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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 CHINA April 28, 2016 Public Disclosure Authorized Social, Urban, Rural & Resilience Global Practice East Asia and Pacific Region DATA SHEET China Liaoning 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 Page 1 of 12 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 ] Page 2 of 12 [ ] 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$5.86 million (4%) as of March 30, 2016. From early stages of implementation the project has encountered a number of bottlenecks leading to delays and subsequently to downgrading the project to problem status since June 2014. While implementation is still lagging behind the original schedule with both development objectives and implementation progress rated Moderately Unsatisfactory, there has been a significant breakthrough and progress achieved in the last six months. Six civil works contracts have been signed since March 2016; a further three contracts covering Kuandian and Lingyuan cities are expected to be signed by June 2016. In Donggang City, the contract for Zhanqiandadao Avenue Road (about US$ 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 Panjin City, the Shuangtaizi District 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 Suizhong County and Longcheng District 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 Page 3 of 12 (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