Document of The World Bank Public Disclosure Authorized Report No: 35842-CHA IMPLEMENTATION COMPLETION REPORT (SCL-42370 TF-29395) ON A Public Disclosure Authorized LOAN IN THE AMOUNT OF US$95 MILLION TO THE PEOPLE'S REPUBLIC OF CHINA FOR THE SHANDONG ENVIRONMENT PROJECT Public Disclosure Authorized June 29, 2006 Urban Development Sector Unit East Asia and Pacific Region Public Disclosure Authorized CURRENCY EQUIVALENTS (Exchange Rate Effective December, 2005) Currency Unit = Renminbi (RMB) or Yuan (Y) Y1.00 = US$ 0.12 US$ 1.00 = Y8.00 FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS CAS Country Assistance Strategy CHP Combined Heat and Power EA Environmental Assessment EPB Environmental Protection Bureau ICB International Competitive Bidding JMDC Jinan Municipal Drainage Company JMG Jinan Municipal Government JWSC Jinan water Supply Company LIBOR London Interbank Borrowing Rate Mpa Mega Pascals (pressure) MW Megawatt NCB National Competitive Bidding NDRC National Development Reform Commission NO2 Nitrous Oxide PHRD Population and Human Resources Development (Japanese Grant) QCBS Quality and Cost Based Selection RAP Resettlement Action Plan SEPA State Environmental Protection Agency SEPB Shandong Environmental Protection Bureau SMO Sub-loan Management Office SO2 Sulphur Dioxide SP Shandong Province SFB Shandong Finance Bureau SPG Shandong Provincial Government SPPMO Shandong Provincial Project Management Office STW Sewage Treatment Works TSP Total Suspended Particulates UNEP United Nations Environment Program WBHPC Weihai Botong Heat and Power Company Ltd. WWTP Wastewater Treatment Plant XR(B) Xiaoqing River (Basin) XRBSL Xiaoqing River Basin Sub Loans YHSC Yantai Heat Supply Company Ltd. Vice President: Mr. Jeffrey Gutman, Acting EAPVP Country Director: Mr. David Dollar, EACCF Sector Director: Mr. Keshav Varma, EASUR Task Team Leader: Ms. Shenhua Wang, EASUR CHINA SHANDONG ENVIRONMENT PROJECT CONTENTS Page No. 1. Project Data 1 2. Principal Performance Ratings 1 3. Assessment of Development Objective and Design, and of Quality at Entry 2 4. Achievement of Objective and Outputs 5 5. Major Factors Affecting Implementation and Outcome 11 6. Sustainability 12 7. Bank and Borrower Performance 13 8. Lessons Learned 15 9. Partner Comments 16 10. Additional Information 16 Annex 1. Key Performance Indicators/Log Frame Matrix 17 Annex 2. Project Costs and Financing 31 Annex 3. Economic Costs and Benefits 34 Annex 4. Bank Inputs 36 Annex 5. Ratings for Achievement of Objectives/Outputs of Components 38 Annex 6. Ratings of Bank and Borrower Performance 39 Annex 7. List of Supporting Documents 40 Annex 8. Land Acquisition and Resettlement 41 Annex 9. Borrower’s Implementation Completion Report 42 Map: IBRD 28428 Project ID: P040185 Project Name: SHANDONG ENVIRONMENT PROJECT Team Leader: Shenhua Wang TL Unit: EASUR ICR Type: Core ICR Report Date: June 29, 2006 1. Project Data Name: SHANDONG ENVIRONMENT PROJECT L/C/TF Number: SCL-42370; TF-29395 Country/Department: CHINA Region: East Asia and Pacific Region Sector/subsector: District heating and energy efficiency services (43%); Water supply (30%); General water, sanitation and flood protection sector (18%); General industry and trade sector (5%); Sub-national government administration (4%) Theme: Municipal governance and institution building (P); Pollution management and environmental health (P); Water resource management (P); Environmental policies and institutions (P) KEY DATES Original Revised/Actual PCD: 04/19/1996 Effective: 07/30/1998 Appraisal: 01/18/1997 MTR: 04/17/2002 Approval: 10/28/1997 Closing: 12/31/2003 12/31/2005 Borrower/Implementing Agency: PEOPLE'S REPUBLIC OF CHINA/SHANDONG URB. & RURAL CONST. COM/ENV. PROT. BUREAU-SURC/SEPB Other Partners: STAFF Current At Appraisal Vice President: Jeffrey S. Gutman Jean-Michel Severino Country Director: David Dollar Yukon Huang Sector Manager: Keshav Varma Richard G. Scurfield Team Leader at ICR: Shenhua Wang Geoffrey Read ICR Primary Author: Chandra Godavitarne 2. Principal Performance Ratings (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible) Outcome: S Sustainability: L Institutional Development Impact: M Bank Performance: S Borrower Performance: S QAG (if available) ICR Quality at Entry: S Project at Risk at Any Time: Yes QAG did not review the project for quality at entry. 3. Assessment of Development Objective and Design, and of Quality at Entry 3.1 Original Objective: Background. Rapid growth in the industrial and service sectors in Shandong Province (SP) over the past two decades resulted in serious environmental degradation in urban areas, particularly in the capital city of Jinan, in the coastal cities of Qingdao, Weihai and Yantai, and in Zibo in the Xiaoqing River Basin (XRB). With Shandong's vast coal deposits, thermal power generation, industrial process heating and residential heating, all use coal as their primary energy source. This level of coal use resulted in Shandong having the largest mass emissions of SO2 among China’s provinces. Pollution in the Xiaoqing River (XR), posed serious threats to human health, and to economic development. By the mid-90s, Shandong Province (SP) had invested heavily in industrial pollution control, principally in wastewater treatment and air pollution control. At the same time, concerns were growing over the reliability of Jinan’s water supply due to over-abstraction of groundwater and its deteriorating water quality. Groundwater was supplemented with supplies from impounding reservoirs and direct abstractions from the Yellow River. The long-term water resources management strategy of the Province was to construct reliable surface water sources, conserve groundwater, and adopt water reuse in industry. Against this background, SP requested Bank assistance for the Shandong Environment Project. The project had the following objectives: (a) strengthen policies, regulations and institutional arrangements for municipal water, wastewater, and district heating, and environmental pollution prevention and control; (b) expand surface water supply to Jinan to prevent further depletion of groundwater aquifers; (c) facilitate sustainable management of investments in pollution control and municipally-provided urban environmental services; and (d) arrange for updating the information data base with respect to water quality and management of the XRB. Assessment of Objectives. The project's objectives were in line with the Bank’s Country Assistance Strategy (CAS) which was discussed by the Board in June 1995, and which highlighted environmental protection and reducing infrastructure bottlenecks as two of the five areas of strategic focus. The objectives were consistent with China’s Environmental Action Plan (EAP), which provided the basis for joint Government-Bank programs in the environmental sector, and the provincial government’s strategy to address serious pollution issues associated with its rapid industrial growth. Specifically, the project objectives were fully consistent with the Provincial Government's XRB Environmental Action Plan (EAP), which addressed the serious pollution issues of the Basin and in the Xiaoqing River, which flows to the environmentally sensitive Bohai Sea. Objectives also focused on the looming water scarcity, development of a reliable surface water source for Jinan to arrest the depletion of groundwater resources, and serious air pollution in two key coastal cities. Lastly, the project focused on policy, regulatory and institutional reforms in the implementing utility companies. Project objectives correctly focused on SP’s priority environmental problems and were clear and realistic. The objectives reflect recognition of the priority need for regulatory and institutional reform, relieving Jinan’s water scarcity, and preventing, reducing and controlling of air and wastewater pollution. At the same time, the project was challenging due to its spatial distribution, the fact that it covered three sectors in three cities, and it also dealt with reforms in district heating, an area where China had limited experience. 3.2 Revised Objective: n.a. 3.3 Original Components: - 2 - The project had five components, for a total project cost of US$202 million. (a) Jinan Water Supply Management ($62.6 million). Development of a reliable new surface water source, adequate for about 20 years, from the Yellow River for Jinan, to supply raw water to a newly constructed water treatment plant of 400,000 m3/day capacity, including pumping stations, water transmission and distribution pipelines, and associated engineering works. (b) Jinan Wastewater Management ($36.5 million). Construction of a wastewater collection network comprising about 18 km of trunk sewers, about 17 km of secondary and link sewers, a pumping station, and property connections, to convey wastewater to a newly constructed wastewater treatment plant of 220,000 m3/day capacity. (c) Weihai Municipal District Heating ($42.9 million). Construction of a combined heat and power generation plant of about 24 MWe electricity and 120 MWt heat capacity, 13.7 km heat and 14.2 km hot water distribution networks and facilities, and heat exchange stations, to reduce inefficiencies in coal-fired small boilers and stoves. (d) Yantai Municipal District Heating ($46.1 million). Construction of a heat exchange plant, about 30 km of distribution networks and heat exchange stations for about