Document of The World Bank

FOR OFFICIAL USE ONLY

Public Disclosure Authorized Report No: 40423 - CN

PROJECT APPRAISAL DOCUMENT

ON A Public Disclosure Authorized PROPOSED LOAN

IN THE AMOUNT OF US$84 MILLION

TO THE

PEOPLE’S REPUBLIC OF

FOR A

HAN RIVER URBAN ENVIRONMENT IMPROVEMENT PROJECT Public Disclosure Authorized

March 24, 2008

Urban Development Sector Unit Sustainable Development Department East Asia and Pacific Region

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. Public Disclosure Authorized

CURRENCY EQUIVALENTS

(Exchange Rate Effective September 1, 2007)

Currency Unit = RMB RMB 7.1 = US$ 1

FISCAL YEAR January 1 – December 31

ABBREVIATIONS AND ACRONYMS ADB Asian Development Bank BOD Biological Oxygen Demand BOT Build-Operate-Transfer CC Construction Commission CEA Comprehensive Summary of Environmental Assessment CNAO China National Audit Office COD Chemical Oxygen Demand CQS Selection Based on Consultant's Qualifications DA Designated Account DHI Delft Hydraulics Institute DP Displaced Persons DRC Development and Reform Commission DSWM Dawu Solid Waste Management Co. DWSWM Wanjie Solid Waste Management Co. EA Environmental Assessment EIA Environmental Impact Assessment EIRR Economic Internal Rate of Return EMP Environmental Management Plan EPB Environmental Protection Bureau ESD Environmental Sanitation Department FIRR Financial Rate of Return FM Financial Management FMS Financial Management Specialist GDP Gross Domestic Product HCSWM Chuanjie Solid Waste Management Co. HEPB Environmental Protection Bureau HHSWM Hongjie Solid Waste Management Co. HHWT Honghu Huqing Wastewater Treatment Co. FOR OFFICIAL USE ONLY

HPFB Hubei Provincial Finance Bureau

HRUEIP Urban Environment Improvement Project HUEP Hubei Urban Environment Project HWWT Hanchuan Hanjiang Wastewater Treatment Co. IA Implementing Agency IBRD International Bank for Reconstruction and Development IC Individual Consultant Selection ICB International Competitive Bidding ICR Implementation Completion Report ID Institutional Development IPC Industrial Pollution Control IPCAP Industrial Pollution Control Action Plan LFB Local Finance Bureau MPMO Municipal Project Management Office NCB National Competitive Bidding NPS Non-point Source O&M Operation and Maintenance OLM On-line Monitoring PAD Project Appraisal Document PDO Project Development Objective PMO Project Management Office PPMO Provincial Project Management Office PRC People's Republic of China QBS Quality-Based Selection QCBS Quality- and Cost-Based Seletion RAP Resettlement Action Plan SA Social Assessment SBD Standard Bidding Document SEPA State Environment Protection Administration SJSWM Shayang Jieyang Solid Waste Management Co. SKDM Shayang Kanglu Drainage Management Co. SWM Solid Waste Management TA Technical Assistance TOT Transfer, Operate and Transfer TWWT Wastewater Co. UDIC Urban Development Investment Corporation WACC Weighted Average Costs of Capital

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not be otherwise disclosed without World Bank authorization. WB World Bank WWTP Wastewater Treatment Plant XMWT Xiaochang Minghua Wastewater Treatment Co. XQSWM Xiaochang Qingjiashan Solid Waste Sanitary Disposal Center Co. XFWWT Xiangfan Urban Wastewater Treatment Co. YCESS Yunmeng City Environment & Sanitation Service Co YWWT Yunmeng Urban Wastewater Treatment Co.

Vice President: James W. Adams Country Director: David R. Dollar Sector Manager: Keshav Varma Task Team Leader: Hiroaki Suzuki

CHINA Han River Urban Environment Improvement Project

CONTENTS

Page

A. STRATEGIC CONTEXT AND RATIONALE ...... 1 1. Country and sector issues...... 1 2. Rationale for Bank involvement ...... 3 3. Higher level objectives to which the project contributes...... 3

B. PROJECT DESCRIPTION...... 3 1. Lending instrument...... 3 2. Project development objective and key indicators...... 3 3. Project components...... 4 4. Lessons learned and reflected in the project design...... 5 5. Alternatives considered and reasons for rejection ...... 6

C. IMPLEMENTATION ...... 7 1. Partnership arrangements (if applicable) ...... 7 2. Institutional and implementation arrangements...... 7 3. Monitoring and evaluation of outcomes/results...... 8 4. Sustainability...... 8 5. Critical risks and possible controversial aspects...... 8 6. Loan/credit conditions and covenants...... 9

D. APPRAISAL SUMMARY...... 10 1. Economic and financial analyses...... 10 2. Technical...... 12 3. Fiduciary ...... 13 4. Social...... 13 5. Environment...... 15 6. Safeguard policies...... 16 7. Policy Exceptions and Readiness...... 16

Annex 1: Country and Sector or Program Background ...... 18

Annex 2: Major Related Projects Financed by the Bank and/or other Agencies ...... 25

Annex 3: Results Framework and Monitoring ...... 25

Annex 4: Detailed Project Description...... 33

Annex 5: Project Costs ...... 39

Annex 6: Implementation Arrangements ...... 43

Annex 7: Financial Management and Disbursement Arrangements...... 53

Annex 8: Procurement Arrangements...... 63

Annex 9: Economic and Financial Analysis ...... 71

Annex 10: Safeguard Policy Issues...... 92

Annex 11: Project Preparation and Supervision ...... 107

Annex 12: Documents in the Project File ...... 109

Annex 13: Statement of Loans and Credits...... 110

Annex 14: Country at a Glance ...... 115

Map: IBRD 35070R2

CHINA

HAN RIVER URBAN ENVIRONMENT IMPROVEMENT PROJECT

PROJECT APPRAISAL DOCUMENT

EAST ASIA AND PACIFIC

EASUR

Date: April 3, 2008 Team Leader: Hiroaki Suzuki Country Director: David R. Dollar Sectors: Sewerage (50%); Solid waste Sector Manager/Director: Keshav Varma management (48%); Sub-national government administration (2%) Themes: Pollution management and environmental health (P); Municipal governance and institution building (P) Project ID: P087224 Environmental screening category: Full Assessment Lending Instrument: Specific Investment Loan

Project Financing Data [X] Loan [ ] Credit [ ] Grant [ ] Guarantee [ ] Other:

For Loans/Credits/Others (US$ M): 84.00 Total Bank financing (US$ M.): 84.00 Proposed terms: Variable Spread Loan, Level Repayments of Principal, 26 Years Maturity with 5 Years Grace Financing Plan (US$ M) Source Local Foreign Total Borrower 66.62 21.81 88.43 International Bank for Reconstruction and 32.70 51.30 84.00 Development Financing Gap 0.00 0.00 0.00 Total: 99.32 73.11 172.43

Borrower: People's Republic of China

Responsible Agency: Han River Urban Environment Improvement Project Management Office No. 360-17-101 Wuluo Road , HUBEI PROVINCE, 430070 China Tel: 027 8771 3203 Fax: 027 8784 3202

Estimated disbursements (Bank FY/US$m) FY 2008 2009 2010 2011 2012 2013 2014 Annual 1.68 10.92 19.32 21.00 21.00 10.08 0.00 Cumulative 1.68 12.60 31.92 52.92 73.92 84.00 84.00 Project implementation period: Start: January 1, 2008 End: December 31, 2013 Expected effectiveness date: October 1, 2008 Expected closing date: June 30, 2014

Does the project depart from the CAS in content or other significant respects? Ref. [ ]Yes [X] No PAD A.3 Does the project require any exceptions from Bank policies? Ref. PAD D.7 [X]Yes [ ] No Have these been approved by Bank management? [X]Yes [ ] No Is approval for any policy exception sought from the Board? [ ]Yes [X] No Does the project include any critical risks rated “substantial” or “high”? [X]Yes [ ] No Ref. PAD C.5 Does the project meet the Regional criteria for readiness for implementation? Ref. [X]Yes [ ] No PAD D.7

Project development objective Ref. PAD B.2, Technical Annex 3 The Project Development Objective (PDO) is to reduce urban pollution generated from wastewater and solid waste through proper collection, treatment and disposal in selected second-tier cities, mainly located in the Han River area of Hubei. This will be achieved by undertaking high priority investments in selected project cities in wastewater collection and treatment systems and solid waste management systems, as well as institutional reforms and capacity development in the areas of municipal utilities reforms and water pollution control. As its secondary objective, the project is intended to develop well- managed sustainable municipal utilities which could be referred to as models/best practices for other similar projects or programs to be implemented under the Provincial 11th Five-year Plan.

Project description Ref. PAD B.3, Technical Annex 4 The project consists of: (i) wastewater treatment investment component; (ii) solid waste management system investment component; (iii) industrial wastewater pollution control component; and (iv) institutional development and capacity building component as summarized below. (See Annex 4 for details.)

Wastewater Treatment Investment Component (US$ 94.45 million): This component will cover seven cities/counties (Hanchuan, Honghu, Shayang, Tianmen, Xiangfan, Xiaochang and Yunmeng) and include the construction of seven new wastewater collection systems in all seven cities/counties, and the construction of five new wastewater treatment plants in all of the above cities except for Honghu and Xiangfan.

Solid Waste Management (US$ 59.09 million): This component will cover seven cities/counties (Danjiangkou, Dawu, Hanchuan, Honghu, Shayang, Xiaochang and Yunmeng) and include the construction of new sanitary landfills and solid waste collection stations, collection fleets and closures of existing dumps.

Industrial Pollution Control (US$ 2.46million): Under this component, Hubei Province and the project cities will implement the industrial wastewater pollution control programs with their own funds. The activities are carried out at both provincial and city levels, including (a) provincial level program for installation of on-line monitoring (OLM) data receiving platforms at municipal Environmental Protection Bureaus (EPBs) and installation of OLM facilities under local EPB supervision at major pollution sources; and (b) the implementation of specific industrial wastewater pollution control action plans for major polluting enterprises. This component also includes the development of the Han River Water Modeling System, including a study on non-point source (NPS) pollution.

Institutional Development and Capacity Building Component (US$ 4.25 million): This component will include the following activities:

a. Project Management and Implementation Assistance (US$ 2.5 million): Technical Assistance (TA) for design review advisory services and construction supervision, including provision of an individual procurement consultant; b. Monitoring of Safeguards Implementation (US$ 0.45 million): TA for external monitoring of the Environmental Management Plans (US$ 0.26 million) and Resettlement Action Plans (US$ 0.19 million); and c. Institutional Development (ID) and Capacity Building of Wastewater and Solid Waste Management Utilities and Project Cities (US$ 1.31million): TA for ID in financial, technical, operational and human resources management.

Which safeguard policies are triggered, if any? Ref. PAD D.6, Technical Annex 10 Environmental Assessment (OP/BP 4.01) and Involuntary Resettlement (OP/BP 4.12).

Significant, non-standard conditions, if any, for: Ref. PAD C.6 Board presentation: Not Applicable

Loan/credit effectiveness: Not Applicable

Covenants applicable to project implementation:

Disbursement conditions are listed as follows.

• Subsidiary Agreements: All companies will be required to enter into subsidiary agreements acceptable to the Bank as a condition of disbursement since they will be implementing part of the project, and they are legally autonomous companies.

Other covenants applicable to project implementation include the following.

Financial covenants:

• Wastewater Utility Financial Covenants: Each Project City with a wastewater component [Hanchuan, Honghu, Shayang, Tianmen, Xiangfan, Xiaochang, and Yunmeng] and their respective utilities will be obligated to ensure that: i) the cost recovery ratio is greater than 1.0, which requires that operating and non-operating revenues are sufficient to cover total operating expenses, and the greater of depreciation and debt service; and ii) companies do not incur additional debt unless the debt service coverage ratio is above 1.1.

Other dated covenants:

• Solid Waste Strategic Sector Plan: All project cities with a solid waste component [Danjiangkou, Dawu, Hanchuan, Honghu, Shayang, Xiaochang, and Yunmeng] shall each prepare, in accordance with terms of reference satisfactory to the Bank, a time-bound and comprehensive plan for the management of the solid waste sector by March 31, 2010, and begin implementation of the plan by June 30, 2010, taking into account the Bank’s comments thereon. Each Strategic Plan shall address institutional, financial, cost-recovery and infrastructure planning issues and contain a time-bound implementation plan.

• Wastewater Strategic Sector Plan: All project cities with a wastewater component [Hanchuan, Honghu, Shayang, Tianmen, Xiangfan, Xiaochang, and Yunmeng] shall each prepare, in accordance with terms of reference satisfactory to the Bank, a time-bound and comprehensive plan for the management of the wastewater sector by March 31, 2010, and begin implementation of the plan by June 30, 2010, taking into account the Bank’s comments thereon. Each Strategic Plan shall address institutional, financial, cost-recovery and infrastructure planning issues and contain a time-bound implementation plan.

• All project companies will furnish to the Bank, audited records, accounts, and financial statements (income statement, cash flow statement, and balance sheet) no later than 6 months after the end of each fiscal year.

• Semi-annual project progress reports will be furnished to the Bank on February 28 and August 31, starting February 28, 2009.

A. STRATEGIC CONTEXT AND RATIONALE

1. Country and sector issues

1. Cities generating more than 60% of GDP have been the engine of economic growth and driving force for poverty reduction in China. Urbanization has accelerated rapidly over the last two decades at an annual rate of about 3.3%. Today, China’s urbanization level is at 40.4%—up from 26.2% in 1990—corresponding to a total urban population of 531 million.1 It is projected to climb over 55% in the next 20 years. The rapid development of the second-tier provincial cities as a consequence of sizable rural-urban migration is considered as one important factor behind this accelerated urban growth. While this rapid urbanization has significantly increased cities’ GDP and expanded their economic bases, cities’ environmental conditions (water, air and soil) and living standards have considerably deteriorated, particularly in the second-tier cities because of lack of environmental infrastructure such as wastewater treatment and solid waste management facilities.

2. Hubei Province, located in central China, has a population of 60.5 million in an area roughly one-third of the size of France (180,900 km2), of which 26.5 million (41%) are living in the urban areas. Two major river systems extend across Hubei Province: the River and the Han River. The middle and lower reaches of the Han River are characterized by a fertile and broad land mass, large population, and abundance in natural resources. The economy of the Han River area produces just over half of the Province’s GDP (US$ 82 billion) and supports 30% of its population.

3. In 2003, only 2.5 million people (4%) had access to a Wastewater Treatment Plant (WWTP) in Hubei. The total capacity of WWTPs in Hubei is 880,000 t/d, while the estimated amount of municipal wastewater in 2005 was about 4 million t/d. Most of the existing WWTPs, including some funded by the World Bank, are located in larger cities (Wuhan, , , and Xiangfan) mainly in the Yangtze River area. The wastewater treatment rate in the urban areas in the Province is at most 23.5%, and the rate for the cities is 47.6%. This rate is much lower in the Han River area, where there are no WWTPs except for in a few cities. Untreated wastewater contaminates groundwater and river systems, and is a major threat to citizen health and the surrounding ecological environment. In addition, it is expected that the water quality of the Han River will deteriorate further after the start of South-North Water Diversion in the upper stream of the Han River in 2010.

4. The current domestic solid waste generation in Hubei Province is about 13 million tons per annum, and the 62 existing landfills handle and dispose of about 6 million tons of domestic solid waste annually, or 46.3 % of the total solid waste generated. There is no sanitary landfill in the Han River area, therefore most municipal solid waste goes to dumps without protection from leachate contamination for underlying aquifers or local surface waters, or from any collection or flaring of landfill gas. This migration of the polluted surface waters is a major factor behind the high levels of urban aquifer contamination. Malodorous dump sites and some collection points are a major source of citizen environmental complaints, and a potential source of disease.

1 1990 from Population Census, 40.4% figure is based on 2005 UN estimates.

1 5. Hubei is a major industrial province ranking 10th in China in terms of industrial gross regional product. Important sectors are the traditional sectors of chemicals (including fertilizers), pharmaceuticals, food processing, paper, ferrous metals and the more recent sector of light engineering based around automobile manufacturing. Industrial pollution is significant in Hubei, with around 65% generated in the Han River area. Although industrial pollution ranks below domestic pollution in terms of quantity, industrial pollution is considerably taxing the urban environment and economy through discharge of various pollutants. Its effective control and reduction are indispensable not only for environmental sustainability, but also for the cities’ economic competitiveness.

6. Recognizing the above mentioned urban environmental challenges, the Hubei Environmental Protection Bureau adopted the 11th Five-year Plan (2006-2010) on Environmental Protection which envisages ambitious investment plans for both wastewater treatment plants (RMB 10.8 billion/US$ 1.5 billion) and solid waste management systems (RMB 5.8 billion/US$ 0.8 billion). In addition, the 11th Five-year Plan includes an industrial pollution control action plan for key polluting enterprises. Given that the previous five-year plan, as well as the Bank-funded Hubei Urban Environment Project (HUEP) focused on environmental investments in larger provincial cities such as Wuhan and Yichang, the new plan directs sizable resources to rapidly growing yet under-invested second-tier cities. The challenge is to ensure that the provincial and municipal governments materialize this ambitious investment plan, but many cities in the province have difficulty finding sufficient funding to finance these investments. They also lack sufficient technical and managerial capacity to implement the project, and to efficiently operate and manage the municipal environmental utilities in a sustainable manner. The Han River Urban Environment Improvement Project (HRUEIP) is therefore an integral part of the provincial 11th Five-year Plan and finances key environmental investments, in parallel with institutional development programs in the province’s secondary cities located mainly in the Han River area.

7. Table 1 summarizes basic demographic, economic, and sector-specific indicators.

Table 1. HRUEIP Socioeconomic and Environmental Indicators of the Project Cities

Solid Waste Population Total GDP per GDP growth Land Area in cities and Wastewater Municipality 2 population capita in rate (past 3 disposed (km ) towns Treated* in 2006 2005 (RMB) years) of in in 2007 collected Sanitary Landfill Danjiangkou 3,121 492,600 154,300 8,639 6.0% - 80% 0% Dawu 1,979 623,000 108,000 5,347 5.0% - 78% 0% Hanchuan 1,663 1,090,900 315,100 9,197 10.0% 0% 92% 0% Honghu 2,519 909,800 308,100 5,410 11.0% 25% 70% 0% Shayang 2,044 587,800 100,400 8,091 13.0%* 0% 80% 0% Tianmen 2,622 1,621,000 327,100 6,717 14.0% 0% - - Xiangfan 2,306 5,772,200 2,176,700 10,262 12.0% 20%** - - Xiaochang 1,217 636,000 56,200 4,220 - 0% 80% 0% Yunmeng 604 598,000 127,900 8,103 13.0% 0% 80% 0%

2 Sources: Hubei Statistical Year book, 2007; Hubei Statistical Yearbook 2006, and the Outline of the Eleventh Five- Year Pan of Provincial Environmental Protection, and Project Feasibility Studies. *only past two years. **only pretreatment in 2006.

2. Rationale for Bank involvement

8. This project will allow provincial and municipal governments to finance their needed urban environmental investments and gain access to the Bank’s wide range of sector knowledge, as well as institutional and technical expertise in China and other countries. In particular, the previous Hubei Urban Environment Project (HUEP) (P003602) which supported mainly large cities in Hubei Province provides valuable lessons in project preparation and implementation. Furthermore, the recently completed Water Sector Strategy Study will allow the Bank to provide advice on institutional and technical issues based on a systematic analysis of China’s water and wastewater sector.

3. Higher level objectives to which the project contributes

9. The proposed project is consistent with the 2006-2010 Country Partnership Strategy with its focus on managing resource scarcity and environmental challenges. The project will also support the objectives in China’s 11th Five-year Plan (2006-10) that aims to create a “harmonious society” that balances economic growth with distributional and environmental concerns.

B. PROJECT DESCRIPTION

1. Lending instrument

10. The Bank will finance the project through a Specific Investment Loan. The Borrower has selected the variable-spread option in which the spread over the London Inter-Bank Offered Rate (LIBOR) is reset each semester. The Borrower’s main reason for selecting the variable spread loan over a fixed-spread loan is because the interest rate for the fixed-spread loan is currently slightly higher than the variable-spread loan.

2. Project development objective and key indicators

Project Development Objective

11. The Project Development Objective (PDO) is to reduce urban pollution generated from wastewater and solid waste through proper collection, treatment and disposal in selected second- tier cities, mainly located in the Han River area of Hubei. This will be achieved by undertaking high priority investments in selected project cities in wastewater collection and treatment systems and solid waste management systems, as well as institutional reforms and capacity development in the areas of municipal utilities reforms and water pollution control. As its secondary objective, the project is intended to develop well-managed sustainable municipal utilities which could be referred to as models/best practices for other similar projects or programs to be implemented under the Provincial 11th Five-year Plan.

3 Primary Target Group and Estimated Numbers of Beneficiaries

12. The project will benefit an estimated 1.84 million people in the short-run (2010) and an estimated 2.58 million people in the long run (2020) in nine cities, providing wastewater services in seven cities to about 1.37 million people by 2010 and to about 1.97 million people by 2020, and solid waste management services in seven cities to about 1.19 million people by 2010 and to about 1.72 million people by 2020.

Key Indicators to measure the progress towards the PDO

13. The proportion of municipal wastewater treated and the proportion of domestic solid waste collected and transferred to sanitary landfills will be used to measure the achievement of the PDO.

3. Project components

14. The project consists of: (i) wastewater treatment investment component; (ii) solid waste management system investment component; (iii) industrial wastewater pollution control component; and (iv) institutional development and capacity building component as summarized below. (See Annex 4 for details.)

Wastewater Treatment Investment Component (US$ 94.45 million): This component will cover seven cities/counties (Hanchuan, Honghu, Shayang, Tianmen, Xiangfan, Xiaochang and Yunmeng) and include the construction of seven new wastewater collection systems in all seven cities/counties and the construction of five new wastewater treatment plants in all of the above cities except for Honghu and Xiangfan.

Solid Waste Management (US$ 59.09 million): This component will cover seven cities/counties (Danjiangkou, Dawu, Hanchuan, Honghu, Shayang, Xiaochang and Yunmeng) and include the construction of new sanitary landfills and solid waste collection stations, collection fleets and closures of existing dumps.

Industrial Pollution Control (US$ 2.46 million): Under this component, Hubei Province and the project cities will implement the industrial wastewater pollution control programs with their own funds. The activities are carried out at both provincial and city levels, including (a) provincial level program for installation of on-line monitoring (OLM) data receiving platforms at municipal Environmental Protection Bureaus (EPBs), and installation of OLM facilities under local EPB supervision at major pollution sources; and (b) the implementation of specific industrial wastewater pollution control action plans for major polluting enterprises. This component also includes the development of the Han River Water Modeling System, including a study on non-point source (NPS) pollution.

Institutional Development and Capacity Building Component (US$ 4.25 million): This component will include the following activities:

4 a. Project Management and Implementation Assistance (US$ 2.5 million): Technical Assistance (TA) for design review advisory services and construction supervision, including provision of an individual procurement consultant; b. Monitoring of Safeguards Implementation (US$ 0.45 million): TA for external monitoring of the Environmental Management Plans (US$ 0.26 million) and Resettlement Action Plans (US$ 0.19 million); and c. Institutional Development (ID) and Capacity Building of Wastewater and Solid Waste Management Utilities and Project Cities (US$ 1.31million): TA for ID in financial, technical, operational and human resources management.

4. Lessons learned and reflected in the project design

15. The following lessons learned from the Implementation Completion Report (ICR) of the HUEP, the Sector Study (Stepping Up - Improving the Performance of China's Urban Water Utilities, 2007) and other similar Bank projects have been reflected in the project design:

16. Realistic Reform Targets and Timelines: When new project agencies and implementing units are being established in conjunction with a project, and related institutional and financial reforms are to be advanced, this project demonstrated the importance of setting corresponding reform targets and timelines as realistically as possible by taking into account the readiness of related governmental decision-making bodies to meet these targets within specified timelines. Otherwise good progress may be achieved, but targets may not be met when over-ambitious goals are set. Given the generally weak capacities of the project cities, the Institutional Development and Financial Reforms will focus on the enhancement of basic operational efficiency and the implementation of a gradual financial improvement program. (ICR HUEP)

17. Timing of TA for Institutional Development: In implementing HUEP, the borrower issued a contract to an international consulting firm for institutional and financial development support to the newly established utility companies shortly after loan effectiveness. This proved to be too early for optimal TA effectiveness. The utility companies were functioning mostly as construction management companies during the initial years of project implementation, with no assets under their management and with very limited general utility management and operational activities. For TA support to be most effective, it should be closely coordinated with the project implementation schedule, and be provided at a time when the utility companies (the TA beneficiaries) are in the best position to make effective use of the TA. TA implementation schedule will be carefully prepared considering the above mentioned optimal timing. (ICR HUEP)

18. Staffing of Project Agencies and TA: Project agencies and implementing units should include (or actively build) to the extent possible personnel with utility and environmental management skills, in addition to construction management expertise, bearing in mind that operational management of utilities will need longer-term involvement. Under HUEP, most implementing agencies and project implementing units were newly established, and while focusing on construction implementation, they also obtained significant training and technical assistance during project implementation. The ID Capacity Building TA component will help the project implementing agencies to recruit necessary professional and operational staff as well as conduct necessary training. (ICR HUEP)

5

19. Strategic Institutional Issues: The China Urban Water Sector Study (Stepping Up - Improving the Performance of China's Urban Water Utilities, 2007) has identified many important generic water and wastewater sector issues and recommended key strategic directions. It will not be realistic to pursue all of the recommendations in the Han River Urban Environment Improvement Project (HRUEIP), as the project cities are mostly small secondary cities with limited financial and institutional capacities without Bank project experience; but the following issues will be reflected in the design of TA for Institutional Development for public utilities. (Sector Study/Second Liaoning Medium Cities Infrastructure Project):

• Managing wastewater as a network utility business; • Pursuing opportunities for aggregating urban water services; and • Engaging with the private sector as part of the reform process.

20. Comprehensive System Approach in Municipal Public Utility Businesses. In order to meet the capacity targets set by the national and provincial governments, Chinese municipalities often focus on investment in the WWTPs or the construction of sanitary landfills, without considering the total wastewater collection and treatment system or the total solid waste management system (collection, transfer and final disposal). The consequence is over- investment in these facilities and underutilization without collection capacities. This aspect has been scrutinized through the review of Feasibility Studies. Performance indicators have included not only the capacity of final treatment plants or landfills but also actual connection to sewers and collection of solid waste. (Various World Bank projects)

21. Design of industrial pollution control actions plans (IPCAP). IPCAP in Chinese cities are often not backed with specific measures and performance indicators to achieve the target of pollution reduction. The project team has specified these measures and performance indicators as much as possible in engaging the policy makers, the provincial EPBs, and the project cities, including the polluters in the policy dialogues, as effective implementation of the IPCAP will be difficult without ownership and commitment of the key stakeholders. (Liuzhou Environment Management Project/HEUP)

5. Alternatives considered and reasons for rejection

22. In the project design process, several alternatives were considered, including:

• Integrated River Basin Management Project vs. Urban Environment Project: At the Project Concept stage, the potential for designing this project as an integrated river basin management project of the Han River was explored. While this approach would achieve a higher development impact, the river basin management approach was not adopted because the Province is not ready to undertake highly complex cross-regional activities that include neighbor provinces, as well as cross-sectoral activities (environment, agriculture, land administration). Instead, a more limited but well focused urban environmental project approach was adopted as the first step toward an integrated river basin approach, while conducting a study on non-point source (NPS) pollution and improvement under the project for preparation of a more comprehensive approach in the future.

6 • Least Cost Wastewater Treatment System: The proposed membrane filtration as a tertiary stage in the leachate treatment system was rejected due to the high-cost of initial investment and operation. Alternatively, the option of a large retention pond will be included prior to the treatment system. It was also suggested that where feasible, effluent from the leachate retention pond should be transported to the municipalities’ WWTPs for final treatment and disposal. The city WWTPs are advised to accept leachate effluents which might have a discharge quality exceeding allowable discharge standards under special exemption, as leachate effluents from city landfills are usually in small quantities and too expensive to be treated to meet allowable discharge standards on site. In the cities where there are no available city WWTPs, landfill leachate effluents will be treated by secondary treatment followed by recycling the effluents into the landfill to maintain zero discharge.

C. IMPLEMENTATION

1. Partnership arrangements (if applicable)

23. N.A.

2. Institutional and implementation arrangements

24. Project Management. The Provincial Leading Group led by the Vice Governor, the key provincial bureaus including the Provincial Finance Bureau, Development and Reform Commission (DRC), and Construction Bureau are responsible for giving policy guidance and overseeing project implementation of all the Bank-funded projects in the province, including HRUEIP.

25. The Provincial Project Management Office (PPMO) will provide management leadership to all aspects of project implementation. The PPMO consists of the Deputy General Director of Provincial Environmental Protection Bureau (EPB), Deputy Directors of Provincial Financial Bureau, Development and Reform Commission (DRC), Construction Bureau and Land Resource Administration Bureau, a full-time PPMO Manager and technical staff (finance expert, engineer, procurement expert, environmental expert and resettlement expert). The role of the PPMO includes: (a) overall project implementation coordination, management, supervision and monitoring; (b) annual budget preparation; (c) quality assurance; (d) submitting progress reports to the Hubei Provincial Government and the Bank; (e) interagency coordination and procurement support; and (f) coordination of implementation of TA, studies and trainings for the project cities.

26. Municipal Level Arrangements. Each city has established its own Leading Group and Municipal Project Management Office (MPMO) in charge of its own component. The sub- projects will be implemented by the project implementing agencies (municipal departments and utility companies) designated by the cities.

27. TA, studies and trainings will be implemented by Provincial EPB and/or the project cities with assistance from the PPMO.

7 28. Procurement will be handled at both provincial and city levels. At the provincial level, the PPMO will be responsible for oversight and overall coordination of the procurement activities of the MPMOs. At the city level, the MPMOs/Project implementing agencies will be responsible for carrying out the procurement of the contracts under their sub-projects with the assistance of the procurement agents and design institutes, and under the guidance of the PPMO.

29. Further details on institutional arrangements of project preparation and implementation are provided in Annex 6.

3. Monitoring and evaluation of outcomes/results

30. PPMO will consolidate the data at the project level and produce semi-annual reports to monitor progress. Baseline data for results indicators are available and no capacity constraints are foreseen.

4. Sustainability

31. In order to ensure political commitment to sustainable environment protection, the Bank team has been actively engaged in policy dialogue at various levels, including with the Provincial Vice Governor in charge of environmental affairs and the mayor of each project city, as well as with the provincial and municipal governmental officers. The Institutional Development and Capacity Building component of the project will help the project cities develop technically efficient and financially sustainable wastewater companies and technically efficient and cost effective solid waste management organizations in a phased manner. On solid waste management, the Bank loan will finance the closure of the existing dump sites according to EPB regulations to ensure a safe environment for both closed old dump sites and new landfill sites.

5. Critical risks and possible controversial aspects

32. The table below summarizes the key risks relating to project implementation and materialization of the PDO along with the proposed mitigation measures.

Potential Project Risks Risk Mitigation measures developed during project Rating preparation

PPMO and MPMOs’ inadequate S A project management consultant will be recruited to technical and managerial capacity assist the PPMO/MPMOs during project implementation and experience to implement the and build the institutional strength of the PPMO/MPMOs Bank-funded project. and other project implementing agencies. The Bank will conduct intensive supervision during start-up period (first 2 years) through the Bank Beijing Office, which will be enhanced through the ongoing operational decentralization of the Bank. Shortage of counterpart funding M A significant shortage of counterpart funding was identified during project implementation of the previous HUEP. The financial capacity of the project cities have been carefully analyzed to screen out the cities without the necessary capacity.

8 Tariff Increase will lag behind H The Province, the project cities, and the Bank team have agreed schedule, which will often established realistic tariff increase plans in full lead to the violation of the financial consultation with policy makers at provincial and covenants. municipal levels on optimal tariffs in light of the needs for cost recovery, municipal fiscal capacity, and household income levels. As tariff increases often face political challenges (e.g. elections), the Bank convinced the project cities to adopt the highest possible tariff level (e.g. RMB 0.85/m3 recommended by the Ministry of Construction) in case the cities had not yet started collecting the wastewater tariffs. The Institutional Development TA will include advisory services on how to collect the wastewater tariffs from enterprises using self-supplied water, including the possibility of introducing a gradual ban of self-supplied water, if justifiable. The Bank will monitor utilities’ financial and operational performance, using not only the conventional financial covenants (debt service ratio, cost recovery ratio) but also other appropriate financial and operational indicators determined through financial analysis. Top polluters may not adequately H The project cities and enterprises responsible for the most reduce discharges to meet their pollution have jointly prepared IPCAPs. The legal obligations under the implementation of IPCAP and compliance with the Industrial Wastewater Pollution industrial discharge standards will be publicly disclosed. Control Action Plans (IPCAPs). Under new laws the municipal governments have increased powers to enforce enterprise compliance. Project implementing agencies M The Bank team agreed with the local governments to purchase lesser-quality sludge select high-standard sludge dewatering equipment aided dewatering equipment due to lower by polyelectrolytes, to achieve dewatered sludge at not prices, resulting in low dry solids less than 25% dry solids. The Bank team will also contents of the dewatered sludge to provide timely advice and close supervision to the project be disposed at the landfills. This implementing agencies. makes it difficult to manage the sludge at the landfill site, and results in high volume of wet sludge, shortening the life of the landfill. Leachate treatment facilities are M The Bank team agreed with the local governments on a designed and built at the proposed five year deferment for the final leachate treatment sanitary landfill sites at the same facilities to be operational. The design and construction time without knowledge of quantity of the leachate treatment facility will be conducted after and quality of leachate which carefully studying leachate during the third year of the depends on characteristics of buried project. The project will ensure the construction of an solid wastes and routine operation appropriate leachate regulation tank in each landfill under of the landfill. As a result, the the Bank-funded project, and the Bank team will provide constructed facility tends to be over timely advice and close supervision to the client. and poorly designed, and in many cases not in operation. Risk Ratings: H=High; S=Substantial; M=Modest; N=Negligible or Low Risk

6. Loan/credit conditions and covenants

33. Disbursement conditions are listed as follows.

9

• Subsidiary Agreements: All companies will be required to enter into subsidiary agreements acceptable to the Bank as a condition of disbursement, since they will be implementing part of the project, and they are legally autonomous companies.

34. Other covenants applicable to project implementation include the following.

Financial covenants: • Wastewater Utility Financial Covenants: Each Project City with a wastewater component [Hanchuan, Honghu, Shayang, Tianmen, Xiangfan, Xiaochang, and Yunmeng] and their respective utilities will be obligated to ensure that: i) the cost recovery ratio is greater than 1.0, which requires that operating and non-operating revenues are sufficient to cover total operating expenses and the greater of depreciation and debt service; and ii) companies do not incur additional debt unless the debt service coverage ratio is above 1.1.

Other dated covenants • Solid Waste Strategic Sector Plan: All project cities with a solid waste component [Danjiangkou, Dawu, Hanchuan, Honghu, Shayang, Xiaochang, and Yunmeng] shall each prepare, in accordance with terms of reference satisfactory to the Bank, a time-bound and comprehensive plan for the management of the solid waste sector by March 31, 2010, and begin implementation of the plan by June 30, 2010, taking into account the Bank’s comments thereon. Each Strategic Plan shall address institutional, financial, cost-recovery and infrastructure planning issues and contain a time-bound implementation plan. • Wastewater Strategic Sector Plan: All project cities with a wastewater component [Hanchuan, Honghu, Shayang, Tianmen, Xiangfan, Xiaochang, and Yunmeng] shall each prepare, in accordance with terms of reference satisfactory to the Bank, a time-bound and comprehensive plan for the management of the wastewater sector by March 31, 2010, and begin implementation of the plan by June 30, 2010, taking into account the Bank’s comments thereon. Each Strategic Plan shall address institutional, financial, cost-recovery and infrastructure planning issues and contain a time-bound implementation plan. • All project companies will furnish to the Bank audited records, accounts, and financial statements (income statement, cash flow statement, and balance sheet) no later than 6 months after the end of each fiscal year. • Semi-annual project progress reports will be furnished to the Bank on February 28 and August 31, starting February 28, 2009.

D. APPRAISAL SUMMARY

1. Economic and financial analyses

35. Financial analysis was conducted (i) to estimate the financial internal rate of return of the project investments; (ii) to identify the most appropriate project financing and debt allocation/ repayment strategy; (iii) to project tariff increases required to ensure financial sustainability of the project companies; (iv) to demonstrate that any required tariff increases are affordable for low-income households; and (v) to show that all participating municipalities/ counties have sufficient financial resources to meet the obligations under the project. An analysis of debt

10 levels of each project city/county was also conducted. The summary results are as follows with details provided in Annex 9.

36. FIRRs. Project level financial rate of returns (FIRRs) were calculated for the wastewater treatment components—reflecting total revenues and capital and operating/ maintenance costs under the assumption of a 25-year project life. FIRRs for wastewater components are estimated to be around 10%. Sensitivity analysis was conducted to test the robustness of the results— reflecting reduced revenues and increased costs (or both). Base case FIRRs are above each project’s weighted average costs of capital (WACC) of 7.3% rendering all projects viable from a financial point of view. For solid waste, no FIRRs were calculated in light of the weak financial situation of the sector.

37. Financial Projections. Both the wastewater and the solid waste sectors are only now becoming commercialized. Most of the wastewater utility and solid waste management companies were set up in the context of the preparation of this project. Wastewater tariffs exist in five out of seven cities and range between RMB 0.2/m3 and RMB 0.6/m3 (for residential customers). All project cities have solid waste user charges, set at RMB 3-5/household per month, but they are not collected systematically. In light of the weak institutional and financial situation, it was decided that World Bank debt be allocated only to the wastewater companies, but that for the solid waste management companies, World Bank debt repayment responsibilities rest with the local Finance Bureaus. Counterpart funds are provided in both cases as equity contributions. Based on this project financing plan, financial projections were prepared. The results of the projections indicate that wastewater tariffs and solid waste user charges will need to increase gradually to levels summarized in the table below to ensure the financial viability of the companies. Other factors, such a collection efficiency rate will also significantly impact the future sustainability of the companies.

Table 2.Actual (2007) and Required Tariff Rates in the Project Cities

Actual Required 2007 2008 2011 2015 Wastewater/1 Hanchuan 0.2 0.8* 1.1 1.1 Honghu 0.6 0.6 1.1 1.3 Shayang 0.4 0.8* 1.1 1.1 Tianmen 0.8 0.8 1.0 1.0 Xiangfan 0.5 0.8 1.0 1.4 Yunmeng - 0.8* 1.2 1.2 Xiaochang - 0.8* 1.0 1.2 Solid Waste/2 Danjiankou 3 5 7 10 Dawu 4 4 7 10 Hanchuan 4 5 7 10 Honghu 3 3 7 10 Shayang 5 5 8 10 Xiaochang 3 5 8 10 Yunmeng 3 5 9 11 1/Tariff: domestic tariff (Y/m3) 2/Solid waste charge (Y/household/month) * applied (except Shayang) but still to be approved

38. Tariff Affordability. The projected tariff and user fee increases are affordable by two representative household groups—average and low income households. The result of the

11 affordability analysis indicates that total combined charges (water, wastewater, and solid waste) represent around 3% of low income household income. This percentage is within the generally accepted benchmark for affordability of utility charges which suggests that user charges should be less than 5% of total household income. Additional protection exists in each project city for very low income and vulnerable groups through the Dibao (Social Security) system.

39. Municipal Finance. Municipal finance analysis indicates that all participating project cities/ counties have sufficient financial resources, in principle, to contribute counterpart funds and service debt incurred under the project. In all cities, the Bank project constitutes only a small fraction of general total budget revenues (around 3-6%). In some cases, counterpart funds constitute a relatively sizable portion of general budget income (i.e. own tax revenues) in which case additional counterpart funding sources were identified in the form of land sales, state bonds, and commercial bank borrowing. In terms of on-budget debt, the debt-to-general budget revenue ratios are assessed to be sustainable and range in most cases between 20% and 40% (except for Hanchuan).

40. Economic Analysis. All project components were evaluated based on a ‘least cost’ methodology. The overall benefits of the project include the reduction of urban pollution loads and associated improvements in the urban environment, public health, and the local economy. In terms of alternatives evaluated, for solid waste the choice of collection vehicles, collection points, and transfer stations was optimized after various locations were considered; landfills were chosen as alternatives over incineration and composting in light of cost savings and technical consideration; for disposal, alternative site locations were evaluated in light of land availability and transport costs. For wastewater, the collection system and the location of the treatment plan was optimized along least cost lines (optimal choice between gravity flows, pumping stations, and pipe diameters); for treatment technologies, oxidation ditch was selected as the most cost effective alternative; and in terms of treatment standards, Class 1-B was selected as being the lowest cost.

2. Technical

41. All investment components have been prepared by Chinese Design Institutes (DIs) with assistance from an international consulting company. Project designs are technically feasible, represent the most appropriate cost-effective alternative, and are based on sound engineering practices.

42. For the wastewater component, the design of gravity sewers is in accordance with China’s Water Supply and Drainage Design Manual Volume 5 – City Drainage which requires a minimum velocity of 0.6 m/s to be achieved in average dry weather wastewater flow for sewer self cleansing purposes similar to other international standards. An improved oxidation ditch system was selected based on ease of operation and least cost/cost effectiveness methodology. It will also comply with Class 1-B effluent standards for Biological Oxygen Demand (BOD) and Total Suspended Solids, and provide reliable de-nitrification and improved biological phosphorous removal.

12 43. For the solid waste component, an integrated solid waste management approach has been introduced in preparation for the investments of all seven solid waste management sub-projects. The final designs reflect least-cost/cost effective options for waste collection, transfer, transportation, treatment and disposal, as well as closures of old dumps. Vehicles and equipment have been selected to meet local conditions, ensuring that they are suited to the local roads and are compatible with existing systems.

3. Fiduciary

Financial Management

44. The adequacy of the project financial management system was assessed using the guidelines issued by the Financial Management Sector Board on November 3, 2005. The assessment concluded that the project meets the Bank’s financial management requirements, as stipulated in BP/OP 10.02. It found that the Borrower has in place an adequate financial management system for implementing the operation, and provided reasonable assurance that the proceeds of the loan will be used for the purposes for which the loan will be granted. Financial management (FM) risk is the risk that the World Bank loan will not be used for the purposes intended and is a combination of country, sector and project-specific risk factors. The FM risk rating proposed for this project during the appraisal stage after consideration of the proposed risk mitigation measures is modest. No outstanding audits or audit issues exist with any of the implementing agencies involved in the proposed project.

Procurement

45. The procurement arrangements of the project are acceptable to the Bank. Though there were some deficiencies identified in the pre-appraisal mission such as weak authority of the PPMO and lack of procurement experience, the PPMO has bridged this gap by assigning one more technical staff to procurement, and hiring a more experienced former director to lead the PPMO. In addition, the PPMO has agreed to hire a qualified individual consultant to provide procurement support to the project. The recruitment will further strengthen the capacity of PPMO. The overall risk of the project is average.

4. Social

46. The project will bring about positive impacts and benefits to the environment and communities in the nine project cities, including reduced raw wastewater discharges and improved solid waste collection and disposal at the landfills. However, the construction of most sub-projects will have social impacts on the people and communities in the sub-project areas due to inevitable resettlement and land acquisition. Impact surveys and repeated rounds of public consultations conducted for all the sub-projects in the nine cities/counties identified the people and assets affected by the project’s resettlement requirements. A total of more than 1,908 mu 2 of land will be requisitioned from 12 rural villages and another 1,768 mu will be temporarily occupied by construction of the sub-projects. 206 rural households will be relocated and a total

2 1 mu represents area of about 666. 7 m2

13 of more than 5,600 people will be affected by land acquisition and relocation. The basic project resettlement information in all the nine cities/counties is presented in Table 3 below.

Table 3: HRUEIP Resettlement Information

Items People People People

affected affected affected by People Total Rural Land House Land by land by house both land with non- resettle- acquisition demolition temporarily acquisition demolition acquisition residential ment costs (mu) (square occupied only only and to be and house units (RMB meter) (mu) (persons) relocated demolition affected million) Cities (persons) (persons)

Danjiangkou 198.00 1103.10 0.00 69 17 16 0 8.93 Shayang 295.80 12050.00 226.54 128 213 22 0 40.23 Honghu 300.00 1335.75 703.20 1088 0 12 153 16.61 Hanchuan 474.45 2218.00 185.87 1682 73 0 0 43.97 Yunmeng 236.23 7043.78 158.32 534 228 0 0 28.72 Xiaochang 240.09 5168.00 246.11 1076 0 121 184 31.76 Dawu 108.00 1776.00 0.00 0 51 0 0 4.91 Tianmen 56.00 7070.00 216.53 72 109 60 0 26.48 Xiangfan 0.00 0.00 31.63 0 0 0 0 3.81 Total 1908.57 37764.63 1768.20 4649 691 231 335 205.42

47. The project Social Assessment (SA) was conducted in each of the affected villages and the surrounding townships, and household surveys were conducted in all of the relocating households which were visited for detailed impact inventory and feedback solicitation. In addition, more than 20 % of the population affected by land acquisition was intensively interviewed in the project information and resettlement communication campaign. The project’s adverse impacts and the related social risks were assessed including involuntary taking of land, demolition of the houses and attached assets, as well as potential pollution risks around the wastewater treatment and landfill sites. There were no ethnic minority communities among the affected villages or in all the sub-project areas, and there was also no further resettlement linkage issues relating to any of the sub-projects.

48. Measures for avoiding and/or mitigating the adverse impacts and opportunities for livelihood rehabilitation and economic development were discussed and set forth as social objectives for these sub-project designs. As a result, Resettlement Action Plans (RAPs) were prepared for each of the sub-project city/county with resettlement components, in consultation with the displaced persons (DP). These RAPs and their preparation processes were reviewed to ensure compliance with the Bank social safeguard policies, and the MPMOs of all the nine project cities/counties assumed full ownership and responsibility for the implementation of the RAPs. The RAPs and the project safeguard documents were put in county libraries and MPMOs for public disclosure before project appraisal, and were also made available at the same time in the Bank InfoShop.

3 The 15 people stay with 3 non-residential units. 4 The 18 people stay with 3 non-residential units. 5 A total of 6 non-residential units will be affected by the project resettlement.

14 5. Environment

49. The project is classified as Category A under OP 4.01, due to the complexity of environmental issues associated with wastewater management and solid waste management. An Environmental Impact Assessment (EIA) was carried out for each sub-project component, and an associated Environmental Management Plan (EMP) was also developed. In addition, the PPMO prepared a Comprehensive Summary of Environment Assessment (CEA), consolidating the key issues of the sub-project EIA and EMP. The documents have been prepared in line with China’s legal and policy framework for pollution control and environmental protection, the master plans and environmental plans of the project cities, as well as applicable Bank safeguard policies. Key points of the EIAs and EMPs are presented in Annex 10.

50. Environmental Benefits. The proposed project will bring about positive impacts and benefits to the environment and communities in the project cities, including reduced raw wastewater discharges, improved and increased wastewater collection and treatment, improved solid waste collection and disposal at the sanitary landfills. The project will benefit a sizable number of the population in the project cities (see paragraph 12). The WWTPs constructed under the project would reduce annual pollution loads of about 8,852 tons of BOD, 11,678 tons of suspended solids, 1,574 tons of NH3-N and 50 tons of phosphorus. After project implementation, environmental deterioration of the specific urban sections along the Han River will be reduced to meet the required surface water quality standards of Class II or III. The project will also help alleviate existing water pollution in the tributaries of the Han River and other water bodies connecting with the Han River, such as the Tianmen River, Xijing River, and Fuhe River, as well as some other lakes. The sanitary landfills to be constructed under the project would treat annually about 500,000 tons of solid waste by 2015 and significantly improve environmental conditions of solid waste management facilities by closing existing open dump sites without proper leachate treatment or landfill gas flaring.

51. Key Impacts and Mitigation Measures during Construction and Operations. The adverse impacts during the construction of the wastewater collection system, wastewater treatment plants, and landfills include airborne dust, noise, traffic disruption and disposal of contaminated materials. Contractors will water construction sites during dry and windy seasons, develop careful plans to mitigate noisy construction activities and avoid night time construction, maintain equipment in good operating condition, develop temporary traffic plans to detour traffic around construction sites, and dispose of contaminated soil only at pre-approved sites.

52. The proposed wastewater components will have many positive effects, as mentioned above. However, because effluent from WWTPs will still have relatively high concentrations of pollutants (as the concentration levels indicated in discharge standards are higher than surface water quality standards allow), and effluent flows can be high and discharged in single locations, receiving waters could still be impacted. The operation of WWTPs could also generate odor and noise, impacting the surrounding residential areas. Furthermore, wastewater treatment will also produce sludge, with the risk to concentrate and release contaminants if the sludge produced from WWTPs is not appropriately and safely disposed. Detailed measures have been proposed in the EMPs to mitigate these potential problems, such as setting up buffer zones for WWTPs to avoid odor and noise problems, enhance management and provide training to staff, transfer

15 sludge to the municipal solid waste landfills for proper disposal in a timely manner, and set up monitoring program for effluents and sludge, etc.

53. For the solid waste management component, waste transport to landfills will represent increased truck traffic, with noise, dust, and traffic accident risks in villages along the way. In addition, leachate and gas will be generated in the operation of the landfills. Mitigation measures include proper selection and design of access roads, implementation of traffic safety rules and training of drivers, development and implementation of a leachate control, transportation, and treatment plan for each project city, and implementation of the plan for landfill gas collection and disposal.

54. Public Consultations and Information Disclosure. Two rounds of public consultations have been carried out during the EIA process. The technique used for the public consultations includes surveys using public opinion questionnaires, focused group discussions, and public meetings with key stakeholders and interviews. The issues raised during these consultations have been incorporated in the EIAs and EMPs. Responses to the concerns expressed in public consultations have been provided to the concerned groups and documented in the EIAs. In addition, there have been many rounds of consultations with government agencies, local governments and other stakeholders of the project to discuss project locations, scope, environmental and socioeconomic concerns and environmental management and mitigation plans. The EIAs/EMPs have been disclosed locally through various means (e.g., websites, newspapers, etc.), as required by national and Bank policies.

6. Safeguard policies

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

7. Policy Exceptions and Readiness

55. Policy Exception. The Safeguard Policy on Resettlement, OP 4.12 and the Safeguard Policy on Environmental Assessment, OP 4.01, require the Borrower to prepare RAPs and EA reports in a form, manner, and language that are understandable to the displaced persons and local NGOs, which in this case would be Chinese. The Chinese language RAPs (754 pages in total) and EA reports (2,284 pages in total) for the subprojects have been reviewed by the Bank,

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

16 meet the requirements of OP 4.12 on involuntary resettlement and OP 4.01 on environmental assessment, and have been publicly disclosed. An English language comprehensive summary of the RAPs (190 pages) and an English language comprehensive summary of the EA reports (169 pages) have also been prepared, reviewed and disclosed through the Bank's InfoShop.

56. Bank experience over the years has established the general practice of requesting the Borrower to provide the Bank also with the entire RAP and EA reports in English. In April 2007 Bank senior management endorsed “Guidelines for the use of English Translation of Summaries of Environmental Assessment Reports and Resettlement Action Plans in China Projects”, which allowed the creation of English language comprehensive summaries of RAPs and EA reports for projects that meet certain criteria. The Regional Safeguards Secretariat has confirmed that the proposed project meets the criteria. Accordingly, English language comprehensive summaries of the RAPs and EA reports covering all relevant parts of the Chinese-language EA reports and RAPs were created. Chinese-speaking Bank safeguard specialists have reviewed both the English language comprehensive summaries of the RAPs and EA reports and the Chinese- language full-length safeguard documentation approved and adopted by the Project Implementing Agencies. They have confirmed the consistency between the English and Chinese documentation, and confirmed the compliance of the full set of safeguards documents with Bank policies.

57. The project will comply fully with all other Bank policies.

58. Project Readiness. The Provincial Project Management Office (PPMO) and the Municipal Project Management Offices (MPMO) have been established. Most of the wastewater utility and solid waste management companies have been established in the project cities.

17 Annex 1: Country and Sector or Program Background CHINA: Han River Urban Environment Improvement Project

Urban Growth in China’s Second-Tier Cities

1. Cities generating more than 60% of GDP and 85% of GDP growth have been the engine of economic growth and driving forces for poverty reduction in China. Urbanization has been accelerated rapidly over the last two decades at an annual rate of about 3.3%. Today, China’s urbanization level is at 40.4%—up from 26.2% in 1990—corresponding to a total urban population of 531 million.6 It is projected to climb over 55% in the next 20 years. The rapid development of the second-tier provincial cities as a consequence of sizable rural-urban migration is considered as an important factor behind this accelerated urban growth. While this rapid urbanization has significantly increased cities’ GDP and expanded their economic bases, cities’ environmental conditions (water, air and soil) and living standards have considerably deteriorated, particularly in the second-tier cities because of lack of environmental infrastructure such as wastewater treatment plants (WWTPs) and solid waste management facilities. If cites are to remain the backbone of economic development and become more competitive, they should invest substantially in urban infrastructure, particularly in environmental utilities to provide better urban services.

Han River Area in Hubei Province

2. Hubei Province, located in central China, has a population of 60.5 million in an area roughly one-third of the size of France (180,900 km2) of which 26.5 million (44%) are living in the urban areas. Hubei borders Henan Province to the north, Anhui Province to the east, Jiangxi Province to the southeast, Hunan Province to the south, Chongqing Municipality to the west, and Shaanxi Province to the northwest. Two major river systems extend across Hubei: the Yangtze River and Han River. The Yangtze River flows 1,061 km across Hubei from west to east. The 1,567 km long Han River originating from the Qinling Range in Shaanxi Province is the largest tributary of the Yangtze, and runs 878 km in Hubei from northwest to southeast before emptying into the Yangtze River at Wuhan, the capital of Hubei. Danjiangkou and Nianpanshan separate the river into upper, middle and lower reaches. Its valley is located in the transitional belt between arid north China and humid south China, serving as a link between the two regions. It is also a water transport passage, through which coal is shipped from north to south and petroleum from west to east. It is expected to play a critical role in the overall development of central China. The Han River area within Hubei Province includes the forest area and eight municipalities: , Xiangfan, , Tianmen, Qianjiang, , , and Wuhan. The Han River area covers about 40% of the total area of Hubei Province.

3. The middle and lower reaches of Han River are characterized by fertile and broad land mass, large population, economic prosperity, and abundance in natural resources. The economy of the Han River basin area is buoyant, producing just over half of the Province’s GDP (US$ 82 billion) and supporting 30% of its population. In 2002, the proportions in GDP broken down by types of industries (primary, secondary, and tertiary industries) were 16.2: 47.5: 36.4 in 2004.

6 1990 from Population Census, 40.4% figure is based on 2005 UN estimates.

18 The Han River area is a national base for diversified industries, including large production of cereal, cotton and edible oil. The region along the river’s mainstream between Wuhan and Shiyan city is a flourishing belt of the automobile manufacturing industry.

Urban Domestic Wastewater

4. In 2003, only 2.5 million people (4%) had access to a wastewater treatment plant (WWTP) in Hubei. It is estimated that the wastewater treatment rate in the urban areas is 23% at most. Most of the existing WWTPs including those funded by the World Bank are located in larger cities (Wuhan, Yichang, Huangshi, and Xiangfan), all of which, except for Xiangfan, are located in the Yangtze River area. Hubei province has an ambitious investment program of wastewater treatment under the 11th Fiver-year Plan (2006-2010). The plan aims to increase the province’s total wastewater treatment capacity from 880,000 tons/day in 2006 to 4.72 million tons/day in 2010 by expanding existing plants and constructing new plants. The total investment, including network construction, will be RMB 10.8 billion (US$ 1.5 billion). The estimated pollution reduction will be COD 437,000 tons/year and NH3-N 27,000 tons/year.

5. In contrast to the Yangtze River area, the capacity of urban wastewater treatment is almost non-existent in secondary cities in the Han River area. Sewage of most cities in this area drains directly into the river without treatment because there are no WWTPs as of yet. Xiangfan city does have screening plants that were financed under the Bank-funded Hubei Urban Environment Project (HUEP). Currently one WWTP (1,000,000 m3/day in Wuhan, funded by ADB) and one WWTP (300,000 m3/day in Xiangfan, funded by BOT operator) are under construction. Untreated wastewater contaminates groundwater and the river system, posing a major threat to citizen health and the ecological environment. In addition, it is expected that the water quality of the Han River will deteriorate further after the start of South-North Water Diversion 7 in the upper stream of the Han River in 2010.

6. Seven wastewater collection and/or wastewater treatment sub-projects (Hanchuan, Honghu, Shayang, Tianmen, Xiangfan, Xiaochang and Yunmeng,) have applied for funding under the World Bank (WB) loan for the Han River Urban Environment Improvement Project (HRUEIP), with a total 260 km of wastewater collection systems and projected treatment capacity of some 205,000 tons per day, and investment cost of US$ 94.45 million.

Solid Waste Management

7. No country has ever experienced as large or as rapid an increase in solid waste quantities as what China faces at present. In 2004, China surpassed the United States as the world’s largest waste generator, and by 2030 China’s solid waste quantities will increase by 150%, growing from about 190,000,000 tons/year in 2004 to over 480,000,000 tons/year in 2030. China’s cities will need to develop an additional 1,400 landfills over the next 20 years. Particularly, the second-tier cities need sizable investments because they are growing faster, and most of them do not have sanitary landfills.

7 The South-to-North diversion which will initially abstract 9.5 billion m3 of water per year up to 15 billion m3 (as much as 33 % of the total water flow) from upstream of the Han River to the northern part of China, commencing by 2010.

19

8. The current domestic solid waste generation in Hubei Province is about 13 million tons per annum and the 62 existing landfills handle and dispose of about 6 million tons of domestic solid waste annually, or 46.3 % of the total solid waste generated. There is no sanitary landfill in the Han River area. As most of municipal solid waste goes to dumps providing no protection from leachate contamination for underlying aquifers or local surface waters, or any collection and flaring of landfill gas, solid waste leachate and the migration of polluted surface waters account for the high levels of urban aquifer contamination in Hubei. Landfill gas contributes to global warming, but the lack of collection systems also poses the hazard of uncontrolled burning in the dumps. Malodorous collection points are a major source of citizen complaints - frequent garbage collection will help minimize these potential health hazards.

9. The province will undertake 89 municipal solid waste management projects with estimated investment costs of RMB 5.8 billion under the 11th Five-Year Plan. Seven project cities (Danjiangkou, Dawu, Hanchuan, Honghu, Shayang, Xiaochang and Yunmeng) will participate in the solid waste management component of HRUEIP. All these project cities/counties are planning to use the World Bank loan to construct a new landfill site with a total capacity of about 12.10 million m3 with average project life of 16.4 years. The project will also finance appropriate equipment for its operation and closures of old dumps. The estimated investment cost is US$ 59.09 million. Solid waste is also a significant contributor to the deteriorating situation in the river. The impact on the river rises from inadequate leachate management at existing dumps, and through indiscriminate deposition of solid waste in the river.

Water Pollution in the Han River

10. Because of its size and geographic location, the Han River is the most important tributary of the Yangtze River, which is China’s major water supply source. The overall water quality of the Han River is still relatively good, with 80% of its 25 monitoring stations categorizing their respective segments as Class II. However, the water quality of the Han River has deteriorated over the past decades due to rapid urbanization, industrialization and intensified agricultural activities, all associated with the rapid increase of population in the Han River Basin. Without major water environmental improvement programs, water quality is likely to deteriorate further, eventually costing the Province its international competitiveness and economic growth.

11. The current water pollution status of the Han River shows that at 80 % of its monitoring stations, it meets the water quality requirements for Class II (protection zones for drinking water sources and valuable fish) and at 20 % of the monitoring stations, it meets the requirements for Class III (second class of protected areas for main sources of drinking water, and protected areas for common fish and for swimming). However, the quality of the water is proportional to the River flow rate and is shown to decrease during the dry season. The water quality is likely to deteriorate after the implementation of the South - North Water Diversion Project (up to one- third of decrease in the River water flow is estimated by 2030). The tributaries to the Han River in the middle and low reaches have a lower water quality (Class IV and V) than the target set by Hubei Provincial Environmental Protection Bureau (EPB).

20 Industrial Wastewater and Industrial Pollution Control

12. Hubei is a major industrial province ranking 10th in China in terms of industrial gross regional product. Important sectors are the traditional sectors of chemicals (including fertilizers), pharmaceuticals, food processing, paper, ferrous metals; and the more recent sector of light engineering for automobile manufacturing.

13. Industrial pollution is significant in Hubei with around 65% generated in the Han River Basin. In terms of quantity, however, industrial pollution ranks below domestic pollution. Table 1.1 shows 2003 quantities for industrial and domestic pollution in three of the more important project cities and Wuhan. Industrial pollution in two of the most important pollutants (COD and ammonia) is around one-third of the levels for domestic pollution, even in the heavily industrialized city of Xiangfan.

Table 1.1. Pollution Discharge in 2003 for selected project cities and Wuhan

Category Total Basin Xiangfan Shayang Wuhan TOTAL Municipality County Municipality Quantity % Basin Quantity % Basin Quantity % Basin Quantity % Basin Population 15.4 6.8 44 0.6 4 2.2 14 9.6 62 million COD 000 t/yr Industrial 40.4 21.0 52 1.9 5 5.3 13 28.2 70 Domestic 133.0 52.6 40 2.5 2 29.1 22 84.2 63 Total N 000 t/yr Industrial 6.0 2.4 40 0.7 12 0.1 2 3.2 53 Domestic 19.1 7.8 41 0.4 2 3.6 19 11.8 62

14. On a city basis, a large portion of industrial pollution (80%) is accounted for by ten cites; five of the project cites account for 44% (See Table 1.2). For Ammonia, six cities account for 80%, with the six project cities accounting for only 17%.

Table 1.2. Generated Industrial COD and Ammonia Load within the Han River Basin, 2004

Ranking Locality Discharge CODcr Ammonia COD Cumulative (m3/y) COD 000 m3/yr 000 t/yr 000 t/yr 000 t/yr % of Total 1 Xiangfan 68359 15.6 0.90 15.6 28 City* 2 Jingmen City 14483 4.6 4.69 20.2 36 3 31536 4.3 1.91 24.5 44 4 Qiaokou 10794 4.3 0.07 28.8 52 5 23179 3.9 1.03 32.7 59 6 Danjiangkou* 9056 3.3 0.27 36.0 65 7 Xiantao 7688 2.7 0.69 38.7 69 8 Nanzhang 6319 2.7 N.A 41.4 74 9 Shayang* 4247 2.4 0.80 43.8 79 10 Hanchuan* 8095 1.8 0.00 45.6 82

21 11 Yicheng 10116 1.7 1.04 47.3 85 12 Fangxian 1481 1.7 0.05 49.0 88 13 3258 1.7 0.53 50.7 91 14 Tianmen* 6655 1.3 0.21 51.9 93 15 Qianjiang 9511 0.9 0.29 52.8 95 16 5067 0.7 0.00 53.5 96 17 Gucheng 2187 0.7 0.02 54.3 97 18 Hanyang 5887 0.5 0.06 54.8 98 19 Dongxihu 3946 0.3 0.01 55.1 99 20 Jingshan 3008 0.3 0.08 55.4 99 21 3133 0.1 0.00 55.5 99 22 Caidian 794 0.1 0.01 55.6 100 23 Jianghan 1487 0.1 0.00 55.8 100 24 Baokang 1068 0.1 N.A 55.8 100 Total 241354 56 13 * Project Cities Source: DHI

15. On an enterprise basis, Hubei EPB figures show that 116 enterprises account for 80% of major pollutant loads (COD and ammonia).

16. As part of the Han River modeling study carried out by Delft Hydraulics Institute (DHI), a scenario to gauge the impact of industry on water quality by 2010 was conducted. The major assumptions were that industrial production would continue to increase by 6% per year, and that by 2010 all industries would be in compliance with present discharge regulations. The study concluded that pollutant concentrations will be reduced, compared to the base scenario, by about 3.4% for BOD5, 18.5% for NH4-N 7.7% for NO3-N, 2.5% for TP, and 4.7% for COD in the middle and lower reaches of the Han River. The reduction in nutrients (nitrogen and phosphorous) is particularly important. The study noted also that this would be achieved at a low cost to the government since the intervention is largely regulatory.

17. It is apparent that effective industrial pollution control is important in meeting project objectives; such control is not presently established; significant improvements in regulatory activities are required; and, important gains can be made through process restructuring and promotion of clean technology. The industrial pollution control activities in the project cities are an integral part of the 11th Five Year Plan of the Hubei Provincial EPB. This plan includes other cities in the Han River basin.

Rural Non-Point Source (NPS) Pollution

18. According to the Asian Development Bank (ADB)-funded State Environment Protection Administration (SEPA) study “Study on Control and Management of Rural Non-Point Source Pollution, November 2004”, Hubei is one of the four provinces in China with excessive Non- point source (NPS) pollution discharges and loads. NPS pollution, especially from livestock production, is a major source of pollution. Though the Provincial Government is well aware of the problem of NPS pollution, it does not have the necessary institutional and technical capacity

22 to systematically approach the issues of rural NPS pollution, because of the magnitude and complexity of the problem. The Provincial EPB’s five-year plan recognizes NPS pollution as a key pollution problem, but is short on specifics in terms of policy action and implementation programs. Originally HRUEIP, focusing on the urban environment, did not include a component addressing NPS pollution. However, given the importance of this issue, a study on NPS pollution issues was included in the project to be financed by the Provincial Government. If strong political commitment can be secured through this exercise, the Bank could consider mobilizing additional resources to implement the recommendation of this study.

Institutional Framework of Municipal Public Utilities

19. Wastewater Collection and Treatment. Institutionally wastewater utilities in the Province are weak and are managed or operated as governmental departments or enterprises, rather than autonomous and financially sustainable business entities. The sector is not integrated with separate wastewater collection systems and WWTPs. BOT (Build-Operate-Transfer) operators build and operate WWTPs in a few cities where the sewerage networks are invested and operated by the cities. Tariffs (RMB 0.2-0.8/m3 for wastewater services) are lower than those seen in more progressive Provinces, and certainly lower than necessary for service operation, maintenance costs, and debt services. The project will support institutional development of wastewater utilities. The regulation of the wastewater utilities are highly decentralized and under the responsibility of the municipality, except for the national guidelines provided by the Ministry of Construction and SEPA.

20. Solid Waste Management. Most of the solid waste management operations are under the responsibility of the cities’ sanitary departments, which provide collection services and manage open dumps or landfills. Solid waste collection, transportation and disposal are primarily funded by municipal governments through its budgetary allocations or relatively small solid waste tariffs (ranging RMB 3 -5 per household per month) that are not collected systematically. Disposal operations are severely under-funded and are a major factor behind the poor operations of landfills and treatment facilities. In most cases, the costs are not fully transparent, in part because they are of various solid waste management operations (collections, transportations and landfills) mixed under the same budget of the municipal sanitary department. The lack of transparency does not allow for the sanitary departments to use cost data to improve their operational efficiency. The project will help the municipalities to rationalize the organizational structure of the solid waste management operations and to improve their operational efficiency.

21. Industrial Pollution Control. The implementation of the provincial level program for on-line monitoring of major pollution sources is the responsibility of the Hubei Provincial EPB. At the working level, equipment installation, training and subsequent operations and maintenance will be the responsibility of the participating city EPBs, which are also responsible for ensuring that the necessary industry water monitoring facilities are put in place. The project cities’ EPBs are responsible for ensuring industry implementation of action plans to bring major polluters into compliance with wastewater discharge standards, and for directing the implementation of EPB capacity building investments and training.

23 Attachment: Administrative levels of the project cities 1. The municipalities under the project can be categorized in three administration levels: cities (Tianmen and Xiangfan); counties under districts (Dawu, Hanchuan, Honghu, Xiaochang and, Yunmeng,); and counties under cities (Danjiangkou and Shayang). The administrative system is depicted in the figure below. Detailed descriptions of the project cities are in the Project File.

Figure 1.4. Administrative Levels of the Project Cities

Central Government

Provincial Government

Cities Districts Tianmen Xiangfan Dawu

Hanchuan

Counties Towns Urban Centers Counties Honghu

Xiaochang

Yunmeng

Danjiangkou Shayang Main urban center Towns Villages

24 Annex 2: Major Related Projects Financed by the Bank and/or other Agencies CHINA: Han River Urban Environment Improvement Project

Latest ISR Ratings Project Sector Issue Development Implementation Objective Progress Bank Financed Wastewater treatment, solid waste China - Hubei Urban Environment management, industrial pollution S S Project (Ln. 3966) control China - Hunan Urban Development Flood protection, wastewater and air US US Project (Ln. 4751) pollution China - Ningbo Water and Environment Quality of water and wastewater S S Management Project (Ln. 4770) services, public health protection Wastewater treatment, solid waste China - Liuzhou Environment management, industrial pollution S S Management Project (Ln. 4781) control

China - Hebei Urban Environment Urban environment, wastewater, solid S S Project (Ln. 4569) waste, and industrial pollution control.

Wastewater management in a river China - Huai River Pollution Control basin: upgrade water quality in the S S Project (Ln. 4597) Huai River, improved collection and treatment of wastewater China - Guangdong Pearl River Delta Wastewater treatment, solid waste S S Urban Environment Project (Ln. 4742) management, water quality monitoring China - Shanghai Urban Environment Wastewater treatment, and solid waste S S Project (Ln. 4705) management China - Zhejiang Urban Environment Wastewater treatment, and solid waste S S Project (Ln. 4724) management China - Second Tianjin Urban Wastewater treatment, road Development and Environment Project MS MU (Ln. 4695) construction, and traffic management Other Multilateral Development Banks and Agencies Wastewater management and water Henan Wastewater Management and supply for public health and urban Water Supply Project (ADB) environment Tianjin Wastewater Treatment and Wastewater management and water Water Resources Protection Project supply (ADB) Wuhan Wastewater Management Wastewater management and

Project (ADB) protection of water resources Hebei Wastewater Management Project Wastewater management (ADB)

25 Annex 3: Results Framework and Monitoring CHINA: Han River Urban Environment Improvement Project Results Framework

PDO Outcome Indicators Use of Outcome Information

To reduce urban pollution • Proportion of municipal wastewater treated (Wastewater treated/ Track progress towards achieving the PDO. generated from wastewater and Estimated amount of wastewater generated in the project city) solid waste through their proper • Proportion of domestic solid waste collected and transferred to Recommend adjustments in utility management and collection, treatment and disposal sanitary landfills (Amount of waste treated/Estimated amount of regulation to improve service, efficiency, and in the selected second-tier cities, waste generated in the project city) sustainability. mainly located in the Han River area of Hubei. Intermediate Results Results Indicators for Each Component Use of Results Monitoring Wastewater Component

Access to wastewater collection • Number of service connection to sewers Track and adjust physical progress of wastewater and treatment • Proportion of municipal wastewater collected in sewer network works and the delivery of services. (Wastewater in sewer network/ Estimated amount of wastewater generated in the project city)

Solid Waste Management Component

Access to solid waste collection • Proportion of domestic solid waste collected (Amount of waste Track and adjust physical progress of solid waste collected/Estimated amount of waste generated in the project works and the delivery of services. city)

Improved environmental • Closure of old dump sites (ha) Track and adjust physical progress of closure of old sustainability of solid waste dumps and monitor environmental sustainability of disposal solid waste disposal

26

Industrial Wastewater Pollution Control Component

Reduction of industrial wastewater • Number of identified major industrial polluters which have Track and adjust progress of industrial wastewater pollution loads to surface water wastewater treatment facilities installed that are adequate to pollution control. bodies and stable operation of treat all wastewater to applicable discharge standards receiving wastewater treatment • Number of identified major industrial polluters that have installed plants effective on-line monitoring

Institutional Development and Capacity Building Component

Establishment and/or • Wastewater Companies Track and adjust progress of institutional strengthening of financially viable - Fee collection rate of Wastewater treatment entities (water development and capacity building. and institutionally sustainable supplied from WSC) wastewater and solid waste utilities. • Solid Waste Companies - O&M cost recovery ratio1 of solid waste management entities - Fee collection rate for residential customers of solid waste management entities

* Furthermore, Technical Assistance will be provided to help pilot municipal utilities’ conducting citizen satisfaction surveys on their service provision.

1 The ratio of operating revenue over operating expenses before depreciation 27 Arrangements for Results Monitoring Target Values Data Collection and Reporting Project Outcome Indicators Baseline YR1 YR2 YR3 YR4 YR5 Frequency Data Responsibility and Collection for Data Reports Instruments Collection Proportion of municipal 5% 10% 30% 40% 60% 70% Semi- Semi-Annual Wastewater 1 wastewater treated annually (%) annually Reports Co. Hanchuan 0% 0% 0% 40% 60% 70% Honghu 25% 30% 35% 40% 60% 70% Shayang 0% 0% 0% 40% 60% 70% Tianmen 0% 0% 0% 40% 60% 70% Xiangfan 20% 30% 40% 50% 60% 70% Xiaochang 0% 0% 0% 40% 60% 70% Yunmeng 0% 0% 0% 40% 60% 70% Proportion of municipal solid 0% 0% 0% 70% 90% 95% Semi- Semi-Annual Solid Waste 2 waste collected and transferred to annually Reports Co. sanitary landfills annually (%) Danjiangkou 0% 0% 0% 70% 90% 95% Dawu 0% 0% 0% 70% 90% 95% Hanchuan 0% 0% 0% 70% 90% 95% Honghu 0% 0% 0% 70% 90% 95% Shayang 0% 0% 0% 70% 90% 95% Xiaochang 0% 0% 0% 70% 90% 95% Yunmeng 0% 0% 0% 70% 90% 95% Intermediate Outcome and Key

Output Indicators Wastewater Component Number of service connection 1,500 2,000 2,500 3,250 4,000 4,750 Semi- Semi-Annual MPMO 3 sewers in the 7 project cities annually Reports (cumulative) Hanchuan 200 250 300 400 450 600 Honghu 200 300 400 500 550 600 Shayang 200 300 400 450 600 700 Tianmen 200 300 400 500 600 750 Xiangfan 300 350 400 600 800 1000 Xiaochang 200 250 300 350 400 400 Yunmeng 200 250 300 450 600 700 Proportion of municipal 15% 25% 30% 45% 60% 75% Semi- Semi-Annual MPMO 4 wastewater collected in sewer annually Reports network annually (%) Hanchuan 15% 25% 30% 40% 55% 70% Honghu 15% 25% 30% 40% 55% 70% Shayang 15% 25% 30% 50% 60% 65%

28 Target Values Data Collection and Reporting Project Outcome Indicators Baseline YR1 YR2 YR3 YR4 YR5 Frequency Data Responsibility and Collection for Data Reports Instruments Collection Tianmen 15% 25% 30% 50% 60% 70% Xiangfan 25% 30% 40% 50% 60% 75% Xiaochang 15% 25% 30% 50% 60% 70% Yunmeng 15% 25% 30% 40% 60% 80% Sewerage constructed under the 0 0 20 152 235 260 Semi- Semi-Annual MPMO 5 project (cumulative, km) annually Reports Hanchuan 0 0 5 20 25 25 Honghu 0 0 10 20 33 33 Shayang 0 0 0 20 40 45 Tianmen 0 0 0 30 50 55 Xiangfan 0 0 5 12 12 12 Xiaochang 0 0 0 25 35 40 Yunmeng 0 0 0 25 40 50 Solid Waste Management

Component Closure of the old dump sites 0 0 0 0 446 446 Semi- Semi-Annual MPMO 6 (cumulative, mu) annually Reports Danjiangkou 0 0 0 0 185 185 Dawu 0 0 0 0 6 6 Hanchuan 0 0 0 0 100 100 Honghu 0 0 0 0 65 65 Shayang 0 0 0 0 40 40 Xiaochang 0 0 0 0 10 10 Yunmeng 0 0 0 0 40 40 Industrial Wastewater Pollution

Control Component Number of major polluters to Semi-Semi-Annual City EPB upgrade inadequate wastewater annually Reports 7 treatment facilities to meet applicable discharge standards. Hanchuan 6 4 2 complete Honghu 6 0 3 2 1 complete Shayang 4 1 3 complete Tianmen 4 1 2 1 complete Xiangfan 10 5 5 complete Xiaochang 2 1 1 complete Yunmeng 0 Danjiangkou 4 2 2 complete Dawu 0

29 Target Values Data Collection and Reporting Project Outcome Indicators Baseline YR1 YR2 YR3 YR4 YR5 Frequency Data Responsibility and Collection for Data Reports Instruments Collection Number of enterprises that have Semi-Semi-Annual City EPB 8 installed/upgraded OLM stations annually Reports Hanchuan 9 0 7 2 Complete Honghu 2 2 Complete Shayang 7 2 2 3 Complete Tianmen 3 2 1 Complete Xiangfan 26 8 9 9 Complete Xiaochang 0 Yunmeng 6 3 3 Complete Danjiangkou 9 4 5 Complete Municipal EPB’s within the project 6 Complete Semi- Semi-Annual Provincial area to install OLM data capture annually Reports EPB/PPMO 9 and processing facilities, and train staff. Institutional Development and

Capacity Building Component O&M Cost Recovery Ratio of Solid Annually Semi-Annual Solid Waste 10 Waste Management entities Reports Co. Danjiangkou 50% 50% 60% 70% 85% 100% Dawu 60% 60% 70% 80% 90% 100% Hanchuan 60% 60% 60% 60% 90% 100% Honghu 60% 60% 70% 80% 90% 100% Shayang 50% 50% 60% 70% 90% 100% Xiaochang 60% 60% 60% 60% 90% 100% Yunmeng 60% 60% 60% 60% 90% 100% Fee collection rate for residential Annually Semi-Annual Solid Waste 11 customers of solid waste Reports Co. management entities Danjiangkou 25% 25% 35% 45% 50% 60% Dawu 40% 40% 45% 50% 55% 60% Hanchuan 30% 30% 40% 60% 70% 80% Honghu 50% 50% 60% 65% 70% 80% Shayang 30% 30% 40% 50% 70% 80% Xiaochang 70% 70% 75% 80% 80% 85% Yunmeng 55% 55% 60% 65% 70% 80% Fee collection rate of wastewater Annually Semi-Annual Wastewater 12 treatment entities (water supplied Reports Co. from WSC) Hanchuan 40% 40% 60% 75% 85% 95%

30 Target Values Data Collection and Reporting Project Outcome Indicators Baseline YR1 YR2 YR3 YR4 YR5 Frequency Data Responsibility and Collection for Data Reports Instruments Collection Honghu 95% 95% 95% 95% 95% 95% Tianmen 70% 70% 80% 85% 90% 95% Shayang 80% 80% 85% 90% 95% 95% Xiangfan 70% 70% 75% 80% 90% 95% Xiaochang 70% 70% 80% 85% 90% 95% Yunmeng 70% 70% 80% 85% 90% 95%

31 Definitions of Selected Results Monitoring Indicators

Indicator Definition Outcome Indicators Proportion of municipal wastewater treated annually Wastewater treated annually / Estimated quantity of wastewater generated annually (%) calculated based on population, calculated as: 100 x (Sum of monthly wastewater flow from meter readings) / (Served Population x Water consumption Lpcd x 0.80 + Sum of monthly industrial wastewater discharges into sewers) Proportion of municipal solid waste collected and Amount of solid waste transferred annually / Estimated weight of waste generated in the transferred to sanitary landfills annually (%) project cities, calculated as : 100 x (Sum of monthly weight of solid waste transported to sanitary landfill) / (Sum of monthly served population x Estimated weight of solid waste generated per person annually) Intermediate Outcome and Key Output Indicators Wastewater Component Proportion of municipal wastewater collected in sewer Wastewater collected in sewer network annually / Estimated amount of wastewater network annually (%) generated in the project city annually, calculated as: 100 x (Sum of monthly wastewater flow from meter readings) / (Served Population x water consumption Lpcd x 365 x 0.80 + Sum of monthly industrial wastewater discharges into sewers) Institutional Development and Capacity building Component O&M cost recovery ratio of solid waste management The ratio of operating revenue over operating expenses before depreciation entities Fee collection rate for residential customers of solid The ratio of fee revenue collected over fee revenue billed for residential customers waste management entities Fee collection rate for residential customers of solid The ratio of wastewater tariff revenue collected over wastewater tariff revenue billed for waste management entities revenues collected by the water supply company

32 Annex 4: Detailed Project Description CHINA: Han River Urban Environment Improvement Project

1. The Han River Urban Environment Improvement Project (HRUEIP) is designed to reduce the pollution loads from wastewater and solid waste in the selected second-tier cities of Hubei, mainly located in the Han River Basin areas. This will be achieved by undertaking high priority investments in selected project cities in wastewater collection and treatment systems and solid waste management systems, as well as institutional reforms and capacity development in the areas of municipal utilities reforms and water pollution control. The Bank loan provides financing for wastewater collection and treatment facilities and solid waste management facilities. In addition, the project includes an institutional development and capacity building component which is composed of project management, institutional development of utilities, training, the Han River water model development, and research on non-point source (NPS) pollution control.

Component 1: Investment in wastewater collection and treatment facilities (US$ 94.45 million)

2. The expected outcome of this component is the expansion of high quality and efficient wastewater services. This component will cover seven cities and finance the supply and installation of 260 km of sewer pipes in all seven cities, the construction of two pumping stations in Hanchuan and Tianmen, and the construction of wastewater treatment plants (WWTPs) in Hanchuan, Shayang, Tianmen, Yunmeng, and Xiaochang, ranging in maximum capacity from 25,000m3/d to 50,000m3/d. It is estimated that this component will ensure that 1.37 million people have access to wastewater treatment in all seven cities by 2010.

Hanchuan Sewage Collection and Wastewater Treatment: This sub-project will upgrade supply and installation of 24.61 km of sewer pipes of DN400 ~ DN2000, a 1.39m3/s, a H = 15 m pumping station and a 50,000 m3/d improved oxidation ditch secondary WWTP.

Honghu Sewage Collection: Supply and installation of 32.62 km of sewer pipes of DN300 ~ DN1000.

Shayang Sewage Collection and Wastewater Treatment: Supply and installation of 44.63 km of sewer pipes of DN300 ~ DN1200, and a 30,000 m3/d improved oxidation ditch secondary WWTP.

Tianmen Sewage Collection and Wastewater Treatment: Supply and installation of 55.68 km of sewer pipes of DN300~ DN1800, a 0.508 m3/s, a H = 4.50 m pumping station, and a 50,000 m3/d improved oxidation ditch secondary WWTP.

Xiangfan Sewage Collection: Supply and installation of 12.22 km of sewer pipes of DN600 - 1500.

33 Xiaochang Sewage Collection and Wastewater Treatment: Supply and installation of 34.64 km of sewer pipes of DN300 ~ DN1200, and a 25,000 m3/d improved oxidation ditch secondary WWTP.

Yunmeng Sewage Collection and Wastewater Treatment: Supply and installation of 50.90 km of sewer pipes of DN300 ~ DN1500, and a 50,000 m3/d improved oxidation ditch secondary WWTP.

Component 2: Investment in Solid Waste Management Facilities (US$ 59.09 million)

3. The expected outcome of this component is the expansion of high quality and efficient solid waste management services. This component will cover seven cities and provide financial assistance in the construction of solid waste collection stations and sanitary landfills, ranging in size from 1.09 to 2.57 million m3, closure of existing dump sites, and the upgrading of garbage collection fleets in the all seven cities. It is estimated that this component ensures 1.19 million people will have access to solid waste management in all seven cities by 2010.

Danjiangkou Solid Waste: Construction of Two Solid Waste Collection Stations and Wangjiagou Sanitary Landfill of 2.57 million m3 and 18 years life span, closure of the existing dump site, and upgrading of garbage collection fleet.

Dawu Solid Waste: Construction of Shanghengchong Sanitary Landfill of 1.09 million m3and 12 years life span, closure of the existing dump site, and upgrading of the garbage collection fleet.

Hanchuan Solid Waste: Construction of Fuxingcun Sanitary Landfill of 2.21 million m3 and 14 years life span, three Solid Waste Collection Stations, upgrading of five existing collection stations, closure of the existing dump site, and upgrading of the garbage collection fleet.

Honghu Solid Waste: Construction of Xiongjiayao Sanitary Landfill of 1.24 million m3 and 13 years life span, closure of the existing dump site, and upgrading of the garbage collection fleet.

Shayang Solid Waste: Construction of Yangjicun Sanitary Landfill of 2.19 million m3 and 27 years life span, closure of the existing dump site, and upgrading of the garbage collection fleet.

Xiaochang Solid Waste: Construction of One Solid Waste Collection Station and Yankoucun Sanitary Landfill of 1.56 million m3 and 17 years life span, closure of the existing dump site, and upgrading of the garbage collection fleet.

Yunmeng Solid Waste: Construction of One Solid Waste Collection Station and Fengpucun Sanitary Landfill of 1.24 million m3 and 14 years life span, closure of the existing dump site, and upgrading of the garbage collection fleet.

Component 3: Industrial Wastewater Pollution Control (US$ 2.46 million)

4. Provincial On-Line Monitoring (OLM) Program. The Hubei Environmental Protection Bureau (EPB) will implement the provincial program to achieve OLM for at least 65% of major

34 industrial pollution sources in the Province and WWTPs by the end of the 11th Five-year Plan, as required by the nationwide SEPA program. The Hubei EPB program will provide financial support to municipal EPBs to install data reception and processing platforms connected to the enterprise OLM stations and training of the local EPBs’ staff to deal with all aspects of OLM. Industrial enterprises required to install OLM facilities will finance the necessary works themselves, although on satisfactory completion, the local EPB may make a payment of around 50% of the total installation cost. The local EPB will be responsible for supervision of the enterprise installation, operation and maintenance of the OLM equipment, and monitoring the resulting data streams (in the case of county cities via internet connection to the municipal EPB) so as to improve reporting and compliance with discharge standards. This component will be funded entirely by provincial and local EPB funds.

5. With the exception of Yunmeng and Dawu, all of the project cities have some major industrial polluters (those with an aggregate COD discharge of 80% of total industrial COD discharge) that are not able to meet discharge standards due to inadequate wastewater treatment facilities. The target under the 11th Five-Year Plan is to bring all these major industrial polluters into compliance. Major polluters have been identified and time bound action plans have been agreed upon between the enterprises and the municipal governments for implementation by the enterprises of the necessary measures and investments. In addition, action plans for the installation of OLM equipment by the major polluters (those that account in aggregate for 65% of the provincial industrial discharge of COD) have been agreed upon to improve the EPB monitoring of the operation of enterprise wastewater treatment facilities, so that any failure to meet discharge standards can be quickly detected (Xiaochang and Dawu have no enterprises within the classification for mandatory installation of OLM). Since effective Industrial Pollution Control (IPC) is essential to the achievement of the project objectives, these IPC action plans are part of the project, even though financial assistance will not be provided for the enterprise action plans under the Bank loan. There is a strong commitment at the municipal and provincial levels to apply the appropriate penalties to enterprises that fail to fulfill the IPC agreements. Agreed IPC Action Plans are in the Project File.

6. Mitigation of the risk of toxic contamination of industrial wastewater streams, either deliberate or accidental, will require greater involvement of the WWTP Company in setting specific contract terms with the enterprise to be connected to the sewer of the WWTP. The Bank project team and the Provincial Project Management Office (PPMO) agreed on a draft list of items to be included in the contracts between the enterprises and the WWTP Company. This list is provided in the Project File.

7. This component financed by the Provincial Government also supports a study and TA to improve the environmental protection of the Han River

8. Non-Point Source (NPS) Pollution and Han River Model Development. NPS pollution is around 40% of total COD loads in the Han River. Thus control of NPS pollution is an important part of any pollution control strategy. Hubei EPB has carried out a number of studies on NPS, but details of pollution sources, transmission, and degradation are not well understood. The study and TA (US$ 0.54 million) would have the objectives of providing improved data input to the Han River Model, and through identification and quantification of individual NPS’s allow for

35 the design and prioritization of programs to control NPS pollution. The Han River Model will serve as a management tool to assist decision makers in understanding short, medium and long term impacts on the changes in water quality (natural and man-made) in the river basin. An essential part of the TA will be the development within Hubei EPB of the necessary expertise to run the model, and to improve and extend the model’s utility as new information and techniques become available. The draft terms of reference for the study and TA have been agreed upon with the Provincial Government and are available in the Project File.

9. The river model development and the NPS pollution study will surely highlight the need for increased research on water pollution control in the Han River basin, including NPS pollution control and river basin management. To ensure codification of knowledge, local learning, and capacity building, the activity will place special emphasis on the participation of government officials, cooperation and information sharing across government departments, and dissemination of the study and TA results

Component 4: Institutional Development and Capacity Building (US$ 4.25 million)

10. Project Management and Implementation Assistance: This Technical Assistance (TA) Component will help the project cities implement their respective sub-projects in the areas of design review and construction supervision. TA implementation will be coordinated by the PPMO as the agency of the project cities. This TA includes the following activities:

• Design Review Advisory Services include: (i) assisting the staff of the project implementing agencies, the PPMO, Municipal Project Management Office (MPMOs), and the Design Institutes (DIs) in preparing design advisory reports to ensure that the quality of the design developed for the project is suitable for international or/and national competitive bidding; and (ii) providing assistance with the review of the bidding process for international and national bidding for contracts under the component. With respect to bidding documents, the Consultant shall prepare bidding documents, assist with the bidding process, and provide inputs to the award recommendation and mobilization process.

• Construction Supervision includes: (i) providing services as Engineer/Construction Supervisor to issue instructions to commence or stop works, accept and reject works, measure and value works carried out and accepted, agree to contract variations, certify payments, and grant extensions of time; (ii) carrying out construction supervision and contract management in accordance with best practice, and in conformity with: “The Code of Construction Project Management” of the People’s Republic of China (referred to as GB50319-2000); and (iii) carrying out quality control to ensure that all works are in accordance with specifications, including safety assurance.

• Monitoring of Environmental Management Plan (EMP) and Resettlement Action Plan (RAP). This TA will provide the monitoring of the implementation of the EMPs and RAPs by independent agencies.

• Provision of an individual procurement consultant.

36

11. Institutional Development and Capacity Building of the Wastewater Companies and Solid Waste Management Companies and Project Cities. This TA will support the Institutional Strengthening and Capacity Building of the wastewater and solid waste companies, and assist in clarifying the overall sector structures. As almost all of the companies are newly established, support in terms of helping the new companies with their major responsibilities and functions (technical, managerial, financial, etc.) is critical in ensuring their long-term sustainability. In this context, this TA will focus on the following:

12. Wastewater and Solid Waste Companies. This would include strengthening the capacity of the companies in all their functional aspects, including general management, human resource management and staffing, business planning, operational and technical management (especially new wastewater treatment and landfill technology), asset management planning, application of GIS approaches, financial management and financial projections, billing information systems, and customer management, public environmental awareness campaigns, and others. It would also include an extensive training program (‘on the job’ and through study visits) to expose staff to the best practices of other companies in other cities.

13. Sector Institutional and Organization Issues. Given that Wastewater and Solid Waste Companies can only operate successfully in an appropriately structured authorizing environment, the Institutional Development and Capacity Building Component will also assist in clarifying the roles and responsibilities of all key agencies involved in the sector, such as the Finance Bureau, Development and Reform Commission (DRC), the Price Bureau, EPB, the Urban Development Investment Corporations (UDICs), etc. It will specifically assist the project cities in separating the role of specific government agencies as supervisory agencies and the newly established companies as fully autonomous operating companies. It will also assist in introducing more systematic approaches to managing tariff increases, addressing collection efficiency issues, and promoting appropriate private sector participation arrangements, etc.

37 Attachment 1: List of Sub-projects/Components (Wastewater and Solid Waste Management)

Wastewater Components (Supply and Installation) Solid Waste Components (Supply and Installation) Projected Cost in millions Projected Cost in millions N Cities Beneficiaries Solid Waste Beneficiaries Sewage Collection Secondary WWTP Solid Waste Treatment after RMB USD Collection and Transport after RMB USD Completion Completion Wangjiagou sanitary landfill Additional waste collection 2.57 million m3 1 Danjiangkou N.A. N.A. ------vehicles + 2 solid waste 232,900 57.87 8.15 18 yr life span collection stations Closure of Existing Dump. Shanghengchong sanitary Additional waste collection landfill;1.09 million m3 2 Dawu N.A. N.A. ------180,000 35.50 5.00 vehicles 12 yr life span Closure of Existing Dump. Additional waste collection Fuxingcun sanitary landfill 24.61 Km of Sewer Pipes vehicles + 3 new waste 50,000 m3/d Improved 2.21 million m3 3 Hanchuan of DN400 ~ DN2000, 1 186,000 160 21.65 collection stations + 200,000 103.38 14.56 Oxidation Ditch 14 yr life span Pumping Station 1.39m3/s, upgrade 5 existing waste Closure of Existing Dump. H = 15m stations Xiongjiayao sanitary landfill 32.62 Km of Sewer Pipes Additional waste collection 1.24 million m3 4 Honghu 200,000 29.04 3.85 200,000 62.05 8.74 DN300~1000 vehicles 13 yr life span Closure of Existing Dump. Yangjicun sanitary landfill

30,000 m3/d improved Additional waste collection 2.19 million m3 5 Shayang 44.63 Km Sewer Pipes 115,000 114.59 13.75 113,800 60.35 8.50 Oxidation Ditch vehicles. 27 yr life span DN300~1200 Closure of Existing Dump. 55.68 Km Sewer Pipes DN300~1800 50,000 m3/d improved 6 Tianmen 283,000 168.06 20.75 N.A. N.A. ------+ 1 Pumping Station Oxidation Ditch 0.508 m3/s, H=4.50m

12.22 Km of Sewer Pipes 7 Xiangfan 364,000 53.32 6.98 N.A. N.A. ------of DN600 ~ DN1500

Yankoucun sanitary landfill Additional waste collection 34.64 Km Sewer Pipes 25,000 m3/d Improved 1.56 million m3 8 Xiaochang 90,000 98.48 11.53 vehicles + 1 waste 128,300 53.18 7.49 DN300~1200 Oxidation Ditch –17 yr life span collection stations Closure of Existing Dump. Fengpucun sanitary landfill Additional waste collection 50.90Km of Sewer Pipes 50,000 m3/d improved 1.24 million m3 – 9 Yunmeng 134,000 113.17 15.94 vehicles + 1 waste 133,600 47.22 6.65 DN300~1500 Oxidation Ditch 14 yr life span collection station Closure of Existing Dump. Note: Forex USD 1 = RMB 7.1

38 Annex 5: Project Costs CHINA: Han River Urban Environment Improvement Project

Table 5.1.1. Project Baseline Cost Summary by Project Components Amount, RMB million Amount, US$ million Project Baseline Cost by Component and/or Activity Local Foreign Total Local Foreign Total Hubei Urban Environment Improvement Project: A. Wastewater Collection and Treatment Facilities 210.84 172.50 383.34 30.41 24.88 55.29 B. Solid Waste Management Facilities 130.65 113.79 244.43 18.42 16.04 34.45 C. Industrial Pollution Control: 6.02 11.18 17.20 0.84 1.57 2.41 D. Technical Assistance: 9.98 18.53 28.51 1.45 2.69 4.15 E. Land Acquisition/Resettlement: 174.94 30.87 205.81 24.30 4.29 28.59 F. Project Overheads: 61.46 20.49 81.94 8.66 2.89 11.55 Project Baseline Cost: 593.88 367.36 961.23 84.08 52.36 136.44 Contingencies: 107.29 61.24 168.53 15.24 8.58 23.82 Physical Contingencies: 68.85 42.85 111.70 9.77 6.11 15.88 Price Contingencies: 38.44 18.39 56.82 5.47 2.47 7.94 1 Total Project Costs : 701.16 428.60 1,129.76 99.32 60.94 160.26 Interest During Construction (IDC): - 78.78 78.78 - 12.10 12.10 Commitment Fee: ------Front-end Fee: - 1.57 1.57 - 0.21 0.21 Total Financing Required: 701.16 508.94 1,210.10 99.32 73.25 172.57

39 Table 5.1.2. Project Total Cost, with Contingencies, Summary by Project Components Amount, RMB million Amount, US$ million Project Total Cost by Component and/or Activity Local Foreign Total Local ForeignTotal Hubei Urban Environment Improvement Project: A. Wastewater Collection and Treatment Facilities 258.23 206.98 465.21 37.25 29.86 67.10 B. Solid Waste Management Facilities 156.36 132.92 289.28 22.04 18.74 40.78 C. Industrial Pollution Control: 6.34 11.60 17.94 0.89 1.57 2.46 D. Technical Assistance: 10.60 19.33 29.93 1.54 2.71 4.25 E. Land Acquisition/Resettlement: 200.62 35.02 235.64 27.87 4.87 32.74 F. Project Overheads: 69.01 22.75 91.76 9.72 3.21 12.93 Total Project Costs: 701.16 428.60 1,129.76 99.32 60.94 160.26 Interest During Construction (IDC): - 78.78 78.78 - 12.10 12.10 Commitment Fee: ------Front-end Fee: - 1.57 1.57 - 0.21 0.21 Total Financing Required: 701.16 508.94 1,210.10 99.32 73.25 172.57

40

Table 5.2.1. Project Baseline Costs and Financing Plan

41

Table 5.2.2. Project Total Costs and Financing Plan

42 Annex 6: Implementation Arrangements CHINA: Han River Urban Environment Improvement Project

Project Management and Leadership

Provincial Level Arrangements

1. The Provincial Leading Group is responsible for giving policy guidance and overseeing project implementation of all Bank-funded projects. The Leading Group chaired by the Vice Governor consists of the representatives of the Development Reform Commission (DRC), Economy and Trade Commission, Finance Bureau, Audit Bureau, Foreign Affairs Office, Construction Bureau, and People’s Bank of China, Wuhan Branch. The Environmental Protection Bureau (EPB) is not a regular member of the Leading Group, but the Provincial Project Management Office (PPMO)/EPB will report to the Leading Group.

2. In addition, a special Provincial Leading Group for Pollution Control was established to coordinate the pollution control activities in the Han River Basin. The Group consists of representatives from 15 different bureaus, and is chaired by the same Executive Vice Governor.

3. The PPMO will provide management leadership in all aspects of project implementation, handling all operational matters on a day-to-day basis. The Deputy General Director of EPB heads the PPMO. The PPMO also has the representation of the Provincial DRC, Finance Bureau, and Construction Bureau along with the Provincial Audit Bureau, Price Bureau, and Land Resources Administration Bureau. A full-time PPMO Manager has been appointed by the Provincial Government to administer daily operations of the PPMO under the supervision of the Deputy General Director of EPB, and to manage the administrative and technical staff in the areas of finance, engineering, procurement, environment and resettlement.

4. The role of PPMO includes: (a) overall project implementation coordination, management, supervision and monitoring; (b) annual budget preparation; (c) project-wide quality assurance; (d) forwarding progress reports to the Hubei Provincial Government and the Bank team; (e) inter-agency coordination and procurement support; (f) coordination of implementation of TA for the project cities and the Province; and (g) facilitation of training.

Municipal Level Arrangements

5. Each city has established its own Leading Group and Municipal Project Management Office (MPMO) in charge of its own component. The sub-projects will be implemented by the project implementing agencies (municipal departments or utility companies) designated by the cities. Major institutional responsibilities of each component are summarized in the sections below:

Wastewater Component

6. Wastewater services, mainly consisting of sewerage collection, have traditionally been operated by the Construction Commissions in most project cities, except in Xiangfan, which

43 already has wastewater treatment plants (WWTPs) operated through BOT (Build-Operate- Transfer) arrangements. During project preparation, all project cities established wastewater companies, which will be the project implementing agencies. The wastewater assets created under the project will be operated and maintained by the wastewater companies which will also be responsible for the repayment of World Bank debt. The details of the institutional arrangements of the wastewater component in each city are summarized below.

Table 6.1. Institutional and Implementation Arrangements of the Wastewater Component Project Ownership of O&M of Assets Debt Service Implementing Assets Created Created Under the Repayment City Agency under the Project Project Obligation WWTP Project Hanchuan Hanjiang Wastewater Treatment Company Hanchuan (HWWT) HWWT HWWT HWWT Shayang Kanglu Drainage Management Co. Shayang (SKDM) SKDM SKDM SKDM Tianmen City Huangjing Wastewater Treatmetn Co. Tianmen (TWWT) TWWT TWWT TWWT Xiaochang Minghua Wastewater Treatment Co. Xiaochang (XMWT) XMWT XMWT XMWT Yunmeng Urban Wastewater Treatment Co. Yunmeng (YWWT) YWWT YWWT. YWWT Network Project Xiangfan Urban Wastewater Treatment Co. Xiangfan (XFWWT) XFWWT XFWWT XFWWT Honghu Huqing Wastewater Treatment Company Honghu (HHWT) HHWT HHWT HHWT

7. Hanchuan. At present, there is no wastewater treatment facility in Hanchuan, with all sewage discharged into the river. The Bank project will be implemented by Hanchuan Hanjiang Wastewater Treatment Company (HWWT), established in September 2007 as an independent legal person with a business license and a company charter. HWWT is owned 100% by Hanchuan Hanrong Investment & Development Co. HWWT will own and operate the assets created under the project, and be responsible for repayment of the Bank loan. Hanchuan’s sewage network is currently operated by the Construction Commission. Existing assets include the sewage network with 30 km of main pipes (145 km including primary, secondary and tertiary) and five pumping stations. The plan is to transfer these assets to the newly established company, ensuring that the wastewater sector is managed in an integrated manner. The number

44 of staff employed by the Construction Commission working on operating the wastewater network is 46.

8. Honghu. Honghu Huqing Wastewater Treatment Company (HHWT) was established in July 2007 as an independent legal person, with a business license and a company charter. At appraisal, HHWT was not staffed, but staff will be recruited to implement the project. HHWT is owned 100% by Honghu Hongrui Investment & Development Co, the local UDIC. HHWT will be responsible for implementing the Bank project, own and operate the assets created under the project, and be responsible for the repayment of the Bank loan. The assets relating to Honghu’s existing WWTP (70,000 m3 per day) were transferred under the TOT (transfer, operate and transfer) scheme in 2006 to Honghu Chungye Water Affairs Co., which is a company owned by Tianjin Chungye Environmental Co. (90% privately owned) and Construction Commission (10%). It was reported that the Chungye Water Affairs Co. currently receives RMB 0.6 per m3 based upon the guaranteed minimum off-take volume of 35,000 m3/day (wastewater volume treated is estimated at around 15,000 m3/day). The TOT agreement is between the Construction Commission and Honghu Chungye Water Affairs Co. Currently, the sewer network is operated by the Drainage Division of Construction Bureau with 20 staff, but the plan is to transfer the assets to HHWT. The existing sewer network length is 25 km, with one pumping station.

9. Shayang. There is no wastewater treatment facility in Shayang, with all sewage discharged into the river. Shayang Kanglu Drainage Management Co. (SKDM) was established in November 2006 and currently employs seven staff: one General Manager, one Deputy Manager, one Engineer, plus four staff covering tariff collection and finance functions; three are full time staff. SKDM is an independent legal person, with a business license and a company charter and is 100% owned by the Shayang’s Water Supply Company. SKDM will be responsible for implementing the Bank project, own and operate the Bank funded assets, and be responsible for repaying the Bank loan. The sewer network is currently operated and maintained by the Municipal Utility Company under the Construction Commission (with a staff of 60). All existing assets, consisting of 23 km of sewer network, will be transferred to SKDM upon completion of the Bank project ensuring that the wastewater sector is managed in an integrated manner.

10. Tianmen. There is no wastewater treatment facility in Tianmen, with all sewage discharged into the river. Tianmen City Huangjing Wastewater Treatment Co. (TWWT) was established in November 2007 as an independent legal person, with a business license and a company charter. TWWT will implement the Bank project, will own and operate the assets created under the project, and be responsible for repayment of the Bank loan. Tianmen’s sewer network is currently managed by the Municipal Management Bureau under the Construction Commission, with a staff of 15. Existing assets, consisting of a sewer network with a total length of 70 km and four pumping stations, will be transferred to the newly established wastewater company ensuring that the sector is managed in an integrated manner.

11. Xiangfan. Xiangfan Urban Wastewater Treatment Co. (XFWWT) will implement the Bank project. It will own and operate the assets upon construction completion and be responsible for the repayment of the Bank loan. XFWWT was established in 1994 as an independent legal person with a business license and a company charter, and is 100% owned by

45 the Construction Commission. At present, XFWWT owns and operates the existing sewer network (about 100 km), eight pumping stations, and two World Bank-funded (previous WB project) pre-treatment plants with 58 staff. Gross network assets are RMB 380 million (67 million for the sewer network and 310 million for pumping stations/pre-treatment plants). There are also two interceptors under construction, which upon completion will be transferred to XFWWT. In terms of wastewater treatment, XFWWT entered in two BOT arrangements; one (200,000 m3/day capacity, construction completion October 2007, contract term RMB 0.599 per m3 of wastewater treated, minimum off-take volume 160,000 m3/day) with Fuchuan Ziguguang, owned 100% by Zhejiang Fuchuan Ziguguang; the other (100,000m3 capacity, construction completion February 2008, contract term RMB 0.456 per m3 wastewater treated, minimum off- take volume 70,000 m3/day) with Han Shui Qingyi Water Affairs Company, owned 100% by Beijing Sangde Environmental Protection. Both BOT contracts are signed for 25 years.

12. Xiaochang. There is no wastewater treatment facility at present in , with all sewage discharged into the river. Xiaochang Minghua Wastewater Treatment Co. (XMWT) was set up in July 2007 as an independent legal person, with a business license and a company charter. XMWT is owned by the State Asset Supervision Administration of Xiaochang County. XMWT has eight staff, including one General Manager, one Deputy General Manager, two accountants, a chief financial officer, one procurement specialist, and one senior engineer (six of which are full-time). XMWT will be responsible for implementing the Bank project, own and operate the Bank funded assets, and be responsible for the repayment of some of the Bank loan. The existing sewer network is operated by the Construction Commission. It is planned that all existing sewer network assets (with a total network length of 20-30 km) will be transferred to XMWT during project implementation, ensuring that the wastewater system is managed in an integrated manner. There are currently 8 staff members working in the Construction Commission operating the existing network.

13. Yunmeng. There is no wastewater treatment facility in Yunmeng, with all sewage discharged into the river. Yunmeng Urban Wastewater Treatment Co. (YWWT) was established in July 2007 as an independent legal person, with a business license and company charter. It is 100% owned by the local EPB. YWWT is in the process of recruiting key personnel for the company, and staffing will be in place for project implementation. YWWT will implement the Bank project, own and operate the Bank financed assets, and be responsible for the repayment of the Bank loan. At present, the Construction Commission operates Yunmeng’s sewer network (30 km in length) with a staff of about 30-40 (with some also responsible for road maintenance). All existing network assets will be transferred to YWWT during project implementation, ensuring that the wastewater sector is managed in an integrated manner.

Solid Waste Component

14. Before the preparation of the Bank project, all assets associated with solid waste management (SWM) of all the project cities were owned and operated by the Environmental Sanitation Department (ESD). All project cities established state-owned SWM companies which will be responsible for implementing the Bank project. The companies will also own and operate the assets created under the project. Debt repayment responsibility will rest with the local

46 Finance Bureaus. Detailed information on the institutional arrangements in each project city, as well as the institutional arrangements of the SWM is presented below.

Table 6.2. Institutional and Implementation Arrangements of Solid Waste Component

Project Ownership of O&M of Assets Debt Service Implementing Assets Created Created under the Repayment City Agency under the Project Project Obligation Danjiangkou Wanjie Solid Waste Management Co. Local Finance Bureau Danjiangkou (DWSWM) DWSWM DWSWM (LFB) Dawu Solid Waste Management Co. Dawu (DSWM) DSWM DSWM LFB Hanchuan Chuanjie Solid Waste Management Co. Hanchuan (HCSWM) HCSWM HCSWM LFB Honghu Hongjie Solid Waste Management Honghu Co. (HHSWM) HHSWM HHSWM LFB Shayang Jieyang Solid Waste Management Co. Shayang (SJSWM) SJSWM SJSWM LFB Xiaochang Qingjiashan Solid Waste Sanitary Disposal Center Co. Xiaochang (XQSWM) XQSWM XQSWM LFB Yunmeng City Environment & Sanitation Service Yunmeng Co. (YCESS) YCESS YCESS LFB

15. Danjiangkou. Danjiangkou county government set up in June 2007 the Danjiangkou Wanje Solid Waste Management Co. (DWSWM) to implement the Bank project as an independent legal person, with a business license and company charter. DWSWM will own and operate the assets created under the project. It currently has five part time employees, with a goal of recruiting 44 full-time staff by the time of construction completion, of which 15 will be in management. At present, the ESD conducts most of Danjiangkou’s SWM operations covering collection, transfer, and landfill. Pre-collection is either done by three collection companies or by property management companies for some residential areas (covering about 10% of total solid waste). ESD employs 95 regular staff (collection 35, transport 20, landfill 17, administration 3, and fee collection 20). 310 people work in pre-collection of which 300 are employed by the three private companies. ESD’s current assets (transport only) include eleven vehicles. There is also one transfer station owned by one of the industrial customers. It is planned that ESD will transfer all existing assets to DWSWM during implementation of the project.

16. Dawu. The Bank project will be implemented by the recently established (July 2007) Dawu Solid Waste Management Co. (DSWM). DSWM is owned by the local ESD. It currently has six staff (all part-time); once the Bank project is approved, DSWM will begin hiring full-

47 time staff with a goal to recruit about 34 full-time staff, of which nine will be management staff by the time of construction completion. DSWM is an independent legal person, with a business license and company charter. It is planned that DSWM will own and operate Bank-financed assets once the construction of the assets is completed. At present, SWM operations are conducted by the local ESD with 118 staff, of which 97 are regular employees. Its responsibility includes all of Dawu’s solid waste activity from primary collection to final disposal. Its assets (transportation only) include seven vehicles, and no transfer stations. All existing assets will be transferred to DSWM during the implementation of the Bank project.

17. Hanchuan. The Bank project will be implemented by the recently established (September 2007) Huanchuan Chuanjie Solid Waste Management Company (HCSWM) as an independent legal person with a business license and company charter. HCSWM is owned by Hanchuan’s UDIC. It will own and operate the assets created under the project. Currently, Hanchuan’s solid waste services are managed in a fully integrated manner. The ESD is responsible for collection (including primary collection), transfer, and disposal. Total ESD staff working on solid waste is 450. Their assets include (transportation only) eleven vehicles and ten transfer stations.

18. Honghu. The Bank project will be implemented by Honghu Hongjie Solid Waste Management Co. (HHSWM) which was established in July 2007 as an independent legal person with a business license and company charter. HHSWM is owned by Honghu’s UDIC. It will own and operate the assets created under the project. HHSWM will be responsible for the entire SWM operation from collection to disposal. Assets and staff currently under ESD will be transferred to HHSWM during implementation. Honghu ESD has 298 staff at present.

19. Shayang. Shayang Jieyang Solid Waste Management Co. (SJSWM) was established in June 2006 as an independent legal person with a business license and company charter to implement the Bank project. SJSWM is 100% owned by the local ESD. It will own and operate the assets created under the bank project. There are currently six staff in the company: a General Manager, a Deputy Manager, two accountants, one engineer, and one secretary (all full time except the General Manager, who is the ESD Director; all staff are from the ESD). The ESD has been operating SWM services in a fully integrated manner (from primary collection, to transfer and collection) with a staff of 142. Their assets (transportation only) include seven vehicles; there are no transfer stations. It is planned that ESD’s existing assets and its responsibility for managing solid waste services will be transferred to SJSWM during project implementation.

20. Xiaochang. Xiaochang Qingjiashan Solid Waste Sanitary Disposal Center Co. (XQSWM) was established in 2003 and is owned 100% by the Construction Commission. It will implement the Bank project, and own and operate the assets created under the project. XQSWM currently has 6 staff, with two staff each responsible for resettlement, accounting, and procurement. At present, the ESD under the Construction Bureau manages the entire SWM operations (from collection to disposal) with a total staff of 119. The ESD is responsible for servicing Xiaochang’s core urban area. In terms of assets (transportation only) it has 5 vehicles and 3 transfer stations. It is planned that all existing assets and staff will be transferred to XQSWM during project implementation.

48 21. Yunmeng. Yunmeng City Environment & Sanitation Service Co. (YCESS) was established in November 2005 under the Company Registration Administration Rules as an independent legal entity with a business license and company charter. YCESS is 100% owned by the local Construction Commission. It will be responsible for implementing the Bank project and owning and operating the assets created under the project. At present, Yunmeng’s solid management operation is run by the ESD under the Construction Bureau (with a total staff of 199 in 2007), except for primary collection of most of the residential solid waste which is the responsibility of local Street Committees (with an estimated total staff of 55 in 2007). The ESD’s existing assets (transportation only) includes 14 vehicles and 16 small transfer stations. All assets created under the Bank project and ESD’s existing solid waste assets will be included under the YCESS. YCESS will be responsible for the collection, transfer, and disposal of solid waste, though it is not yet decided whether primary collection responsibility will remain with the Street Committees.

Industrial Pollution Control Component

22. Responsibility for the implementation of the provincial level program for on-line monitoring (OLM) of major pollution sources is with the Hubei Provincial EPB. At the working level, equipment installation, training and subsequent operation and maintenance will be the responsibility of the participating city EPBs which are also responsible for ensuring that the necessary industry water monitoring facilities are put in place. The project cities’ EPBs are responsible for ensuring industry implementation of action plans to bring major polluters into compliance with wastewater discharge standards, and for directing the implementation of EPB capacity building investments and training.

23. Financing of the Component. The provincial-level program for OLM will be financed by the Hubei EPB for key equipment supply, and by the participating city EPBs for other necessary equipment, supplies and installation. The city EPBs will be responsible for subsequent operation and maintenance costs of the monitoring system, with industry responsible for all aspects of the automatic water analysis equipment.

Institutional Development and Capacity Building Component

24. The institutional development and capacity building component consists of two project city level subcomponents and two provincial level subcomponents. The project city level subcomponents will be implemented by each city, while the PPMO will play a coordinating role, assist in procurement, and conduct quality control. The costs of these subcomponents will be shared among the project cites based on the project cost attributable to each subcomponent, with some adjustments made to better gauge actual engagements.

Procurement Implementation

25. Procurement of the project will be handled at both provincial and city/county levels. At the provincial level, PPMO will be responsible for oversight and overall coordination of the procurement activities of the MPMOs, including: (1) Monitoring the implementation progress of the procurement plan, reviewing and updating the plan as needed; (2) Communicating with the

49 Bank on procurement matters; (3) Coordinating the work of design institutes, procurement agents and respective MPMOs in the preparation of bidding documents, bid evaluation, and contract awarding; (4) Carrying out centralized procurements such as those for equipment for landfill operation, solid waste collection, etc; (5) Carrying out procurement and execution of TA contracts; (6) Providing guidance and training as needed to MPMOs on procurement procedures; (7) Developing and disseminating project-specific sample bidding documents.

26. At the city/county level, MPMOs will be responsible for carrying out the procurement of the contracts under their sub-projects with the assistance of the procurement agents and design institutes and the guidance of the PPMO. MPMOs will submit their procurement documentation to the PPMO for review before submission for Bank review. MPMOs will report their procurement plans and procurement decisions to the PPMO for review and approval according to the project-specific procurement management manual. Procurement files will be maintained by PPMO and MPMOs for their respective procurement activities.

27. A project-specific procurement management manual will be drafted by the PPMO in consultation with the MPMOs. It will be reviewed, approved and issued by the provincial leading group. The manual will set out the procedures for internal procurement review of the PPMO and MPMOs and their reporting relationships. The manual will also define the procurement responsibilities of implementing agencies of various levels and job descriptions for key procurement staff.

Project Implementation Schedule

28. The project will be implemented over six years and completed by the end of 2013. It is expected that the construction of the WWTPs and solid waste landfills will be completed by the end of 2010 and 2011, respectively. The construction of sewers will be further continued until 2013 to minimize disturbance to transport and citizen life. A summarized project implementation schedule is presented in the next page while a detailed project implementation schedule is available in the Project File.

50 Figure 6.1. Implementation Schedule

51

Figure 6.2. Organizational Structure of Project Implementing Agencies

Hubei Provincial Government Leading Group

Chair: ExecutiveExecutive Vice ViceGovernor Governor

Representatives: Development & Reform Commission Economy and Trade Commission Finance Bureau Construction Bureau Audit Bureau Foreign Affairs Office People’s Bank of China

Provincial Project Management Office

Director Department: Environmental Protection Bureau (EPB) Vice Director Departments: Development & Reform Commission, Finance Bureau ,Construction Bureau

Member Departments: Audit Bureau, Price Bureau, Land Resources Administration Bureau Director: Deputy General Director of EPB

Deputy Director: Manager, PMO (Appointed by EPB)

Technical Staff: Financial Specialist, Engineer, Environment Specialist, Resettlement Specialist

Danjiangkou Dawu Hanchuan Honghu Shayang Tianmen Xiaochang Xiangfan Yumeng Leading Group Leading Group Leading Group Leading Group Leading Group Leading Group Leading Group Leading Group Leading Group

Municipal PMO Municipal PMO Municipal PMO Municipal PMO Municipal PMO Municipal PMO Municipal PMO Municipal PMO Municipal PMO

Solid Solid Waste Solid Waste Solid Waste Solid Waste Waste Solid Waste Waste Solid Waste Waste water Waste water Waste water Waste water water Waste water water Waste IA IA IA IA IA IA IA IA IA IA IA IA IA IA

52 Annex 7: Financial Management and Disbursement Arrangements CHINA: Han River Urban Environment Improvement Project

Executive Summary and Conclusion

1. The Bank team conducted an assessment of the adequacy of the project financial management system of the Han River Urban Environment Improvement Project (HRUEIP). The assessment, based on guidelines issued by the Financial Management Sector Board on November 3, 2005, has concluded that the project meets minimum Bank financial management requirements as stipulated in BP/OP 10.02. The assessment confirmed that the project will maintain financial management arrangements that are acceptable to the Bank and that, as part of the overall arrangements that the borrower has in place for implementing the operation, provide reasonable assurance that the proceeds of the loan will be used for the purposes for which the loan was granted. Financial management (FM) risk is defined as risk that the World Bank loan will not be used for the purposes intended, and a rating will be given based on a combination of country, sector and project specific risk factors. The FM risk rating proposed for this project is modest.

2. Funding sources for the project include Bank loan and counterpart funds. The Bank loan proceeds will flow from the Bank into the project designated account to be set up at and managed by the Hubei Provincial Finance Bureau (HPFB). The Bank loan proceeds will flow from HPFB to local Finance Bureaus (LFB) of nine project cities, then to relevant project implementing agencies, and finally to contractors and suppliers. The Bank loan agreement will be signed between the Bank and the People’s Republic of China through its Ministry of Finance (MOF), and on-lending agreements for the Bank loans will be signed between MOF and Hubei Provincial Government through its HPFB, and then between HPFB and various LFBs, and between LFBs and implementing agencies. The constitution of counterpart funds will be appropriations from local governments and commercial debt.

3. No outstanding audits or audit issues exist with any of the implementing agencies involved in the proposed project. However, the task team will continue to be attentive to financial management matters during project supervision.

Audit Arrangements

4. The Bank requires that project financial statements be audited in accordance with standards acceptable to the Bank. In line with other Bank-financed projects in China, the project will be audited in accordance with International Auditing Standards and the Government Auditing Standards of the People's Republic of China. The Hubei Provincial Audit Office has been identified as the auditor for the project. Annual audit reports will be issued by the above audit office and subject to reviews by the China National Audit Office (CNAO). The Bank currently accepts audit reports issued by CNAO or provincial/regional audit bureaus/offices for which CNAO is ultimately responsible.

53

5. The annual audit report of project consolidated financial statements will be due to the Bank within 6 months after the end of each calendar year. This requirement is stipulated in the loan agreement. The responsible entity and timing are summarized below:

Audit Report Submitted by Due date Consolidated project financial statements PPMO June 30

In addition, annual audit reports on financial position and operation results of the following companies, as well as their succeeding companies will be due to the Bank within 6 months after the end of each calendar year.

Wastewater Component • Hanchuan: Hanchuan Hanjiang Wastewater Treatment Company • Shayang: Shayang Kanglu Drainage Management Co. • Tianmen: Tianmen City HuangjingWastewater Treatment Co. • Xiaochang: Xiaochang Minghua Wastewater Treatment Co. • Yunmeng: Yunmeng Urban Wastewater Treatment Co. • Xiangfan: Xiangfan Urban Wastewater Treatment Co. • Honghu: Honghu Huqing Wastewater Treatment Company

Solid Waste Component • Danjiangkou: Danjiangkou Wanjie Solid Waste Management Co. • Dawu: Dawu Solid Waste Management Co. • Hanchuan: Hanchuan Chuanjie Solid Waste Management Co. • Honghu: Honghu Hongjie Solid Waste Management Co. • Shayang: Shayang Jieyang Solid Waste Management Co. • Xiaochang: Xiaochang Qingjiashan Solid Waste Sanitary Disposal Center Co. • Yunmeng: Yunmeng City Environment & Sanitation Service Co.

The financial statements for these entities are not fiduciary requirements, but rather for sustainability purposes. The requirements for this audit will not be included as part of the loan covenant but rather included in Schedule 2 of the Project Agreement.

Disbursement Arrangements

6. Funds flow for the Bank loan will follow Bank and MOF requirements. One designated account (DA) will be established and managed by the HPFB. The funds flow is as follows:

54

The DA Various Suppliers World managed LFB Implementing and Bank by HPFB Agencies contractors

PPMO

7. Bank loan proceeds would be disbursed against eligible expenditures, as in the following table.

Amount of Loan Percentage of Expenditure by Category Proceed (in US$ Expenditure to be Dollars) financed by IBRD

(1) Goods and Works for the Project to be Carried out in: 79,640,000.00

(1)-A. Wastewater and Sewer Management: 49,667,700.00

(c) Hanchuan County: 11,593,600.00 87% (d) Honghu City: 2,213,500.00 87% (e) : 7,196,800.00 98% (f) Tianmen County: 10,691,300.00 89% (g) Xiaochang County: 5,705,800.00 95% (h) Xiangfan City: 3,911,300.00 82% (i) : 8,355,400.00 87%

(1)-B. Solid Waste Management: 29,972,300.00

(a) Danjiangkou City: 4,214,800.00 82% (b) Dawu County: 2,556,500.00 78% (c) Hanchuan County: 7,332,200.00 87% (d) Honghu City: 4,250,000.00 87% (e) Shayang County: 4,290,800.00 98% (f) Xiaochang County: 4,015,800.00 95% (i) Yunmeng County: 3,312,200.00 87%

(2) Consultants' Services & Training under Part D of the Project to be carried 4,150,000.00 out by:

(a) Danjiangkou City: 310,000.00 (b) Dawu County: 240,000.00 (c) Hanchuan County: 780,000.00 (d) Honghu City: 380,000.00 (e) Shayang County: 580,000.00 100% (f) Tianmen County: 510,000.00 (g) Xiaochang County: 560,000.00 (h) Xiangfan City: 210,000.00 (i) Yunmeng County: 580,000.00

Amount Payable pursuant to Section 2.04 of this Agreement in (3) Front-end Fee: 210,000.00 accordance with Section 2.07 (b) of the General Conditions.

Total Loan Amount: 84,000,000.00

55 8. Four disbursement methods – reimbursement, advance, direct payment and special commitments are available for the project. The minimum value of applications for reimbursement, direct payment, and special commitment will be $1,000,000.

9. For expenditures against contract amounts indicated in the table below, Statements of Expenditure (SOE) will be furnished as supporting documentation to request for reimbursement and reporting eligible expenditures paid from the DAs.

Expenditure Category Contracts Equivalent or Less than US$ Equivalent Civil Works 5,000,000 Goods 100,000 Firm Consultant 100,000 Individual Consultant 50,000 Training All

10. For contract amounts subject to Bank prior review indicated in the table below, the list of payments against the contracts, and records evidencing eligible expenditures, e.g., copies of receipts, supplier invoices, will be furnished as supporting documentation to request for reimbursement and reporting eligible expenditures paid from the DAs.

Expenditure Category Contracts More than US$ Equivalent Civil Works 5,000,000 Goods 100,000 Consulting firm 100,000 Individual consultant 50,000

11. One Designated Account (DA), a segregated US$ account, will be established in HPFB. The authorized allocation of DA is proposed to not exceed $8 million. Frequency of Reporting to the Bank’s Loan Department of Eligible Expenditures Paid from the DA is monthly.

12. HPFB will be directly responsible for the management, monitoring, maintenance and reconciliation of the DA activities of the project. To be consistent with the on- lending arrangement and using the government appropriations channel, the flow of the withdrawal application is as follows:

Various World Implementing MPMOs LFBs PPMO HPFB Bank Agencies

Financial Management and Reporting Arrangements

Risk Analysis and Conditions

13. The following risks with corresponding mitigating measures have been identified during assessment:

56 Risk Risk Rating Incorporated Risk Mitigating Measures Conditions of Board or Effectiveness Inherent Risk Country level Modest Legal and institutional framework is acceptable and current Public FM systems are functioning reasonably well. See the following mitigating measures utilized in the project. Entity Level High It is the first time for most of the project entities/agencies to implement a World Bank financed project. Therefore, the FM training to all the financial staff should be arranged before project effectiveness. Close monitoring by the task team is needed to ensure that all these new entities/agencies are trained on and understand the Bank procedures and requirements. Project Level High The project will be simultaneously implemented in two cities and seven counties of Hubei Province. Supervision and strong coordination by the provincial PMO (PPMO) is vital. Close monitoring and guidance by the task team from initial preparation stage through implementation is necessary to ensure the multi-layer structure works effectively and efficiently for this project. Control Risk Budgeting Modest Bank’s financial management specialist will work with the PPMO and implementing agencies at all levels to improve their budgeting, execution and monitoring. Accounting Modest Accounting policies and procedures are already in place. Circular #13 has been issued by MOF and adopted for all World Bank financed projects. Necessary training will be provided to the accounting staff to improve their knowledge. The task team at the initial implementation stage will review the status to ensure the accounting system has been correctly established. This should be followed up by regular supervision missions. Internal Modest Internal control procedures and policies will Control be documented in the FM manual and all project implementing agencies are required to follow them. In addition, review of activities will be conducted regularly by LFBs and will focus on compliance and transaction examinations. Refer to paragraphs 24 and 25 below for details. Funds Flow Modest Funds flow arrangements have been streamlined to improve efficiency. To avoid delayed disbursement, related procedures and requirements will be documented in the

57 FM manual for all concerned parties to follow. Financial Low The financial reporting responsibilities are Reporting already established. The form, content and periodicity of financial reports are well defined by MOF and understood by all relevant reporting agencies. Auditing Low The external auditor, Hubei Provincial Audit Office, has extensive experience with Bank project audits. The audit will be conducted in accordance with acceptable auditing standards and the audit reports will be due to the Bank by June 30th every year.

Based on the above analysis, the overall FM risk-rating of this project at the appraisal stage is modest. The Financial Management Specialist (FMS) will monitor the project FM risk during project implementation.

Strengths and Weaknesses

14. Strengths. This project will be simultaneously implemented in two cities and seven counties. For the seven project counties, the Bank loan proceeds will be directly disbursed from HPFB to the county finance bureaus (LFBs) of each project county. This streamlined disbursement channel will improve the disbursement efficiency and benefit project implementation by skipping the municipal finance bureau layer of the seven project counties. Additionally, HPFB has extensive prior experience on Bank financed projects and some of the LFBs have previously participated in Bank financed projects, which will benefit project implementation and mitigate fiduciary risk.

15. Weaknesses and Action Plan. Besides the FM risks identified in paragraph 13 above, no other significant weakness have been identified.

Implementing Entities

16. The PPMO has been established as responsible for overall management and coordination of this project from preparation through implementation at the provincial level. The 14 sub-projects will be implemented in nine cities/counties. Various Municipal Project Management Offices (MPMOs) have been established to take the responsibility of coordination and management in city/county level. The details of implementation have been assigned to various implementing entities/agencies (IA). The financial management work for various components will be conducted by the following entities/agencies:

58 Implementing Entities

TA IA for Solid Waste IA for Wastewater compoment component component

Danjiangkou Danjiangkou Wanjie Solid County PMO in CC Waste Management Co.

Project Leading Dawu Solid Waste Office under the Management Co. County Government

Hanchuan Chuanjie Solid Waste Management Co Hanchuan County Hanchuan Hanjiang PMO in DRC Wastewater Treatment Company

Honghu Honjie Solid Waste Management Co. Honghu County Honghu Huqing PMO in CC Wastewater Treatment Company

Shayang Jieyang Solid P Waste Management Co. P Shayang County Shayang Kanglu Drainage M PMO in CC Management Co. O

Tianmen City PMO in Tianmen City Huangjing UDIC Wastewater Treatment Co. PMO/Xiaochang Qingjiashan Solid Waste Sanitary Disposal Xiaochang County Center Co. PMO in CC PMO/Xiaochang Minghua Wastewater Treatment Co.

Xiangfan City Xiangfan Urban PMO in EPB Wastewater Treatment Co.

Yunmeng City Environment & Sanitation Service Co. Yunmeng County Yunmeng Urban PMO in EPB Wastewater Treatment Co.

59 Budgeting

17. In accordance with the project implementation plan and construction progress, the MPMO and PPMO will prepare an annual budget for its responsible project activities. This budget will be reviewed and approved by related LFBs and HPFB. Based on the approved budget, LFBs and HPFB will provide annual government appropriations and some project entities will raise domestic loans. For budget variances arising during execution, necessary authorization and close monitoring should be established. Timely and accurate information on variances should be used as the basis for mid-term adjustments.

Accounting

18. The administration, accounting and reporting of the project will be set up in accordance with the Circular #13: “Accounting Regulations for World Bank Financed Projects” issued in January 2000 by MOF. The circular provides in-depth instructions on accounting procedures of project activities and covers the following:

• Chart of accounts, • Detailed accounting instructions for each project account, • Standard set of project financial statements, and • Instructions on the preparation of project financial statements.

The project financial reporting package, including detail format and content of project financial statements was agreed to between the Bank and MOF. This set of project financial reporting package includes the following:

• Balance Sheet, • Summary of Sources and Uses of Funds by Project Component, • Statement of Implementation of Loan Agreement, • Designated Account Statement, and • Notes to the Financial Statements.

19. Each of the implementing agencies will manage, monitor and maintain respective project accounting records. Original supporting documents for project activities will be retained by originating implementing agencies.

20. Adequate project accounting staff with educational background and work experience commensurate with the work they are expected to perform is a critical factor for successful implementation of project financial management. Based on discussions, observation, and review of educational background and work experience of the staff identified for financial and accounting positions in implementing agencies, the task team notes that the staff is qualified and appropriate for the work they are expected to undertake.

60 21. To strengthen financial management capacity and achieve consistent quality of accounting work, the task team has suggested that a project financial management manual (the Manual) be prepared. The Manual provides detailed guidelines on financial management, internal controls, accounting procedures, fund and asset management and withdrawal application procedures. The PPMO prepared this Manual and submitted it to the Bank for review. The Manual has been assessed as acceptable to the Bank and distributed to all relevant financial staff before loan negotiation.

22. As most of the financial staff are new to the Bank’s project, a well-designed and focused training program in project financial management should be provided prior to project effectiveness by the PPMO to all financial and accounting staff to ensure a good understanding and knowledge of the following:

• Bank’s financial management policy and disbursement procedures, • Fund/asset/contract management, • Format and content of project financial statements, • Audit requirement, and • On-lending and repayment management.

23. Some implementing agencies will use the computerized financial management system User Friend (Yong You), a well-established China accounting software package approved by MOF for this project. The other implementing agencies will keep manual accounting books. The task team will monitor the establishment of a chart of accounts and processing of accounting work, especially in the initial stage to ensure that complete and accurate financial information will be provided in a timely manner.

Internal Control and Internal Auditing

24. The project has established internal control procedures and policies, including approval and authorization controls, segregation of duties, clear staff functions, and safeguarding assets. The funds flow will be arranged and monitored through the finance bureau channels and will include their substantive review.

25. Each LFB has its own internal inspection divisions, which will function as the internal auditor for this project by conducting compliance and transaction oriented examinations on a regular basis. During project implementation, the FMS will review their project examination reports and determine whether the Bank can rely on their work.

Financial Reporting

26. The format and content of the project financial statements represents the standard project financial reporting package agreed to between the Bank and MOF, and have been discussed and agreed to with all parties concerned.

27. Each implementing agency will prepare financial statements on its implemented components, to be used by MPMOs and PPMO to prepare consolidated project financial

61 statements to submit to the Bank for review and comment on a regular basis. In line with the updated World Bank’s Operations Manual, the interim un-audited project financial statements should be submitted as part of the progress report to the Bank on a semi- annual basis, prior to August 31 and February 28 of the following year.

Supervision Plan

28. The supervision strategy for this project is based on its FM risk rating, which will be evaluated on regular basis and in consultation with the task team leader.

62 Annex 8: Procurement Arrangements CHINA: Han River Urban Environment Improvement Project

A. General

1. Procurement for the project will be carried out in accordance with the World Bank’s “Guidelines: Procurement under IBRD Loans and IDA Credits” dated May 2004, and “Guidelines: Selection and Employment of Consultants by World Bank Borrowers” dated May 2004, and the provisions stipulated in the Legal Agreements. The general description of various items under different expenditure categories is included below.

2. For each contract to be financed by the Loan, the different procurement methods, consultant selection methods, the need for prequalification, estimated costs, prior review requirements, and time frame are agreed to in the Procurement Plan. The Procurement Plan will be updated at least annually or as required to reflect the actual project implementation needs and improvements in the implementing agencies’ institutional capacity.

3. Procurement of Works. Bank funds under the project will be used to finance contracts for: Construction of civil works, supply and installation of equipment and plant for wastewater treatment plants (WWTPs) under Component A – Wastewater Treatment Component; and contracts for construction of sewers collection networks under Component B – Sewage Collection Component; as well as contracts for construction of landfills and solid waste transfer stations, etc., under Component C – Solid Waste Component. Component A has five contracts for an amount of US$ 35 million in total for construction of WWTPs, one in each of the counties of Hanchuan, Shayang, Tianmen, Xiaochang and Yunmeng. Each of these contracts will include civil works, supply and installation of equipment and plant for a fully functional WWTP. Component B has seven contracts for an aggregate amount of US$ 32 million for the construction of sewer collection networks including pumping stations. Under Component C, seven sanitary landfills for a total amount of US$ 35 million will be built for Danjiangkou, Dawu, Hanchuan, Honghu, Shayang, Xiaochang and Yunmeng respectively. This component also includes twelve solid waste collection stations, seven of which are new constructions, five for renovation in Hanchuan. All of the above facilities to be built under this project are scattered over nine counties of Hubei Province along the Han River. Therefore, combining these works into International Competitive Bidding (ICB) contracts would not make sense in technical and construction management terms. The contract size falls in the range of about US$ 3-10 million per contract, and National Competitive Bidding (NCB) would be the appropriate procurement method for these contracts. Most of waste collection stations under this component will be procured by Shopping method because of its small value (each less than US$ 200,000), except the five stations for renovation and one waste collection station for Xiaochang, which will be procured under one NCB civil works contract.

4. As the basis for selecting procurement methods for this project, works estimated to cost at or more than US$ 15 million equivalent per contract will be procured through

63 ICB procedures, estimated to cost less than US$ 15 million equivalent per contract through NCB procedures, and estimated to cost less than US$ 200,000 equivalent per contract through Shopping procedures. NCB procurement of works will be advertised in at least one newspaper of national circulation, except those contracts costing less than US$ 2 million, which may be advertised in at least one newspaper at the provincial level. The procurement will be done using the Bank’s current Standard Bidding Documents (SBDs) for all ICB contracts and the Bank-approved Chinese Model Bidding Documents (MBDs) for all NCB contracts. When the MBDs are adopted, all new revisions made to the Bank’s SBDs since 1997 will be incorporated.

5. Procurement of Goods. Goods for an amount of US$ 4.31 million will be required for the project. Goods to be procured include equipment for sanitary landfill operation and solid waste collection vehicles. Since the equipment and vehicles required for different counties for landfill operation and waste collection would be very similar or identical in technical specifications but vary in quantity, procurement of such equipment will be combined into two contracts (lots) in order to achieve procurement economies of scale to be centrally handled by the Provincial Project Management Office (PPMO). As the basis for selecting procurement methods for this project, goods estimated to cost at or more than US$ 0.5 million equivalent per contract will be procured through ICB procedures, goods estimated to cost less than US$ 0.5 million equivalent per contract through NCB procedures, and goods estimated to cost less than US$ 0.1 million equivalent per contract through Shopping procedures.

6. Procurement of Consulting Services and Training. Services and training required for the project include: (i) Project Management – design review, procurement assistance, construction supervision with a cost estimate of US$ 2.44 million; (ii) Institutional Development & Capacity Building for Wastewater Companies and Solid Waste Companies and Project Cities with a cost estimate of US$ 1.31 million; (iii) Monitoring of EA with cost estimate of US $ 0.26 million; (iv) Monitoring of Resettlement with cost estimate of US $ 0.19 million and (v) Individual Procurement Consultant contract costing US$ 0.06 million. Services by firms estimated to cost more than US$ 0.2 million will be procured through Quality- and Cost-Based Selection (QCBS); Services meeting the requirements of paragraph 3.2 of the Consultant Guidelines will be procured through the procedures of Quality-Based Selection (QBS); Those services estimated to cost less than US$ 0.2 million equivalent per contract may be procured through procedures of Selection Based on the Consultants’ Qualifications (CQS) in accordance with the provisions of paragraphs 3.7 through 3.8 of the Consultant Guidelines. Services by individuals will be procured in accordance with the provisions of paragraphs 5.1 through 5.4 of the Consultant Guidelines. Expenditures for training workshops and study tours will be disbursed against reasonable actual costs.

7. The Standard Request for Proposals (May 2004) shall be used for selection of consultants. Short lists of consultants for services estimated to cost less than US$ 0.3 million equivalent may be composed entirely of national consultants in accordance with the provisions of paragraph 2.7 of the Consultant Guidelines.

64

Table 8.1. Summarizes procurement method and prior/post review thresholds:

Table 8.1: Thresholds for Procurement Methods and Prior Review Expenditure Contract Value Threshold Procurement Contracts Subject to Prior Category (US$ million) Method Review (US$ million) 1. Works Equal to or Above US$ 15.00 m ICB NA*

Less than US$ 15.00 m NCB All contracts equal to or above US$5.00m (US$ 62.66m)

Less than US$ 0.20 m Shopping First contract of each county regardless of contract amount (US$ 0.48)

2. Goods Equal to or Above US$ 0.50 m ICB All contracts (US$ 4.27)

Less than US$ 0.50 m NCB All contracts with contract amount between US$ 0.10m-US$ 0.50m (NA*)

Less than US$ 0.10 m Shopping NA*

3. Consulting Above US$ 0.20 (firm) QCBS/QBS All contracts equal to or above Services US$ 0.10m (US$ 4.01m)

Equal to or Less than US$ 0.20 CQS All contracts equal to or above US (firm) US$ 0.10m ( $0.19)

IC All contracts above $50,000 (US$ Individuals 0.06m)

Total value of contracts subject to prior review: US$ 71.67 million

Overall Procurement Risk Assessment: Average Once every six months Frequency of procurement supervision missions (includes special procurement supervision for post- proposed: review/audits)

* NA means either no contract under this procurement method or no contract is subject to prior review.

B. Assessment of the Agency’s Capacity to Implement Procurement

8. Procurement activities under this project will be carried out by the PPMO and Municipal PMOs (MPMOs) in respective counties. The PPMO has been established within Hubei Environmental Protection Bureau (HEPB) and it will oversee and

65 coordinate MPMOs’ procurement activities. As the current staffing arrangement in the PPMO is insufficient, one individual procurement consultant with Bank procurement experience and relevant technical expertise will be hired to assist the PPMO to carry out procurement responsibility. The contract will be financed under the TA component of the project.

9. Selection of the procurement agent has been completed, with INSTRIMPEX International Tendering Company proposed for the contract award. INSTRIMPEX is a very experienced procurement agent for Bank procurement, but to ensure quality of service, qualified and experienced staff need to be assigned to the project. The procurement agent will assist the PPMO and MPMOs in preparing the commercial sections of the bidding document, consolidating commercial and technical sections of the bidding document, facilitating domestic review procedures when needed, and arranging and coordinating bid evaluation, contract awarding and signing. For ICB Goods contracts, the procurement agent will also provide assistance in customs clearance of goods, etc.

10. Two Design Institutes (DIs), Henan Municipal Design Institute and Wuhan Municipal Design Institute have been selected to prepare project preliminary design and construction design for the project. Each DI will take seven sub-projects. The DI will work on the preliminary design and construction design, preparing Bills of Quantity (BOQ) and technical specifications of bidding documents for all fourteen sub-projects.

11. Given the contract nature of wastewater treatment plants (WWTPs), a sample bidding document incorporating terms and clauses of the Bank’s Standard Bidding Document for Supply and Installation, the Bank’s Model Bidding Document for Civil Works, and project specifics will be prepared, reviewed and approved by the Bank team, and then distributed through the PPMO for MPMOs to use.

12. A Procurement Manual describes how responsibilities are distributed between the PPMO and MPMO and covers procurement procedures to be followed under respective procurement methods. The manual will be distributed to the MPMOs for them to follow.

13. The overall project risk for procurement would be considered average and modest.

C. Procurement Plan

14. The PPMO, at the appraisal stage, updated a Procurement Plan for project implementation which provides the basis for the procurement methods (Attachment 1). This plan was agreed between the PPMO and the Project Team at the negotiation. It is also available in the Project Files and will be posted in the Bank’s external website after the loan approval. The Procurement Plan will be updated in agreement with the Bank Team annually or as required to reflect the actual project implementation needs and improvements in the implementing agencies’ institutional capacity.

66 15. Table 8.2 shows the project costs by procurement arrangement as specified in the procurement plan.

Table 8.2. Project Costs by Procurement Arrangements (US$ million)

Expenditure Category Procurement Method1 Total Cost

ICB NCB Other2 1. Works - 102.14 1.00 103.14 2. Goods 0.04 4.31 4.27 -

QCBS/QBS CQS Other2 3. Consulting Services 0.06 4.26 4.01 0.19

Total 111.71

Notes: 1/ Figures in parentheses are the amounts to be financed by the loan. All costs include contingencies. 2/ Includes civil works and goods to be procured through national shopping, consulting services, training, and technical assistance services and consulting services to be procured through other methods except QCBS, QBS and CQS

D. Frequency of Procurement Supervision

16. In addition to the prior review supervision to be carried out by the Bank’s supervision team, the capacity assessment of the implementing agencies recommended a supervision mission every six months, including post review.

E. Retroactive Financing

17. Advance contracting may be applied for two contracts awarded under the wastewater treatment component, two contracts under the sewerage collection component and two contracts under the TA component. Their expenditures incurred after July 26, 2007 and before the signing date of the Loan Agreement would be retroactively financed by the Loan. The ceiling amount for retroactive financing under this project would be US$ 16,800,000 in total. Procurement of those contracts subject to retroactive financing will be carried out in accordance with the Bank’s Guidelines, and the related Bank conditions on Safeguards must be met first. The six possible retroactive financed contracts have been highlighted in the following attached procurement plan. This retroactive financing will allow the project implementing agencies to initiate the implementation of well advanced components.

67 Attachment 1. Procurement Plan of the Project (as of March 6, 2008)

Project Name: China - Proposed Han River Urban Environment Improvement Project (P087224) Project ID: P087224 TTL: Hiroaki Suzuki Subject: Consolidated Procurement Plan PMO: PPMO under Hubei Environment Date: March 6, 2008

Thresholds for Procurement Method & Prior Review Prior Contract Value Method Review Works ≥USD 15m ICB NA

First of each

Goods ≥USD 0.5m ICB All.

Consulting Services (Firm) >USD 0.2m QCBS/QBS ALL. ≤USD 0.2m CQ ≥USD 0.1m Consulting Services (Individual) NA IC >USD 0.05m

68 Cost Serial Estimate Prior/ Procure. Bid Opening Contract Contract No. No. Contract Description (USD Post Review Method Date Signing Date million)

PPMO-Solid Waste Equipment Component 1 2HBEP-SW--Eq-01 Equipment for Sanitary Landfill 2.27 Prior ICB/Goods Dec., 08 April, 09 2 2HBEP-SW--Eq-02 Waste Collection Vehicles 2.00 Prior ICB/Goods Dec., 08 April, 09 3 2HBEP-SW--Eq-03 Tri-cycles and Garbage Bins 0.04 Post Shopping/Goods May, 08 June, 08

Waste Water Treatment Component Hanchuan Waste Water Treatment Plant (50,000 m3/d NCB/Supply & 1 2HBEP-HC-WW-Ci-01 Oxidation Ditch) 9.21 Prior Installation Jan.08 March,08 Shayang Waste Water Treatment Plant (30,000 m3/d Improved Oxidation Ditch and Chlorination Chamber (70,000 NCB/Supply & 2 2HBEP-SY-WW-Ci-01 m3/d by 2020)) 5.13 Prior Installation March, 08 May,08 Tianmen Waste Water Treatment Plant (50,000 m3/d Improved Oxidation Ditch and NCB/Supply & 3 2HBEP-TM-WW-Ci-01 Chlorination Chamber) 8.87 Prior Installation April, 08 June, 08 Xiaochang Waste Water Treatment Plant (25,000 m3/d NCB/Supply & 4 2HBEP-XC-WW-Ci-01 Oxidation Ditch) 4.47 Post Installation Feb.08 March, 08 Yunmeng Waste Water Treatment Plant (50,000 m3/d Improved Oxidation Ditch and NCB/Supply & 5 2HBEP-YM-WW-Ci-01 Chlorination Chamber) 7.65 Prior Installation Jan.08 March,08

Sewage Collection Component Hanchuan Sewage Collection (20.3km Sewer Networks, 1 Pumping Station of 60,000m3/s and closure of 2,600 septic 1 2HBEP-HC-SN-Ci-01 tanks) 6.84 Prior NCB/Works June, 08 Aug.08

Honghun Sewage Collection (32.62 km RC Sewer Networks 2 2HBEP-HH-SN-Ci-01 and closure of 35 septic tanks) 3.05 Post NCB/Works Jan.08 March,08 Shayang Sewage Collection (44.6 km Sewer Pipes DN300- 3 2HBEP-SY-SN-Ci-01 1200) 3.73 Post NCB/Works June, 08 Aug.08 Tianmen Sewage Collection (55.68 km Sewer Pipes DN300- 1800 and 1 Pumping Station (reconstruction) 05.08m3/d, 4 2HBEP-TM-SN-Ci-01 H=4.50m) 5.77 Prior NCB/Works June, 08 Aug.08 Xiangfan Sewage Collection 5 2HBEP-XF-SN-Ci-01 (12.22km Sewer Networks ) 5.78 Prior NCB/Works Jan.08 March,08 Yunmeng Sewage Collection 6 2HBEP-YM-SN-Ci-01 (20.30km of Sewer Networks) 3.86 Post NCB/Works June, 08 Aug.08 Xiaochang Sewage Collection 7 2HBEP-XC-SN-Ci-01 (32.94km Sewer Networks) 2.73 Post NCB/Works June, 08 Aug.08

Solid Waste Component Danjiangkou Sanitary Landfill 1 2HBEP-DJK-SW-Ci-01 (290t/day-18yr life span) 4.70 Post NCB/Works March, 08 May,08 1st waste collection stations for 2 2HBEP-DJK-SW-Ci-02-1 Danjiangkou 0.13 Prior Shopping/Works March, 08 May,08 1 waste collection station for 3 2HBEP-DJK-SW-Ci-02-2 Danjiangkou 0.12 Post Shopping/Works March, 08 April, 08 Shanghengchon Sanitary Landfill (212 t/day-14yr life 4 2HBEP-DW-SW-Ci-01 span) 2.81 Post NCB/Works March, 08 May,08

5 2HBEP-DW-SW-Ci-02-1 2 Gabage Chamber 0.01 Prior Shopping/Works Feb.08 March, 08 Fuxincun Sanitary Landfill (350 6 2HBEP-HC-SW-Ci-01 t/day-14 yr life span) 8.27 Prior NCB/Works March, 08 May,08 1st waste collection station for 7 2HBEP-HC-SW-Ci-02-1 Hanchuan 0.20 Prior Shopping/Works March, 08 May,08 1 waste collection station for 8 2HBEP-HC-SW-Ci-02-2 Hanchuan 0.20 Post Shopping/Works Feb., 08 March, 08 1 waste collection station for 9 2HBEP-HC-SW-Ci-02-3 Hanchuan 0.20 Post Shopping/Works April, 08 May, 08 Renovation of 5 existing waste 10 2HBEP-HC-SW-Ci-02-4 collection stations. 0.40 Post NCB/Works March, 08 April, 08 Xinliancun Xiangjiayao Sanitary Landfill (212 t/day-14 yr life 11 2HBEP-HH-SW-Ci-01 span) 5.14 Prior NCB/Works March, 08 May,08 Yangjicun Sanitary Landfill (170 12 2HBEP-SY-SW-Ci-01 t/day-18 yr life span) 4.53 Post NCB/Works March, 08 April,08 Yankoucun Sanitary Landfill 13 2HBEP-XC-SW-Ci-01 (190 t/day-17yr life span) 4.03 Post NCB/Works March, 08 April,08 1st waste collection station for 14 2HBEP-XC-SW-Ci-02-1 Xiaochang 0.36 Post NCB/Works March, 08 May,08 Fengpucun Sanitary Landfill 15 2HBEP-YM-SW-Ci-01 (180t/day -14 yr life span) 3.81 Post NCB/Works March,08 April,08 1 waste collection station for 16 2HBEP-YM-SW-Ci-02 Yunmeng 0.14 Prior Shopping/Works March, 08 May,08

69

Technical Assistance Component Project Management : Design Review, Proc. Assistancet, 1AConstruction Supervison 2.44 Prior QCBS Feb., 08 May, 08 Institutional Development and Capacity Building for Wastewater Utilities and Solid Waste Management Organizations 2B 1.31 Prior QCBS TBD TBD

3CMonitoring of EA 0.26 Prior QCBS TBD TBD

4DMonitoring of Resettlement 0.19 Prior CQ TBD TBD

Individual Procurement TOR Finalization 5EConsultant 0.06 Prior IC on early Aug., 07 Feb., 08

Notes: QCBS = Quality- and Cost-Based Selection CQS = Selection Based on Consultant’s Qualifications IC = Individual Consultant Selection ICB = International Competitive Bidding NBF = Not Bank Financed NCB = National Competitive Bidding

It is planned that the contracts in the shaded areas will be funded by retroactive financing up to US$ 168,000.

70 Annex 9: Economic and Financial Analysis CHINA: Han River Urban Environment Improvement Project

1. Financial analysis was conducted (i) to estimate the financial rate of return of the proposed project investments; (ii) to identify the most appropriate project financing and debt allocation/ repayment strategy; (iii) to project tariff increases and potential subsides required to ensure financial sustainability of the project companies and move towards greater cost recovery in the wastewater and solid waste sectors; (iv) to demonstrate that any required tariff increases are affordable for low-income households; and (iv) to show that all participating municipalities/counties have sufficient financial resources to meet all counterpart funding and debt service payments under the Bank project—either for those components where they carry direct debt repayment or indirectly, in case project companies would not be able to meet the obligations under the project. Analysis of debt levels of each project city/county was also conducted.

A. Project Level Financial Analysis

2. Financial Rate of Returns. Project level financial internal rate of returns (FIRRs) were prepared for all project cities with a wastewater treatment component— under the assumption that all operating revenues are ‘project benefits’ and all capital and cash operating & maintenance costs are ‘project costs’, with a project life of 25 years.

Table 9.1. Financial Internal Rates of Return (FIRRs) Sensitivity Analysis Base Case Revenue Costs Revenue & Cost - 10% + 10% Effect Combined Hanchuan 9% 7% 7% 5% Shayang 10% 7% 7% 5% Tianmen 22% 18% 19% 15% Xiaochang 8% 6% 6% 4% Yunmeng 10% 8% 8% 6%

The table above summarizes the estimated FIRRs indicating base case FIRRs of between 8% and 22%. Sensitivity analysis was conducted to test the robustness of the results—reflecting reduced revenue and increased costs (or both). Base case FIRRs are above each project’s weighted average costs of capital (WACC) of 7.3% rendering all projects viable from a project financial point of view (though in selected cases, FIRRs drop below the WACC for a combined negative revenue and cost increase effect). In project cities that have only a wastewater network component (Honghu and Xiangfan), no FIRRs were prepared as the project investments are justified by their impact on the entire network and not just the project benefit area. For solid waste, no FIRRs were prepared in light of the very weak financial situation of the sector as a whole.9

9 Solid waste operations presently require and are likely to continue to require subsidy payments in light of low levels of user fees and limited fee collection (see section B); a significant part of any ‘project benefit’ would therefore result from subsidies rendering the concept of FIRRs inapplicable.

71 B. Entity Level Financial Analysis

Institutional Arrangements--Overview

3. Wastewater Collection and Treatment. Institutionally, the wastewater sector is only now beginning to be organized along more commercial lines. In only one out of seven project cities/counties has a wastewater utility company existed for a number of years (specifically in Xiangfan which was established in the context of a previous Bank- funded project). Hanchuan and Tianmen have only recently established wastewater utility companies to implement the Bank project around the time of appraisal. In most cities, existing wastewater assets, which mainly consist of sewer networks, have been operated by the Construction Commission. In Xiangfan and in Honghu, wastewater treatment operations are managed through BOT/ TOT arrangements. Tariffs exist in five out of seven project cities and range between RMB 0.2/m3 and RMB 0.8/m3. However, though tariffs are similar to those in other county-level, smaller cities in China,10 they are lower than those seen in larger cities, and certainly lower than required for cost recovery. The regulation of the wastewater sector in Hubei Province is highly decentralized, with project cities having primary responsibility for implementing broad national guidelines issued by the State Council, Ministry of Construction, State Environment Protection Agency (SEPA), and their provincial equivalents.

4. Solid Waste Management. The solid waste management sector is institutionally less developed and less commercially oriented than the wastewater sector. All of the current solid waste management operations are managed by the cities’ Environmental Sanitation Departments (ESDs)—under the Construction Commission—responsible for providing (in most cases) collection, transfer, and disposal services in an integrated manner.11 To implement the Bank project, all project cities have established Solid Waste Management Companies around the time of project appraisal. Solid waste management services currently rely on significant budgetary transfers—in light of relatively low solid waste user charges and extremely low collection rates. User fees range from RMB 3- 5/household/month with collection rates as low 20% in some project cities. It is estimated that on average only about 60% of total cash operating cost is currently recovered from fee revenues. The financial transparency of the various elements of solid waste operations is also very low. Relative to wastewater, solid waste is guided by fewer national and provincial government guidelines (i.e., national and provincial level decrees provide a specific target for wastewater tariffs, though no equivalent decrees exist for solid waste).

5. Institutional Development. Given that all project cities are in the initial stages of setting up autonomous and corporatized wastewater and solid waste companies, the project will support the institutional development of the newly established companies along all the critical company functions (i.e., management, financial, and operational/

10 The World Bank China Water Sector Study 2007 estimates that the average wastewater tariff in smaller cities with low GDP/ capita is Y0.32/m3. 11 In some cases primary collection is the responsibility of the local Street Committees or subcontracted to Property Management Companies, resulting in fragmented service responsibility.

72 technical issues, etc.). The project will also assist project cities in optimizing their overall institutional arrangements, for example, in terms of ensuring that wastewater treatment and network operations are managed, where possible, in an integrated manner; or in terms of clarifying the specific role and responsibilities of the Environmental Sanitation Departments (ESDs relative to the solid waste companies). The project will also support the cities in establishing realistic tariff targets and help to increase revenue collection efficiency rates, which are both key drivers of their future financial sustainability.

Project Financing Plan, Financial Projections, and Covenants

6. Project Financing Plan. Given the different institutional and financial situations of the wastewater and solid waste sectors, a differential project financing strategy was adopted for each sector. The agreed financing strategy is as follows:

• Wastewater. In all except one (Xiaochang) project city. The World Bank loan is fully allocated to the wastewater companies and counterpart funds are provided as equity by the local Finance Bureaus. In Xiaochang, it was decided to allocate only a fraction of the World Bank debt to the company in light of special challenges with respect to closing the remaining self-supplied water sources. The agreed debt-equity ratio for Xiaochang is 80% / 20%, which requires that only 50% of the World Bank loan will be allocated the local wastewater company.

• Solid Waste. Given that only around 60% (range is 40%-80%) of cash operating costs are currently covered by fee revenues, it was decided that the World Bank loan will not be allocated to the solid waste management companies, and that both the World Bank loan and counterpart funds will be provided to the companies in the form of equity. As a result the local Finance Bureaus (LFBs) will be directly responsible for repaying the entire amount of Bank debt.

7. Financial and Project Covenants. To monitor financial sustainability, financial covenants will be applied to the wastewater companies, consisting of a cost recovery covenant and a debt service covenant. For solid waste, no financial covenants are applied, but a financial target was agreed and is included in the project monitoring indicators. The solid waste financial target is that the solid waste management companies achieve 100% coverage of cash operating costs within five years (i.e., by 2012). The financial covenants for wastewater will take effect as of January 1st 2010, and are defined as follows:

• Cost Recovery Covenant (CR) which requires that: the project companies’ total revenues (operation and non-operating revenues, including subsidies) need to be no less than the sum of (i) total operating expenses; and (ii) the amount by which debt service requirements exceed the provision for depreciation.

• Debt Service Covenant (DSCR) which requires that: the project companies shall not incur any new debt unless a reasonable forecast shows that estimated revenues

73 (operating and non-operating, including subsidies) minus total operating expenses (including depreciation) is at least 1.1 times the estimated debt service.

8. In addition, all project cities are required to prepare by March 31, 2010, and begin to implement a comprehensive wastewater and solid waste Strategic Sector Plan by June 30, 2010 which addresses all institutional, financial, cost-recovery and infrastructure planning issues, and contains a time-bound implementation plan to improve overall sector performance.

9. Financial Projections and Tariff Levels. Based on the above debt allocation and covenant strategy, financial projections were prepared to estimate the level of wastewater tariffs and solid waste user fees necessary to ensure the financial sustainability of the wastewater and solid waste companies.12 The summary results of the financial projections are as follows:

• Wastewater. Five out of seven project cities currently have wastewater tariffs (Hanchuan, Honghu, Shayang, Tianmen, and Xiangfan) which range from RMB 0.2/ m3 to RMB 0.8/m3 (for residential customers). Hanchuan, Shayang, Yunmeng, and Xiaochang are waiting for approval of requested tariff increases—set at a target level of RMB 0.8/m3 (in line with the National and Provincial Decrees).13 The financial projections indicate that if the requested tariff levels are introduced, wastewater tariffs need to continue to increase only gradually across all project cities to reach a level of RMB 1.0-1.2/m3 by 2011 and 1.0-1.4/m3 by 2015. Note also that the financial projections were prepared on conservative assumptions, i.e. such as no or only minimal migration of self-supply water users (expect in Xiaochang, where more substantial migration is assumed and required). If collection efficiency rates were to be higher (both for self-supplied users and those assumed for Water Supply Companies) then the financial sustainability of the wastewater companies would be strengthened significantly.

Table 9.2. Projected Tariffs Actual Required 2007 2008 2011 2015 Wastewater/1 Hanchuan 0.2 0.8* 1.1 1.1 Honghu 0.6 0.6 1.1 1.3 Shayang 0.4 0.8* 1.1 1.1 Tianmen 0.8 0.8 1.0 1.0 Xiangfan 0.5 0.8 1.0 1.4 Yunmeng - 0.8* 1.2 1.2 Xiaochang - 0.8* 1.0 1.2 1/Tariff: domestic tariff (Y/m3) * applied (except Shayang) but still to be approved

12 Bank’s financing terms are based on conservative assumptions of 17 years repayment with 4 years grace. The actual maturity is 26 years including 5 years of grace period, reflecting updates in IBRDs’ maturity policies effective February 12, 2008. 13 See Provincial Decree ‘Decision on Scientific Development and Enhancing Environment Protection’ (Document No. 54, 2006), issued with reference to the State Council Document ‘Decision on Scientific Development and Enhancing Environment Protection’ (Document No. 39, 2005). The Provincial level government decree aims for tariffs of RMB 0.8/m3.

74

• Solid Waste. All project cities currently do have solid waste user charges. Solid waste charges are RMB 3-5/ per household per month (for residential customers). However, actual collection efficiency is extremely low ranging from only 20% (Danjiangkou and Shayang) to 70% (Xiaochang). The most critical driver for the future viability of the solid waste companies is, therefore, consistently enforced higher collection efficiency. In this respect, some cities (Dawu) have already begun to combine solid waste user charges to the water supply bill, which is beginning to increase collection efficiency noticeably. In addition, as in the case of wastewater, user charges need to gradually increase. Financial projections were prepared based on the goal of covering cash operating costs within five years (by 2012) and based on the assumption that revenue collection rates will reach levels around 60% by 2010 and 80% by 2015. Under these assumptions, user charges will need to increase to an average of RMB 7-19/ household/ month by 2011, and RMB 10-11/household/ month by 2015.14 However, note that even if collection efficiency rates and user charges increase at the projected levels, continued subsidies will be needed up to 2012 (so as to cover full and not just cash operating costs).

Table 9.3. Projected User Charges and Collection Rates User Charges/1 Collection Rates (residental) Actual RequiredActual Required 2007 2008 2011 2015 2007 2008 2011 2015 Solid Waste Danjiankou 3 5 7 10 20% 30% 50% 80% Dawu 4 4 7 10 36% 40% 60% 80% Hanchuan 4 5 7 10 27% 30% 70% 80% Honghu 3 3 7 10 50% 55% 70% 85% Shayang 5 5 8 10 20% 30% 70% 85% Xiaochang 3 5 8 10 70% 70% 80% 85% Yunmeng 359 11 55% 55% 70% 85% 1/Solid waste charge (Y/household/month)

Detailed Review of Financial Projections

10. To illustrate in greater detail the projected financial performance of the implementing companies, two representative project cities are described below. The full set of models of the financial projections on these, as well as for all other project cities, is contained in the Project File (containing a detailed review of the financial projections as well as the full financial models). For a summary of the results for other project cities, see also the financial projection tables at the end of this section.

11. Shayang Wastewater. There is no wastewater treatment facility in Shayang with all sewage discharged into the river. Shayang Kanglu Drainage Management Co. (SKDM) was established in November 2006 and currently employs seven staff (three full-time). SKDM is an independent legal person, with a business license and a company

14 Note that the Provincial Decree cited in footnote 4 does not make provision for an explicit solid waste user charge target, but it indicates the need to study the need for higher user fees in Hubei Province.

75 charter and is 100% owned by the Shayang’s Water Supply Company. SKDM is responsible for implementing the Bank project; it will own and operate the Bank funded assets, and is responsible for repaying the Bank loan. The sewer network is currently operated and maintained by the Municipal Utility Company under the Construction Commission, but will transfer the existing assets to SKDM to ensure that the wastewater sector is managed in an integrated manner.

12. The service area of SKDM is the core urban area with a total population of 103,000, which is also the service area of Shayang’s Water Supply Company (SWSC). SWSC supplies 21,900 m3 water/ day. Total self-supplied water is 13,000m3/day, all of which is from industrial sources (with three large sources using about 3,000m3/ day each). Of the total self-supplied water, 10,000 m3/day is discharged into the sewage network; the remaining 3,000 m3/ day cannot be discharged into the network due to technical considerations (i.e. dyeing industry). The county government, in line with provincial regulations, has issued a decree to advance the closure of self-supplied water sources. At present, total coverage of the sewage network is 60% which is expected to increase to 80% after the completion of the Bank project.

13. Wastewater tariffs were introduced in September 2006 and are set at RMB 0.4/m3 across all categories. SWSC collects wastewater tariffs against a commission fee of 5% which is transferred to the Finance Bureau for use in the wastewater sector. SWSC’s collection efficiency rate is 80%. It is planned that wastewater tariffs will be increased to RMB 0.8/m3 by the end of 2008 (though a tariff increase application was not yet submitted). In terms of self-supplied water users, the county government decided to include a wastewater charge (set at RMB 0.4/m3) in the water resource fee for all self- supplied users.

14. Financial projections were prepared for the period from 2008 to 2015. The major assumptions are: (i) the collection rate for water supplied by SWSC will improve from the current level of 80% to 95% in 2012; (ii) the collection rate for self-supplied wastewater tariffs will be at least 80%; and that (iii) the tariff across all categories will increase from the current level of RMB 0.4m3 to RMB 0.8m3 by the end of 2007 to RMB 1.1m3 in 2011. The results of the projections show that SKDM will be able to comply with the financial covenants over the projected period. Since Shayang has already relatively high collection rates for both SWSC and self-supplied water users, the targeted collection rate is judged to be achievable.

76 Shayang Wastewater Company - Summary

2007 2008 2009 2010 2011 2012 2013 2014 2015 Key Operating Assumptions City (County) Population (,000) 609 612 616 620 623 627 631 635 638 Urban Center Population (,000) 103 107 111 115 119 123 127 132 136 Population Served (,000) 103 107 111 115 119 123 127 132 136 Water Supplied*(,000 m3) 11,712 12,101 12,504 12,921 13,340 13,704 14,112 14,534 14,974 from Water Supply Company (WSC) 7,994 8,485 8,991 9,512 10,036 10,575 10,951 11,343 11,750 from Self Supplied Sources 3,718 3,616 3,513 3,409 3,304 3,129 3,160 3,192 3,224 Coverage of Sewer Network 60% 60% 60% 60% 80% 80% 80% 90% 90% Wastewater Volume Treated 0 0 0 0 7,665 8,760 9,855 10,950 10,950 Capacity Utilization Rate 0% 0% 0% 0% 70% 80% 90% 100% 100% Collection Efficiecy Rate for WSC 80% 80% 85% 90% 95% 95% 95% 95% 95% Collection Efficiecy Rate for Self Supplied Sourc 80% 80% 80% 80% 80% 80% 80% 80% 80%

Key Financial Indicators (Y million) Total Operating Revenue 3.7 7.7 8.4 9.0 13.4 13.8 14.2 14.7 15.1 Operating Income 3.3 6.8 7.2 7.7 3.2 3.0 2.9 2.8 3.1 Net Income 3.3 6.6 5.9 4.1 0.4 0.5 0.5 0.6 1.0

Key Financial Ratios Operating Ratio 0.1 0.1 0.1 0.1 0.7 0.8 0.8 0.8 0.8 Cost Recovery Ratio 11.7 8.6 3.8 2.7 1.3 1.1 1.2 1.2 1.2 Debt Service Ratio NA 24.5 5.8 2.8 2.9 1.3 1.3 1.3 1.4

Domestic Wastewater Tariff (Y/m3 0.4 0.8 0.8 0.8 1.1 1.1 1.1 1.1 1.1 * defined as water volume supplied by WSC and that discharged by self supply users into the sewer network

15. Dawu Solid Waste Management. Dawu Solid Waste Management Co. (DSWM) was established in July 2007 as an independent legal person, with a business license and company charter. DSWM is owned by the local ESD and currently employs six part-time staff. At present, the solid waste management operation is conducted by the local ESD along all major functions, i.e. from primary collection to final disposal. The assets created under the Bank project will be owned and operated by DSWM. It is also planned that all existing assets will be transferred to DSWM during the implementation of the Bank project. The service area of the project will cover the core urban area with a population of 143,000.

16. Current user fees were introduced in 2002 and are set at RMB 4/ household/ month for residential; RMB 5/ person/ month for institutional and industry, and RMB 3/ square meter/ month for commercial. Until recently, the ESD has collected user fees ‘door to door’ with a very low collection rate of 36% (for residential customers). From May 2007 onwards, user fees are being collected jointly with the water supply bill, which is expected to increase the collection rate substantially. Despite the low current collection rate, total revenues from user fees—an estimated 2 million in 2007—cover about 76% of cash operating cost of RMB 2.6 million. To cover the shortfall, the ESD is receiving an operating subsidy of RMB 700,000.

17. Financial projections were prepared for the period from 2008 to 2015. The major assumptions are: (i) the collection rate for residential customers will improve from the current level of 36% to 60% in 2011; (ii) the user charge for residential customers will increase from RMB 4 to RMB 7/ household/ month by the end of 2009; (iii) the collection efficiency rates and user charges will increase for other customer categories in line with those of residential customers; and (iv) all the operations currently conducted by the ESD will be assumed by the DSWM. The results of the projection show that DSWM will be able to recover full cash operating cost from fee revenue by 2010—implying that no operating subsidies will be required after that point.

77

Dawu Solid Waste Company - Summary

2007 2008 2009 2010 2011 2012 2013 2014 2015 Key Indicators City (County) Population (,000) 622 625 629 633 637 641 644 648 652 Urban Center Population (,000) 143 154 167 180 186 192 199 205 212 Population Served (,000) 143 154 167 180 186 192 199 205 212

Solid Waste Volume Generated (tons/day) 178 191 204 219 224 229 234 239 245 Solid Waste Collection Rate 75% 75% 80% 90% 90% 90% 90% 90% 90%

Fee Revenue (Y ,000) 2,026 2,255 2,725 5,182 5,957 6,114 8,801 10,156 11,022 Cash Operating Cost 2,653 3,291 3,474 4,553 4,881 5,163 5,534 5,976 6,552 Net Income -233 -845 -1,264 -2,567 -2,120 -2,245 71 984 1,273 Subsidies 700 1,100 800 0 0 0 0 0 0

Unit Cost (Y/ton) Collection 263332283031333537 Transportation 203236303131313234 Landfill 4 3 3414140404040 Total Unit Cost 50 68 70 100 101 102 104 106 110

Operating Ratio 1.46 1.82 1.76 1.50 1.36 1.37 0.99 0.90 0.88 Fee Revenue/Cash Operating Cost 76% 69% 78% 114% 122% 118% 159% 170% 168% Fee Revenue/Total Cost 68% 55% 57% 67% 74% 73% 101% 111% 113%

Fee Collection Rate for Residential Customers 36% 40% 50% 50% 60% 60% 60% 70% 80% User Charge for Residential Customers 4 4 4 7 7 7 10 10 10

C. Affordability of Tariffs

18. An analysis of the affordability of the combined water supply and wastewater tariffs and solid waste user fees was conducted as summarized in the table below. Incomes were analyzed for average and low income households in each project city. Low income households are defined as those in the lowest 20% income group. The results of the affordability analysis indicate that total tariffs and user charges represent around 3% of low income household income (and less than that for the average household). These percentages are within the generally accepted benchmark for affordability of utility charges which suggests that user charges should be less than 5% of total household income for water supply and wastewater and less than 8% if solid waste user fees are included. Additional protection exists in each project city for very low income and vulnerable groups through the Dibao (Social Security) system. A willingness to pay survey was also conducted indicating that tariff increases would be socially acceptable, provided that improved wastewater and solid waste service quality is observed.

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Table 9.4. Affordability Analysis % of low income household income 2007 2008 2009 2010 2011 2015 Danjiankou Water 1.2% 1.3% 1.2% 1.1% 1.0% 0.8% Wastewater 0.4% 0.8% 0.7% 0.7% 0.6% 0.5% Solid Waste 0.3% 0.5% 0.5% 0.4% 0.6% 0.6% Total 1.9% 2.5% 2.4% 2.2% 2.2% 1.8% Dawu Water 1.2% 1.2% 1.2% 1.1% 1.0% 0.8% Wastewater 0.4% 0.8% 0.7% 0.7% 0.6% 0.5% Solid Waste 0.4% 0.4% 0.4% 0.6% 0.5% 0.6% Total 2.0% 2.4% 2.3% 2.4% 2.2% 1.8% Hanchuan Water 1.1% 1.0% 0.9% 1.1% 1.0% 1.0% Wastewater 0.2% 0.7% 0.7% 0.6% 0.8% 0.6% Solid Waste 0.4% 0.5% 0.4% 0.4% 0.5% 0.5% Total 1.7% 2.2% 2.1% 2.2% 2.4% 2.1% Honghu Water 1.3% 1.2% 1.1% 1.3% 1.2% 1.2% Wastewater 0.6% 0.6% 0.7% 0.6% 0.8% 0.7% Solid Waste 0.4% 0.4% 0.4% 0.6% 0.5% 0.6% Total 2.4% 2.2% 2.2% 2.6% 2.6% 2.4% Shayang Water 1.1% 1.0% 1.0% 1.1% 1.1% 1.0% Wastewater 0.4% 0.8% 0.7% 0.6% 0.8% 0.6% Solid Waste 0.7% 0.6% 0.6% 0.8% 0.8% 0.7% Total 2.2% 2.4% 2.2% 2.6% 2.6% 2.3% Tianmen Water 1.0% 0.9% 0.9% 1.0% 1.0% 0.9% Wastewater 0.6% 0.6% 0.5% 0.5% 0.6% 0.4% Solid Waste 0.5% 0.5% 0.4% 0.5% 0.5% 0.4% Total 2.2% 2.0% 1.8% 2.0% 2.0% 1.8% Xiangfan Water 0.8% 0.8% 0.7% 0.8% 0.8% 0.7% Wastewater 0.4% 0.6% 0.6% 0.6% 0.6% 0.6% Solid Waste 0.4% 0.4% 0.4% 0.4% 0.4% 0.4% Total 1.7% 1.7% 1.6% 1.9% 1.8% 1.7% Xiaochang Water 1.5% 1.4% 1.3% 1.5% 1.4% 1.3% Wastewater 0.0% 1.0% 0.9% 0.9% 1.2% 0.9% Solid Waste 0.4% 0.7% 0.6% 0.6% 0.8% 0.7% Total 2.0% 3.1% 2.8% 3.0% 3.4% 2.9% Yunmeng Water 1.3% 1.2% 1.1% 1.3% 1.2% 1.1% Wastewater 0.0% 0.7% 0.7% 0.6% 0.7% 0.6% Solid Waste 0.3% 0.5% 0.4% 0.4% 0.7% 0.6% Total 1.6% 2.4% 2.2% 2.3% 2.6% 2.3%

D. Municipal Financial and Debt Analysis

19. Background. All but two project cities (Tianmen and Xiangfan) are county-level cities with GDP per capita ranging from just over RMB 4,500 (Xiaochang) to more than RMB 10,000 (Xiangfan). Annual GDP growth has been strong in most cities with above 10% growth in recent years with the exception of Dawu and Danjiangkou, whose GDP growth has been around 6-7%. General total budget revenues (including higher level government transfers) have also grown significantly in line, or above, recent GDP growth

79 rates. Note that about 50 % or more of total budget revenues derive from transfers from higher level governments, which is not un-typical for county-level cities in China.

20. Fiscal Impact. An analysis of the impact of the project investments on municipal finances was conducted to estimate whether the project cities have sufficient resources to support the Bank project through counterpart funding contributions, repay the Bank loan, and operate and maintain the assets created. Actual budgets (2002-2006) were provided by the local Finance Bureaus, and projected outward to 2015, based on conservative assumptions (i.e., only half the estimated growth of budgets was assumed). Data provided by the Finance Bureaus include all on-budget revenues and expenditures. The availability of counterpart funds (as well as broader measures of affordability) was analyzed in relation to one key indicator: namely counterpart funding requirements, World Bank debt service payments, and operations and management expenditures as a percentage of general budget revenue (i.e. own tax revenues).

21. While the Bank project constitutes only a small fraction (around 3% - 6%) of general total budget revenue (including higher-level government transfers), in some project cities counterpart funding requirements constitute a significant part of projected general budget income (i.e. own tax revenues), especially in Xiaochang and Shayang. Project cities indicated that not all counterpart funding will be derived from general budget income, with additional sources available through off-budget revenues (i.e. land leases administered through the local Urban Development Investment Corporations (UDICs), state bonds, and, in some instances, commercial bank borrowing. During project preparation, the Provincial Finance Bureau also confirmed that it independently conducted a counterpart funding availability and debt carrying analysis, and selected the participating project cities in light of their ability to undertake the Bank project and repay its debt. In light of lessons learned from previous project experiences (see lessons learned section), the availability of counterpart funds was flagged as a project risk and will be closely monitored during project implementation.

80 Table 9.5. Project Expenditures as a % of General Budget Income % of General Budget Revenue 2008 2009 2010 2011 2012 2013 2014 2015 Danjiankou Counterpart Funds 3% 4% 4% 3% Debt Service 0% 0% 1% 1% 2% 0% 0% 0% O&M expenditures 3% 0% 0% 0% Dawu Counterpart Funds 3% 5% 5% 3% Debt Service 0% 0% 1% 1% 2% 2% 2% 2% O&M expenditures 3% 3% 3% 3% Hanchuan Counterpart Funds 9% 12% 12% 8% Debt Service 0% 1% 2% 2% 5% 5% 5% 4% O&M expenditures 8% 8% 7% 7% Honghu Counterpart Funds 10% 14% 13% 9% 0% 0% 0% 0% Debt Service 0% 1% 2% 2% 6% 5% 5% 5% O&M expenditures 0% 0% 0% 9% 8% 8% 7% Shayang Counterpart Funds 17% 24% 23% 14% Debt Service 1% 2% 3% 4% 10% 9% 8% 8% O&M expenditures 15% 14% 13% 13% Tianmen Counterpart Funds 8% 11% 11% 7% Debt Service 0% 1% 1% 2% 4% 4% 4% 3% O&M expenditures 7% 7% 6% 6% Xiaochang Counterpart Funds 17% 25% 23% 15% Debt Service 1% 2% 3% 4% 10% 10% 9% 8% O&M expenditures 16% 15% 14% 14% 13% Xiangfan Counterpart Funds 1% 1% 1% 1% Debt Service 0% 0% 0% 0% 0% 0% 0% 0% O&M expenditures 1% 1% 0% 0% 0% Yumeng Counterpart Funds 9% 13% 13% 8% Debt Service 0% 1% 2% 2% 6% 5% 5% 4% O&M expenditures 8% 8% 7% 7%

22. Given that the solid waste sector is projected to continue to rely on budgetary contributions over the medium term, the impact of solid waste budget transfers was also analyzed. Budget transfers for solid waste management are projected to be around RMB 1 to 2.5 million per annum. The analysis indicates that the provision of the continued solid waste payments does not constitute a significant financial burden in any of the project cities. It is estimated that solid waste payments require only a small fraction of general budget income (around 2%-3%). Note also that these budget transfers are not additional payments required in connection with the Bank project but are payments currently made to operate solid waste management services.

23. Municipal debt. A debt capacity analysis was also conducted using debt data provided by local Finance Bureaus. The Finance Bureaus provided on-budget debt data (i.e. debt for which the Finance Bureau has direct repayment responsibility, such as debt from China Development Bank, International Financial Institutions, etc.). Off budget

81 (from municipally owned enterprises, UDICs etc.) and other contingent liabilities were not provided as they are not systematically recorded. The analysis suggests that on- budget debt as a percent of general budget revenue is between 20% and 50%, with three outliers. Hanchuan has the highest ratio of on-budget debt, above 100%; Honghu has practically no on-budget debt, and Dawu has no debt at all. Overall, the observed debt patterns are broadly consistent with those observed in other recent Bank projects in China (e.g. Henan Towns Water Supply and Sanitation Project, Second Shandong Environment Project, and Second Guangdong Pearl Delta Urban Environment Project), and judged to be at sustainable levels (except in the case of Hanchuan, where it was explicitly requested that Hanchuan not take on additional debt to finance counterpart funding requirements).

Table 9.6. Local Debt Analysis GDP/ Capita Debt as % General (RMB)/1 Budget Revenue Danjiankou 8,639 31% Dawu 5,347 - Hanchuan 9,197 106% Honghu 5,410 0.4% Shayang 8091 45% Tianmen 6,717 42% Xiangfan 10,262 21% Xiaochang 4,220 21% Yunmeng 8,103 52% 1/ data for 2005

82 Summary of Wastewater Sector Financial Projections

Hanchuan Wastewater Company - Summary

2007 2008 2009 2010 2011 2012 2013 2014 2015 Key Operating Assumptions City (County) Population (,000) 1,086 1,093 1,100 1,106 1,113 1,119 1,126 1,133 1,140 Urban Center Population (,000) 181 183 184 186 196 207 219 231 244 Population Served (,000) 181 183 184 186 196 207 219 231 244 Water Supplied*(,000 m3) 19,127 19,372 19,624 19,882 20,602 21,358 22,152 22,986 23,861 from Water Supply Company (WSC) 19,127 19,372 19,624 19,882 20,602 21,358 22,152 22,986 23,861 from Self Supplied Sources 000000000 Coverage of Sewer Network 60% 60% 60% 60% 80% 80% 80% 90% 90% Wastewater Volume Treated 0 0 0 0 12,775 14,523 15,063 17,584 18,250 Capacity Utilization Rate 0% 0% 0% 0% 70% 80% 83% 96% 100% Collection Efficiecy Rate for WSC 30% 40% 60% 75% 85% 95% 95% 95% 95% Collection Efficiecy Rate for Self Supplied Sourc NA NA NA NA NA NA NA NA NA

Key Financial Indicators (Y million) Total Operating Revenue 1.3 6.2 9.4 11.9 19.3 22.3 23.1 24.0 24.9 Operating Income 1.1 5.3 8.0 10.2 3.1 5.1 5.5 5.2 5.6 Net Income 1.1 4.9 6.0 4.9 -1.0 0.9 1.5 1.5 2.0

Key Financial Ratios Operating Ratio 0.1 0.1 0.1 0.1 0.8 0.8 0.7 0.8 0.8 Cost Recovery Ratio 6.8 6.1 3.1 2.4 1.2 1.2 1.2 1.2 1.2 Debt Service Ratio NA 12.0 4.1 2.4 2.5 1.3 1.4 1.4 1.4

Domestic Wastewater Tariff (Y/m3 0.2 0.8 0.8 0.8 1.1 1.1 1.1 1.1 1.1 * defined as water volume supplied by WSC and that discharged by self supply users into the sewer network

Honghu Wastewater Company - Summary

2007 2008 2009 2010 2011 2012 2013 2014 2015 Key Operating Assumptions City (County) Population (,000) 915 921 926 932 937 943 949 954 960 Urban Center Population (,000) 186 191 196 201 206 212 218 223 230 Population Served (,000) 186 191 196 201 206 212 218 223 230 Water Supplied*(,000 m3) 14,169 14,797 15,436 16,086 16,759 17,380 17,771 18,173 18,586 from Water Supply Company (WSC) 10,818 11,545 12,284 13,036 13,811 14,600 14,964 15,338 15,722 from Self Supplied Sources 3,351 3,252 3,152 3,051 2,948 2,779 2,807 2,835 2,863 Coverage of Sewer Network 60% 60% 60% 60% 80% 80% 80% 90% 90% Wastewater Volume Treated 8,366 8,652 8,944 9,241 11,898 12,291 12,561 14,143 14,461 Capacity Utilization Rate 33% 34% 35% 36% 47% 48% 49% 55% 57% Collection Efficiecy Rate for WSC 95% 95% 95% 95% 95% 95% 95% 95% 95% Collection Efficiecy Rate for Self Supplied Sourc 0% 0% 10% 10% 20% 20% 20% 30% 30%

Key Financial Indicators (Y million) Total Operating Revenue 0.0 0.0 1.9 2.0 3.8 4.0 4.8 5.0 5.1 Operating Income -1.5 -1.6 0.3 0.4 0.7 0.9 1.6 1.7 1.8 Net Income -1.5 -1.6 -0.0 -0.3 -0.0 0.1 0.8 0.8 0.9

Key Financial Ratios Operating Ratio NA NA 0.8 0.8 0.8 0.8 0.7 0.7 0.7 Cost Recovery Ratio 0.0 0.0 1.2 1.2 1.2 1.3 1.5 1.5 1.5 Debt Service Ratio NA NA 3.6 2.1 3.5 1.6 2.0 2.1 2.2

Domestic Wastewater Tariff (Y/m3 0.6 0.6 0.8 0.8 1.1 1.1 1.3 1.3 1.3 * defined as water volume supplied by WSC and that discharged by self supply users into the sewer network

83 Tianmen Wastewater Company - Summary

2007 2008 2009 2010 2011 2012 2013 2014 2015 Key Operating Assumptions City (County) Population (,000) 1,630 1,639 1,649 1,659 1,669 1,679 1,689 1,699 1,710 Urban Center Population (,000) 256 263 269 276 283 291 299 307 315 Population Served (,000) 236 242 248 254 261 268 275 282 290 Water Supplied*(,000 m3) 31,239 31,988 32,762 33,563 34,413 35,263 36,174 37,118 38,097 from Water Supply Company (WSC) 29,712 30,506 31,326 32,173 33,069 33,996 34,895 35,826 36,792 from Self Supplied Sources 1,527 1,481 1,436 1,390 1,344 1,267 1,279 1,292 1,305 Coverage of Sewer Network 60% 60% 60% 60% 80% 80% 80% 90% 90% Wastewater Volume Treated 0 0 0 0 12,775 14,600 16,425 18,250 18,250 Capacity Utilization Rate 0% 0% 0% 0% 70% 80% 90% 100% 100% Collection Efficiecy Rate for WSC 70% 70% 80% 85% 90% 95% 95% 95% 95% Collection Efficiecy Rate for Self Supplied Sourc 0% 10% 15% 20% 25% 30% 30% 30% 30%

Key Financial Indicators (Y million) Total Operating Revenue 9.7 17.2 20.2 22.1 30.1 32.7 33.5 34.4 35.3 Operating Income 8.5 15.2 17.6 19.3 13.2 14.7 14.7 14.7 15.4 Net Income 8.5 14.7 15.7 11.9 7.0 8.3 8.5 8.7 9.4

Key Financial Ratios Operating Ratio 0.1 0.1 0.1 0.1 0.5 0.5 0.5 0.5 0.5 Cost Recovery Ratio 15.1 11.0 5.8 4.1 1.9 1.7 1.7 1.7 1.7 Debt Service Ratio NA 35.9 9.4 4.4 4.5 2.1 2.2 2.2 2.4

Domestic Wastewater Tariff (Y/m3 0.8 0.8 0.8 0.8 1.0 1.0 1.0 1.0 1.0 * defined as water volume supplied by WSC and that discharged by self supply users into the sewer network

Xiaochang Wastewater Company - Summary

2007 2008 2009 2010 2011 2012 2013 2014 2015 Key Operating Assumptions City (County) Population (,000) 634 638 641 645 649 653 657 661 665 Urban Center Population (,000) 78 82 86 91 95 100 106 111 117 Population Served (,000) 88 92 97 102 108 113 119 125 132 Water Supplied*(,000 m3) 8,656 9,188 9,743 10,321 12,207 12,501 12,940 13,983 14,475 from Water Supply Company (WSC) 3,767 4,546 5,357 6,201 7,081 7,997 8,351 8,723 9,114 from Self Supplied Sources 4,889 4,642 4,386 4,120 5,126 4,505 4,589 5,260 5,361 Coverage of Sewer Network 60% 60% 60% 60% 80% 80% 80% 90% 90% Wastewater Volume Treated 0 0 0 0 6,388 7,300 8,213 9,125 9,125 Capacity Utilization Rate 0% 0% 0% 0% 70% 80% 90% 100% 100% Collection Efficiecy Rate for WSC NA 70% 80% 85% 90% 95% 95% 95% 95% Collection Efficiecy Rate for Self Supplied Sourc NA 0% 10% 15% 20% 25% 30% 30% 40%

Key Financial Indicators (Y million) Total Operating Revenue 0.0 2.5 3.8 4.7 8.9 10.5 11.2 11.8 13.0 Operating Income -0.1 2.1 3.0 3.8 0.4 1.4 1.6 1.8 2.8 Net Income -0.1 1.9 2.4 2.0 -0.8 0.2 0.4 0.6 1.4

Key Financial Ratios Operating Ratio NA 0.1 0.2 0.2 1.0 0.9 0.8 0.8 0.8 Cost Recovery Ratio 0.0 5.2 3.0 2.5 1.1 1.2 1.2 1.2 1.3 Debt Service Ratio NA 15.5 5.0 2.8 3.4 1.8 2.0 2.1 2.4

Domestic Wastewater Tariff (Y/m3 0.0 0.8 0.8 0.8 1.2 1.2 1.2 1.2 1.2 * defined as water volume supplied by WSC and that discharged by self supply users into the sewer network

84 Xiangfan Wastewater Company - Summary

2007 2008 2009 2010 2011 2012 2013 2014 2015 Key Operating Assumptions City (County) Population (,000) 5,030 5,060 5,091 5,121 5,152 5,183 5,214 5,245 5,277 Urban Center Population (,000) 1,069 1,109 1,152 1,195 1,232 1,271 1,310 1,351 1,392 Population Served (,000) 1,069 1,109 1,152 1,195 1,232 1,271 1,310 1,351 1,392 Water Supplied*(,000 m3) 99,919 105,653 111,534 117,569 123,336 129,013 132,505 136,117 139,852 from Water Supply Company (WSC) 88,197 94,265 100,485 106,862 112,974 119,225 122,619 126,131 129,767 from Self Supplied Sources 11,723 11,387 11,049 10,707 10,362 9,789 9,886 9,985 10,085 Coverage of Sewer Network 60% 60% 60% 60% 80% 80% 80% 90% 90% Wastewater Volume Treated 0 57,755 60,639 63,601 85,630 89,393 91,784 104,978 107,844 Capacity Utilization Rate 0% 53% 55% 58% 78% 82% 84% 96% 98% Collection Efficiecy Rate for WSC 65% 70% 75% 85% 90% 95% 95% 95% 95% Collection Efficiecy Rate for Self Supplied Sourc 60% 60% 60% 60% 60% 60% 60% 60% 60%

Key Financial Indicators (Y million) Total Operating Revenue 32.2 58.3 65.6 97.3 107.9 143.0 146.9 176.1 181.1 Operating Income 16.0 -7.1 -0.5 13.0 18.8 35.5 36.8 36.2 37.6 Net Income 10.4 -12.3 -5.8 5.7 10.3 23.2 24.7 24.6 26.1

Key Financial Ratios Operating Ratio 0.5 1.1 1.0 0.9 0.8 0.7 0.7 0.8 0.8 Cost Recovery Ratio 1.5 0.8 0.9 1.1 1.2 1.3 1.3 1.2 1.2 Debt Service Ratio 1.5 0.3 0.6 1.3 1.6 2.1 2.3 2.3 2.4

Domestic Wastewater Tariff (Y/m3 0.5 0.8 0.8 1.0 1.0 1.2 1.2 1.4 1.4 * defined as water volume supplied by WSC and that discharged by self supply users into the sewer network

Yunmeng Wastewater Company - Summary

2007 2008 2009 2010 2011 2012 2013 2014 2015 Key Operating Assumptions City (County) Population (,000) 588 592 596 601 605 609 613 618 622 Urban Center Population (,000) 118 123 130 136 143 150 157 165 173 Population Served (,000) 118 123 130 136 143 150 157 165 173 Water Supplied*(,000 m3) 14,700 15,338 15,997 16,678 17,379 18,004 18,554 19,127 19,726 from Water Supply Company (WSC) 10,950 11,752 12,576 13,423 14,293 15,188 15,710 16,255 16,825 from Self Supplied Sources 3,750 3,587 3,421 3,255 3,086 2,816 2,844 2,873 2,901 Coverage of Sewer Network 60% 60% 60% 60% 80% 80% 80% 90% 90% Wastewater Volume Treated 0 0 0 0 12,342 12,722 13,100 14,877 15,337 Capacity Utilization Rate 0% 0% 0% 0% 68% 70% 72% 82% 84% Collection Efficiecy Rate for WSC NA 70% 80% 85% 90% 95% 95% 95% 95% Collection Efficiecy Rate for Self Supplied Sourc NA 10% 15% 20% 25% 30% 30% 30% 30%

Key Financial Indicators (Y million) Total Operating Revenue 0.0 7.4 9.2 10.5 13.6 15.3 15.8 19.6 20.2 Operating Income -0.1 6.5 7.8 8.9 0.8 1.9 2.1 4.8 5.0 Net Income -0.1 6.1 6.4 4.7 -2.3 -0.9 -0.4 1.8 2.2

Key Financial Ratios Operating Ratio NA 0.1 0.1 0.1 0.9 0.9 0.9 0.7 0.7 Cost Recovery Ratio 0.0 7.9 3.7 2.7 1.1 1.0 1.1 1.2 1.3 Debt Service Ratio NA 20.0 5.4 2.8 2.0 1.1 1.1 1.5 1.6

Domestic Wastewater Tariff (Y/m3 0.0 0.8 0.8 0.8 1.0 1.0 1.0 1.2 1.2 * defined as water volume supplied by WSC and that discharged by self supply users into the sewer network

85 Summary of Solid Waste Sector Financial Projections

Danjiangkou Solid Waste Company - Summary

2007 2008 2009 2010 2011 2012 2013 2014 2015 Key Indicators City (County) Population (,000) 493 496 499 502 505 508 511 514 517 Urban Center Population (,000) 215 221 227 233 240 246 253 260 268 Population Served (,000) 215 221 227 233 240 246 253 260 268

Solid Waste Volume Generated (tons/day) 257 259 261 263 265 267 269 271 273 Solid Waste Collection Rate 80% 80% 80% 90% 90% 90% 90% 90% 90%

Fee Revenue (Y ,000) 1,292 2,586 3,140 3,404 5,402 6,303 6,477 10,421 11,531 Cash Operating Cost 2,880 3,376 3,629 4,702 4,995 5,313 5,657 6,059 6,694 Net Income -232 -161 -786 -6,079 -4,575 -3,992 -4,162 -620 -144 Subsidies 1,600 1,700 1,600 1,300 0 0 0 0 0

Unit Cost (Y/ton) Collection 252729283032343740 Transportation 9 25 36 32 32 33 33 34 37 Landfill 4 4 4494949494949 Total Unit Cost 39 55 69 109 111 114 116 120 126

Operating Ratio 2.42 1.72 1.76 2.84 1.85 1.63 1.64 1.06 1.01 Fee Revenue/Cash Operating Cost 45% 77% 87% 72% 108% 119% 114% 172% 172% Fee Revenue/Total Cost 41% 58% 57% 35% 54% 61% 61% 94% 99%

Fee Collection Rate for Residential Customers 20% 30% 40% 45% 50% 60% 60% 70% 80% User Charge for Residential Customers 3 5 5 5 7 7 7 10 10

Hanchuan Solid Waste Company - Summary

2007 2008 2009 2010 2011 2012 2013 2014 2015 Key Indicators City (County) Population (,000) 1,086 1,093 1,100 1,106 1,113 1,119 1,126 1,133 1,140 Urban Center Population (,000) 185 193 202 211 221 231 242 254 266 Population Served (,000) 176 183 191 200 209 219 230 241 253

Solid Waste Volume Generated (tons/day) 218 223 228 233 240 246 253 259 266 Solid Waste Collection Rate 80% 80% 85% 90% 90% 90% 90% 90% 90%

Fee Revenue (Y ,000) 1,993 2,977 3,385 4,111 7,488 8,266 8,640 13,685 14,311 Cash Operating Cost 3,883 4,542 4,911 6,442 6,845 7,206 7,671 8,214 9,175 Net Income -436 -1,098 -2,446 -11,100 -8,326 -7,910 -8,001 -3,499 -3,834 Subsidies 1,900 2,400 2,500 2,400 0 0 0 0 0

Unit Cost (Y/ton) Collection 404242424446485153 Transportation 245371656564646469 Landfill 1 1 1918987858381 Total Unit Cost 65 96 114 198 198 197 197 198 203

Operating Ratio 2.17 2.18 2.46 3.75 2.11 1.96 1.93 1.26 1.27 Fee Revenue/Cash Operating Cost 51% 66% 69% 64% 109% 115% 113% 167% 156% Fee Revenue/Total Cost 46% 46% 41% 27% 47% 51% 52% 80% 79%

Fee Collection Rate for Residential Customers 27% 30% 40% 60% 70% 80% 80% 80% 80% User Charge for Residential Customers 4 5 5 5 7 7 7 10 10

86 Honghu Solid Waste Company - Summary

2007 2008 2009 2010 2011 2012 2013 2014 2015 Key Indicators City (County) Population (,000) 0 0 0 0 0 0 0 0 0 Urban Center Population (,000) 185 190 195 200 205 211 217 222 228 Population Served (,000) 185 190 195 200 205 211 217 222 228

Solid Waste Volume Generated (tons/day) 228 231 235 239 243 247 251 255 259 Solid Waste Collection Rate 70% 75% 80% 90% 90% 90% 90% 90% 90%

Fee Revenue (Y ,000) 3,069 2,560 2,828 5,706 6,277 7,123 10,223 10,917 11,141 Cash Operating Cost 3,855 4,374 4,704 5,686 6,063 6,401 6,833 7,371 8,129 Net Income -727 -1,750 -2,808 -5,559 -5,465 -4,956 -2,288 -2,133 -2,667 Subsidies 800 1,900 1,900 100 0 0 0 0 0

Unit Cost (Y/ton) Collection 292829272930323436 Transportation 274455495050515255 Landfill 9 9 9585858575756 Total Unit Cost 65 81 92 135 137 137 139 142 148

Operating Ratio 1.43 2.27 2.49 1.99 1.87 1.70 1.22 1.20 1.24 Fee Revenue/Cash Operating Cost 80% 59% 60% 100% 104% 111% 150% 148% 137% Fee Revenue/Total Cost 70% 44% 40% 50% 53% 59% 82% 84% 81%

Fee Collection Rate for Residential Customers 50% 55% 60% 65% 70% 80% 80% 85% 85% User Charge for Residential Customers 3 3 3 7 7 7 10 10 10

Shayang Solid Waste Company - Summary

2007 2008 2009 2010 2011 2012 2013 2014 2015 Key Indicators City (County) Population (,000) 609 612 616 620 623 627 631 635 638 Urban Center Population (,000) 103 107 111 114 118 123 127 131 136 Population Served (,000) 103 107 111 114 118 123 127 131 136

Solid Waste Volume Generated (tons/day) 124 126 127 129 131 133 135 137 139 Solid Waste Collection Rate 74% 75% 80% 90% 90% 90% 90% 90% 90%

Fee Revenue (Y ,000) 1,197 1,389 1,564 3,072 3,626 3,978 5,463 5,641 6,164 Cash Operating Cost 2,136 2,518 2,538 3,642 3,870 3,874 4,107 4,376 4,893 Net Income 138 -725 -1,543 -5,599 -5,074 -5,025 -3,773 -3,864 -3,858 Subsidies 1,200 1,400 1,300 600 300 0 0 0 0

Unit Cost (Y/ton) Collection 353434323532343739 Transportation 215773656566666672 Landfill 3 3 3 102 101 100 100 99 99 Total Unit Cost 59 94 111 200 201 198 200 202 210

Operating Ratio 1.89 2.53 2.82 2.86 2.48 2.26 1.69 1.69 1.63 Fee Revenue/Cash Operating Cost 56% 55% 62% 84% 94% 103% 133% 129% 126% Fee Revenue/Total Cost 53% 40% 35% 35% 40% 44% 59% 59% 62%

Fee Collection Rate for Residential Customers 20% 30% 40% 50% 70% 80% 80% 80% 85% User Charge for Residential Customers 5 5 5 8 8 8 10 10 10

87 Xiaochang Solid Waste Company - Summary

2007 2008 2009 2010 2011 2012 2013 2014 2015 Key Indicators City (County) Population (,000) 634 638 641 645 649 653 657 661 665 Urban Center Population (,000) 78 82 86 90 94 99 104 109 115 Population Served (,000) 109 114 120 126 132 139 146 153 161

Solid Waste Volume Generated (tons/day) 130 134 138 142 146 150 155 159 164 Solid Waste Collection Rate 75% 75% 80% 90% 90% 90% 90% 90% 90%

Fee Revenue (Y ,000) 1,139 2,016 2,271 2,384 4,211 4,596 4,826 6,484 6,808 Cash Operating Cost 1,799 2,221 2,497 3,962 4,198 4,450 4,724 5,051 5,585 Net Income -719 -632 -1,422 -6,142 -4,651 -4,518 -4,562 -3,232 -3,441 Subsidies 700 600 600 1,600 0 0 0 0 0

Unit Cost (Y/ton) Collection 363737343638404244 Transportation 154462646362626266 Landfill 4 4 4858381807977 Total Unit Cost 55 85 103 182 182 182 182 183 187

Operating Ratio 1.81 1.61 1.89 3.62 2.10 1.98 1.95 1.50 1.51 Fee Revenue/Cash Operating Cost 63% 91% 91% 60% 100% 103% 102% 128% 122% Fee Revenue/Total Cost 55% 62% 53% 28% 48% 50% 51% 67% 66%

Fee Collection Rate for Residential Customers 70% 70% 75% 75% 80% 85% 85% 85% 85% User Charge for Residential Customers 3 5 5 5 8 8 8 10 10

Yunmeng Solid Waste Company - Summary

2007 2008 2009 2010 2011 2012 2013 2014 2015 Key Indicators City (County) Population (,000) 588 592 596 601 605 609 613 618 622 Urban Center Population (,000) 117 123 129 136 142 149 157 164 172 Population Served (,000) 117 123 129 136 142 149 157 164 172

Solid Waste Volume Generated (tons/day) 141 145 149 153 157 162 166 171 176 Solid Waste Collection Rate 72% 75% 80% 90% 90% 90% 90% 90% 90%

Fee Revenue (Y ,000) 1,488 2,416 2,666 2,885 5,000 5,780 6,035 7,799 8,506 Cash Operating Cost 3,271 3,625 3,657 4,738 5,058 5,404 5,779 6,217 6,847 Net Income -234 -42 -606 -5,513 -3,918 -3,784 -3,904 -2,578 -2,501 Subsidies 1,800 2,100 2,000 1,900 300 0 0 0 0

Unit Cost (Y/ton) Collection 535453505355586265 Transportation 345864575656565763 Landfill 4 4 4706967666564 Total Unit Cost 91 115 121 176 178 179 180 183 192

Operating Ratio 2.37 1.89 1.98 3.08 1.84 1.65 1.65 1.33 1.29 Fee Revenue/Cash Operating Cost 45% 67% 73% 61% 99% 107% 104% 125% 124% Fee Revenue/Total Cost 42% 53% 51% 32% 54% 60% 61% 75% 77%

Fee Collection Rate for Residential Customers 55% 55% 60% 65% 70% 80% 80% 80% 85% User Charge for Residential Customers 3 5 5 5 9 9 9 11 11

E. Project Economic Analysis

24. Methodology—cost effectiveness. The methodology for the economic evaluation of all project components is “cost effectiveness”. The rationale for adopting a cost effectiveness methodology is that for wastewater/ sanitation and solid waste projects’ benefits are difficult to quantify in a reasonably reliable manner, especially those pertaining to public health and the environment. In wastewater/ sanitation and solid waste projects in China, indeed in most Bank projects in the sector, cost effectiveness is the preferred and most frequently applied

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methodology. The key objective of a cost effectiveness analysis is to demonstrate that the proposed investments have a sound strategic rationale in terms of overall project objectives, and that these objectives are met in the most cost-effective way (based on evaluated lifecycle costs and compared on an NPV/ unit incremental cost basis). As a result of the lack of robust quantitative estimates of project benefits, no economic internal rate of returns (EIRRs) were calculated.

25. Solid Waste--Project Objectives and Benefits. The project objective of the solid waste sub-components is to reduce urban pollution through the introduction of a reliable system of collection, transport, and disposal of solid waste. In terms of direct project beneficiaries, a total population of 1.19 million in 2010 and 1.72 million in 2020 will be served, with a total of 11 million tons of solid waste collected and disposed in an environmentally sound manner (over a 17 year lifespan). This will generate multiple benefits. Improved solid waste collection will improve the local urban environment by removing odorous and unsightly garbage at collection points and open dumps, and reduce pollution generated from storm water run-off. Closure of existing dumps and construction of new sanitary landfills will reduce leachate and the resulting soil and water pollution. In terms of public health, the closure of open garbage piles will reduce human exposure to unsanitary waste; modern landfill operation will also directly improve the occupational health and safety of landfill workers (both potentially reducing health care cost). In terms of direct economic impact, the improved collection and disposal of solid waste will make the cities’ urban area more attractive to investors and tourists, and potentially lead to an increase in property prices.

26. Alternatives considered. For each component, technical design alternatives, location options, etc. were evaluated on the basis of technical, environmental, and economic criteria to identify the most cost effective solution as it relates to the selection of the collection system, transfer and transportation methods, final disposal, and closure of existing open dump sites. The overall conclusion of the analysis is that the unit cost estimates for the proposed investments are comparable with those of other Bank funded projects in China, and low by international standards. Estimated total unit cost of collecting, transferring, and disposing solid waste range from RMB 100 to RMB 200 (or US$ 14-28) /ton, compared to ‘average’ unit costs in developing countries at about US$ 50/ton.15 The specific alternatives considered are as follows, with comparative cost estimates where available, provided for illustrative purposes for one project city, Honghu.

• In terms of the optimizing the collection system, the location of transfer stations, and vehicles types/sizes, the choice of replacing open-bed vehicles with compactor trucks was driven by the lower transportation costs per ton of waste collected for compaction vehicles. Various locations for transfer stations and collection points were considered in order to collect the waste at lowest cost.

• In terms of disposal and treatment technologies, the project considered several safe disposal options including landfill, incineration, or composting. In all cases a new sanitary landfill was chosen as a lower cost option over incineration. Incineration and composting was also ruled out due to low calorific value and low organic content of the solid waste. Generic unit

15 Estimated by World Bank Urban Anchor Department.

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costs estimates applied to Honghu project city indicate that unit incremental operating cost/ ton of solid waste is about RMB 20-35/ton for landfills, compared with about RMB 100/ ton for incineration, including investment cost in the comparison would lead to even higher cost advantages of the landfill option.

• In terms of landfill site selection, the cost of land acquisition, the impact of distance for transportation cost etc., along with environmental and technical constraints (i.e. actual availability of land) were all considered. Various options where compared with the least costs option adopted. In the case for Honghu project city, a comparison of transportation costs and available landfill sites suggested that average incremental costs were RMB 29/ ton for selected site, compared with RMB 33/ ton for the closest alternative. Note also that economies of scale were explored where feasible (i.e. Yunmeng and Xiaochang are two project cities relatively close to each other) but were rejected by local policy makers.

27. Wastewater--Project Objectives and Benefits. The project objective of the wastewater sub-component is to reduce urban pollution generated from untreated wastewater directly discharged into the river. Direct project beneficiaries are a projected 1.37 million and 1.97 million in 2010 and 2020 respectively. Total additional wastewater treated will amount to 205,000 m3 per day once maximum capacity is reached. The principal project benefits consist of significantly reduced discharges of pollutants (in particular, BOD, COD, suspended solids, nitrogen and phosphorus) into local groundwater sources and surrounding rivers and lakes. This will lead to projected improvements in water quality. As other wastewater treatment projects, this project is expected to contribute to improvements in the local urban environment, public health, and the economy. In particular, the local urban environment can be improved by reducing unpleasant odors and sights; public health by reducing human exposure to untreated wastewater and water borne diseases (potentially lowering health care costs), and the local economy by potentially increased tourism, investment, and appreciated property values along river stretches.

28. Alternatives considered. For each component, technical design alternatives, location options, etc. were evaluated on the basis of technical, environmental, and economic criteria to identify the most cost effective solution along all key design dimensions including the collection system and location of treatment plant, treatment technology, and the proposed effluent standard. To illustrate the approach taken in the feasibility studies, one illustrative case i.e. Shayang, is highlighted below, with incremental unit cost estimates provided where available:

• In terms of location of the wastewater treatment plant and the design of the collection system, various topological, land availability, gravity flow vs. pumping stations cost considerations, etc. were evaluated and checked for consistency with projected urban development patterns and the existing drainage master plans. For Shayang, unit incremental costs of designing the collection system with one pumping station vs. only through gravity flows were found to be approximately equal (unit incremental costs of RMB 0.137/m3 and RMB 0.136/m3 respectively) indicating that the location of the design of collecting system was determined, above all, by technical considerations.

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• In terms of wastewater treatment technology, three principle treatment processes were compared. Oxidation ditch, A2/0, and CASS. CASS was ruled out for technical considerations. For Shayang, oxidation ditch and A2/0 were compared in terms of their cost effectiveness and it was found that oxidation ditch technology has somewhat lower unit incremental costs at RMB 0.706/m3 (compared to RMB 0.719/ m3 for A2/O). In addition, oxidation ditch technology is widely used and known in China, and as a result appropriate for lower capacity, county-level cities.

• Finally, in terms of wastewater effluent standard, Class 1-B was chosen as the most cost effective means of reducing pollution. Class 1-B is the most appropriate wastewater treatment standard for poorer, county-level cities in light of the limited additional environmental benefit.

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Annex 10: Safeguard Policy Issues CHINA: Han River Urban Environment Improvement Project

Environmental Safeguards

1. The project is classified as a Category A, due to the complexity of environmental issues associated with wastewater management and solid waste management. The project will bring about positive impacts and benefits to the environment and communities in the project cities, including reduced raw wastewater discharges, improved solid waste collection, and disposal at the landfills. The following Bank safeguard policies are triggered: (a) environmental assessment (EA); and (b) involuntary resettlement.

2. The project feasibility studies (FS) were prepared by Chinese Design Institutes (DIs) supported by the design review assistant consultants assisting the Provincial Project Management Office (PPMO). Two specialized institutes independent of those for the FS carried out Environmental Impact Assessment (EIA) and Environmental Management Plan (EMP) for each sub-project. Based on the individual EIAs and EMPs, the English language comprehensive summary of EA (CEA) was prepared. The EIA reports and EMPs identified potential environmental benefits and consequences of the project, proposed measures to avoid, mitigate or otherwise compensate negative environmental impacts during construction and operation, and allowed incorporation of appropriate measures in the design to mitigate negative impacts to a minimum and acceptable level. The documents have been prepared on the basis of the country’s legal and policy framework for pollution control and environmental protection, master plans and environmental plans of the nine project cities, as well as applicable World Bank Safeguard Policies. Technically, the EIA reports applied methodologies set out in various technical guidelines issued by the State Environmental Protection Administration (SEPA) and World Bank safeguard policies/technical sourcebooks. The scope of the project covered by the EIA report is based on project feasibility study reports (FSRs) for each of the project components.

3. Policy Framework and Institutions. The EIA Law, issued in October 2002 and effective September 1, 2003, is applicable to all construction projects that may cause negative impacts on the environment. According to the Management Regulation on Environmental Protection for Construction Projects issued on November 29, 1998 by the State Council, an EIA must be prepared during the project FS stage. EIA approval is a necessary prerequisite for securing a construction and operating permit. Based on the severity of possible impacts on the environment, the EIA may be a simple Environmental Impact Registration (EIR), an EIA Form (EIF), or an EIA Report. This can be determined by Classification Management Catalogue of Environmental Protection for Construction Projects (issued by the SEPA and effective January 1, 2003). For this project, an EIA report for each site was required.

4. Hubei provincial and municipal Environmental Protection Bureaus (EPBs) are in charge of drafting and issuing local laws and regulations; organizing environmental monitoring and control; supervising the treatment of pollution; dealing with major pollution incidents; and carrying out education and training in environmental protection. Accordingly, within its duties the Hubei EPB reviews and approves the individual EIAs for this project. EIA and EMP reports prepared for this project and the information of disclosure are presented in the attached table.

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5. Project Description. The proposed project will support wastewater pollution abatement, solid waste management, industrial pollution control, and institutional development and capacity building in nine project cities/counties. Details are in Annex 4.

6. Baseline Environmental Conditions. Hubei Province is located in the center of China and is abundant in water resources, boasting thousands of lakes and numerous streams which constitute the water system of the Mid-Yangtze Valley. Among others, the Han River is the largest and the most important tributary of the Yangtze River. From its source in the neighboring Shannxi Province on the northwest, the Han River flows southeast across Hubei Province and finally into the Yangtze River at Wuhan with a length of about 858 km within the Province. The Han River Basin stretches over the areas along the middle and downstream of the Han River, and merges into the Mid-Yangtze valley in Hubei, forming the Jianghan Plain which is famous for grain, cotton and vegetable oil production in China. The overall water quality of the Han River is still relatively good, with 80% of its 25 monitoring stations categorizing their respective segments as Class II and the remaining 20% segments are Class III (Xiangfan Yujiahu, Qianjiang Zekou, Wuhan Xingou, Wuhan Guojiatai and Wuhan Longwangmiao). However, the river water quality has deteriorated over the past decades due to a rapid urbanization, industrialization, and intensified agricultural activities, all associated with a rapid population increase in the Han River Basin. Moreover, the change in hydraulic conditions of the Han River Basin is likely to accelerate its water quality deterioration after the start of South- North Water Diversion in 2010 (on average, diverting one-third of annual water flows from the Han River at Danjiangkou to the Beijing area). It is estimated that the absence of counter measures could result in the deterioration of the water quality to Class III or worse in significant proportions of the Han River in the Province. In addition, the branches of the Han River are seriously polluted — of the 16 monitoring stations, only 6 of them are up to Class I-III, with the rest classified as Class IV or worse.

7. Municipal solid waste management in each city includes collection, transfer and disposal, and is normally under the management of the local environmental sanitation department, which is traditionally responsible for collection and disposal of garbage from domestic and commercial sources. For industrial solid waste, the EPB is responsible for supervising and monitoring the disposal of industrial wastes. Currently stipulations are that management of hospital waste and hazardous waste be separated from municipal solid waste management, including collection, transfer and disposal to be under the responsibility of the local EPB. Problems include piles of garbage scattered in backyards of cities, with the landfills – simply no more than ‘dumping grounds’ in most cities and towns – overloaded due to the growing urban refuse loads.

8. The Water Quality Modeling carried out by Delft Hydraulics Institute (DHI) found that a total pollution load into the Han River is 436,000 tons CODcr/year, 198,000 tons BOD5/year, 46,000 tons nitrogen/year and 5,000 tons phosphorous/year, which is equivalent to pollution generated from 10-20 million people. According to the model, 50% of the organic pollution load, 55% of the nitrogen load and 46% of the phosphorous discharged into the Han River have been estimated to originate from domestic sources (point and non-point sources). Even though industrial pollution has been estimated to be low compared to other pollution sectors (12% CODcr, 7% BOD5, 17% total nitrogen and 15% total phosphorous), concentrated pollution

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discharges from 15 point zones where many industrial complexes are located affect the water quality locally.

9. Expected Environmental Benefits. The project will contribute to the overall improvement of the urban environment of the nine project cities in the Han River area, by providing environmental service facilities on wastewater management and solid waste management. The project will benefit an estimated 1.84 million people in the short-run (2010) and an estimated 2.58 million people in the long run (2020) in nine cities, providing wastewater services in seven cities to about 1.37 million people by 2010 and to about 1.97 million people by 2020, and solid waste services in seven cities to about 1.19 million people by 2010 and to about 1.72 million people by 2020. In addition, HRUEIP will enable the collection of a total of 164,700 m3/day of wastewater in the cities of Xiangfan and Honghu, which will be treated in wastewater treatment plants (WWTPs) built with other financing sources: the Yuliangzhou WWTP in Xiangfan (currently a WWTP for primary treatment, to be upgraded to a secondary WWTP by 2008) and the Honghu WWTP (existing facility has capacity for secondary biological treatment, but not fully operational due to incomplete sewer network). It can be estimated that if the wastewater is collected and properly treated at the WWTPs mentioned above, it will result in a potential annual pollution-load reduction of about 8,852 tons of BOD, 11,678 tons of suspended solids, 1,574 tons of NH3-N and 50 tons of total phosphorus, respectively.

10. Through improved collection of wastewater in Hanchuan, Shayang and Xiangfan, as well as the construction of WWTPs in Hanchuan and Shayang, the HRUEIP sub-projects in general will reduce the emissions of pollutants to the Han River. After project implementation together with other provincial environmental protection measures, the deteriorating environment in the specific urban river sections along the Han River will be reduced to meet the required surface water quality standards of Class II or III. The project will help alleviate existing water pollution in the tributaries of the Han River and other water bodies connecting to the River such as the Tianmen, Xijing, and Fuhe Rivers, as well as some other lakes. It is expected that the local urban environment can be improved by reducing unpleasant odors and sights; public health by reducing human exposure to untreated wastewater and water borne diseases (potentially lowering health care costs); and the local economy by potentially increased tourism, investment, and appreciated property values along the river stretches.

11. The sanitary landfills to be constructed under the project would treat annually about 508, 000 tons of solid waste. The project will also help the project cities improve their solid waste collection capacity by financing construction of transfer stations and equipment. Improved solid waste collection will improve the local urban environment by removing odorous and unsightly garbage at collection points and open dumps, and reduce pollution generated from storm water run-off. Closure of existing dumps and construction of new sanitary landfills will reduce leachate, and subsequent soil and water pollution.

12. Impacts and Mitigation Measures during Construction. The adverse impacts during the construction of the wastewater collection system, WWTPs, and landfills include airborne dust, noise, traffic disruption and disposal of contaminated materials. Contractors will water construction sites during dry and windy seasons, develop careful plans to mitigate noisy construction activities, avoid night-time construction, maintain equipment in good operating

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condition, develop temporary traffic plans to detour traffic around construction sites, and dispose of contaminated soil only at pre-approved sites.

13. Impacts and Mitigation Measures during Operation phase. The proposed wastewater components will have many positive effects, most notably: (1) improve water quality of the related river sections of the Han River System and eventually of the aquatic ecological environment; (2) enhance the urban environment and improve the urban landscape; and (3) improve urban sanitary conditions and enhance public health.

14. However, because effluent from WWTPs will still have relatively high concentrations of pollutants (higher than surface water quality standards allow), and effluent flows can be very high and discharged in single locations, receiving waters could still be impacted adversely. And the operation of WWTPs may generate odor and noise, impacting the surrounding residential areas. Furthermore, wastewater treatment will also produce sludge, with the risk to concentrate and release contaminants if the sludge is not appropriately collected and safely disposed of.

15. The following measures have been or will be taken to mitigate the above mentioned issues:

• According to Clause 7 of Technical Method to Constitute Local Air Pollutant Discharge Standard, a sanitary protection distance (buffer zone) of 200 m will be set up. • A biological malodor removal system is built and the sludge shed has a closed structure to ensure cost-effective operation of the malodor collection system. • Green isolation belt is set around wastewater and sludge area. There will be adequate vegetation covering auxiliary and living areas. A shelter belt with trees and flowers will be set around the plant. • Management will be strengthened in the operation of the WWTP. Sludge will be condensed to control fermentation and cleared after dewatering. The accumulated sludge will be purged in various tanks to avoid the impact of malodor. • Sludge will be disposed of in local municipal solid waste landfills. All sludge trucks will be watertight to prevent leaking and nuisance odor emissions along the transportation routes. The trucking time and routes will be pre-determined and strictly followed to avoid heavy traffic roads, commercial and residential and other sensitive areas to minimize the impacts to the environment and surrounding communities. • After stabilization and thickening, sludge will be transported to and dumped in pre- determined landfills. • Each city has developed a sludge handling, treatment and final disposal plan (details are available in the CEA Report Table 7-5).

16. For the solid waste management component, waste transport to landfills will represent increased truck traffic, with noise, dust, and increased traffic accident risk in surrounding villages. In addition, leachate and gas will be generated in the operation of the landfill. Mitigation measures include:

• Selection and design of access. • Implementation of traffic safety rules and training of drivers.

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• Each city has developed a leachate control, transportation, and treatment plan (details are available in the CEA Report Table 8-4). • The landfill gas will be collected and disposed of centrally.

17. Alternative Analysis. Several technical alternatives were considered for each component during the preparation of the feasibility studies, such as selection of wastewater treatment technology, plant location, solid waste collection and transfer facilities, as well as the landfill sites and sludge and leachate treatment technologies, with the objective of minimizing the environmental and resettlement impacts and costs. Details are in the FSRs and CEA report, which are available in the Project File.

18. Public Consultations and Information Disclosure. Two rounds of public consultations have been carried out during EA preparation. The first round was carried out after the announcement of the sub-project, and the second round right after the preparation of draft EA report. The primary objective of the first round was to gather information from the public about the project, while the priority for the second round was to communicate the EIA findings and proposed mitigation measures and confirm public acceptance and satisfaction.

19. In addition, there have been many rounds of consultations with government agencies, local governments and other stakeholders of the project to discuss project locations, scope, environmental and socio-economic concerns, and environmental management and mitigation plans. Detailed information on the public consultations is available in the Project File. The table below summarizes the information disclosure activities that have been held in each project location.

Table 10.1. Disclosure of Environmental Safeguards Documents*

Name of the Project Component Covered in Date of Disclosure Location Document Document Disclosure EIA & EMP - Landfill construction October 2006 - Evening News Reports for Solid - Old pump closure Waste - Local EPB, PMO and Village Management in - Mitigation measures, institutional May 12, 2007 Office Honghu (C) arrangement, environmental supervision, - Website of EA consultant monitoring and training for construction and www.gimbol.cn operation phases for above components

EIA & EMP - 32.62 km sewer pipes of DN300-DN1000 October 2006 - Jingzhou Evening News Reports for Wastewater - Mitigation measures, institutional - Local EPB, PMO and Village Network arrangement, environmental supervision, May 12, 2007 Office Construction in monitoring and training for construction and - Website of EA consultant Honghu (C) operation phases for above components www.gimbol.cn EIA & EMP - Landfill construction March 15, Website of Hanchuan City Reports for Solid - 8 collection stations (upgrading 5 existing 2007 Government www.hanchuan.gov.cn Waste ones and new construction of 3 ones) Management in - Old pump closure - Xiaogan Daily Hanchuan (C) April 30, 2007 - City PMO

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Mitigation measures, institutional arrangement, environmental supervision, monitoring and training for construction and operation phases for above components EIA & EMP - Improved Oxidation Ditch Secondary March 15, Website of Hanchuan City Reports for WWTP (50,000 m3/day capacity) 2007 Government Wastewater - 25.2 km sewer pipes of DN300-DN1000 Management in - 1 pumping station www.hanchuan.gov.cn Hanchuan (C) April 30, 2007 - Xiaogan Daily - Mitigation measures, institutional - City PMO and the office of arrangement, environmental supervision, Fuxing Village monitoring and training for construction and operation phases for above components EIA & EMP - Landfill construction October 2006 Website of EA Consultant: Reports for Solid - Old pump closure www.gimbol.cn Waste Management in - Mitigation measures, institutional April 2007 - Community Center Office of Dawu (C) arrangement, environmental supervision, Changzheng Road monitoring and training for construction and operation phases for above components EIA & EMP - 12.22 km sewer pipe of DN600-DN1500 July - August, Website of Xiangfan Government: Reports for 2006 www.xf.gov.cn; Wastewater - Mitigation measures, institutional Network arrangement, environmental supervision, Construction in monitoring and training for construction and March 23, - Xiangfan Daily Xiangfan (C) operation phases for above components 2007

EIA & EMP - Improved Oxidation Ditch Secondary Sept. 7, 2006 Website of Tianmen Government: Reports for WWTP (50,000 M3/day capacity) www.tianmen.gov.cn Wastewater - 1 pumping station upgrading Management in - 55.68 km sewer pipes of DN300-DN1800 April 30, 2007 - Local EPB, PMO and Huangjing Tianmen (C) Village - Mitigation measures, institutional arrangement, environmental supervision, monitoring and training for construction and operation phases for above components EIA & EMP - Improved Oxidation Ditch Secondary Jan – Feb - Website of EA consultant: Reports for WWTP (25,000 M3/day capacity) 2007 www.gimbol.cn Wastewater - 34.64 km sewer pipes of DN300-DN1200 Management in April 30, 2007 - Local EPB, PMO and Minghua Xiaochang (C) - Mitigation measures, institutional Village arrangement, environmental supervision, monitoring and training for construction and operation phases for above components EIA & EMP - Landfill construction April 2007 - Local government website: Reports for Solid - 1 new collection station www.hbxc.cn Waste - Old pump closure Management in - PMO Xiaohe Township office Xiaochang (C) - Mitigation measures, institutional arrangement, environmental supervision, monitoring and training for construction and operation phases for above components EIA & EMP - Improved Oxidation Ditch Secondary Sept – Oct. Website of EA consultant: Reports for WWTP (50,000 M3/day capacity) 2007 www.gimbol.cn Wastewater - 50.9 km sewer pipe of DN300-DN1500 - Local EPB, PMO, Qianhu and

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Management in Hebian Villages Yunmeng (C) - Mitigation measures, institutional April 9, 2007 arrangement, environmental supervision, monitoring and training for construction and operation phases for above components EIA & EMP - Landfill construction April 2007 - Local website: www.xgrb.cn Reports for Solid - 1 new collection station Waste - Old pump closure Management in - Local EPB, construction bureau Yunmeng (C) - Mitigation measures, institutional and Fengpu Village arrangement, environmental supervision, monitoring and training for construction and operation phases for above components EIA & EMP - Improved Oxidation Ditch Secondary May 17, 2007 - Jinmen Daily Reports for WWTP (30000 M3/day capacity) Wastewater - 44.63 km sewer pipe of DN300-DN1200 Management in Shayang (C) - Mitigation measures, institutional arrangement, environmental supervision, monitoring and training for construction and operation phases for above components EIA & EMP - Landfill construction May 17, 2007 - Jingmen Daily Reports for Solid - Old pump closure Waste - Implementing agency and Management in - Mitigation measures, institutional Gaoyang Township office Shayang (C) arrangement, environmental supervision, monitoring and training for construction and operation phases for above components EIA & EMP - Landfill construction April 2007 - Anle Village Reports for Solid - 2 new collection stations Waste - Old pump closure May 30, 2007 - Local magazine Management in Danjiangkou (C) - Mitigation measures, institutional arrangement, environmental supervision, monitoring and training for construction and operation phases for above components English language July 2007 World Bank InfoShop comprehensive summary of EA (E) * All documents are dated July 2007.

20. Environmental Management Plan (EMP). An environmental management plan (EMP) has been developed as a separate and stand-alone document for each of the nine project cities. These EMPs include policy bases and applicable environmental standards, environmental management system, mitigation measures, monitoring plans, institutional arrangements, capacity building and estimated costs for the mitigation measures and monitoring programs for both the construction and operation phases. To ensure that applicable national, provincial and municipal environmental laws, regulations and standards, as well as World Bank environmental requirements are respected during project preparation and implementation, environmental management units would be established both at the PPMO and project implementing agency levels. In addition, all project cities will engage specialists for environmental supervision.

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21. The EMP includes environmental monitoring programs for both construction and operation phases. The parameters to be monitored include resettlement, noise, dust, water quality, and solid waste disposal. To ensure the strict and efficient implementation of the mitigation measures proposed, including environmental obligations during construction, a program of monitoring activities will be required, which includes mainly two types of monitoring (see details in the EMP): (a) environmental supervision, i.e. the general environmental monitoring of construction sites and activities; and (b) compliance monitoring, i.e. the specific monitoring of water quality, air quality and noise level. The project progress reports furnished by the PPMO will include environmental monitoring reports, as per the format in the EMP annexes. A summary annual report on EMP implementation progress will be furnished to the Bank every year to report the activities conducted in the previous calendar year.

Social Safeguards

22. Project Social Assessment. The project social assessment (SA) was carried out by a consulting team from Hohai University, composed of sociologists and economists who have rich experience in involuntary resettlement, in particular in assessing potential impacts of resettlement under projects. As required, the SA exercise in this project context helped incorporate social analysis and participation into project preparation, with a focus on project adverse impacts. To reflect the location of the sub-projects –scattering over nine cities in the Han River area, the SA team conducted sample questionnaire surveys and group meetings in both urban and rural areas in all the nine project cities/counties, collecting and assessing views from different stakeholders on project benefits and impacts. Based on the understanding and needs from most of the local residents, the SA was able to help the sub-project design be more socially sound while contributing to ecological and environmental improvement. In a number of cases the SA exercise helped steer sub-project design to change locations of sewerage services or landfills in order to reduce resettlement impact and minimize potential social risks (such as the landfill and WWTP in Tianmen city, and WWTPs in Shayang and Yunmeng counties); and to plan the location of some collection stations for local residents’ convenience. Moreover, through the statistical surveys and public consultations on the solid waste and wastewater operations, the SA helped increase landfills and sewerage services in underserved areas in a sustainable manner using empirical analysis of the affordability of the waste disposition tariff among different social strata and groups, including lower income households.

23. In view of the resettlement challenge as the key negative impact caused by construction of landfills and sewer and drainage facilities in the nine project cities, the project cities conducted extensive public consultations among rural/urban residents who might be affected by 12 sub-projects. During the entire preparation stage, this consultation process was intensively exemplified by the SA exercise in the 12 affected villages and their surrounding townships, as well as affected enterprises and shops. Fieldwork was conducted in all the affected villages to undertake socio-economic surveys and carry out a census. All the households to be relocated were visited and consulted while their assets were measured and valued, and their new housing was discussed and confirmed through several rounds of visits during the resettlement preparation procedures. More than 20% of farmers who would lose some land were interviewed in detail to assess the project impact to their situation, as well as their perspectives on livelihood rehabilitation. Based on all these surveys and consultations, a Resettlement Action Plan (RAP)

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was developed for each of the nine cities with sub-projects causing resettlement. The RAPs addressed all the adverse impacts related to resettlement and presented concrete and detailed safeguard methods. The project cities are responsible for minimizing and managing these impacts on the citizens, and for their livelihood compensation and rehabilitation.

24. Resettlement Impacts. According to the impact surveys done through the SA exercise, the key resettlement impacts are the following:

• The project will expropriate 1,916.14 mu16 of land area, of which 7.57 mu are state- owned, and 1,908.57 mu are rural collective-owned; • The project will temporarily occupy 1,768.20 mu of land area, of which 1,345.66 mu are state-owned, and 422.54 mu owned by rural villages; • The project will demolish about 35,139.63 m2 of housing in rural areas; • The project will require the relocation of 206 households and 6 non-residential units, including enterprises and non-profit institutions (such as the Honghu Checkout Station of the Liquefied Gas Bottles); and • The total number of people to be affected by land acquisition and relocation is 5,604 (of which 4,649 for land acquisition and 955 for relocation);

Tables 10-1, 10-2 and 10-3 below show the basic situation of resettlement impacts under the sub-projects in the nine cities. Full details are available in the individual RAPs and summarized in the English language comprehensive summary of RAP.

16 1 mu represents area of about 666.7 m2.

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Table 10.2. Land Acquisition under the Sub-projects

Collective land (mu)

Sub-project Affected farmland Non- farmland Sub-projects Sub-total State-owned component village Paddy Dry Vegetable House Fish Forest Slope Waste Other land (mu) field land land plots pond land land land Landfill(including Anlehe Village in 198 20 30 0 0 50 0 98 0 0 road to the field) Sangongdian Danjiangkou SW Solid waste State-owned empty 0.6 0.6 collection station land

Yangji Village in 250 73 30 0 0 62 67 0 0 18 Shayang SW Landfill 0 Gaoyang Town Xinlian Village in Honghu SW Landfill 300 Luoshan Town 4 272 0 0 24 0 0 0 0 Fuxing Village in 360 0 0 17 3600 0 0 0 Landfill 0 Xinhe Town Hanchuan SW Solid waste State-owned empty 2.67 2.67 collection station land Landfill Fengpu Villge 169 135 34 Yunmeng SW Solid waste State-owned empty 0.3 0.3 collection station land Yankou Village in 199.8 75.3 0 0 20.4 25.5 0 78.6 0 Landfill Xiaohe Town Xiaochang SW Solid waste State-owned empty 0.3 0.3 collection station land

Changzheng Road 105 0 0 0 5 100 Landfill 0 resident committee Dawu SW Changzheng Road 3 3 Road to the field resident committee

Huangjing Village in 56 34 11 4 3 0 4 0 0 Tianmen WW WWTP plant 0 Xiaoban Town

17 It was a paddy field of Fuxing village but changed into fish pond later, yet the nature of this field is still farmland.

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Collective land (mu)

Sub-project Affected farmland Non- farmland Sub-projects Sub-total State-owned component village Paddy Dry Vegetable House Fish Forest Slope Waste Other land (mu) field land land plots pond land land land Hongling Village in 45.8 0 45.8 0 0 0 0 0 0 Shayang WW WWTP plant 0 Shayang Town Xujiakou Village in 114.45 114.45 WWTP plant economy technology 0 Hanchuan WW development District State-owned empty 3.7 Pumping Station 3.7 land

QIanhu Village in 67.23 67.23 0 0 0 0 0 0 0 Yunmeng WW WWTP plant 0 Chengguan Town

Minghua Village in 40.29 40.29 Xiaochang WW WWTP plant Huayuan Town

Total 1916.14 427.68 408.3 120.09 3 505.4 246.5 0 176.6 21 7.57

Table 10.3. Rural House Demolition

The house area ( 2m) Number of Name of Subsidiary project Population brick-concrete brick-wood mud-wood simple-structure households Total storied building house house house Danjiangkou SW 10 33 1103.1 561.6 154.5 387

Shayang SW 58 235 12050 3470 6218 2332 30

Honghu SW 1 4 465.75 465.75 0 Hanchuan SW 8 39 1027 957 66 0 4 Yunmeng SW 48 228 7043.78 4107.36 1862.34 875 199.08

Xiaochang SW 26 121 4604 3839 169 596

Dawu SW 11 51 1776 1270 490 16

Tianmen SW 44 169 7070 5841 826 403

Total 206 880 35139 20511.71 9785.84 3594 1248.08

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Table 10.4. Population Directly Affected by Project Resettlement People affected in the buffer zone of the People affected in the demarcated areas of the sub-project sites sub-project sites People affected by both People affected by land People affected by Affected population People affected by house People land acquisition and acquisition house demolition needs to be entirely demolition affected by house demolition Sub- re-arranged in enterprise House- House- House- House- projects Population Population Population economic production Population displacement holds holds holds holds Danjiangkou 23 69 5 16 72 5 17 0 SW Shayang 10 31 0 0 6 22 50 52 213 0 SW Honghu 267 1088 0 0 3 12 181 0 0 15 SW Hanchuan 301 1357 11 55 0 0 336 4 18 0 SW Yunmeng SW 35 141 0 0 0 0 141 48 228 0 Xiaochang 29 SW 113 0 0 26 121 158 18 Dawu 0 0 0 0 0 0 0 11 51 0 SW Shayang 32 97 0 0 0 0 37 0 0 0 WWTP Tianmen 18 72 5 15 17 60 48 22 94 0 WWTP Hanchuan 65 325 0 0 0 0 126 0 0 0 WWTP Yunmeng 100 393 0 0 0 0 105 0 0 0 WWTP Xiaochang 180 963 0 0 0 0 97 0 0 0 WWTP Total 1060 4649 16 70 57 231 1351 142 621 33

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25. Compensation and Rehabilitation. In view of resettlement impacts, the RAPs set forth a series of measures for livelihood compensation and rehabilitation developed in consultation with affected communities and households. All these measures aim to minimize resettlement wherever possible, and where resettlement cannot be avoided, to ensure proper relocation and rehabilitation of the affected households so that they will be compensated for their losses, and their incomes and living standards will be improved or at least restored to pre-project levels in a sustainable manner. In addition, affected productive resources (agricultural and industrial) and public facilities will also be compensated or restored/improved to their current levels. Based on national, provincial, and municipal laws and regulations, as well as in conformity with the Bank OP4.12 Involuntary Resettlement, the RAPs’ compensation measures are mainly reflected in the following dimensions:

• Farmland compensation is assessed according to comprehensive land prices on the basis of annual output values per mu, as unified by Hubei Province and approved by the state in 2007, which are 30% higher than the previous rates assessed at 10-16 times the average annual output value (as set in the land law); • Housing and other fixed assets including attachments to the land are compensated at the replacement prices, as agreed by the owners; • Temporary occupation of farmland is compensated at the price of green crops for two cultivation seasons per year, with responsibility for reclamation by the users after the occupation; • Resettlement in new sites and the new housing plots are discussed, agreed and prepared for prior to physical relocation; • Productive/economic rehabilitation of affected farm households is planned on the basis of either land-to-land compensation or other non-agricultural activities supported with the land compensation, depending on both the availability of arable land within the village communities and the willingness of the affected farmers; • Employment opportunities in local solid waste and wastewater services are planned by the sub-project implementing agencies for the affected farmers after providing appropriate job training; • Impact on non-residential units is expected to be temporary and relatively minor for most Displaced Persons (DP); no one is expected to lose employment because of the project activities; • For vulnerable households, all the relevant sub-projects will plan particular allowances for their livelihood rehabilitation under the respective local policies, and their housing problems are to be addressed by village communities they belong to under project assistance. Table 4 details the situations of the 23 vulnerable households identified by the project; and • All the resettlement costs are charged to the related sub-projects’ budget.

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Table 10.5. Information of the affected vulnerable groups Types of vulnerability Female Sub-projects HH no. Lonely absolutely headed Special treatment Disabled Orphan aged poor households ( widow) Danjiangkou solid Covered by the city’s special 4 waste treatment 1 1 1 1 program subsidizing absolutely poor Shayang solid Covered by the city’s special program 2 waste treatment 2 subsidizing absolutely poor Hanchuan solid Covered by the city’s special program 6 3 3 waste treatment subsidizing absolutely poor Xiaochang solid Covered by the city’s special program 5 2 0 1 2 waste treatment subsidizing absolutely poor Covered by the city’s special program Tianmen waste- 1 0 1 subsidizing absolutely poor and water treatment giving additional allowance from proj. Yunmeng waste- Covered by the city’s special program 4 0 3 1 water treatment subsidizing absolutely poor Xiaochang waste- Covered by the city’s special program 1 1 water treatment subsidizing absolutely poor Covered by the city’s special program total 23 7 8 2 4 2 subsidizing absolutely poor

26. Implementation and Participation. Each RAP describes in detail the time-bound steps to be taken to adequately compensate and provide assistance to the affected households and units in resettlement implementation. An English language comprehensive summary of RAP was prepared by the PPMO based on the individual RAPs in order to provide guidance and coordination in resettlement implementation throughout the Province. Under the PPMO’s leadership, each Municipal Project Management Office (MPMO) formed a special unit or personnel in charge of local resettlement. In order to ensure resettlement implementation in accordance with the RAPs, internal and external monitoring programs are developed with both process and impact indicators (such as land acquisition and population relocation complying with relevant requirements, progress in new housing and land reallocation, disbursement of compensation funds, settlement of grievances, achievements in restoration and rehabilitation of DP’s livelihoods, etc.). Moreover, as highlighted in the RAPs, a participation mechanism is established and developed to promote the efficiency and effectiveness of resettlement implementation.

27. Overall, the resettlement units conducted repeated rounds of public consultation and surveys among the affected communities and households during resettlement preparation (most were done together with the SA consulting team), including convocation of public opinions, solicitation of feedback, in-house interviews, as well as detailed site measurements and surveys

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to reach agreements with each of the affected communities and households on final property losses incurred. All the resettlement units also have plans for continued involvement with DPs and other stakeholders in resettlement implementation. In order to finalize the RAPs, an additional round of consultations was held by the units with the affected village communities and farmers from February to March 2007, to formally ratify the compensation disbursement methods and house reconstruction plans. According to the RAPs, a resettlement announcement will be posted and resettlement booklets will be sent to all the villages to be affected six months prior to the start of the sub-projects. The project resettlement related information including policies, rights, compensation criteria, appeal procedures and RAPs will be publicized and disseminated through multiple channels of mass media. Three months before the resettlement, village meetings will be held again for updating the mobilization and organization of resettlement implementation. Eventually, successful resettlement will be ensured by the implementation of the RAPs, commitment of the nine cities, and continued participation by the DPs.

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Annex 11: Project Preparation and Supervision CHINA: Han River Urban Environment Improvement Project

Planned Actual PCN review 09/06/2006 09/06/2006 Initial PID to PIC 12/27/2006 Initial ISDS to PIC 12/27/2006 Appraisal 10/01/2007 07/16/2007 Negotiations 03/05/2008 03/05/2008 Board/RVP approval 04/29/2008 Planned date of effectiveness 07/19/2008 Planned date of mid-term review 09/30/2010 Planned closing date 06/30/2014

Key institutions responsible for preparation of the project:

Hubei Provincial Government Provincial Cities and Countries Bas-Rhône et du Languedoc ingénierie (BRLi)/Girus

Bank staff and consultants who worked on the project included:

Name Title Unit Hiroaki Suzuki Task Team Leader/ Lead EASUR Operations Officer Bill Kingdom Lead Water & Sanitation EASUR Specialist/Former TTL Axel Baeumler Senior Economist EASUR Yi Geng Financial Management EAPCO Specialist Shunong Hu Hydraulic Engineer EASUR Margaret Png Senior Counsel LEGEA Chongwu Sun Senior Environmental EASEN Specialist Zong-Cheng Lin Senior Social Development EASSO Specialist Xiaoping Li Senior Procurement EAPCO Specialist Xiaowei Guo Procurement Specialist EAPCO Jingrong He Procurement Assistant EAPCO Vellet Fernandes Program Assistant & EASUR Document Processing Edouard Henri Motte Senior Municipal Engineer Consultant Eddie Ke Siong Hum Municipal Engineer Consultant Masato Sawaki Senior Financial Consultant Management Advisor

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Dahong Li Environmental Safeguard Consultant Advisor Roger E. O. Heath Industrial Pollution Control Consultant Specialist David Arthur Solid Waste Management Consultant Specialist Peter Jaques Institutional Development Consultant Specialist Qian-ming Lu Water Specialist Consultant Jan Rieländer Economist Consultant Naoko Kataoka Operations Specialist Consultant Motoky Hayakawa Operations Specialist Consultant Alex E. Bakalian Peer Reviewer MNSSD Daniel A. Hoornweg Peer Reviewer LCSUW

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Annex 12: Documents in the Project File CHINA: Han River Urban Environment Improvement Project

1. Project Implementation Plan 2. Cost Table and Summary Implementation Plan 3. Legal and Institutional Framework and Key Assumptions of Financial Projections 4. Illustrative 15-year Financial Projections 5. Terms of Reference for TA: Study on a better approach to manage automatic on-line monitoring equipment (AOME) 6. Terms of Reference for TA to Develop emergency preparedness and response system for water pollution accident in the Han River Basin 7. Terms of Reference for TA: Study on control and management of non-point source water pollution in the catchment of Han River Basin 8. Terms of Reference for TA: Han River water quality modeling capacity building programme for Hubei Environmental Protection Bureau (HEPB) 9. Feasibility Study Summary Report 10. Feasibility Study Reports for Wastewater component 11. Feasibility Study Reports for Solid Waste Management Component 12. Social Assessment Reports 13. Consolidated Social Assessment Report 14. Environmental Assessment Summary 15. English Language Comprehensive Summary of Environmental Assessment 16. Environment Assessment for Wastewater Component 17. Environment Assessment for Solid Waste Management Component 18. Environmental Management Plan for Wastewater Component 19. Environmental Management Plan for Solid Waste Management Component 20. English Language Comprehensive Summary of Resettlement Action Plans 21. Resettlement Action Plans 22. Procurement Capacity Assessment 23. Project Concept Note 24. Aide Memoire, September, 2006 25. Aide Memoire, January, 2007 26. Aide Memoire, April, 2007 27. Aide Memoire, July, 2007 28. Opinions of Provincial Government on Accelerating the Reform and Development of Municipal Public Utilities Sectors 29. Eleventh Five-Year Plan on Environmental Protection in Hubei Province 30. Review of Water Quality Protection & Management Strategies, September 2006 31. Review of Solid Waste Management Proposals, March 2007 32. Review of Industrial Pollution Control in the Han River and its Tributaries, September 2006 33. Strategic Review of Institutional Arrangements for Municipal Wastewater Treatment, December 2005 34. Description of Project Cities 35. Industrial Pollution Control Plans for Project Cities 36. Draft List of Items to Be Included in the Agreement with Enterprises to Be Connected to Municipal Sewers 37. Draft Terms of Reference for Procurement Consultant

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Annex 13: Statement of Loans and Credits CHINA: Han River Urban Environment Improvement Project

Difference between expected and actual Original Amount in US$ Millions disbursements Project ID FY Purpose IBRD IDA SF GEF Cancel. Undisb. Orig. Frm. Rev’d P086515 2007 CN-3rd National Railway 200.00 0.00 0.00 0.00 0.00 200.00 0.00 0.00 P091020 2007 CN-Fujian Highway Sector Investment 320.00 0.00 0.00 0.00 0.00 320.00 0.00 0.00 P083322 2007 CN-SICHUAN URBAN DEV 180.00 0.00 0.00 0.00 0.00 180.00 0.00 0.00 P088964 2007 CN-Guangxi Integrated Forestry Dev 100.00 0.00 0.00 0.00 0.00 100.00 0.00 0.00 P085333 2006 CN-5th Inland Waterways 100.00 0.00 0.00 0.00 0.00 84.13 7.03 0.00 P085124 2006 CN-Ecnomic Reform Implementation 20.00 0.00 0.00 0.00 0.00 18.44 -0.96 0.00 P084742 2006 CN-IAIL III 200.00 0.00 0.00 0.00 0.00 169.04 20.57 0.00 P081255 2006 CN-Changjiang/Pearl River Watershed 100.00 0.00 0.00 0.00 0.00 99.75 4.75 0.00 Reha P075732 2006 CN-SHANGHAI URBAN APL2 180.00 0.00 0.00 0.00 0.00 153.11 -6.89 0.00 P082993 2006 CN-GEF-PCB Mgnt & Disposal 0.00 0.00 0.00 18.34 0.00 18.34 4.10 0.00 P082992 2006 CN-GEF-Termite Control Demonstration 0.00 0.00 0.00 14.36 0.00 14.36 0.00 0.00 P070519 2006 CN-Fuzhou Nantai Island Peri-Urban Dev 100.00 0.00 0.00 0.00 0.00 100.00 8.50 0.00 P081348 2006 CN-HENAN TOWNS WATER 150.00 0.00 0.00 0.00 0.00 149.63 -0.38 0.00 P099992 2006 CN-Liaoning Medium Cities 218.00 0.00 0.00 0.00 0.00 218.00 5.00 0.00 Infrastructure P096158 2006 CN-Renewable Energy II (CRESP II) 86.33 0.00 0.00 0.00 0.00 80.35 -5.98 0.00 P094388 2006 CN-HFC-23 Emissions Reduction 0.00 0.00 0.00 0.00 0.00 1,003.59 0.00 0.00 P093906 2006 CN-3rd Jiangxi Hwy 200.00 0.00 0.00 0.00 0.00 200.00 0.00 0.00 P090336 2006 CN-GEF-NINGBO WATER & ENVMT 0.00 0.00 0.00 5.00 0.00 4.50 0.30 0.00 P086629 2006 CN-Heilongjiang Dairy 100.00 0.00 0.00 0.00 0.00 96.75 -2.00 0.00 P068752 2005 CN-Inner Mongolia Highway & Trade 100.00 0.00 0.00 0.00 0.00 76.93 1.93 0.00 Corrid P081346 2005 CN-LIUZHOU ENVIRONMENT MGMT 100.00 0.00 0.00 0.00 0.00 87.34 1.44 0.00 P067828 2005 CN-Renewable Energy Scale-up Program 87.00 0.00 0.00 0.00 0.00 85.07 51.37 0.00 P067625 2005 CN-GEF-Renewable Energy Scale-Up 0.00 0.00 0.00 40.22 0.00 38.22 -0.35 0.00 Program P072721 2005 CN-GEF-Heat Reform & Bldg Egy Eff. 0.00 0.00 0.00 18.00 0.00 16.20 4.00 0.00 P071094 2005 CN - Poor Rural Communities 100.00 0.00 0.00 0.00 0.00 90.47 31.67 0.00 Development P069862 2005 CN - Agricultural Technology Transfer 100.00 0.00 0.00 0.00 0.00 88.46 14.96 0.00 P081161 2005 CN-CHONGQING SMALL CITIES 180.00 0.00 0.00 0.00 0.00 176.02 24.57 0.00 P086505 2005 CN-NINGBO WATER & ENVMT 130.00 0.00 0.00 0.00 0.00 112.86 -1.14 0.00 P075730 2005 CN-HUNAN URBAN DEV 172.00 0.00 0.00 0.00 0.00 165.14 29.14 0.00 P057933 2005 CN-TAI BASIN URBAN ENVMT 61.00 0.00 0.00 0.00 0.00 39.95 10.09 0.00 P087291 2005 CN-PCF Jincheng Coal Bed Methane 0.00 0.00 0.00 0.00 0.00 19.13 0.00 0.00 Project P077615 2004 CN-GEF-Gansu & Xinjiang Pastoral 0.00 0.00 0.00 10.50 0.00 6.95 6.90 0.00 Develop P073002 2004 CN-Basic Education in Western Areas 100.00 0.00 0.00 0.00 0.00 47.71 40.65 0.00 P075035 2004 CN - GEF-Hai Basin Integr. Wat. 0.00 0.00 0.00 17.00 0.00 12.65 7.99 0.00 Env.Man. P075602 2004 CN-2nd National Railways (Zhe-Gan 200.00 0.00 0.00 0.00 1.00 33.21 -45.79 -46.79 Line)

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P075728 2004 CN-GUANGDONG/PRD UR ENVMT 128.00 0.00 0.00 0.00 0.64 79.86 -12.70 0.00 P077137 2004 CN-4th Inland Waterways 91.00 0.00 0.00 0.00 0.46 68.14 11.60 11.10 P084003 2004 CN-GEF GUANGDONG PRD URB 0.00 0.00 0.00 10.00 0.00 9.82 3.10 0.00 ENV P081749 2004 CN-Hubei Shiman Highway 200.00 0.00 0.00 0.00 1.00 60.73 1.73 0.00 P065035 2004 CN-Gansu & Xinjiang Pastoral 66.27 0.00 0.00 0.00 0.00 33.29 10.97 0.00 Development P065463 2004 CN-Jiangxi Integrated Agric. Modern. 100.00 0.00 0.00 0.00 0.00 75.09 29.48 0.00 P066955 2004 CN-ZHEJIANG URBAN ENVMT 133.00 0.00 0.00 0.00 0.00 95.14 9.96 0.00 P069852 2004 CN-Wuhan Urban Transport 200.00 0.00 0.00 0.00 1.00 115.31 107.79 0.00 P067337 2003 CN-2nd GEF Energy Conservation 0.00 0.00 0.00 26.00 0.00 7.57 25.65 0.00 P068058 2003 CN-Yixing Pumped Storage Project 145.00 0.00 0.00 0.00 0.00 75.73 29.93 0.00 P070191 2003 CN-SHANGHAI URB ENVMT APL1 200.00 0.00 0.00 0.00 0.00 118.79 41.79 0.00 P040599 2003 CN-TIANJIN URB DEV II 150.00 0.00 0.00 0.00 0.00 132.04 48.88 0.00 P058847 2003 CN-3rd Xinjiang Hwy Project 150.00 0.00 0.00 0.00 0.00 30.70 18.70 0.00 P076714 2003 CN-2nd Anhui Hwy 250.00 0.00 0.00 0.00 0.00 87.60 9.10 0.00 P070441 2003 CN-Hubei Xiaogan Xiangfan Hwy 250.00 0.00 0.00 0.00 0.00 35.81 25.81 0.00 P071147 2002 CN-Tuberculosis Control Project 104.00 0.00 0.00 0.00 0.00 48.92 23.70 0.00 P070459 2002 CN-Inner Mongolia Hwy Project 100.00 0.00 0.00 0.00 0.00 20.33 0.33 0.00 P068049 2002 CN-Hubei Hydropower Dev in Poor Areas 105.00 0.00 0.00 0.00 0.00 20.00 13.00 0.00 P064729 2002 CN-Sustainable Forestry Development 93.90 0.00 0.00 0.00 0.00 27.97 14.61 0.00 P060029 2002 CN-GEF-Sustain. Forestry Dev 0.00 0.00 0.00 16.00 0.00 6.88 13.40 0.00 P058846 2002 CN-Natl Railway Project 160.00 0.00 0.00 0.00 5.00 9.74 14.74 0.00 P045915 2001 CN-Urumqi Urban Transport 100.00 0.00 0.00 0.00 0.00 32.47 32.47 0.00 P047345 2001 CN-HUAI RIVER POLLUTION 105.50 0.00 0.00 0.00 0.00 33.87 33.87 -1.21 CONTROL P051859 2001 CN-LIAO RIVER BASIN 100.00 0.00 0.00 0.00 0.00 18.04 15.89 0.00 P056199 2001 CN-3rd Inland Waterways 100.00 0.00 0.00 0.00 0.00 16.15 6.65 0.00 P056596 2001 CN-Shijiazhuang Urban Transport 100.00 0.00 0.00 0.00 0.00 53.90 53.90 0.00 P042109 2000 CN-BEIJING ENVIRONMENT II 349.00 0.00 0.00 25.00 26.51 199.16 225.68 -8.44 P045910 2000 CN-HEBEI URBAN ENVIRONMENT 150.00 0.00 0.00 0.00 0.00 38.03 34.03 0.00 P064924 2000 CN-GEF-BEIJING ENVMT II 0.00 0.00 0.00 25.00 0.00 19.90 25.00 5.15 P049436 2000 CN-CHONGQING URBAN ENVMT 200.00 0.00 0.00 0.00 29.50 71.97 99.87 -4.21 P058843 2000 CN-Guangxi Highway 200.00 0.00 0.00 0.00 19.70 3.37 23.07 3.37 P064730 2000 CN-Yangtze Dike Strengthening 210.00 0.00 0.00 0.00 0.00 71.23 71.23 2.55 P056424 2000 CN-Tongbai Pumped Storage 320.00 0.00 0.00 0.00 100.00 37.98 143.18 4.07 P036953 1999 CN-HEALTH IX (Shiyong Wang, Back- 10.00 50.00 0.00 0.00 0.40 16.73 15.61 15.61 up) P042299 1999 CN-Tec Coop Credit IV 10.00 35.00 0.00 0.00 5.84 14.38 17.99 0.00 P043933 1999 CN-SICHUAN URBAN ENVMT 150.00 2.00 0.00 0.00 26.14 31.09 57.25 7.68 P038121 1999 CN-GEF-RENEWABLE ENERGY 0.00 0.00 0.00 35.00 0.00 9.86 34.77 26.56 DEVELOPMENT P051856 1999 CN-Accounting Reform & Development 27.40 5.60 0.00 0.00 0.00 7.15 7.04 0.59 P051705 1999 CN-Fujian II Highway 200.00 0.00 0.00 0.00 0.00 17.46 17.46 10.05 P036414 1998 CN-GUANGXI URBAN ENVMT 72.00 20.00 0.00 0.00 13.48 22.59 35.46 0.12 P003614 1998 CN-Guangzhou City Transport 200.00 0.00 0.00 0.00 20.00 49.56 69.56 49.56 P003566 1998 CN-BASIC HEALTH (HLTH8) 0.00 85.00 0.00 0.00 0.00 2.84 1.39 0.00 P003539 1998 CN-Sustainable Coastal Resources Dev. 100.00 0.00 0.00 0.00 2.06 19.84 21.91 19.84 P036405 1997 CN-Wanjiazhai Water 400.00 0.00 0.00 0.00 75.00 4.41 79.41 4.41 Total: 9,314.40 197.60 0.00 260.42 327.73 6,257.74 1,775.73 100.01

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CHINA STATEMENT OF IFC’s Held and Disbursed Portfolio In Millions of US Dollars

Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic. 2002 ASIMCO 0.00 10.00 0.00 0.00 0.00 10.00 0.00 0.00 2006 ASIMCO 0.00 0.00 4.12 0.00 0.00 0.00 3.61 0.00 2005 BCCB 0.00 59.21 0.00 0.00 0.00 59.03 0.00 0.00 2003 BCIB 0.00 0.00 12.04 0.00 0.00 0.00 0.00 0.00 2006 BUFH 8.14 0.00 0.00 0.00 8.14 0.00 0.00 0.00 2005 Babei 0.00 5.00 0.00 0.00 0.00 5.00 0.00 0.00 Babei Necktie 11.00 0.00 0.00 6.00 8.94 0.00 0.00 4.88 1999 Bank of Shanghai 0.00 21.76 0.00 0.00 0.00 21.76 0.00 0.00 2000 Bank of Shanghai 0.00 3.84 0.00 0.00 0.00 3.84 0.00 0.00 2002 Bank of Shanghai 0.00 24.67 0.00 0.00 0.00 24.67 0.00 0.00 2005 BioChina 0.00 3.70 0.00 0.00 0.00 3.13 0.00 0.00 2002 CDH China Fund 0.00 2.02 0.00 0.00 0.00 0.00 0.00 0.00 2005 CDH China II 0.00 17.99 0.00 0.00 0.00 11.38 0.00 0.00 2006 CDH Venture 0.00 20.00 0.00 0.00 0.00 0.51 0.00 0.00 2005 CT Holdings 0.00 0.00 40.00 0.00 0.00 0.00 0.00 0.00 2004 CUNA Mutual 0.00 10.53 0.00 0.00 0.00 0.00 0.00 0.00 2006 Capital Today 0.00 25.00 0.00 0.00 0.00 0.32 0.00 0.00 2005 Changyu Group 0.00 18.07 0.00 0.00 0.00 18.07 0.00 0.00 1998 Chengdu Huarong 3.36 3.20 0.00 3.13 3.36 3.20 0.00 3.13 2004 China Green Ener 20.00 0.00 0.00 0.00 15.00 0.00 0.00 0.00 2004 China Re Life 0.00 0.27 0.00 0.00 0.00 0.27 0.00 0.00 1994 China Walden Mgt 0.00 0.01 0.00 0.00 0.00 0.01 0.00 0.00 2006 Chinasoft 0.00 0.00 15.00 0.00 0.00 0.00 10.00 0.00 2004 Colony China 0.00 15.31 0.00 0.00 0.00 9.29 0.00 0.00 2004 Colony China GP 0.00 0.84 0.00 0.00 0.00 0.49 0.00 0.00 2006 Conch 81.50 40.93 0.00 0.00 81.50 0.00 0.00 0.00 2006 Dagang NewSpring 25.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2002 Darong 10.00 0.24 0.00 8.00 6.67 0.24 0.00 5.33 2006 Deqingyuan 0.00 2.85 0.00 0.00 0.00 2.85 0.00 0.00 1994 Dynamic Fund 0.00 2.21 0.00 0.00 0.00 2.01 0.00 0.00 2007 Epure 0.00 10.00 0.00 0.00 0.00 0.00 0.00 0.00 2004 Fenglin 17.64 0.00 6.00 13.47 13.64 0.00 6.00 12.53 2006 Fenglin HJ MDF 0.23 0.00 0.00 3.27 0.00 0.00 0.00 0.00 2005 Five Star 0.00 0.00 7.00 0.00 0.00 0.00 0.00 0.00 2006 GDIH 50.85 0.00 0.00 0.00 50.85 0.00 0.00 0.00 2003 Great Infotech 0.00 1.73 0.00 0.00 0.00 1.03 0.00 0.00 2006 Hangzhou RCB 0.00 10.85 0.00 0.00 0.00 0.00 0.00 0.00

112

2005 HiSoft Tech 0.00 4.00 0.00 0.00 0.00 3.00 0.00 0.00 2006 HiSoft Tech 0.00 4.34 0.00 0.00 0.00 1.74 0.00 0.00 2004 IB 0.00 52.18 0.00 0.00 0.00 52.18 0.00 0.00 2004 Jiangxi Chenming 40.00 12.90 0.00 18.76 40.00 12.90 0.00 18.76 2006 Launch Tech 0.00 8.35 0.00 0.00 0.00 8.33 0.00 0.00 2001 Maanshan Carbon 5.25 2.00 0.00 0.00 5.25 2.00 0.00 0.00 2005 Maanshan Carbon 11.00 1.00 0.00 0.00 5.00 1.00 0.00 0.00 2005 Minsheng 15.75 0.00 0.00 0.00 7.00 0.00 0.00 0.00 2006 Minsheng & IB 25.09 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2001 Minsheng Bank 0.00 23.50 0.00 0.00 0.00 23.50 0.00 0.00 2005 Minsheng Bank 0.00 2.80 0.00 0.00 0.00 2.79 0.00 0.00 2001 NCCB 0.00 8.94 0.00 0.00 0.00 8.82 0.00 0.00 1996 Nanjing Kumho 0.00 3.81 0.00 0.00 0.00 3.81 0.00 0.00 2004 Nanjing Kumho 31.38 2.23 0.00 0.00 31.38 2.23 0.00 0.00 2006 Neophotonics 0.00 0.00 10.00 0.00 0.00 0.00 10.00 0.00 2001 New China Life 0.00 5.83 0.00 0.00 0.00 5.83 0.00 0.00 2005 New Hope 0.00 0.00 45.00 0.00 0.00 0.00 0.00 0.00 1995 Newbridge Inv. 0.00 0.22 0.00 0.00 0.00 0.22 0.00 0.00 2005 North Andre 8.00 6.74 0.00 0.00 0.00 4.25 0.00 0.00 2003 PSAM 0.00 2.01 0.00 0.00 0.00 0.00 0.00 0.00 RAK China 13.00 0.00 0.00 0.00 13.00 0.00 0.00 0.00 2006 Renaissance Sec 0.00 0.00 20.04 0.00 0.00 0.00 0.00 0.00 2006 Rongde 0.00 35.00 0.00 0.00 0.00 31.38 0.00 0.00 SAC HK Holding 0.00 1.60 0.00 0.00 0.00 1.00 0.00 0.00 2003 SAIC 12.00 0.00 0.00 0.00 12.00 0.00 0.00 0.00 2006 SBCVC 0.00 20.00 0.00 0.00 0.00 2.00 0.00 0.00 2000 SEAF SSIF 0.00 3.74 0.00 0.00 0.00 3.37 0.00 0.00 SH Keji IT 3.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2004 SHCT 38.18 0.00 0.00 28.64 29.04 0.00 0.00 21.78 2004 SIBFI 0.14 0.07 0.00 0.00 0.00 0.07 0.00 0.00 1998 Shanghai Krupp 19.25 0.00 0.00 36.75 19.25 0.00 0.00 36.75 2006 Shanshui Group 50.00 5.50 2.20 0.00 50.00 5.50 0.00 0.00 1999 Shanxi 12.61 0.00 0.00 0.00 12.61 0.00 0.00 0.00 SinoSpring 0.00 0.00 20.00 0.00 0.00 0.00 0.00 0.00 Stora Enso 20.83 0.00 0.00 4.17 11.00 0.00 0.00 0.00 2005 Stora Enso 29.17 0.00 0.00 20.83 0.00 0.00 0.00 0.00 2006 Stora Enso 50.00 0.00 0.00 175.00 0.00 0.00 0.00 0.00 2006 TBK 4.00 0.00 0.00 0.00 2.00 0.00 0.00 0.00 2006 VeriSilicon 0.00 1.00 0.00 0.00 0.00 1.00 0.00 0.00 Wanjie High-Tech 9.89 0.00 0.00 0.00 9.89 0.00 0.00 0.00 2004 Wumart 0.00 1.62 0.00 0.00 0.00 1.62 0.00 0.00 2003 XACB 0.00 17.95 0.00 0.00 0.00 0.64 0.00 0.00 2004 Xinao Gas 25.00 10.00 0.00 0.00 25.00 10.00 0.00 0.00 2006 Zhejiang Glass 50.00 24.96 0.00 18.00 0.00 0.00 0.00 0.00 2003 Zhengye-ADC 10.43 0.00 0.00 4.87 10.43 0.00 0.00 4.87 2002 Zhong Chen 0.00 4.78 0.00 0.00 0.00 4.78 0.00 0.00 2006 Zhongda_Yanjin 21.89 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Total portfolio: 733.58 577.30 181.40 340.89 470.95 371.06 29.61 108.03

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Approvals Pending Commitment FY Approval Company Loan Equity Quasi Partic. 2002 SML 0.00 0.00 0.00 0.00 2004 NCFL 0.00 0.00 0.02 0.00 2007 Xinao CTC 0.04 0.01 0.00 0.14 2004 China Green 0.00 0.00 0.01 0.00 2006 Launch Tech 0.01 0.00 0.00 0.00 2005 MS Shipping 0.00 0.01 0.00 0.00 2003 Peak Pacific 2 0.00 0.01 0.00 0.00 Total pending commitment: 0.05 0.03 0.03 0.14

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Annex 14: Country at a Glance CHINA: Han River Urban Environment Improvement Project

East Lower- POVERTY and SOCIAL Asia & middle- Development diamond* China P acific income 2005 Population, mid-year (millions) 1,304.5 1,885 2,475 Life expectancy GNI per capita (Atlas method, US$) 1,740 1,627 1,918 GNI (Atlas method, US$ billions) 2,269.8 3,067 4,747

Average annual growth, 1999-05 Population (%) 0.7 0.9 1.0 GNI Gross Labor force (%) 1. 0 1. 3 1. 4 per primary M ost recent estimate (latest year available, 1999-05) capita enrollment Poverty (% of population below national poverty line) ...... Urban population (% of total population) 40 41 50 Life expectancy at birth (years) 71 70 70 Infant mortality (per 1,000 live births) 26 29 33 Child malnutrition (% of children under 5) 81512 Access to improved water source Access to an improved water source (% of population) 77 79 82 Literacy (% of population age 15+) 91 91 89 Gross primary enrollment (% of school-age population) 118 115 114 China M a l e 118 116 115 Lower-middle-income group F e m a l e 117 114 113

KEY ECONOM IC RATIOS and LONG-TERM TRENDS 1985 1995 2004 2005 Economic ratios* GDP (US$ billions) 304.9 728.0 1,931.7 2,228.9 Gross capital formation/GDP 37.8 39.3 38.7 .. Trade Exports of goods and services/GDP 10.0 23.1 34.0 .. Gross domestic savings/GDP 33.6 41.5 41.2 .. Gross national savings/GDP 34.0 40.1 42.2 ..

Current account balance/GDP -3.8 0.8 3.6 5.0 Domestic Capital Interest payments/GDP 0.2 0.6 0.2 .. savings formation Total debt/GDP 5.5 16.2 12.9 .. Total debt service/exports 7.7 8.6 3.5 .. Present value of debt/GDP .. .. 12.5 .. Present value of debt/exports .. .. 35.7 .. Indebtedness 1985-95 1995-05 2004 2005 2005-09 (average annual growth) GDP 9.7 8.8 10.1 9.9 8.0 China GDP per capita 8.2 8.0 9.4 9.2 7.3 Lower-middle-income group Exports of goods and services 9.4 19.7 28.4 23.6 10.3

STRUCTURE of the ECONOMY 1985 1995 2004 2005 Growth of capital and GDP (%) (% of GDP) Agriculture 28.4 19.8 13.1 .. 20 Industry 43.1 47.2 46.2 .. 15 M anufacturing 34.9 ...... 10 Services 28.5 33.1 40.7 .. 5 0 Household final consumption expenditure 53.2 47.5 48.5 .. 00 01 02 03 04 05 General gov't final consumption expenditure 13.2 11.0 10.2 .. GCF GDP Imports of goods and services 14.1 20.9 31.4 ..

1985-95 1995-05 2004 2005 Growth of exports and imports (%) (average annual growth) Agriculture 4.2 3.3 6.3 5.0 40 Industry 12.8 9.9 11.1 10.8 30 M anufacturing 10.0 ...... 20 Services 9.5 9.7 9.8 10.1 10

Household final consumption expenditure 10.2 5.7 1.1 .. 0 General gov't final consumption expenditure 9.4 8.9 6.8 .. 00 01 02 03 04 05 G r o s s c a p i t a l f o r m a t i o n 9 . 4 10 . 1 13 . 0 13 . 5 Export s Imports Imports of goods and services 10.3 17.4 22.5 15.3

Note: 2005 data are preliminary estimates. This table was produced from the Development Economics LDB database. * The diamonds show four key indicators in the country (in bold) compared with its income-group average. If data are missing, the diamond will be incomplete.

115

China

PRICES and GOVERNMENT FINANCE 1985 1995 2004 2005 Inflation (%) Domestic prices (% change) 8 Consumer prices .. 16.9 4.0 1.8 6 Implicit GDP deflato r 10.1 13.7 6.9 3.8 4 Government finance 2 (% of GDP, includes current grants) 0 Current revenue 28.0 10.8 16.6 17.5 -2 00 01 02 03 04 05 Current budget balance 7.3 0.6 1.7 2.0 GDP deflator CPI Overall surplus/deficit 0.0 -1.5 -1.5 -1.3

TRADE 1985 1995 2004 2005 Export and import levels (US$ mill.) (US$ millions)

Total exports (fob) 27,350 148,780 593,369 771,511 1,000,000 Fo o d 3,803 9,954 18,870 .. M ineral fuels, lubricants, and related materials 7,132 5,332 14,476 .. 800,000 M anufactures 13,522 127,295 552,818 727,191 600,000 Total imports (cif) 42,252 132,084 561,423 674,331 400,000 Food 1,553 6,132 9,156 .. Fuel and energy 172 5,127 48,003 .. 200,000 Capital goods 16,239 52,642 252,624 230,369 0 99 00 01 02 03 04 05 Export price index (2000=100) 5 2 118 10 2 10 6 Import price index (2000=100) 7 4 10 7 112 119 Export s Imports Terms of trade (2000=100) 70 110 91 88

BALANCE of PAYM ENTS 1985 1995 2004 2005 Current account balance to GDP (%) (US$ millions) Exports of goods and services 30,489 167,974 655,827 843,537 6 Imports of goods and services 43,092 151,882 606,543 746,150 Resource balance -12,602 16,092 49,284 97,386 4 Net income 841 -11,774 -3,523 4,668 Net current transfers 243 1,434 22,898 10,000 2 Current account balance -11,518 5,752 68,659 112,055 Financing items (net) 6,096 16,711 137,705 98,000 0 Changes in net reserves 5,422 -22,463 -206,364 -210,055 99 00 01 02 03 04 05 Memo: Reserves including gold (US$ millions) .. 80,277 622,945 826,303 Conversion rate (DEC, local/US$) 2.9 8.4 8.3 8.2

EXTERNAL DEBT and RESOURCE FLOWS 1985 1995 2004 2005 Composition of 2004 debt (US$ mill.) (US$ millions) Total debt outstanding and disbursed 16,696 118,090 248,934 .. I B R D 4 9 8 7 , 2 0 9 11, 0 3 5 11, 14 0 A : 11, 0 3 5 B: 10,670 IDA 431 7,038 10,670 9,741 D: 4,783 Total debt service 2,478 15,066 23,657 .. IB RD 26 810 1,054 1,139 E: 30,745 IDA 4 63 264 296 G: 117, 59 2 Composition of net resource flows Official grants 117 330 381 .. Official creditors 1,117 7,902 16 .. Private creditors 2,867 5,013 7,970 .. Foreign direct investment (net inflows) 1,659 35,849 54,936 .. F: 74,109 Portfolio equity (net inflows) 0 0 10,923 .. World Bank program Co mmitments 1,092 3,148 1,285 .. A - IBRD E - Bilateral Disbursements 565 2,269 1,188 1,131 B - IDA D - Other multilateral F - Private Principal repayments 0 364 999 1,004 C - IM F G - Short-term Net flows 565 1,905 190 127 Interest payments 29 509 319 430 Net transfers 536 1,396 -130 -303

Note: This table was produced from the Development Economics LDB database. 8/12/06

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Annex 15: Maps CHINA: Han River Urban Environment Improvement Project

117 IBRD 35070R2 JILIN MONGOLIA LIAONING L O DEM. PEOPLE’S G REP. OF KOREA N BEIJING O Beijing M E I CHINA N TIANJIN 115° HEBEI REP. OF KOREA A HENAN I SHANXI Yun Xian SHANDONG HUBEI PROVINCE NGX Yellow Shiyan QINGHAI NI Sea GANSU HENAN DanjiangkouDanjiangkou HAN RIVER URBAN ENVIRONMENT IMPROVEMENT PROJECT SHAANXI AreaArea ofof mapmap JIANGSU ANHUI South-NorthSouth-North DiversionDiversion SHANGHAI PROJECT CITIES SICHUAN HUBEI East COUNTY CAPITALS COUNTY BOUNDARIES ZHEJIANG CHONGQING

WASTE WATER TREATMENT PLANT XIZANG China DISTRICT CAPITALS DISTRICT BOUNDARIES Sea SOLID WASTE MANAGEMENT FACILITY HUNAN JIANGXI PROVINCE CAPITAL PROVINCE BOUNDARIES Guanghua NETWORK GUIZHOU FUJIAN Gucheng TAIWAN YUNNAN GUANGXI GUANGDONG HONG KONG MACAO VIETNAM

Fang Xian MYANMAR LAO ZhangwanZhangwan XiangfanXiangfan PEOPLE’S Zaoyang DEM. HAINAN THAILAND REP. PHILIPPINES

Yujiahu Shennongjia Huang-pao-ping HENAN

Nanzhany Yicheng 0 25 50 75 100 SHENNONGJIA Dawu FOREST ZONE Yingshan DawuDawu KILOMETERS

Xingshan Hong'an Zhongxiang Yunmeng Yuan'an YunmengYunmeng Jingmen Han Zigui Xinshi Shui Yincheng Huangpi XiaochangXiaochang Yichang Tianmen Xinzhou Fengshan Shayang TianmenTianmen Hanchuan Yichang Wenquan ANHUI ShayangShayang HanchuanHanchuan Jingling Tuanfeng Hanyang WUHAN Huangzhou Qingquan Qianjiang Changyang Jiangkou Wuchang Xiantao Jingsha Jinkou Qichun Wufeng Huangshi Yang-chia-chang Huangmei Yujiabu Gongan 30° 30° Honghu Yuyue

Hong Jiang HUNAN Hu HonghuHonghu Yangxin Chang

This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information Jiang shown on this map do not imply, on the part of The World Bank Tiao-hsien-kou Tongyang Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries. Tiancheng 115° Chang

FEBRUARY 2008