World Bank Document

PROJECT INFORMATION DOCUMENT (PID) APPRAISAL STAGE Report No.: AB2375 SECOND SHANDONG ENVIRONMENT PROJECT Project Name Public Disclosure Authorized Region EAST ASIA AND PACIFIC Sector Wastewater (76%); Water Supply (13%); Solid Waste Management (11%) Project ID P077752 Borrower(s) PEOPLE’S REPUBLIC OF CHINA Implementing Agency Shandong Provincial Project Management Office (SPPMO) No. 46 Xiaoweisi Road Shandong Province China 250001 Tel: 86-531-8708 8023; 8791 5106 Fax: 86-531-8794 1408 [email protected]; [email protected] Public Disclosure Authorized Environment Category [X] A [ ] B [ ] C [ ] FI [ ] TBD (to be determined) Date PID Prepared June 5, 2006 Date of Appraisal June 16, 2006 Authorization Date of Board Approval September 26, 2006

1. Country and Sector Background

Shandong Province, on the east coast of China, has a land area of 156,700 km² and a 3,000-km coastline on the Bohai and Yellow Seas, both of which drain a major part of the province. The province is divided into 17 municipalities, and 139 counties, districts and cities. About 40

Public Disclosure Authorized percent of the almost 92 million population are urbanites. Shandong Province is one of the fastest-growing provinces in China. From 2001-2005, the average GDP growth rate was 13.18 per cent. In 2005, Shandong’s GDP totaled RMB1, 847 billon Yuan, ranking second in China with a growth rate of 15.2 per cent. However, its strong economic growth has come at a high environment cost. Investment in environmental protection has not kept pace with the rapid economic development. The shortage of water supply, inadequate wastewater collection and treatment, and lack of proper solid waste management are presenting a serious issue. Besides the negative impact on water resources, the uncontrolled wastewater pollution of rivers causes deterioration of the urban environment and contributes to severe damage to the shallow Bohai Sea ecosystem.

The provincial government has taken steps to address these problems through various programs and policies, including institutional reform through the establishment of separate self-financing

Public Disclosure Authorized companies, and ensuring adequate tariffs for the services are in place. Strategies guiding the municipalities on the water resources issue call for accelerated restoration of the ground and surface water environment through enhancing the treatment and re-use of wastewater. In the wastewater sector, provincial guidelines require that by 2010 municipal cities and county towns adequately treat 65 percent and 40 percent, respectively, of their wastewater, and that in the province 20 percent of treated effluent would be re-used. New treatment plants are therefore required on land adjacent to existing wastewater treatment plants (WWTP) for potential re-use facilities. Shandong has also signed the Memorandum of Agreement initiated by UNDP/GEF/IMO Regional Program to foster collaboration among adjacent provinces in managing pollution of rivers and reducing land-based discharges into the Bohai Sea. Realizing there is a growing solid waste problem, provincial guidelines require that by 2010 municipal cities and county towns develop adequate solid waste management treatment and disposal facilities to handle 70 percent and 40 percent of waste, respectively.

2. Objectives

The development objective of the project is to promote the sustainable improvement of the environmental conditions in participating municipalities/counties of Shandong Province through: upgrading and development of facilities for wastewater collection and treatment, solid waste management, and water supply; and enhancement of financial performance and efficiency of key urban environmental services.

3. Rationale for Bank Involvement

The proposed project would build on the strong relationship established with the province through support of on-going projects in the sector, and both deepen and broaden the extent of support for the province’s agenda to improve the environment, especially in the wastewater and solid waste management sectors. China possesses relatively little experience in comprehensive management of solid waste (collection, transfer stations, transportation, waste separation, composting and sanitary land filling), including financial sustainability of the sector. The project, therefore, presents not only the opportunity to bring good international practices to China, but also to support the implementation of national guidelines on solid waste management. Through the Zaozhuang solid waste management component, the project would pilot-test and would demonstrate to Shandong Province, and potentially elsewhere in China, the methodology for the safe closure of a dumpsite in an environmentally safe manner.

The province with the approval of the national authorities has requested the Bank support for a project aimed at improving urban environment services and expressed interest in the GEF to support the demonstration of septage management techniques, which would contribute to the reduction of land-based pollution in the Bohai Sea.

The proposed project would also complement the ADB’s proposed Hai River Basin Environment Project, and provide an opportunity for the two institutions to work collectively with the province on sector key reform issues.

However, with their sound economies, many participating municipalities/counties have other financing options. The project municipalities/counties decided to seek World Bank financing in order to employ good international methodologies, standards, and techniques to improve water, wastewater and solid waste planning, construction and management.

4. Description

The project consists of the following six components:

Component 1: Wastewater Management (US$206.89 million): The component includes: (i) 72 km wastewater collection systems for two existing treatment plants in Gaomi County; (ii) 80 km wastewater collection systems and a wastewater treatment plant (WWTP) with 70,000 m³/d capacity in Huantai County; (iii) 42 km wastewater collection systems including upgrading of 4.9 km of the river embankment, and providing a WWTP of 20,000 m³/d capacity in Qixia County; (iv) upgrading river water quality through transfer and treatment of city effluent downstream of the city in interceptor sewers of 32 km long and extensive improvement of the river embankment, including upgrading of flood protection works in Weifang Municipality; (v) 60 km wastewater collection systems in the central district serving a WWTP under construction, and replacing 7 km of effluent rising mains in Weihai Municipality; (iv) 14 km wastewater collection systems in two districts, expanding an existing WWTP by 80,000 m3/d, expanding 3.2 km sea outfall, and construction re-use treatment facilities in Yantai Municipality and co- financed by GEF, this component would include provision of facilities, equipment and services for a pilot project to test regular servicing of septic tanks and treatment of septage jointly with sewage in Yantai, and dissemination of the results in Shandong and elsewhere in China through conferences, seminars and training; (vii) 42 km wastewater collection systems upgrading in the central districts between two rivers serving two wastewater treatment plants, one existing, and a second under construction, and construction re-use treatment facilities, as well as associated improvements to 15 km embankments of both rivers in Zaozhuang Municipality.

Component 2: Solid waste Management (US$24.31 million): The component includes: (i) integrated waste processing for incoming waste (660 t/d) into four streams: recyclables, incineration, composting (300 t/d) and landfilling (280 t/d) in Heze Municipality; (ii) the construction of the second phase of the landfill (500 t/d), and upgrading of waste collection (20 stations, 10 t/d each) and transportation infrastructure (containers and vehicles) in Rizhao Municipality; and (iii) the safe closure of the existing municipal waste dump and installation of facilities for landfill gas recovery and use in Zaozhuang Municipality.

Component 3: Water Supply Management(US$34.60 million): This component includes: (i) 30 km water supply network, expansion of production by 60,000 m³/d to provide water to new industries and reduce general water shortage, upgrading of its monitoring system to improve its efficiency, and control of non-revenue water in Gaomi County; and (ii). 60 km water supply network, expansion of production by 100,000 m³/d to provide water to industries, reduce general water shortage, limit exploitation of groundwater, and replacing water sources with high fluoride content, upgrading the monitoring system to improve its efficiency, and controlling of non- revenue water in Huantai County.

Component 4: Institutional Development and Capability Building (US$4.52 million): This component includes: (i) technical assistance to improve financial performance, efficiency, and effectiveness of wastewater, solid waste and water supply companies; (ii) technical assistance in the areas of detailed engineering designs, procurement management, construction management to ensure smooth implementation of the infrastructure works, monitoring implementation of agreed environmental management plans and resettlement action plans; (iii) capacity building of decision makers at provincial and municipality/county government through focused training including Private Sector Participation (PSP) and study tours; (iv) capacity building on Debt Management, including priority studies supported by focused training aimed at strengthening the debt management capacity at the provincial and municipal levels by drawing on past lessons, both in China and abroad; (v) solid waste sector management study - a comprehensive study of the Shandong solid waste sector to develop an integrated framework that would facilitate the reform of the sector; (vi) benchmarking water sector performance – an exercise to establish standards or points of reference for measuring technical parameters and judging the quality of water supply services in Shandong; and (vii) capacity building for the Shandong Provincial Environment Protection Bureau.

5. Financing

Source Amount US$ million BORROWER / RECIPIENT 134.3 INTERNATIONAL BANK FOR RECONSTRUCTION AND 147.2 DEVELOPMENT GEF GRANT 5.00

6. Implementation

The water supply, wastewater and solid waste municipal agencies would have overall responsibility for implementation of the project except for Weifang wastewater, and Zaozhuang wastewater and solid waste management, which would be implemented by the municipalities themselves. The implementing agencies would own, operate and maintain the project assets.

Shandong Province established a leading group headed by a vice-governor to give policy guidance to its departments and implementing municipal agencies. It designated its existing Shandong Provincial Project Management Office (SPPMO) to coordinate the preparation activities of the city/county local governments’ proposed investments. SPPMO has had previous experience in coordinating the implementation of Bank-financed projects.

The cities/counties leading groups and the project management offices (PMO) would provide policy guidance, and coordinate the implementation of their components. SPPMO would be responsible for coordination of the technical assistance and construction management sub- components, including preparation, jointly with Shandong Province Finance Bureau (SPFB), of the financial management manual to achieve a consistent quality of accounting work. A procurement manual, and centralized reviews of procurement for both ICB and NCB contracts at the provincial level, would help in mitigating procurement constraints.

The Provincial and Yantai municipal leading groups would also guide the GEF-supported and Yantai PMO/Wastewater Company implemented activity, including designing the respective policies, their enforcement, provision of facilities and equipment, monitoring, evaluation and dissemination of results.

7. Sustainability

The overall dedication at all levels of Shandong Province to improve urban environmental services indicates the highest probability that the project and its outcome would stay sustainable. The municipalities and counties demonstrated, for example through actions already taken during preparation by establishing wastewater and solid waste companies under the Company Law, their commitment to the project, and at appraisal they provided assurances that the necessary physical, financial, and staff resources will be available to carry out project implementation. Sustainable improvement of financial performance, efficiency, and effectiveness of key urban environmental services, which is the key to project success, would be secured through enactment of the Government Tariff Regulation 1192 (1999) and respective legal covenants in the legal agreements.

8. Lessons Learned from Past Operations in the Country/Sector

China has the largest portfolio in the Bank, and its quality is among the best performing. IED and QAG assessments have confirmed satisfactory project management, implementation, and outcomes. Experience from a full range of projects financed by the Bank in the infrastructure sector points to the importance of borrower ownership, appropriateness and efficiency of planning of capital investments, as well as financing and institutional arrangements for proper operation and maintenance. Lessons learned and incorporated in the project design include following aspects.

Borrower Ownership and Commitment. The province has shown strong commitment to the project by having already established all policy guidance, project management and implementing agencies.

Deepening institutional reforms to ensure financially sustainable water and sanitation services. On the basis of provincial government circular on cost recovery pricing, all project municipalities/counties have already increased wastewater tariffs from Y0.80/m3 to Y1.00/m3. The project design has incorporated technical assistance to all project utilities and local governments towards deepening intuitional reforms and further improving the efficiency and effectiveness of utility services.

Industrial pollution control. Recent Bank experience in China has indicated that more pro-active steps are necessary, including the promotion of “clean” production technology to curtail pollution at source, heightened citizen awareness and involvement in monitoring and reporting of water pollution sources, systematic regulatory auditing of polluting industries, and capacity strengthening of the Local Environmental Protection Bureaus (EPBs). The project includes capacity enhancement of EPBs in the above mentioned areas.

Tendency to over-design basic infrastructure. Due to the use of unrealistic population projections and per capita consumption levels, local governments have tended to over-design basic infrastructure, especially water supply and wastewater systems, which has led to a waste of resources and higher than necessary user charges. This concern is being addressed in the proposed project by detailed analysis and assessment of population projections and water demand levels.

Inadequate investment in wastewater collection systems and water supply network. During project preparation, project feasibility reports that focused only on wastewater or water supply treatment plants have been modified to ensure there is adequate investment in wastewater collection systems and water supply networks

Over-estimated project cost. Adopting conventional cost estimating methods (which are partly based on “norms” rather than on market prices) have resulted in overestimating project costs on earlier and current Bank-supported urban projects in China. International and local consultants have conducted an independent review of cost estimates to ensure that the costs reported in the final feasibility studies for all components in this project are as close to market rates as possible.

9. Safeguard Policies (including public consultation)

The safeguard and environmental screening categories of the project are Category S2, and Category A. The triggered safeguard policies are as follows:

Environment Assessment: The Project will have a significant positive impact as it will improve the quality of water and wastewater treatment, reduce water pollution and promote the appropriate solid waste management. The Project’s impact is beneficial for public health and quality of life through improved water supply and improved collection of solid waste and wastewater, as well as through improved river water and seawater quality. Extension of sanitation facilities will improve the sanitation conditions of about 700,000 people. Over 400,000 people will enjoy a better flood protection. Over 300,000 people will receive access to potable water.

During the EA preparation, public consultations were conducted in each project city at least twice; people’s opinions are reflected in the project design and environmental mitigation measures. Public announcements were made about the project and the EIA on local radio and television, as well as in newspapers and on the Internet. These notices informed the public of the locations where the EA and the RAP could be reviewed and commented on, as well as contact telephone numbers. Posters summarizing the EA and RAP were displayed in community centers and public meetings were held. The EIA was disseminated in the project cities from August 2005 to Janauary 2006. The documents were sent to the Bank’s Infoshop in Washington and in Beijing in February 2006. Details of public consultations and information on each component are available in the project files.

Resettlement: The project resettlement impacts mainly include permanent land acquisition, residential house demolition, enterprise and public institutions demolition, shop demolition, infrastructures and ground attachments. Seven out of ten project components involve resettlement impacts. Individual RAPs were prepared in Chinese for each of seven components with resettlement impacts. A summary RAP was prepared in both English and Chinese based on an outline drafted by the Bank. A mechanism has been designed for grievance redress under each of the project components. All grievances can be filed in both written and verbal forms. The redress channel lies within the project management and government systems. Recording requirements and timeframe have been established for grievance resolution.

Safeguard Policies Triggered by the Project Yes No Environmental Assessment (OP/BP 4.01) [x] [ ] Natural Habitats (OP/BP 4.04) [ ] [x] Pest Management (OP 4.09) [ ] [x] Cultural Property (OPN 11.03, being revised as OP 4.11) [ ] [x] Involuntary Resettlement (OP/BP 4.12) [x] [ ] Indigenous Peoples (OP/BP 4.10) [ ] [x] Forests (OP/BP 4.36) [ ] [x] Safety of Dams (OP/BP 4.37) [x] [ ] Projects in Disputed Areas (OP/BP 7.60)* [ ] [x] Projects on International Waterways (OP/BP 7.50) [ ] [x]

10. List of Factual Technical Documents

Feasibility studies, Assessments of financial and procurement capacity, Bohai Sea studies, Environmental assessments, Resettlement plans, Social assessment

11. Contact point Contact: Shenhua Wang Title: Sr Private Sector Development Spec. Tel: (202) 473-9746 Fax: (202) 614-0389 Email: [email protected]

12. For more information contact: The InfoShop The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 458-4500 Fax: (202) 522-1500 Email: [email protected] Web: http://www.worldbank.org/infoshop

* By supporting the proposed project, the Bank does not intend to prejudice the final determination of the parties’ claims on the disputed areas