billion from January to November of 2016, with an increase of 13.7% and 16% over the same period, respectively. In Zhaoyang District, it received a total of about 3.28 million visitors and total revenue was RMB 1.919 billion in 2016. (ii) The appreciation of local land is indirectly promoted by improving and expanding the coverage of urban infrastructure services and improving surrounding environment of urban areas in project counties. (iii) Public health is further improved, and moreover the health costs reduced and the quality of life of residents in project areas improved directly or indirectly, through improving local urban environmental sanitation and reducing risk of infectious diseases and health hazards by water pollution and municipal solid waste.

3. Major Factors Affecting implementation and Outcome 3.1 Factors outside the control of government or implementing agency 24. They are summarized as following: (i) After effectiveness and implementation of the project, the rate of US dollar against RMB continued to decline, and loan funds in dollar terms was shrunk. Such changes made greater pressure on raising of counterparts by local governments and IAs. (ii) Meanwhile domestic prices were rising, especially labor costs raised rapidly, e.g. the comprehensive price of labor’s man-days per unit was increased from BMR 34.77 in 2009 to RMB 53.23 in 2011in Yunnan Province. The increases of labor and material prices caused the project costs increased. (iii) A new Standard for Pollution Control on the Landfill Sites of Municipal Solid Waste (GB16889-2008) was issued after project appraisal, in which more strictg

requirement is provided for leachate treatment. Subsequently, the works of leachate treatment stations were added in 4 subcomponents of solid waste mangement and then their project costs increased accordingly. (iv) For the Lion Mountain cultural heritage preservation of Lijiang, due to its location in the world cultural hertiage site, the IA had been applying for its endorsemnet according to the requirement in the PA, and made all procedures completed and confirmed by the Bank’s team until the end of 2014, which caused it be delayed for long time, and had to made changes and reductions to its works. (v) The consultant firm that undertook techncial assistance of design review, construction supervision and utility operation support forYUEP was difficult to mobilize and provide expert resources according to the contract signed, and termincated the contract in October 2013, which increased difficulties for project implementation and management, althought remedies were taken by employing individual consultants to provide services based on approval by the Bank’s team. (vi) At the early of implementation after effectiveness of the project, it was just the time when the state was to promote economic growth and respond to the global financial crisis by expanding investment and stimulating domestic demands. There existed a certain time difference for some subcomponents that were also financed by the funds for expanding domestic demands and national debt not only to meet domestic time requirements for construction, but also to sastify the Bank’s procurement procedures, which increased difficulties for project implementation and management. 3.2 Factors generally subject to government control 25. They are summarized as following: (i) The Bank's methods and requirements for bid evaluation are not exactly the same as those domestic practices, resulted in great challenge to the procurement maangement, e.g., the IAs and procurement ageney were used to domestic procedure and practices, moreover the time for bid evaluation was short and some robust practices made without clarifications in time, which caused repeated process of reviewing bid evaluation report by the Bank and affected the progress of project implementatioin. (ii) For the subcomponents of river rehabilitation, it has a long range and the complicated topographic and geological conditions and surroundings along the route, while more towns were involved and greater coordination required. The delay of land acquisiton once occurred in process of implementation had a certain impact on execution of works. (iii) For the subcomponent of Qiubei County WWTP and sewer network, some planned sewers were cancelled in process of implementation due to readjustment to masterplan of county town’s, which had an impact on management of contract being executed. It was also similar to the implementation of subcomponents under AF components. 3.3 Factors generally subject to implementing agency control 26. The factors are summarized as following: (i) Local PMOs and IAs at levels of municipality/prefecuture and counties were

unfamiliar with the Bank’s procedure and requirements for procurement, contract management and reimbursement, and lacked of knowledges and experiences on the Bank’s financed project, which affected implementation progress of the project to a certain extent. (ii) It lasted for longer time for the implementation of the Bank’s finaced project. During implementation, some IAs’ key personnel such as legal person, finance person and project manager were changed; and also the employed design institute and procureent agency changed, which caused it could not give full play to training provided on project management in early, and had an impact on the continuity of project management. (iii) For some subcomponents, after being invitated for bids, there eixsted evident deviation between actual topographic and geological condition and quantities of works and those designed, due to inadequate survey, delayed updating of maps, insufficient design, imperfect bidding documents or without conditions for execution, resulted in that acutal quantities of works were substantially increased and variations ocurred in process of execution, which caused more difficulties for project management. (iv) Local designers were not understood and used to the specific design concept and use of computer model for verification, as required by the Bank’s experts, which caused a long delay of river rehabilitation and water supply networks under AF components. (v) Some supervision companies employed were lacked of experiences on contract management for the Bank’s financed project, moreover understaffed and performanced inadequately, which had an impact on project implementation and loan reimbursement. (vi) Some IAs did not made payment in time for works completed according to terms of the singed contract, on consideration of possible changes of final price in domestic audit, or not timely made the completion acceptance and environmental acceptance of works completed, which caused reimbursement for eligible expenditures of the project affected to a certain extent. (vii) For some IAs, the communication was not timely made between their financial manager and project managers, and their budget management was weak, which caused an impact on raising of counterparts for the project.

4. Sustainability 27. A series of policies issued by the state and local government provide the sound policy environment for the sustainability of wastewater and solid waste treatment facilities constructed as well as river management under the project. 28. The facilities built under the project had been transferred to owners or operating companies for their O&M. The tariff on municipal wastewater and solid waste had been implemented in project counties. Although revenues from tariff collection are not sufficient to cover the costs for landfilling and wastewater treatment expenses, local governments have been providing subsidies for O&M of the facilities, which ensures the sustainability of the project.

29. The online monitoring system of WWTPs built has been linked with environmental protection sector, and COD reduction by WWTP is included in assessment of local government’s target for total emission reduction of major pollutants, which enforced to ensure operation of WWTPs. Also in Wenshan, it is actively promoting trusteeship of wastewater treatment services by professional company, which is beneficial to ensure the O&M of WWTPs. 30. Following to the implemention of AF component in Zhaoyang District, it is continuing to increase investment for landscape greening along rivers, water replenishing of rivers and integrated management of surrounding of river courses, and to bring rivers in urban areas into the scope of long-term governance.

5. Bank and Borrower Performance 5.1 Bank 31. The Bank’s overall performance is satisfactory during identification, desing and preparation, appraisal and implementation of the project. The diligence and professional of the Bank’s team was highly appreciated by the local government sectors at all levels, PMOs and IAs. 32. Identification, preparation and appraisal. Through field investigations and discussions with local authorities and agencies, the Bank’s team carried out a large number of project screening and identification based on the development plans of project sites, and advanced many good suggestions for project design and preparation. 33. Implementation. the Bank’s team carried out the supervison on project implementation progress every half a year on average, to have discussed issues in the implementation, provided guidance and support for the PMOs and IAs and jointly promoted implementation of the proect, by focusing on the PDO. All of which ensured successful implementation of the project and achievement of the PDO. 5.2 Borrower 34. The Borrower’s overall performance is satisfactory during project preparation, approval and implementation. The concerned state’s authorities and governemnts and related authorities at levels of province, project municipalities/prefecture and counties had paid high attention and strong support to the project. 35. Preparation and appraisal. The coordination leading groups and MPOs were established at levels of the province, project municipalities/prefecture and counties, and organized the IAs and consultant institutions to have carried out overall project preparation in accordance with the domestic procedures for capital construction and requirements for the Bank’s financed project, through input of a lot of human, physical and financial resources. All of which effectively ensured that project preparation, appraisal and negotiation were successfully completed. 36. Implementation. The governments and related authorties at all levels maintained the strong commitment and support to the project. The PMOs, in particular the provincial PMO, seriously performed their respective responsibilities for project management and actively coordinated and guided the IAs to have carried out project design, land acquisiton & resettlement, procurement, construction, reimbursement, accounting and financial

management as well as performance of project leagal documents and subsidiary loan/agency agreements.

6. Experiences and Lessons Learned 6.1 Experiences 37. The experiences from the project implementation are summarized as following: (i) The governments and related authorities had paid high attention and strong support to the project and maintained relative stability of project management institution, which ensured successful implementation of the project and achievement of the PDO. (ii) By practicing the rules and procedures of procurement and contract management for the Bank’s financed project, local IAs and related sectors and institutions obtained more management mode, method and experiences, and then their capacities further enhanced. (iii) It is useful to make potential adverse environmental impacts during project construction be well alleviated by including major contents and requirments of the EMPs in bidding documents and signed contracts to increase the binding on contractors. (iv) The IA’s ownership and conscientiousness had a significant impact on ensuring the successful project implementation and O&M of facilities built. For the subcomponent in Guangnan County, not only the implemention progress and project investment were effectively controlled, but also the built facilities were well operated and maintained, which has a good reference for construction and O&M of a similar WWTP in county. (v) The practice by introducing idea and method of ecological sanitation and community participation in the IWE management of Puzhehei Lake in Qiubei County provides the experience and reference for planning, design and implementation of similar project. (vi) The long-term integrated management masterplan for Dianchi lake basin, by introducing the ieda of integrated lake basin management, has a positive guiding role in improving fund use efficiency, reducing governance costs and improving basin management level. (vii) The application of computer models for optimizing construction drawing designs of river rehabilitation and water supply networks, and the practice for conservation and restoration of such historical structures as ancient hydraulic drop in rivers as well as a the digital system of flood risk management under AF components provide the experiences and references for similar project. 6.2 Lessons learned 38. The lessons learned from the project implementation are summarized as following: (i) It shall be designed to provide more training for PMOs and IAs who are the first time to implement the Bank’s financed project during prepation and implemention, including training on project implementation and O&M of facilities to be built.

(ii) The IAs shall pay full attention to preparations of project to be implemented, including topographic, geological and site surveies, etc., to avoid substantial variations and more difficultes for project implementation and contract management. (iii) The IAs shall strengthen management of supervision companies employed, and urge them to be staffed with adequate and competent supervisors and in place, so as to do well quality control, schedule control and cost control of the project. (iv) The IAs shall attach importance to the O&M of the facilities built under the proejct, and early consider the arrangements for O&M of the facilities to be constructed during project implemention, so that ensure transition of built facilities to regular operations. (v) The IAs and PMOs shall keep their personnel relatively stable and maintain the same design institute, procurement agency and/or supervison company under the same project, as far as possible, to ensure the continuity of project management and give full play to the role of related training under the project. (vi) for the Bank’s finaced project in future, it shall strengthen communication with the Bank’s team to understand well the Bank’s safeguards and its requirements timely, and desing a more practical and operable convenant or action plan for the project.

Annex 8. Comments of Co-financiers and Other Partners/Stakeholders

Not Applicable

Annex 9. List of Supporting Documents

(1) Borrower’s Project Completion Report. (2) China Cross-Cultural Consulting Center, Sun Yat-sen University. 2007. Social Assessment (Summary Report). Report No. IPP252-V2. (3) NPC & CPPCC National Committee Annual Sessions. 2006. Facts and figures: China’s main targets for 2006-2010. http://www.gov.cn/english/2006- 03/06/content_219504.htm (4) World Bank. 2010. Project Paper, Report No. 53586-CN. (5) Project supervision documents, Aides-Memoires, and ISRs. (6) World Bank. 2015. Restructuring Paper, Report No. RES18711. (7) World Bank. 2006. China - Country partnership strategy . Washington, DC: World Bank. https://hubs.worldbank.org/docs/imagebank/pages/docprofile.aspx?nodeid=70896 69 (8) World Bank. 2012. China – Country partnership strategy. Washington, DC: World Bank. https://hubs.worldbank.org/docs/imagebank/pages/docprofile.aspx?nodeid=67566

MAP (IBRD 35569)