Public Disclosure Authorized Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No.: RES19768

RESTRUCTURING PAPER

Public Disclosure Authorized ON A

PROPOSED PROJECT RESTRUCTURING

OF

LIAONING COASTAL ECONOMIC ZONE URBAN INFRASTRUCTURE AND ENVIRONMENTAL MANAGEMENT PROJECT

LOAN 8236-CN

BOARD APPROVAL DATE: March 20, 2013 Public Disclosure Authorized TO THE

PEOPLE’S REPBULIC OF

April 28, 2016

Public Disclosure Authorized

Social, Urban, Rural & Resilience Global Practice East Asia and Pacific Region

DATA SHEET China Coastal Economic Zone Urban Infrastructure and Environmental Management Project (P126611) EAST ASIA AND PACIFIC Social, Urban, Rural and Resilience Global Practice . Report No: RES19768

. Basic Information Project ID: P126611 Lending Instrument: Specific Investment Loan Regional Vice President: Victoria Kwakwa Original EA Category: Partial Assessment (B) Country Director: Bert Hofman Current EA Category: Partial Assessment (B) Senior Global Practice Ede Jorge Ijjasz-Vasquez Original Approval Date: 20-Mar-2013 Director: Practice Abhas Kumar Jha Current Closing Date: 30-Sep-2018 Manager/Manager: Team Leader(s): Da Zhu

. Borrower: PEOPLE'S REPUBLIC OF CHINA Responsible Liaoning Provincial Development and Reform Commission, Agency:

. Restructuring Type Form Type: Full Restructuring Paper Decision Authority: Restructuring Level: Level 1

. Financing ( as of 28-Oct-2015 ) Key Dates Approval Effectiveness Original Revised Project Ln/Cr/TF Status Signing Date Date Date Closing Date Closing Date P126611 IBRD-82360 Effective 20-Mar-2013 20-May-2013 22-Jul-2013 30-Sep-2018 30-Sep-2018 Disbursements (in Millions) % Cancelle Disburse Undisbur Project Ln/Cr/TF Status Currency Original Revised Disburse d d sed d P126611 IBRD-82360 Effective USD 150.00 150.00 0.00 5.86 144.14 4

. Policy Waivers

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Does the project depart from the CAS/CPF in content or in other significant Yes [ ] No [ X ] respects? Does the project require any policy waiver(s)? Yes [ ] No [ X ]

. A. Summary of Proposed Changes The proposed changes in this restructuring are: (a) to drop two subprojects due to the lack of counterpart financing and changing local priorities; (b) to increase the disbursement percentage of civil works category to fully cover the existing appraised project costs; (c) to reallocate the funds from two dropped subprojects to the one consolidated works category; (d) as a result of dropping two subprojects, the Borrower’s contribution and total project cost reduced; (e) to modify the Project Development Objective (PDO) and Results Framework as a result of cancellation of subprojects. Yes Change in Implementing Agency No [ X ] [ ] Change in Project's Development Objectives Yes [ X ] No [ ] Change in Results Framework Yes [ X ] No [ ] Yes Change in Safeguard Policies Triggered No [ X ] [ ] Yes Change of EA category No [ X ] [ ] Yes Other Changes to Safeguards No [ X ] [ ] Yes Change in Legal Covenants No [ X ] [ ] Yes Change in Loan Closing Date(s) No [ X ] [ ] Yes Cancellations Proposed No [ X ] [ ] Change to Financing Plan Yes [ X ] No [ ] Yes Change in Disbursement Arrangements No [ X ] [ ] Reallocation between Disbursement Categories Yes [ X ] No [ ] Change in Disbursement Estimates Yes [ X ] No [ ] Change to Components and Cost Yes [ X ] No [ ] Yes Change in Institutional Arrangements No [ X ] [ ] Yes Change in Financial Management No [ X ] [ ] Yes Change in Procurement No [ X ] [ ] Change in Implementation Schedule Yes [ X ] No [ ] Other Change(s) Yes No [ X ]

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[ ] Yes Appraisal Summary Change in Economic and Financial Analysis No [ X ] [ ] Yes Appraisal Summary Change in Technical Analysis No [ X ] [ ] Yes Appraisal Summary Change in Social Analysis No [ X ] [ ] Yes Appraisal Summary Change in Environmental Analysis No [ X ] [ ] Yes Appraisal Summary Change in Risk Assessment No [ X ] [ ]

. B. Project Status The loan for the project was approved on March 20, 2013 and became effective on July 22, 2013. The project has disbursed at US$5.86 million (4%) as of March 30, 2016. From early stages of implementation the project has encountered a number of bottlenecks leading to delays and subsequently to downgrading the project to problem status since June 2014. While implementation is still lagging behind the original schedule with both development objectives and implementation progress rated Moderately Unsatisfactory, there has been a significant breakthrough and progress achieved in the last six months. Six civil works contracts have been signed since March 2016; a further three contracts covering Kuandian and cities are expected to be signed by June 2016. In Donggang City, the contract for Zhanqiandadao Avenue Road (about US$ 12 million) has been signed and the contract for Haiguanbeilu and Gaotiedajie roads (about US$ 14.9 million) will open bidding in six months. In Kuandian County, the first urban roads contract (US$ 7.84 million) is to be signed in April 2016. In Lingyuan County, the construction of the first sewage and reclaimed water pipelines contract (US$ 8.32 million) has been almost completed and the second reclaimed water pipeline contract (US$ 7.7 million) was signed in March 2016. The Wuliudalu Road Construction Contract (US$ 8.78 million) has started. In City, the Shuangtaizi bus depot construction (US$ 2.38 million) has started and the procurement for the acquisition of 140 LNG buses (US$ 17.7 million) was signed in Feb 2016.

Resettlement activities and land use adjustments approvals have been one of the main reasons for delays in project implementation. Land use zoning adjustment has been a lengthy process that requires final approval from the Ministry of Land Resources. However, all sites, except for one bus depot in Panjin city, have now obtained approval. In addition, resettlement and land acquisition activities have been completed at a number of sites, while good progress is being made at others. In some cases, project cities have adjusted the alignment of roads to reduce resettlement needs and costs. The implementation of resettlement activities will continue to be closely monitored as resettlement activities require more attention and funding in China which has stressed on local government’s fiscal budget.

The ability of project cities to secure the necessary counterpart funding has also been a challenge as a result of the slow-down of the Chinese economy, which has hit Liaoning Province particularly hard. In addition, the new budget law has limited the capacity of cities to borrow to raise counterpart funds. The main reasons that and decided to drop from the project are their tighter fiscal situation and changing local development and investment priorities by the new leaders.

Finally, there have been some issues with the quality and details of the designs and technical specifications in the bidding documents and the Bid Evaluation Report due to some local governments have no experience working with the World Bank financed projects. In addition, The Project Management Office

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(PMO) lacks the resources and capacity to engage with local authorities to advance implementation forward. The engagement of the Project Management Consultant is expected to help support the PMO and project city level Implementing Units (PIUs) expedite implementation and improve the implementation support to this project as efficiency has been hampered by extended implementation delays.

The proposed restructuring will help reduce risks of lack of counterpart financing and improve implementation of the project. The proposal will reallocate unallocated funds in the loan from the dropped subprojects in Suizhong County and Longcheng District to existing appraised subprojects in the remaining project cities. The disbursement ratios for civil works contracts will increase to 90%, which will help reduce the local government’s pressure for lack of counterpart funds in the future, and allowing more local resources to be allocated to resettlement and project management.

The project restructuring will not change the project safeguard category (category B), will not trigger any new safeguard policies, and will not introduce new safeguard instruments. As no new subprojects are being added, there are no changes to the safeguard policies. The implementation of the environmental management plan has been adequate to date. The project is in compliance with resettlement policies and action plan, although implementation has been slow, but shows good signs of improvement over the last six months. After restructuring, the reduced number of project cities will also help simplify project management and supervision. Since technical, economic and financial analysis have been done for each subproject in project cities, the dropping of two subprojects will not affect the analysis of the reaming subprojects.

As a result of the delays in implementation and the simplification of the project, the Project Development Objective (PDO) and the Results Framework need to be modified accordingly.

A revised project implementation schedule has been prepared and agreed with the counterparts. Given 6 contracts were signed in March 2016 and 3 more are to be signed in June 2016, the implementation progress is to be accelerated in the coming months, and disbursement be speed up in the next three years. A revised disbursement plan is provided in the disbursement session in the restructuring paper. Provided that implementation progress will be sustained as envisioned in the revised implementation plan for the restructured project, the project ratings will likely be upgraded.

The last project Audit report was received in June 2015. There are no outstanding audit reports or other fiduciary issues.

. C. Proposed Changes

. Development Objectives/Results Project Development Objectives Original PDO To improve the efficiency of urban transport and address water scarcity issues in selected cities in Liaoning Province Change in Project's Development Objectives Explanation Based on the current implementation progress and focus of the project on improving road network in existing project cities, it will be difficult to measure the “efficiency” gains for urban transport from the project at project closing, and a more appropriate PDO should focus on the connectivity within the city and

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with regional transport systems (e.g. high-speed rail). The second part of the PDO focuses on addressing “water scarcity” issues, but with the dropping of a major water subproject in Suizhong which was focused on drainage and water pollution control, it will be difficult to demonstrate the impact on water scarcity. The only remaining water subproject is focused on reusing the effluent of a wastewater treatment plant for industries in Lingyuan City. Therefore, the proposed revised PDO is to "improve transport connectivity and reclaim wastewater in selected cities in Liaoning Province", which fits better the intentions and scope of project investments in different project cities. Proposed New PDO To improve transport connectivity and reclaim wastewater in selected cities in Liaoning Province Change in Results Framework Explanation: As the subproject in Longcheng District in Chaoyang and the subproject in Suizhong will be dropped from the project, the following changes need to be made in the Results Framework: (a) references to Chaoyang in the PDO Indicator (PO-1) and Intermediate Result Indicator (IO-1.1) need to be removed; (b) the PDO indicator "Urban area benefiting from improved drainage system in Suizhong" (PO-4) and the Intermediate Result Indicator "Length of drainage pipes completed in Suizhong" (IO-2.2) need to be deleted; (c) the target values for the number of staff training days (IO-3.1), and the number of revised local plans (IO-3.2) have to be adjusted, due to the drop of two sub-components, total staff working on the project was reduced. In addition, the target values for the PDO Indicator "Percentage of reclaimed wastewater used in the industrial park" (PO-3) and the Intermediate Outcome Indicator "Number of industries connected to reclaimed water system in Lingyuan" (IO-2.1) need to be adjusted due to the economic slowdown affecting industrial growth in Lingyuan County.

. Financing Change to Financing Plan Explanation: Due to the dropping of the two subprojects, increase in disbursement ratio, and realignment of roads to reduce resettlement and land acquisition requirements, the amount of counterpart financing and total project costs will decrease. Source(s) At Approval Current (from AUS) Proposed BORR 189,500,000.00 189,500,000.00 75,720,000.00 IBRD 150,000,000.00 150,000,000.00 150,000,000.00 Total 339,500,000.00 339,500,000.00 225,720,000.00 Reallocations Explanation: Two subcomponents in Longcheng District, Category (1)(d), and Suizhong County, Category (2)(b), will be dropped from the project due to changing priorities and lack of counterpart financing. This will result in unallocated funds in the loan and reduction of counterpart funds, which will lower the overall costs of the project. The unallocated funds in the loan will be reallocated to existing subcomponents, and the disbursement percentage for all civil works categories will be increased to 90%. As a result, the civil works can be consolidated into one single disbursement category as the table below shows. The remaining amount of the loan will be allocated to the consolidated works category as US $481,971.24 has already been disbursed under Category (2)(a) of the Loan Agreement dated May 20, 2013. As a result of this unallocated funds in the loan allocation, the Goods category expenditure reduces from US$29.4 million to

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US$26.1 million; works expenditure increased from US$118.6 million to US$ 121.9 million.

Increasing the disbursement percentage will also help reduce the pressure on local fiscal budgets and help cities allocate more resources to resettlement activities. Current Category of Disbursement % (Type Ln/Cr/TF Currency Allocation Expenditure Total) Current Proposed Current Proposed 22,741,000. IBRD-82360 USD Works under Pt.A.1 0.00 61.00 0.00 00 13,297,800. Works under Pt.A.2 0.00 59.00 0.00 00 21,569,400. Works under Pt.A.3 0.00 57.00 0.00 00 19,856,400. Works under Pt.A.4 0.00 67.00 0.00 00 2,435,000.0 Works undr Pt.A.5 0.00 45.00 0.00 0 19,926,200. Works under Pt.B.1 0.00 59.00 0.00 00 18,731,600. Works under Pt.B.2 0.00 65.00 0.00 00 29,417,600. 26,125,100. Goods 100.00 100.00 00 00 Consultants' services and 1,650,000.0 1,650,000.0 100.00 100.00 training 0 0 Designated Account 0.00 0.00 0.00 0.00 FRONT END FEE 375,000.00 375,000.00 0.00 0.00 121,849,900 Works 0.00 0.00 90.00 .00 150,000,000 150,000,000 Total: .00 .00 Disbursement Estimates Change in Disbursement Estimates Explanation: Due to project delays and the cancellation of two subprojects, the loan disbursement amount has to be adjusted. Fiscal Year Current (USD) Proposed (USD) 2013 0.00 0.00 2014 5,000,000.00 0.00 2015 20,000,000.00 50,000.00

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2016 25,000,000.00 20,950,000.00 2017 40,000,000.00 35,000,000.00 2018 45,000,000.00 50,000,000.00 2019 15,000,000.00 44,000,000.00 Total 150,000,000.00 150,000,000.00

. Components Change to Components and Cost Explanation: The subproject in Longcheng District under Component 1, Improving Transport Systems, and the subproject in Suizhong County under Component 2 Improving Urban Wastewater Treatment and Reclamation are being dropped from the project. The loan unallocated funds will be allocated to existing appraised subprojects in Donggang, Kuandian, Lingyuan and Panjin under Component 1, and the subproject in Lingyuan under Component 2, which will result in changes of total costs of each component. Current Component Proposed Component Current Cost Proposed Action Name Name (US$M) Cost (US$M) Improving Urban 250.10 182.36 Revised Transport Systems Improving Urban Wastewater Treatment 87.70 41.71 Revised and Reclamation Project Management and 1.65 1.65 No Change Capacity Building Total: 339.45 225.72

. Other Change(s) Change in Implementation Schedule Explanation: Due to the delays in project implementation, the implementation and disbursement schedule is revised.

The project risk is about the same as the appraisal stage. Because of the Chinese economy slowing down, during which the Liaoning province is affected most, the local government counterpart financing becomes a challenge. By increasing the disbursement ratio, the counterpart financing contribution reduced, therefore this risk is reduced than before restructuring.

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.

.

Results Framework Project Liaoning Coastal Economic Zone Urban Infrastructure and Project Restructuring Status: DRAFT Name: Environmental Management Project (P126611) Stage: Team Requesting Leader(s) Da Zhu EACCF Created by: Paul Procee on 09-Jun-2015 Unit: : Product Responsible IBRD/IDA GSU08 Modified by: Da Zhu on 16-Mar-2016 Line: Unit: Country: China Approval FY: 2013 Lending Region: EAST ASIA AND PACIFIC Specific Investment Loan Instrument:

.

Project Development Objectives Original Project Development Objective: To improve the efficiency of urban transport and address water scarcity issues in selected cities in Liaoning Province Proposed Project Development Objective (from Restructuring Paper): To improve transport connectivity and reclaim wastewater in selected cities in Liaoning Province Results Core sector indicators are considered: Yes Results reporting level: Project Level

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.

Project Development Objective Indicators Status Indicator Name Core Unit of Measure Baseline Actual(Current) End Target

Revised PO-1. Percentage of people Percentage Value 45.00 45.00 70.00 walking and biking satisfied 03-Dec-2012 04-Dec-2015 30-Sep-2018 with new and improved Date facilities on selected roads in Comment Donggang, Kuandian and Lingyuan.

PO-1. Percentage of people Percentage Value 45.00 45.00 70.00 walking and biking satisfied 03-Dec-2012 04-Dec-2015 30-Sep-2018 with new and improved Date facilities on selected roads in Comment Chaoyang, Donggang, Ku andian and Lingyuan.

No Change PO-2. Percentage increase of Percentage Value 35.00 35.00 60.00 riders satisfied with public 03-Dec-2012 04-Dec-2015 30-Sep-2018 transport services on selected Date routes (1, 30, 31, 32 & 33) in Comment Panjin

Revised PO-3. Percentage of reclaimed Percentage Value 0.00 0.00 50.00 water used in the industrial 01-Jan-2013 04-Dec-2015 30-Sep-2018 park Date Comment

PO-3. Percentage of reclaimed Percentage Value 0.00 0.00 60.00 water used in the industrial 01-Jan-2013 04-Dec-2015 30-Sep-2018 park Date Comment

Marked for PO-4. Urban area benefitting Square Value 0.00 0.00 75.00 Deletion from improved drainage system kilometer(km2) in Suizhong Date 01-Jan-2013 04-Dec-2015 31-Dec-2018 Comment

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Revised Direct project beneficiaries Number Value 0.00 0.00 310000.00 Date 20-Mar-2013 04-Dec-2015 30-Sep-2018 Comment

Direct project beneficiaries Number Value 0.00 0.00 340000.00 Date 20-Mar-2013 04-Dec-2015 30-Sep-2018 Comment

Revised Female beneficiaries Percentage Value 0.00 0.00 155000.00 Sub Type Supplemental

Female beneficiaries Percentage Value 0.00 0.00 170000.00 Sub Type Supplemental Intermediate Results Indicators Status Indicator Name Core Unit of Measure Baseline Actual(Current) End Target

Revised IO-1.1. Length of new and Kilometers Value 0.00 0.00 34.00 rehabilitated streets with 01-Jan-2013 04-Dec-2015 30-Sep-2018 improved public transport and Date NMT in Donggang, Kuandian Comment and Lingyuan.

IO-1.1. Length of new and Kilometers Value 0.00 0.00 52.00 rehabilitated streets with 01-Jan-2013 04-Dec-2015 30-Sep-2018 improved public transport and Date NMT in Chaoyang, Donggang, Comment Kuandian and Lingyuan.

No Change IO-1.2. Increase in number of Number Value 4300.00 4300.00 5100.00 passengers per year on selected 01-Jan-2013 04-Dec-2015 30-Sep-2018 bus routes (1, 30, 31, 32 & 33) Date in Panjin. Comment

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No Change IO-1.3. Percentage increase of Percentage Value 8.00 8.00 15.00 Annual Road Maintenance 01-Jan-2013 04-Dec-2015 31-Dec-2018 budget in participating cities Date Comment

Revised IO-2.1. Number of industries Number Value 0.00 0.00 16.00 connected to reclaimed water 01-Jan-2013 04-Dec-2015 31-Dec-2018 system in Lingyuan Date Comment

IO-2.1. Number of industries Number Value 0.00 0.00 20.00 connected to reclaimed water 01-Jan-2013 04-Dec-2015 31-Dec-2018 system in Lingyuan Date Comment

Marked for IO-2.2. Length of drainage Kilometers Value 0.00 0.00 76.00 Deletion pipes completed in Suizhong Date 01-Jan-2013 04-Dec-2015 30-Sep-2018 Comment

Revised IO3.1. Number of staff training Number Value 60.00 330.00 days in project financed 01-Jan-2013 04-Dec-2015 30-Sep-2018 training and TA activities Date Comment

IO3.1. Number of staff training Number Value 60.00 460.00 days in project financed 01-Jan-2013 04-Dec-2015 30-Sep-2018 training and TA activities Date Comment

Revised IO.3.2. Number of revised local Number Value 0.00 0.00 2.00 traffic management plans and 01-Jan-2013 04-Dec-2015 30-Sep-2018 capital investment plans Date Comment

IO.3.2. Number of revised local Number Value 0.00 0.00 3.00 traffic management plans and 01-Jan-2013 04-Dec-2015 30-Sep-2018 capital investment plans Date Comment

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Revised Roads constructed, non-rural Kilometers Value 0.00 0.00 9.00 Date 01-Jan-2013 04-Dec-2015 30-Sep-2018 Comment

Roads constructed, non-rural Kilometers Value 0.00 0.00 17.70 Date 01-Jan-2013 04-Dec-2015 30-Sep-2018 Comment

Revised Roads rehabilitated, Non-rural Kilometers Value 0.00 0.00 25.00 Date 01-Jan-2013 04-Dec-2015 30-Sep-2018 Comment

Roads rehabilitated, Non-rural Kilometers Value 0.00 0.00 34.70 Date 01-Jan-2013 04-Dec-2015 30-Sep-2018 Comment

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