The World Bank Anhui Xuancheng Infrastructure for Industry Relocation (P129431) REPORT NO.: RES33665 Public Disclosure Authorized RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF ANHUI XUANCHENG INFRASTRUCTURE FOR INDUSTRY RELOCATION PROJECT APPROVED ON JUNE 20, 2013 TO Public Disclosure Authorized PEOPLE’S REPUBLIC OF CHINA SOCIAL, URBAN, RURAL AND RESILIENCE GLOBAL PRACTICE EAST ASIA AND PACIFIC Public Disclosure Authorized Regional Vice President: Victoria Kwakwa Country Director: Bert Hofman Senior Global Practice Director: Ede Jorge Ijjasz-Vasquez Practice Manager/Manager: Francis Ghesquiere Task Team Leader: Wanli Fang, Minghe Tao Public Disclosure Authorized The World Bank Anhui Xuancheng Infrastructure for Industry Relocation (P129431) ABBREVIATIONS AND ACRONYMS BOD Biological Oxygen Demand CD Country Director EA Environmental Assessment EIA Environmental Impact Assessment EMP Environmental Management Plan GDP Gross Domestic Product MOU Memorandum of Understanding PDO Project Development Objective PMO Project Management Unit RAP Resettlement Action Plan RMB Ren Min Bi (Chinese Currency) SEA Strategic Environmental Assessment TA Technical Assistance TCE Tons Coal Equivalent WWTP Wastewater Treatment Plant XETDZ Xuancheng Economic and Technological Development Zone The World Bank Anhui Xuancheng Infrastructure for Industry Relocation (P129431) BASIC DATA Product Information Project ID Financing Instrument P129431 Investment Project Financing Original EA Category Current EA Category Full Assessment (A) Full Assessment (A) Approval Date Current Closing Date 20-Jun-2013 30-Sep-2018 Organizations Borrower Responsible Agency People's republic of China Xuancheng Project Management Office Project Development Objective (PDO) Original PDO The project aims to contribute to the economic, social and environmental sustainability of the project area in the Xuancheng Economic and Technological Development Zone. OPS_TABLE_PDO_CURRENTPDO Summary Status of Financing Net Ln/Cr/Tf Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed IBRD-82700 20-Jun-2013 16-Aug-2013 14-Nov-2013 30-Sep-2018 90.00 51.61 38.39 Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No The World Bank Anhui Xuancheng Infrastructure for Industry Relocation (P129431) I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING A. Project Status Overall progress. The project has been under implementation for five years. Earlier it was negatively affected by an economic downturn and had to be reduced in scope through a restructuring approved in January 2017. However, the project is now making progress with the recovery of national economic growth and has gained momentum in achieving its PDO of contributing to the economic, social and environmental sustainability of the project area in the Xuancheng Economic and Technological Development Zone (XETDZ). Since the restructuring, the project has made good progress by implementing physical investments such as the construction of roads and bridges, underground storm-water drainage networks, water supply networks and sewerage networks and wastewater conveyance and treatment as well as in the roll-out of the technical assistance component. The XEDTZ has also managed to attract new industrial units, has increased employment, enhanced value-added while at the same time increasing energy efficiency, put in place new systems to assist job-seekers and is moving towards improving environmental monitoring. The project is currently rated Moderately Satisfactory in both progress toward achieving the PDO and implementation progress. The two issues that were holding back implementation have been resolved: (a) the technical design for the final discharge of the wastewater treatment plant (WWTP, WWXC-3-3 for $1.36 M) has obtained support from the affected villagers after intensive consultations and socialization as well as receiving the necessary environmental clearances; and (b) the relevant provincial authorities have finally approved the relocation of a state-owned trunk natural gas pipeline so construction on a proposed road can proceed. Nevertheless, resolving these issues took more time than expected, and now the project needs additional time to complete all its planned activities. PDO level indicators. As of December 31, 2017, net employment created was 4,858 jobs (18 percent of which were female), exceeding the 2017 target of 3,600. Incremental value-added reached 840 million RMB, also exceeding the target of 480 million RMB. Energy input per unit of value-added at 34 TCE per million RMB, well below the target of 94 TCE per million RMB (Note: This indicator measures energy intensity of mass production, so a lower value indicates a better outcome). Intermediate outputs. As of December 31, 2017, 45.6 km of roads had been constructed and 16,116 residents in the project area had been provided with access to improved water sources and sanitation services, compared to the targets of 45 km roads and 16,000 residents benefiting respectively. In addition, the number of XETDZ staff formally trained was 89 persons (of which 20 percent were women), compared to the target of 80 persons (with 20 percent women). The number of new firms attracted to the zone (with MOU signed) was 172, exceeding the target of 135. Technical assistance (TA). The Intelligent Investment Promotion System was satisfactorily completed in August 2017 and is now in operation. It has helped XETDZ to accelerate progress of attracting the targeted industries and improving the overall business environment. The Labor Market Information System has been established and is currently under testing. The Internal Monitoring and Evaluation system has been completed and is in operation to monitor key operational and management tasks of the XETDZ, including sectoral data collection and reporting. The Branding and Investment Promotion system is nearing completion. The contract for the design of the Real Time Environmental Monitoring System has been signed. Institutional capacity. Although the institutional arrangements are in place, the PMO is seriously under-staffed, which has led to lapses in project management and implementation (e.g., previous delays in finalizing the technical design and completing the bidding process of the effluent outfall for the WWTP). The Bank has emphasized the need to strengthen capacity by adding technical staff and seeking higher-level intervention in coordination with various stakeholders. Since the mid-term review The World Bank Anhui Xuancheng Infrastructure for Industry Relocation (P129431) mission, the senior management of the XETDZ has urged the PMO to conduct re-alignment of tasks among relevant departments. Now the PMO has put in place designated staff for key tasks such as procurement, financial management, construction management and environmental/social safeguards. As a result, the PMO has been much more effective and responsive in resolving the pending issues of project implementation and in preparing this restructuring package. Risks to achieving the PDO remain substantial mainly due to the delays in completion of a few key contracts because of factors beyond the control of local government (i.e., relocation of a state-owned trunk natural gas pipeline underneath one major road project; failure of a contractor; lagging economic conditions earlier in implementation; villagers’ objections to the original design of the effluent outfall for the WWTP, which was revised and agreed on now). The economic outlook for XETDZ going forward is promising, given the improvement in infrastructure and doing-business environment, to which this project has made contributions. B. Rationale for restructuring Extension of the Loan closing date. The borrower has requested an 18-month extension of the loan closing date to March 31, 2020. This is to allow the completion of: 1) two major road contracts (total cost $27 million) that are critical to achieving the PDO on economic sustainability (Note: one contract has already been signed with a duration of 18 months and the second contract, with a contract duration of 12 months, was opened for bidding in June 2018); 2) the effluent outfall for the WWTP, the technical design of which has been finalized and bidding is in progress; construction is expected to take about 12 months; and 3) the real-time environmental pollution monitoring system for which the contract has already been signed. The project has loan savings of about US$4-6 million that the client would like to use to fund new activities that will also require additional time (See details below in Section D). An extension of the loan closing date will also allow the full benefits of the TA components, e.g., the intelligent business promotion system, the labor market information system and the branding and investment promotion strategy to materialize, and the M&E TA may be used to gather additional data to monitor the project’s outcomes and learn lessons, and to provide further evidence of the project’s economic, social and environmental achievements. II. DESCRIPTION OF PROPOSED CHANGES C. Project development Objective N.A. D. Changes to Components and Costs Utilization of loan savings for new activities. No changes to the Project components are proposed, but the borrower identified potential loan savings of about US$4-6 million due to efficient procurement and would like to use the funds to procure: 1) data collection devices and software to expand the functionality of the real-time pollution monitoring system;