Document of The World Bank
FOR OFFICIAL USE ONLY
Public Disclosure Authorized Report No: 39781-CN
PROJECT APPRAISAL DOCUMENT
ON TWO
PROPOSED LOANS
IN THE TOTAL AMOUNT OF US$120.0 MILLION Public Disclosure Authorized ($24 MILLION TO FINANCE ACTIVITIES IN HUNAN PROVIP ZE A ID $96 MILLION TO FINANCE ACTIVITIES IN ANHUI PROVINCEy CHONGQING MUNICIPALITYyGUANGXI ZHUANG AUTONOMOUS REGION AND HUBEI PROVINCE)
TO THE
PEOPLE’S REPUBLIC OF CHINA
FOR AN
ECO-FARMING PROJECT Public Disclosure Authorized
November 3,2008
Rural Development, Natural Resources and Environmental Sector Unit Sustainable Development Department East Asia and Pacific Region Public Disclosure Authorized 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. CURRENCY EQUIVALENTS
(Exchange Rate Effective September 2 1,2008) CurrencyUnit = RMB RMB = US$0.14 US$l.OO = RMB 6.82
FISCAL YEAR January 1 - December31
ABBREVIATIONS AND ACRONYMS
ADB Asian Development Bank NDRC National Development and Reform BP Bank Policy Commission CDM Clean Development Mechanism NRBP National Rural Biogas Program CNAO China National Audit Office NPV Net Present Value COPD Chronic obstructive pulmonary disorder OP Operational Policy CPMO County Project Management Office PA Project Agreement CQS Selection Based on Consultant PA0 Provincial Audit Office Qualification PCN Project Concept Note DA Designated Account PDO Project Development Objective EL4 Environmental Impact Assessment PFB Provincial Finance Bureau EMDP Ethnic Minorities Development Plan PIG Project Implementation Group ERR Economic Rate ofReturn PI0 Project Implementation Office FECC Foreign Economic Cooperation Center PIM Project Implementation Manual FIRR Financial Internal Rate of Return PLG Project Leading Group FB Finance Bureau PMO Project Management Office FM Financial Management PPMO Provincial Project Management FMS Financial Management Specialist Office HWhh Household PTEG Project Technical Expert Group IBRD International Bank for Reconstruction REO Rural Energy Office and Development QBS Quality Based Selection ICB International Competitive Bidding QCBS Quality and Cost Based Selection IDA International Development Association OP Operational Policy LA1 Loan Agreement I(Anhui, Chongqing, SA Social Assessment Guangxi, Hubei) SEPA State Environmental Protection LA11 Loan Agreement I1(Hunan) Agency MBD Model Bidding Document SIL Specific Investment Loan MIS Management Information System SOE Statement ofExpenditure MOA Ministry of Agriculture T-Bond Treasury Bond M&E Monitoring and Evaluation TOR Terms ofReference NCB National Competitive Bidding WB World Bank
Vice President: Mr. James W. Adams, EAPVP Country Director: Mr. David R. Dollar, EACCF Sector Managers: Mr. Ede Jorge Ijjasz-Vasquez, EASCS Mr. Rahul Raturi, EASRE Task Team Leader: Mr. Sari K. Soderstrom, EASCS FOR OFFICIAL USE ONLY
CHINA PROJECT APPRAISAL DOCUMENT ECO-FARMING PROJECT CONTENTS Page I. STRATEGIC CONTEXT AND RATIONALE ...... 1 A . Country and Sector Issues...... 1 B. Rationale for Bank Involvement ...... 1 C . Higher Level Objectives to Which the Project Contributes...... 2 I1. PROJECT DESCRIPTION ...... 2 A . Lending Instrument...... 2 B. Project Development Objective and Key Indicators...... 3 C . Project Components ...... 3 D. Lessons Learned and Reflected in the Project Design ...... 5 E. Alternatives Considered and Reasons for Rejection...... 6 I11. IMPLEMENTATION ...... 7 A . Partnership Arrangements ...... 7 B. Institutional and Implementation Arrangements ...... 7 C . Monitoring and Evaluation ofOutcomes ...... 8 D. Sustainability ...... 9 E. Critical Risks and Possible Controversial Aspects ...... 9 F. Loan Conditions and Covenants ...... 10 IV. APPRAISAL SUMMARY ...... 11 A . Economic and Financial Analysis ...... 11 B. Technical ...... 12 C . Fiduciary ...... 12 D. Social...... 13 E. Environment ...... 14 F. Safeguard policies ...... 14 G. Policy Exceptions and Readiness ...... 15 Annex 1: Country and Sector Background ...... 16 Annex 2: Major Related Projects Financed by the Bank and/or other Agencies ...... 18 Annex 3: Results Framework and Monitoring ...... 19 Annex 4: Detailed Project Description...... 24 Annex 5: Project Costs ...... 32 Annex 6: Implementation Arrangements ...... 33 Annex 7: Financial Management and Disbursement Arrangements ...... 35 Annex 8: Line Of Credit Review ...... 42 Annex 9: Procurement Arrangements ...... 44 Annex 10: Economic and Financial Analysis ...... 48 Annex 11: Safeguard Policy Issues ...... 59 Annex 12: Project Preparation and Supervision ...... 63 Annex 13: Documents in the Project File ...... 64 Annex 14: Statement of Loans and Credits ...... 65 Annex 15: Country at a Glance ...... 70 Maps: CHN353275 CHN35328. CHN35329. CHN35330. CHN35331
I I 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 . CHINA
ECO-FARMING PROJECT
PROJECT APPRAISAL DOCUMENT
EAST ASIA AND PACIFIC
EASCS
Date: November 3, 2008 Team Leader: Sari K. Soderstrom Country Director: David R. Dollar Renewable energy (70%);Crops Sector Managers: Ede J. Ijjasz-Vasquez (20%);Agricultural extension and research Rahul Raturi (1 O%)Themes: Climate change (P); Land administration and management (P); Rural services and infrastructure (P); Other environment and natural resources management (S) Project ID: PO96556 Environmental screening category: Partial Assessment Lending Instrument: Specific Investment Loan
[XI Loan [ ] Credit [ 3 Grant [ ] Guarantee [ ] Other:
For Loans/Credits/Others: Total Bank financing (US$m.): 120.00 Proposed terms: The loan that will finance the activities in Hunan Province will be a single currency, fixed spread loan, with a maturity of20 years inclusive of 5 years of grace and a front end fee of 0.25 percent. The loan amount is US$24 million. The loan that will finance the activities in Anhui Province, Chongqing Municipality, Guangxi Zhuang Autonomous Region, and Hubei Province will be a single currency, variable spread loan, with a maturity of20 years inclusive of 5 years of grace and a front end fee of0.25 percent. The loan amount is US$96 million.
Borrower: People's Republic of China Responsible Agency: Anhui Provincial Agriculture Commission, Anhui Province, China Tel: 0551-2669125 Fax: 0551-2621862 Email: zhpli@ 126.com Hunan Provincial Agriculture Bureau, Hunan Province, China Tel: 073 1-2234045 Fax: 073 1-4427 143 Email: xuxianchun@vip. 163 .com Guangxi Provincial Agriculture Foreign Capital Project Management Center, Guangxi, China Tel: 0771-2182861 Fax: 0771-2834644 Email: [email protected] Chongqing Agriculture Commission, Chongqing Municipality China Tel: 023-89133527 Email: [email protected] Hubei Enshi County Rural Energy Bureau, Hubei Province, China Tel: 07 18-82392 10 Fax: 07 18-8232646 Email: esznyj@I 88.com Ministry of Agriculture, Foreign Economic Cooperation Center Mr. Tang Zhishao No. 55 Nongzhan Beilu, Chaoyang District Beijing, China Tel: + 86 10 65003273 Email: [email protected]
Does the project depart from the CAS in content or other significant respects? [ ]Yes [XINO Re$ PAD I,C Does the project require any exceptions from Bank policies? Re$ PAD IV, G [ ]Yes [XINO Have these been approved by Bank management? [ ]Yes [ IN0 Is approval for any policy exception sought from the Board? [ ]Yes [XINO Does the project include any critical risks rated “substantial” or “high”? [ ]Yes [XINO Ref: PAD III. E Does the project meet the Regional criteria for readiness for implementation? [XIYes [ ]No Re$ PAD IV, G Project development objective Re$ PAD 11, B, Technical Annex 3 To deliver direct environmental and economic benefits from the integration of biogas in farming and cooking in rural households. In addition, the project aims to reduce greenhouse gas emissions through methane combustion and reduced burning ofcoal and firewood in the project Project description Re$ PAD 11, C, Technical Annex 4
The proposed project will apply a comprehensive approach to integrating biogas development with farm production systems, including biogas technology solutions and biogas-related on-farm investments; institutional strengthening ofbiogas service and extension systems; technician and farmer capacity building; and improved M&E systems at local levels. The project will be integrated with the government’s National Rural Biogas Program in project provinces and will be largely implemented building on existing institutional systems. The project will have three main components: Component I:Integrated Eco-Farming Systems. This component comprises two sub-components, (a) Integrated Household Systems and (b) Community Development, will assist farmer households to integrate biogas into their production systems to improve the environmental impact, quality and efficiency offarm production, and to improve the households’ living conditions. The component aims to demonstrate best technical practices for biogas that the local governments can consider for replication in the wider National Rural Biogas Program, as well as generating both private and public good benefits. Component 2: Local Technical Extension and Biogas Service System. This component will strengthen and expand the existing rural energy and agricultural extension services to improve the technical support systems for operation and maintenance ofthe biogas systems, and facilitate integration ofthe existing rural energy and agriculture support services. The two sub-components, (a) Service System Improvement and (b) Training, will assist with: (i)refurbishing local extension and training facilities; (ii)provision ofequipment and materials for biogas service systems and agricultural extension; (iii)training ofcounty/township/farmer technicians and farmers; (iv) support to farmer biogas and related associations; and (v) applied research on improving biogas technology and management. Component 3: Project Management, Monitoring and Evaluation. This component will establish an efficient and effective project management structure with well-trained and appropriately resourced staff to enable the project to achieve its objectives. The three sub-components, (a) Project Management; (b) Institutional Capacity Building; and (c) Monitoring and Evaluation, will finance project management costs, equipment, training, and monitoring and evaluation.
Which safeguard policies are triggered, if any? Re$ PAD IV, F, TechnicalAnnex 11 (a) Environmental Assessment; (b) Involuntary Resettlement; and (c) Indigenous Peoples
Significant, non-standard conditions, if any, Ref. PAD 111, F for:
Board presentation: None
Loan effectiveness: Standard effectiveness conditions (a) Standard financial management and procurement covenants; and (b) Specific project implementation conditions and covenants: Management organizations, including the PLG, PMO, PIO, PIG will be maintained throughout the project implementation period Project entities shall implement the project consistent with the Project Implementation Manuals Project entities shall prepare annual work programs for the Bank’s review Annual budgets will be provided specifying funding need and funding source for each project activity Annual project counterpart budgets will be included in each project province’s and county’s annual budget Financing for households shall follow procedures agreed with the Bank and project entities shall enter into an implementation agreement with all project households All project households will be ensured a national level grant for the biogas digester in an equitable manner and in an amount that shall be adequate for such purposes Project progress and impact M&E will be carried out according to a methodology agreed upon by the Bank Project impact monitoring reports shall be submitted to the Bank year 0,3, and at the end ofthe project Project progress reports shall be submitted to the Bank on a semi-annual basis. I. STRATEGIC CONTEXT AND RATIONALE
A. Country and Sector Issues
1. China’s rapid economic development has been accompanied by serious degradation of the environment. This has affected many areas and has its origins in several sectors, including agriculture. Intensive and mechanized farming, desertification, natural disasters, over-use of synthetic pesticides and fertilizers, and the rapid growth in livestock production have all taken a toll on the resource base. Although there is significant migration out from farming to urban areas, millions of households still derive their livelihoods from agriculture, and their well-being and prospects for the future depend on the improved management of the natural resource base.
2. The Government of China sees biogas utilization as a means of improving the lives of rural households and addressing environmental degradation. To date, China’s biogas production from human, animal and other organic waste has received strong government promotion and accompanying subsidies because it is seen to have significant local environmental benefits, among other positive externalities. A new large National Rural Biogas Program was launched in 2001 with total investments to date of more than RMB 8 billion (about US$560 million equivalent). Currently, more than 750 large- and medium-size biogas projects have been completed and a total of 26 million rural households are cooking using biogas. This recent program has experienced much-improved technical success compared with the previous programs launched by the government since the 1970s, but it is still lacking in training and technical support for the users. In particular, training and technical support for households has been inadequate in guiding households to optimize their production systems to exploit new opportunities offered by biogas.
3. It is anticipated that during the 1lth Five-Year plan about RMB 50 billion (about US$7.3 billion) will be invested in rural biogas development in China, through central government grant programs (estimated at RMB 13 billion - US$1.9 billion), local government grant programs, internationally-financed programs (such as those supported by the World Bank and the Asian Development Bank - ADB) and private investments. With the government committed to building a “new socialist countryside’,” biogas is particularly attractive, because it can deliver both social and economic benefits to rural residents, while simultaneously addressing environmental degradation issues. (See Annex 1 for additional discussion on country and sector issues.)
B. Rationale for Bank Involvement
4. Instruments used so far in China to promote biogas have generally focused on the provision of subsidies to households, with regulation, research, information dissemination and training playing only a limited role. The size of subsidy has varied substantially among locations and depending on local administrative structures. The main implementing agency has been the Rural Energy Offices, located within local Bureaus of Forestry, Agriculture and Poverty Alleviation. Construction has usually been conducted by the Rural Energy Offices, although other agencies have contributed.
1 The concept of building a “new socialist countryside” incorporates investments in infrastructure, health, and education, social development and a grassroots democratization process.
1 5. To realize the environmental, economic and social benefits of these large-scale investments as planned by the government, approaches are needed that better integrate biogas with agricultural systems, supported with improved impact monitoring and evaluation (M&E). Such approaches include strengthening oftechnical support systems and technician and household training programs in integrated biogas farming practices. Systematic and quantifiable M&E indicators are also needed to assess the economic, social and environmental benefits of biogas. Bank engagement in the project would assist the government in developing and testing approaches that will enhance impacts and the methods to monitor them at the local level. 6. The project would combine the use of Bank funds with the National Rural Biogas Program. Technical innovations would include demonstrations ofhow to better integrate biogas into on-farm production systems, and the establishment of systematic M&E processes at local level. An activity attempting to utilize carbon financing for household-level biogas development will be piloted in parallel to the main project. 7. The project would: (a) build on accumulated experience under the various national biogas development programs in China and the Bank-financed “East Asia Regional Livestock Waste Management Project”; (b) reinforce a similar “Efficient Utilization ofAgricultural Wastes Project,” financed by the ADB; and (c) complement the first phase ofthe Bank-financed “Renewable Energy Scale-up Program.”
C. Higher Level Objectives to Which the Project Contributes
8. The project is consistent with two strategic areas ofthe Bank’s Country Partnership Strategy (2006-201 0) for China. First, it aims to manage resource scarcity and environmental challenges by contributing to improved land management and energy use and to protection of global environmental commons. Second, it aims to reduce poverty, inequality and social exclusion by promoting sustainable income increase in rural areas. Overall, the project would contribute to the development of social infrastructure, energy security and enhancement of rural livelihoods - in line with the development objectives in the Government’s 1lth Five-Year Plan.
11. PROJECT DESCRIPTION
A. Lending Instrument
9. A Specific Investment Loan (SIL) is proposed as the proper lending instrument for the broad range of investment activities under the projects. A US$24 million loan will finance the activities in Hunan. It will be a single currency, fixed spread loan, with a maturity of20 years inclusive of 5 years ofgrace and a front end fee of 0.25 percent. A US$96 million loan will finance the activities in Anhui, Chongqing, Guangxi, and Hubei. It will be a single currency, variable spread loan, with a maturity of20 years inclusive of5 years of grace and a front end fee of 0.25 percent.
10. Government grants to support construction ofbiogas digesters will be sourced from the Government’s Treasury Bond (T-Bond) issuance program. Farmer contributions will mainly comprise cash and in-kind contributions. In addition, it is anticipated that about US$8.4 million of carbon finance will be obtained by Hubei. Opportunities for carbon finance in the other project provinces are being pursued.
2 B. Project Development Objective and Key Indicators
1 1. Project Development Objective. The project development objective is to deliver direct environmental and economic benefits from the integration ofbiogas in farming and cooking in rural households. In addition, the project aims to reduce greenhouse gas emissions through methane combustion and reduced burning ofcoal and firewood in the project areas.
12. Key Indicators of Project Performance. Key Performance Indicators are listed in Annex 3. The project’s main public benefits include reduced greenhouse gas emissions and increased carbon recycling through reduced use of coal and biomass for energy. The main private benefits consist ofreduced expenditures for fuel, saved time and improved living conditions for the project households. The households will also benefit from savings on chemical fertilizer purchases and increased farm productivity through improved agricultural practices. Improved technical extension services, and technician and household training will yield improvements in the efficiency ofbiogas system operation, reduced failure rates and accelerated adoption ofbiogas systems that are well integrated with the farming systems.
13. Achievement ofthe project’s development objective will be monitored through environmental indicators; indicators on household living conditions; changes in household expenditures and labor savings; and improved human and institutional capacity. These indicators will be measured by quantitative and qualitative methods, including routinely- collected output data and impact surveys conducted at project start-up, mid-term and completion.
14. In addition, the project has a set of social indicators related to ethnic minority household participation in the project and environmental impact indicators specified in the Environmental Impact Assessment (EIA) report, which will be monitored by the Provincial Project Management Offices (PPMOs). These indicators are also listed in Annex 3.
C. Project Components
15. The project will apply a comprehensive approach to integrating biogas with farm production systems, including technology solutions, biogas-related on-farm investments; strengthening ofservice and extension systems; technician and farmer capacity building; and improved M&E systems. The project will be integrated with the government’s National Rural Biogas Program in the project provinces and will be implemented building on existing institutional systems.
16. The total financing ofthe project is about US$439.75 million, with financing from the Bank (US$120 million) and the Government of China, including beneficiaries (about US$3 19.75 million). The project will support activities under three components to be implemented over a period of five years. A total ofUS$l8.60 million for financing interest during construction (US$18.30) and front-end fee (US$0.30 million) is required. (Annexes 4 and 5).
17. Project activities, costing about US$ 10.8 million with an estimated Loan financing of about US$ 3.2 million2have been identified for retroactive financing.
2 Hubei US$2.5 million, Guangxi US$700,000, Hunan US$500,000.
3 18. Component 1: Integrated Eco-Farming Systems (US$382.07 million), aim to demonstrate technical best practices for biogas development for replication. The component comprising: (a) integrated household systems; and (b) community development, will assist farmers to integrate biogas into their production systems to improve the environmental impact, efficiency and quality of farm production, and the households’ living conditions.
19. Biogas systems (digesters, stoves and related equipment) will be installed in households. Related household infrastructure (animal sheds, toilets and kitchens) will be built or rehabilitated. Investments comprise integrated biogas-farm production packages, improvements to related farm infrastructure and production systems (e.g., new varieties of crops, and orchard rehabilitation). The combination of these investments will lead to improved quality and efficiency of farm production, including partial substitution of chemical fertilizer and pesticides with biogas residue. Adequate livestock numbers to support sustainable use of the biogas digesters will be a prerequisite for project participation.
20. Linked with this component, a Clean Development Mechanism (CDM) pilot program for Hubei (estimated to deliver about US$8.4 million of carbon financing) is under preparation. The CDM aims to: (a) demonstrate technical and methodological approaches for reducing greenhouse gases at the household level by changing traditional manure management methods and recovering methane from the manure for the households’ thermal energy needs by installing and operating biogas digesters, thus replacing fossil fuel for cooking; and (b) pilot a carbon credit trading process for household-based greenhouse gas emissions.
2 1. To achieve maximum benefit from the integration of biogas with farm production, limited investments in rural water supply and village roads - as needed - will be supported. Investments in water supply will enhance the impact on household health. Investments in rural roads will assist in optimizing the farm production system.
22. Component 2: Local Technical Extension and Biogas Service System (US$15.23 million) which will strengthen and expand the existing rural energy and agricultural extension services in order to improve the technical support for sustainable operation and maintenance of the biogas systems and facilitate stronger integration of the existing rural energy and agriculture support services. It consists of two sub-components: (a) service system improvement; and (b) training. Investments will support refurbishing of local extension and training facilities; provision of equipment and materials for biogas service systems and agricultural extension; training of various levels of Rural Energy Office staff; training of county, township, and farmer technicians; farmer training; support for farmer biogas and related associations; and applied research on improving biogas technology and management.
23. Up-grading of facilities will include limited refurbishment of existing training facilities and rehabilitation of village service sites. Equipment and materials procurement will include training equipment and materials, biogas maintenance tools and spare parts, local transportation and communications required to enhance service delivery.
24. Training activities will include improvement of biogas training curricula and training materials; training oftrainers at county level; technician and farmer training in improved design, construction, operation and maintenance ofbiogas systems and related farm infrastructure;
4 farmer training in agricultural practices to make best use of biogas residues; and marketing, where new products are included in the biogas-farming system models. Demonstration households of good biogas practice will be established in project villages. Technicians will also receive training in participatory processes and adult learning methods, and collection of M&E survey data. Training programs will include refresher and follow-up training once households have had biogas for a while and improved operation and maintenance is required.
25. In addition, the project will assist biogas or related farmer associations at county, township and village levels to become self reliant and sustainable. Support will include training ofmembers, development of training materials, communication to and awareness-raising of farmers, systems development and registration.
26. Component 3: Project Management, Monitoring and Evaluation (US$23.85 million) comprising: (a) project management; (b) institutional capacity building; and (c) M&E will finance project management costs, equipment, training, and M&E. It will establish a project management structure and systems with well-trained and appropriately resourced staff.
27. M&E ofproject impacts/outcomes, implementation progress, and adherence to safeguards will be financed. Impact monitoring will include assessment of environmental and living conditions, and social changes brought about by the project. Project staff will be trained in the use of a computerized Management Information System to track procurement, disbursement, financial management and overall administration of funds.
D. Lessons Learned and Reflected in the Project Design
28. Technical Design. Biogas development in China experienced two major campaigns in the 1950s and 1970s. Both campaigns encountered difficulties due to immature technology and inadequate support systems. Based on the lessons learned, the government has made great efforts on applied research, formulating rules and regulations, improving the technical design and quality, creating technical standards, and establishing centers to train and certify technicians. These measures have improved the construction and service systems, and have provided valuable experience for the project.
29. Institutional Arrangements. Experience shows that integrating project activities with Borrowers’ own programs and establishing project implementation units within the existing institutional system ensures a higher degree of ownership and a more sustainable post- completion operation. This project adheres to these principles by integrating it with the National Biogas Program and having the Project Management Offices (PMOS) inside the units which also implement the national program.
30. Capacity Building and Training. Past experience in China and elsewhere demonstrates that projects aiming at technology adoption require components with strong technical assistance. The project will address this by up-grading the capacity of local biogas service and technical extension systems, providing training of technicians (including training oftrainers) and farmers, establishing demonstration households and supporting focused study tours. Applied research will be targeted at removing bottlenecks in biogas technology, application and management.
5 Finally, support to village service systems will accelerate the exchange ofinformation and experience amongst farmers providing an improved training and extension interface.
3 1. Projects in China that support public service development (particularly training and extension) generally have had county-level agencies as their end users. In provincial- or national-level projects, the result has been frequent duplication oftraining-related activities. In this project, targeting of specific provincial and county needs will minimize this duplication in order to: (a) save costs; (b) utilize the most appropriate experience and expertise; and (c) enhance the professionalism oftraining program design, materials’ content, and evaluation. The project will include provincial, county, township and village-level actions in all training and extension activities. Capacity building ofproj ect implementing agencies at each level, technicians and farmers through training and technical assistance is essential to ensure efficient and effective project implementation and post-project period sustainability ofproject interventions. (See Annex 2 for other major related projects.)
32. Private Benefits. Project interventions to achieve public good benefits must also yield some tangible private benefits for key stakeholders (farmers and communities) to ensure adoption and replicability. Biogas-related on-farm investments (such as new crop varieties, farm infrastructure, village roads) are included in the project to help generate additional private benefits for farmers to complement those directly derived from biogas generation.
33. Project Management and Leadership. Experience from the Bank’s rural sector operations in China and the government’s programs have shown that strong project management and leadership at the central level is required when several provinces are involved in the project. For this reason, a central PMO will be based in the Ministry ofAgriculture (MOA) to ensure well coordinated and smooth project implementation.
34. Counterpart Funds. The lack oftimely availability of adequate amounts ofbridge funding and counterpart funding is a persistent problem in Bank-financed rural projects in China. To mitigate this issue, the project is being integrated with the National Biogas Program, which should facilitate the timely availability offunds. The legal agreements will require that: (a) project households receive a national-level grant for the biogas digester ensuring equitable financing in adequate amounts to the project households; (b) detailed annual budgets be provided to the Bank; and (d) annual project budgets for required counterpart funding be included in each project province’s and project county’s annual budget (LAZ/LAZZ, Schedule 2, Section I, 2; PA, Article I4 2.03).
35. Monitoring and Evaluation. A well-developed M&E systems is the main instrument for assessing project impact and identifying best practices for dissemination. An effective M&E system should feature: (a) simple procedures; (b) a small number of variables that are easy to measure or readily-derived from simple measurements; and (c) a focus on project outcomes as well as project activities. The project has developed an M&E framework with these features.
E. Alternatives Considered and Reasons for Rejection
36. The project design originally included an innovative component for the development of biogas M&E systems for application at national level and to identify biogas best practices for
6 replication within the National Rural Biogas Program. The aim was also to identify a framework for policy and institutional innovations for improving the integration ofbiogas programs with other relevant programs. However, the component was dropped by the Borrower following pre- appraisal due to administrative problems in financing a national level project component.
37. Initial provincial proposals included support for laboratories, testing stations, animal and plant breeding stations and other scientific infrastructure, and elements ofcommunity development that extended beyond the objectives ofthe project. These activities were excluded because they would not contribute directly to the core environmental focus ofthe project and would more easily be achieved by instruments other than those employed here. Early provincial proposals also included investments for large farms, which were subsequently deleted because it was concluded that the enterprises would rather access alternative funding sources.
38. Initial specifications ofthe current investment packages featured funds for livestock purchases. This has since been removed in order to focus the project on the adoption of changes to existing livestock systems through improved management rather than increased numbers.
39. The number ofcounties included in the project was initially even larger (73), with a smaller number ofparticipating households for each county. Rationalization ofthe design has been achieved by reducing the number of counties to 64, and concentrating activities in fewer villages in each county (60 percent target household coverage instead of50 percent).
40. A three-year implementation period was initially requested by the provinces. This has been increased to five years because of: (a) the large number of counties to be covered; (b) the large number ofbiogas units to be constructed in relation to the technician labor force; (c) a realistic estimate of counterpart fund availability; and (d) the importance ofhaving adequate time to improve technical capacity in training and extension to achieve the required technical quality for project sustainability. In addition, the longer implementation period would allow more time for processing and use oflessons learned in the project and applications ofapplied research.
111. IMPLEMENTATION
A. Partnership Arrangements
41. In conjunction with the project, it is anticipated that the Community Development Carbon Fund will allocate resources from carbon trade revenues to support a biogas program, piloting a replicable carbon trade process for household-based greenhouse gas emission reduction initiatives. This program will be implemented under the same institutional arrangements as the project.
B. Institutional and Implementation Arrangements
42. Project Management Structure. The project management structure is consistent with most Bank-financed rural projects in China. It includes a Project Leading Group (PLG), Project Management Offices at provincial and county levels, Project Implementation Offices (PIO) at township levels, Project Implementation Groups (PIG) at village levels and Project Technical Expert Groups (PTEG) where appropriate. (Annex 6.) The requirement to maintain the
7 management organizations is reflected in the legal agreements (LAI/LAII Schedule 2, Section I, B 1; PA, Schedule, Section I, 1).
43. Project Implementation Manuals. Project Implementation Manuals (PIM) have been prepared by all provinces. The PIMs include full descriptions ofall relevant project implementation arrangements, procedures, rules, and guidance. They also include all the project’s safeguards documents. (PA, Schedule, Section I, 3-7).
44. Flow of Funds and Disbursements. The Bank loans will be on-lent to the project provinces, which will on-lend funds to the project counties. Designated project accounts will be established and managed by each province. Given the large number ofcounties involved in the project and the relatively straight forward nature ofthe household-level activities, output-based disbursements will be used for activities following specific requirements (see Annex 7). The participating project counties will sign implementation agreements with individual households as specified in Annex 7 and the legal agreements (LAI/LAII, Schedule 2, Section 1, 2, and Annex; PA, Schedule I, 7, and Annex 2).
C. Monitoring and Evaluation of Outcomes
45. A comprehensive M&E will enable understanding ofproject impacts and help justify future government funding for biogas activities. Project start-up, mid-term and end ofproject surveys will be undertaken. Sampling will comprise ofvillage- and household-level surveys. The village-level surveys will be done first to select the samples for the household surveys. For the household surveys, the total sample size will be about 2,700 households (including without biogas control group) in 15 sample counties. The surveys will be led by an independent survey entity with field assistance from the PPMOs.
46. A computerized Management Information System (MIS) will be developed to assist the PMOSin project management and to ensure transparent reporting, analysis of project inputs, outputs, financial flows and track individual household disbursements and cost recovery. The MIS will consist ofthree sub-systems: (a) physical progress monitoring; (b) contract-based procurement management; and (c) financial management. Semi-annual project progress reports shall be submitted to the Bank for review (LAI/LAII, Section II, A 1; PA, Schedule, Section II, A, 1). 47. Development of capacity at provincial and lower levels to monitor and evaluate the impact of the project is included in the project under Component 3, where provisions have been made to build the capacity ofproject institutions to complete the required M&E activities.
48. The requirement to carry out project progress and impact M&E according to terms of reference agreed upon by the Bank is recorded in the legal agreements (LAI/LAII, Schedule 2, Section II, A, 1; PA, Schedule, Section II, A 1-3 and Annex I),including the requirement to submit project impact monitoring reports for year 0, year 3, and at end ofproject implementation (PA, Schedule, Section I.A, 2-3 and Annex).
8 D. Sustainability
49. The government's commitment to biogas development is reflected in its 1lth Five-Year Plan (2006-201 0), providing substantial resources to be invested in biogas. Until now, sustainability ofbiogas investments in China on a project level has been hindered by inadequate support systems, especially at the post-installation stage. The project will address this through activities aimed at strengthening and expanding related extension services, and technical support for sustainable operation and maintenance ofthe systems, as well as facilitating the integration of the existing rural energy and agriculture support services. The basis for sustainability is capacity building for farmer households, village-based farmer technicians and county-level extension and service officeshtations. Close integration with the National Biogas Program in the project provinces will accelerate dissemination and replication oflessons learned.
E. Critical Risks and Possible Controversial Aspects
50. The major project risks are summarized in Table 1. The overall risk rating is medium.
Table 1. Risk Mitigation Matrix
Incomplete co-ordination and co- Focus on outcomes rather than investment operation between, amongst and implementation. Medium within government line agencies Exclusion ofpoor and vulnerable Specification of affordable investment packages. groups Use of appropriate extension and dissemination mechanisms. Medium Use of M&E to enhance local knowledge of project benefits. Targeting of ethnic minorities. Emphasize benefits to women. Low adoption rates Use ofappropriate extension and dissemination mechanisms. Low Use of simple, widely used technology. Use of M&E to enhance local and national knowledge of benefits ofthe project.
Exchange rate and input prices With a pre-determined financing envelope available for will determine the final number of the project, it is difficult to determine the exact final Medium target households. number ofproject beneficiaries. However, the project analysis confirms that the project would be successful in the range oftargeted households of 400,000-500,000. Counterpart funding not available Alignment with existing National Biogas Program. Government commitment that all project counties will Medium receive government bond funding for biogas under the National Biogas Program during the project period. Low quality provision oftechnical Enhance linkages between M&E, training of technicians assistance and extension and farmers, and extension and strengthen service Medium support capacity at county, township and village levels. Systems' designs inappropriate for Greater engagement of local specialists in both training specific locations oftrainers and delivery of technical systems. Low
9 digesters warm in winter time: (a) timing of input of animal waste (which has been stored for a proper period Low and reached appropriate temperature); (b) cover animal sheds with plastic and digesters with straw; (c) keep digester temperatures above 8 degrees Celsius. Reduced coal price Emphasize health and environmental benefits to households. Low Reduced fertilizer/pesticide costs Greater emphasis on non-farm benefits to households. Low Overall risk rating Medium
F. Loan Conditions and Covenants
5 1. The Loan effectiveness and project implementation conditions and covenants that are recorded in the Loan Agreements and Project Agreement to be entered into between the Bank and the Borrower are summarized below:
(a) Standard effectiveness conditions and covenants; (b) Standard financial management (PADparagraph 62; LAI/LAII Schedule 2, Section 2, B; PA Schedule, Section II, B) and procurement covenants (PADparagraph 65; LAULAII Schedule 2, Section III; PA, Schedule, Section III); (c) Specific project implementation conditions and covenants include: (i) Management organizations, including the PLG, PMO, PIO, PIG will be maintained throughout the project implementation period. (PADparagraph 42; LAI/LAII Schedule 2, Section I, B 1; PA, Schedule, Section I, 1); (ii) Project entities shall implement the project consistent the with Project Implementation Manuals (PAD paragraph 43; PA, Schedule, Section I, 3-7); (iii) Project entities shall prepare annual work programs for the Bank’s review (PAD, Annex 4, paragraph 6; PA, Schedule, Section I, 2); (iv) Annual budgets will be provided specifying funding need and funding source for each project activity. (PADparagraph 34; PA, Article II, 2.03); (v) Annual project counterpart budgets will be included in each project province’s and county’s annual budget. (PADparagraph 34; PA, Article I4 2.03); (vi) Financing for households shall follow procedures agreed with the Bank (PAD paragraph 43; LAI/LAII, Schedule 2, Section I,2, and Annex; PA, Schedule, Annex 2) and project entities shall enter into an implementation agreement with all project households (PADparagraph 44; LAI/LAII Schedule 2, Section 1, 2; PA, Schedule, Section I, 7 and Annex 2); (vii) All project households will be ensured a national level grant for the biogas digester in an equitable manner and in an amount that shall be adequate for such purposes, (PADparagraph 34; LAI/LAII Schedule 2, Section 1, 2); (viii) Project progress and impact M&E will be carried out according to a methodology agreed upon by the Bank (PADparagraph 48; LAULAII, Schedule 2, Section I4 A, 1; PA, Schedule, Section I4 A 1-3 and Annex 1);
10 (ix) Project impact monitoring reports shall be submitted to the Bank for years 0 and 3, and at the end of the project (PADparagraph 48; PA, Schedule, Section I4 A, 2-3 and Annex 1);and (x) Project progress reports shall be submitted to the Bank on a semi-annual basis (PADparagraph 46; LAYLAII, Section I4 A 1; PA, Schedule, Section I4 A, 1).
IV. APPRAISAL SUMMARY
A. Economic and Financial Analysis
52. At the time of appraisal, the average financial Net Present Value (NPV) for project households was RMB 1,060. The economic NPV ofthe project was estimated to RMB 1.4 billion. The project’s Economic Rate of Return (ERR) is estimated to 27 per~ent.~
53. The project is expected to have multiple benefits at the household, local and global levels. Benefits originate from biogas use and from improved sanitary and hygiene conditions for participating households. Financial benefits to the households can be classified according to their impact on the use of conventional fuels, labor time and chemical fertilizers. The project will also generate positive externalities which can be classified according to their impacts on gender, poverty, health and environment. The latter hold the rationale ofthe government’s promotion of biogas utilization in China, and the Bank’s involvement in this project. More specifically the positive impacts include: (a) improved sanitation and environmental benefits; (b) improved public health; (c) energy conservation and labor savings; and (d) improved soil quality.
54. Improved Sanitation and Environmental Benefits. Biogas improves sanitation and has multiple environmental benefits. Human and animal waste will be collected instead ofbeing directly emitted into the surroundings, having positive impacts on air, soil and water quality. Greenhouse gas emission will be reduced through the reduced use of firewood and coal.
55. Improved Public Health. Biogas generation improves public health. The process of biogas generation kills many ofthe pathenogenic bacteria found in manure. Biogas will also improve household health if they discontinue the use of more polluting fuels when cooking (through less smoke in houses from cooking and/or heating fuels).
56. Energy Conservation and Labor Savings. Biogas conserves energy and saves household labor, with positive impacts on the environment and household welfare. Biogas can be used in cooking and electricity generation, saving time/labor (especially for women) otherwise used for collecting fuel. It is estimated that the participating households would reduce their net cooking and wood collection time by at least one hour per day. Depending on the source of fuel originally used, it would also support conserving forests and habitats, improving air quality, and decreasing household energy costs.
57. Improved Soil Quality. By-products from biogas production (slurry) can be used as a substitute for chemical fertilizers and improve soil quality, thus increasing agricultural yields in
3 Due to the recent price increases for coal and labor, if calculated around the time of Board presentation the ERR would be more than doubled.
11 the long term. Chemical fertilizer will be partially replaced, reducing household monetary expenditures and positively impacting the soil - potentially increasing agricultural productivity in the longer term, contributing to increased farmer incomes.
58. Net Present Value. The economic NPV ofthe project is estimated to be RMB 1.4 billion at a discount rate of 12 percent with an estimated ERR of27 percent. At the household level, however, the biogas investments may not be as attractive financially as the overall economic analysis for the project as a whole indicates. The financial NPV is sensitive to households’ behavior in regard to a replacement oftraditional fuels, allocation of saved labor time, and a replacement of fertilizer by slurry. The relatively lower rate of financial return and high rate ofeconomic return calls for the government to support and encourage the investments. With this in background, the project provides support to households, consisting of a lump sump government grant (T-bond) and Bank Loans’ interest rate subsidy. Annex 10 provides details on financial and economic NPV and the major assumptions.
B. Technical
59. The project’s technical design builds on the government’s National Rural Biogas Program by improving related household facilities, farm production, rural infrastructure and capacity building so that the overall impact ofthe program is increased. The addition of improved household facilities (animal sheds, toilets and kitchen improvements) and on-farm investments that are fully integrated with biogas systems is based on readily available, affordable technology that, with proper training and technical assistance, can be easily operated and maintained by the households. There are few technical risks; the technology options that are in wide use, have proven to be effective in China, and will be tailored to fit the specific conditions ofeach community.
60. There is a strong need to strengthen biogas technical service support in China to achieve more sustainable operation and maintenance ofthe biogas systems. This can be done through up-grading ofservice facilities, equipment and materials; technician and farmer training; support to farmer associations; and applied research on bottlenecks for biogas use and application.
6 1. While the biogas and related technology is relatively simple and well-known in China, there is a shortage ofrigorous monitoring data for evaluation ofits environmental, social, economic and agronomic impacts, both in government and other programs. There is a strong need for systematic M&E ofimpacts to assess the overall effectiveness ofthe programs and define the best practices associated with them.
C. Fiduciary
62. Financial Management. A Financial Management Assessment ofthe project was conducted by the Bank and concluded that the project financial management system meets the minimum requirements as stipulated in BP/OPI0.02. Annex 7 addresses risks and mitigating measures to be taken to strengthen the financial management arrangements. After mitigation, the project’s overall financial management risks are considered to be moderate.
63. Confirmed financing sources include the Bank’s loans, the T-bond grants, local government grants and beneficiaries’ own resources. Budgeting of counterpart funds and
12 specifying their source will be closely supervised by the Bank. Each project province will maintain the financial accounts and records and issue financial management reports for their project activities. Semi-annual financial monitoring reports will be submitted to the Bank. Each project province’s annual financial statements will be audited by auditors acceptable to the Bank and the audit reports will be submitted to the Bank within six months of the end of each calendar year (LAI/LAII Schedule 2, Section 2, B; PA Schedule, Section I4 B).
64. Line of Credit Review. A line ofcredit review consistent with OP8.30 Financial Intermediary Lending was carried out by the region for the project based on a note detailed in Annex 8. The review concluded the project shall not be classified as a conventional line of credit operation or financial intermediary loan and that subsidized interest rate loans are justified by the environmental objectives of the pr~ject.~
65. Procurement. Procurement capacity assessments were carried out by the Bank for FECC and project provinces concluding that FECC and PMOSare staffed adequately with experienced staff. Procurement roles and functions at each level are defined and procurement staff designated. The overall risk for procurement is rated average. Specific recommended actions to further strengthen the PMO procurement capacity are summarized in Annex 9.
66. Project procurement will be carried out in accordance with the Bank’s “Guidelines: Procurement Under IBRD Loans and IDA Credits ” dated May 2004 and revised October 2006 and “Guidelines: Selection and Employment of Consultants by World Bank Borrowers” dated May 2004 and revised in October 2006 - and the provisions stipulated in the Legal Agreements (LAI/LAII Schedule 2, Section III; PA, Schedule, Section IIl). Project procurement arrangements are described in Annex 9. Provincial-level procurement plans covering the first 18 months of project implementation have been agreed by the Bank and will be up-dated annually or as required to reflect the actual project implementation needs and improvements in institutional capacity. Procurement plans for the initial project implementation period are included in respective PIMs.
D. Social
67. Between 400,000 and 500,0005 farm households in Anhui, Chongqing, Guangxi, Hubei, and Hunan will directly benefit from improved living conditions, reduced incidence of diseases and intensity oflabor (especially for women), and increased agricultural productivity.
68. A social assessment (SA) was carried out, based on socio-economic surveys and stakeholder analysis in project areas ofall project provinces. The findings ofthe SA were used to inform the project detailed design.
69. In project locations with ethnic minorities (Guangxi and western parts of Hunan and Hubei), the SA highlighted a participatory approach to project implementation which is reflected in an Ethnic Minorities Development Plan (EMDP). The SA guided the overall project design to incorporate free, prior and informed consultation and participation of ethnic minority
Memo from Financial Sector Adviser, EASFD, confirming this, is on file. ’ With a pre-determined financing envelope available for the project, the anticipated exchange rate and input price fluctuations will determine the final number of targeted households.
13 communities, and how to mitigate potential risks to marginalize any ethnic minority or other vulnerable groups including women and poor households from the project.
70. The project design includes no activity that would lead to resettlement or significant land acquisition. In the event that minor land acquisition should take place, a Land Acquisition Policy Framework was prepared consistent with the Bank’s Operational Policy (OP) 4.12.
E. Environment
7 1. During project preparation, national procedures and the Bank‘s safeguard policies were followed. Environmental Impact Assessments (EIAs) were carried out in all project provinces. An EIA report was prepared describing potential impacts and associated mitigation measures. A mitigation and related training plan, and supervision requirements are specified in Chapter 7 and 8 ofthe EIA report and the environmental impact monitoring indicators are listed in Annex 3.
72. The project’s main objective is environmental improvement and through its design, the overall positive environmental impacts ofthe project are expected to be significant. The project will assist farmers in integrating biogas into their agricultural production activities, achieving a farming system that makes more efficient use ofenergy, water, soil and other resources. More generally, the project is designed to reduce greenhouse gas emissions from the burning of fuelwood, coal and straw, and to reduce the use of chemical fertilizers and pesticides in agriculture. The project is also anticipated to have positive environmental effects through the reduction ofwater-transmitted and zoonotic diseases by treatment ofthe farm manure, and improvement of indoor air quality by substituting coal, fuelwood, and straw with cleaner bio-gas which is expected to decrease the incidence ofrespiratory diseases and eye ailments associated with smoke from traditional fuel stoves (especially for women and children).
73. The risks of negative environmental issues arising from project implementation are low. A few specific areas to receive attention include: (a) potential negative impacts from improper application ofbio-slurry as fertilizer; (b) the need to monitor farmer health impacts associated with the handling ofbio-slurry; and (c) ensuring that technicians and farmers are adequately trained to ensure proper handling and application ofthe bio-slurry.
F. Safeguard policies
Safeguard Policies Triggered by the Project Yes No Environmental Assessment (OP/BP 4.01) [I Natural Habitats (OP/BP 4.04) [XI Pest Management (OP 4.09) [XI Cultural Property (OPN 1 1.03, being revised as OP 4.1 1) Involuntary Resettlement (OP/BP 4.12) Indigenous Peoples (OP/BP 4.10) Forests (OP/BP 4.36) Safety of Dams (OP/BP 4.37) [XI Projects in Disputed Areas (OP/BP 7.60) [XI Projects on International Waterways (OP/BP 7.50) [XI OP - Operational Policy BP -Bank Policy
14 74. The project has been classified as a Category B and triggers safeguard policies on: (a) Environmental Assessment; (b) Involuntary Resettlement; and (c) Indigenous Peoples. (See Annex 11 for more details on safeguard policy issues).
75. OP 4.01 EnvironmentalAssessment. No major or irreversible negative environmental impacts ofthe project were identified during the EIA. The EIA has fully considered potential project impacts on the natural and social environments and has recommended a plan to ensure that positive environmental impacts are further enhanced and any negative impacts are kept to a minimum. Potential impacts on human health have been assessed and specific measures to minimize the potential transmission ofpathogens, water-borne and zoonotic diseases will be taken by all participating farmer households.
76. OP4.10 Indigenous Peoples. The presence of ethnic minority groups in the project areas invokes OP4.10. Because participation in the project is voluntary with significant incentives for participation (as partial subsidies are provided to project participants), the requirements of OP4.10 are integrated into the overall project design. In addition, an Ethnic Minorities Development Plan (EMDP) complying with OP4.10 was prepared. The key challenge ofthe project in relation to ethnic minorities is to ensure that households belonging to minority groups have equal opportunities compared to Han Chinese to access project benefits. This is addressed through: (a) specific targeting ofethnic minority communities; (b) a communication and information campaign with messages that are culturally accessible to ethnic minority groups; (c) project extension staff trained to deliver the communication and information campaign in a manner promoting participation of ethnic minority groups; and (d) monitoring indicators that provide data on the targeting and use ofproject benefits by ethnic minority groups. These indicators are included in the provincial PIMs and listed in Annex 3,
77. OP4.12 Involuntary Resettlement. No involuntary relocation is envisaged under the project. Access roads and courtyards under the project will be mainly reconstructed or improved within villages, and there is no plan to build any major structures when expanding the existing eco-energy extension service system. However, because most ofthe project activities will be carried out around villages, some small-scale infrastructure may be undertaken. Some ofthem may require limited land acquisition within the village itself (e.g., road widening or construction of sheds or other facilities). Use ofland leased to individual households might have some adverse impact on households. Measures will be taken to minimize any such potential impacts. A Policy Framework for Resettlement and Land Acquisition has been prepared describing all these situations and including mitigation principles to be complied with in accordance with the Bank’s OP4.12 and relevant Chinese laws. In such cases, consultation with farmers will be documented, and impacts will be monitored and reported to the Bank.
G. Policy Exceptions and Readiness
78. The project meets all key Regional readiness criteria, is consistent with all applicable Bank policies, and will not require any exceptions.
15 Annex 1: Country and Sector Background CHINA: Eco-Farming Project
Key Development Issues
1. Against a background ofrapid economic growth, the social and environmental challenges faced by China are closely interconnected. Erosion and pollution despoil the resource base and so reduce its productivity for those people whose livelihood depends on it. Meanwhile, the quality and quantity ofChina’s energy supplies limit the extent to which economic and social progress can be made in the countryside. One potentially large user ofenergy is intensive agriculture which is also the sector containing most of China’s poor. The rapid expansion of livestock production has been variously interpreted as a generator ofrural income and employment, and an environmental challenge in terms ofwaste disposal. China’s environmental degradation has impacts in all regions ofthe country and outside the country’s borders. This project operates at the interface ofthese issues, in harnessing biogas as an energy source and its farm-level integrated management as a means ofimproving the lives and livelihoods of rural households. It simultaneously promotes means oftackling local and global pollution. 2. Small farm households have traditionally gathered firewood for fuel, but substitution by coal for wood is increasingly taking place. Intensified use ofboth fuels has environmental consequences: deforestation and air pollution respectively. In addition to more widely recognized atmospheric pollution, coal’s pollution is also apparent indoors, affecting households’ health and general welfare. Both fuels also make for slow cooking and wood is time-consuming to collect. The project addresses biogas as an alternative fuel that is clean, cheap, requires no time-consuming collection, and provides quick heat. 3. Households’ conversion ofanimal manure and other wastes to biogas, which is then burned, will reduce emissions ofmethane into the atmosphere. The project promotes this outcome as a contribution to a global environmental challenge. 4. The intensification ofChinese agriculture has been accompanied by a shift to higher- valued crops, many ofwhich are more nutrient-demanding and susceptible to pests than traditional crops. The consequent increase in use ofpesticides and synthetic fertilizers is starting to meet increasing consumer resistance in China. The project promotes biogas slurry as a cheap source ofnatural fertilizer, rich in nutrients and organic matter. 5. Achieving these outcomes will require upgrading ofbiogas infrastructure and hardware. It will also require improvements in skill levels of farmers, and particularly oftrainers and extension services. The project addresses these topics in order to integrate biogas more fully into existing systems, and to upgrade those systems. Consequently, the project also provides resources for improved M&E at local and provincial levels, as well as dissemination and replication.
National Government Policies and Strategies
6. Policies on Livestock Wastes. The Government of China has reacted to the environmental challenges oflivestock production in several ways, and their different emphases reflect the types ofproblems, and solutions, faced. The major promulgated national regulations
16 relating specifically to the management of livestock manure include Decree of Control and Management of Pollution by Livestock Production (SEPA Decree 9-May 200 1); Discharge Standards of Pollutants for Livestock and Poultry Breeding (GB 18596-2001). National standards are being revised for treatment and handling ofmanure, as well as discharge and its inherent transfer ofnutrients. A program for renewable energy is being used to promote production and use ofbio-gas from livestock waste. In its current ten-year plan, the Ministry of Agriculture plans to construct around 300 demonstration projects based on specific local requirements, conditions and farming systems. The proposed project will support these programs amongst small farm households in the varied environments offive provinces. 7. Watershed Management Policy. The Government recognizes the importance ofwatershed management and the need to strengthen water and soil conservation. This is reflected in a number ofpolicies. The 2002 Water Law gives the Ministry of Water Resources the mandate to “unified management” ofwater resources in the country. By reducing fuel wood usage, the project will contribute to reduced deforestation, and in turn, reduced soil erosion and water loss. 8. Poverty Alleviation Policy. While the number ofpeople living in absolute poverty in China has declined dramatically over the last two decades, the remaining poor tend to be rural and/or be members ofethnic minorities. These poor are difficult to reach, due both to their isolation and to their weak technical and financial status and the small size oftheir agricultural operations. China’s poverty alleviation policy has sharpened its focus beyond designated poverty counties, towards targeting ofpoor townships, villages, and households. 9. Forestry Policy. China’s national forest policy has undergone a fundamental shift after the 1998 flood of Yangtze River and logging is now banned in most areas after decades of depleting the country’s forest resources. While this paradigm shift has been positive, the strict logging ban policies have also had considerable negative effects: First, people whose livelihood has depended on forest resources are negatively affected. Second, it takes away the economic incentive for private investors to plant trees, thereby significantly reducing the establishment of new forests. The Government at various levels is now in the process adjusting this policy to allow truly sustainable use offorests. 10. Agricultural Policy. China’s agricultural policy has changed significantly in recent years. China has now shifted from net taxing its agriculture to net subsidization. Although there is strong focus on grain output for food security, achieved by subsidizing grain production, agriculture is becoming increasingly commercialized based on market incentives. This change is accompanied by an increasing reliance on science and technology in agriculture; a new focus on food safety and quality, including ‘green’/organic production; and the promotion ofsupply-chain models. 1 1. Land Policy. In parallel to the paradigm change described above, China’s land policy has substantially strengthened farmers’ property rights. The land tenure law provides an improved legal basis to ensure farmers’ rights, though implementation still needs further improvement. 12. The policies outlined above are being implemented with the help ofnational programs and projects. The need for a comprehensive approach to rural development is further emphasized under the call for the building ofthe “new socialist countryside.”
17 Annex 2: Major Related Projects Financed by the Bank and/or other Agencies CHINA: Eco-Farming Project
1. Project preparation benefited from the Bank’s extensive experience in integrated watershed management, rural development and poverty alleviation in China and elsewhere. It built on lessons learned from the two Loess Plateau Watershed Rehabilitation Projects, the Red Soils Area Development Project, Jiangxi Integrated Agricultural Modernization Project, various poverty reduction projects, the Sustainable Forestry Development Project, Gansu-Xinjiang Pastoral Development Project, Livestock Waste Management in East Asia Project, and the Changiiang and Pearl River Watershed Rehabilitation Project. 2. Lessons from the Red Soils and Loess Plateau projects, which involved multiple provinces, emphasized that: (a) Effective project management with rigorous M&E contributes to successful project implementation; (b) Projects generating positive externalities require well-designed technical packages that generate tangible benefits for participants; (c) The “public goods” nature ofthe project should be filly recognized with the financial obligations accepted by the different stakeholders; and (d) Technical design standards contribute greatly to project success. 3, The Jiangxi Integrated Agricultural Modernization Project and the Gansu-Xinjiang Pastoral Development Project both feature a range oftechnical packages and food industry activities, as well as public goods generation. Key lessons are: (a) National- or provincial-level activities can preclude expensive duplication ofpublic services (particularly training and extension); (b) Shortages ofcounterpart funding can limit not only implementation progress but also county- level enthusiasm and momentum; (c) Extension and training services, even when fully functional and responsive, may not be equipped or motivated to provide services associated with new technologies or households’ commercial behavior; (d) Public goods are difficult to generate without strong ownership and participation by implementing agencies and close linkages to private benefits to households; and (e) Monitoring should be simple and focus on outcomes. 4. The Bank’s Guangdong Pearl River Delta Urban Environment Project provided insight into the methods and communications necessary for improvement and rationalization of environmental service delivery. 5. United Nationals Environment Program - Global People, Land Management, and Environmental Change Project yielded lessons in establishment and sustainability ofenvironmental elements in the development ofagricultural systems. 6. Australian Agency for International Development, Qinghai Forestry Resources Management Project directly addressed linkages between environmental degradation and poverty, and catered for the role ofwomen in rural households and their potential roles in problem solving. 7. United Kingdom’s Department for International Development, Pro-Poor Rural Water Reform Project has developed a Gender Strategy for all aspects ofproject implementation.
18 Annex 3: Results Framework and Monitoring CHINA: Eco-Farming Project
Results Framework PDO Project Outcome Indicators Use of Project Outcome Information The project development Improved quality of life in the targeted Dissemination and use in participator) objective is to deliver direct households programming. Justifies use of public funds as a environmental and economic preventative public health measure. benefits from the integration of Increased disposable income for targeted Dissemination amongst farm households. biogas in farming and cooking households Identifies private incentive for generation of in rural households. positive externalities. In addition, the project aims to Reduction in greenhouse gas emissions Justification of use of public funds and subsidies. reduce greenhouse gas emissions through methane combustion and reduced burning of coal and firewood in the project areas. Intermediate Outcomes Intermediate Outcome Indicators Use of Intermediate Outcome Monitoring Outcome 1: htcome 1: Dutcome 1: Environmentally sound, socially Jumber of new households adopting biogas and Low levels of adoption indicate either low beneficial, cost-effective hrm production investments. ittractiveness to households or poor dissemination integrated biogas-farm leduction in greenhouse gas emissions and )f benefits. production systems operational hemical fertilizers/pesticide use. hcomplete adoption (low levels of utilization of on small farms. mproved household well being iiogas, few changes in household behavior) ndicate poor level or quality of support services. laised household disposable income from cash- nd time savings. :nformation, collected through regular project nonitoring, would indicate whether the project is Jumber of new households connected to village vater supply systems. in track to achieve its PDO and identify project mplementation issues requiring rectification. .en@ of new village roads. leduction in travel/transportation time by To determine whether the project’s capacity armers. iuilding activities are enabling achievement of the xoject’s wider farm production improvement ictivities. Outcome 2: Outcome 2: Outcome 2: Local technical extension and dumber of farmers trained in biogas operation Assessment of effectiveness of technician and biogas service systems are ndmanagement and in new farm production farmer training, and whether there is any need to providing targeted and bractices and percentage of those farmers strengthen these activities. responsive technical support to Idopting these practices. households installing and Jumber of technician visits to farmers. Lack of integration of biogas with other extension maintaining biogas, with Jumber of farmers attending demonstration sites. farmers able to implement services indicates poor cooperation and integrated biogas-fm ’ercent of farmers satisfied with the technical coordination amongst line agencies. production in a sustainable xtension and biogas service. manner. Outcome 3: Outcome 3: Outcome 3: Institutional capacity for project Number of project staff trained, number of Assessment of the adequacy of the institutional management at province and workshops and study tours conducted. arrangements, and to provide technical assistance, lower levels, including effective if necessary. M&E system in operation. Project progress and impact M&E system in Semi-annual reporting to assess project output place and regular evaluations of project outputs progress. Three independent evaluations of and impacts conducted. project impacts and progress toward the PDO are planned in years 0 (baseline), 3 and 5. Complementary to regular project supervision, and will be an important guide for potential project adjustments.
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Indicator Time Frequency Location Sampling Supervision Supervisionmethod I deDartment Escherichia coli - Agriculture - Once in Feed inlet and Random Non-hazardous Non-hazardous Environmental Roundworm summer; and outlet of the sampling in treatment of treatment of Supervision Ovum - Once in biogas digester two counties in night soil night soil Station; or winter each province - Sanitation and Hookworm Egg Health and Quarantine
Indicators for Ethnic Minority Household Participation
Number of consultation with ethnic minority communities: To be documented and dated. Number of ethnic minority project villages; Number ofethnic minority village project working groups; Number ofproject training activities targeted to ethnic minorities, designed and delivered in a culturally appropriate manner: To be documented and dated. Number ofethnic minority households who have biogas facilities and/or participate in other project productive activities; Number ofthe rural biogas technicians/workers from ethnic minority groups trained under the project; Number oftraining sessions for project staff in “ethnic sensitivity” with the objective to facilitate communication and information campaign and services delivered to ethnic minority communities in an culturally appropriate manner; and Number ofethnic minority households involved in project participatory M&E.
23 Annex 4: Detailed Project Description CHINA: Eco-Farming Project
Project Concept, Scope, and Financing
1. The project will deliver direct environmental and economic benefits from the integration ofbiogas in farming and cooking in rural households. In addition, the project aims to reduce greenhouse gas emissions through methane combustion and reduced burning ofcoal and firewood in the project areas.
2. To achieve this development objective, the project will: (a) Deliver biogas and related farm production investment packages to farm households; (b) Upgrade extension and training services to ensure efficient use of the investments; (c) Assist project provinces to strengthen their project management capabilities to support biogas development and improve M&E systems so that lessons can be learned to assist with replication and dissemination ofbest practices.
3. It is anticipated that the project will directly benefit between 400,000-500,000 farmer households in five provinces (Anhui, Chongqing Municipality, Guangxi Zhuang Autonomous Region, Hubei-Enshi Prefecture, and Hunan) (Appendix 1). With a pre-determined financing envelope available for the project, the anticipated exchange rate and input price fluctuations will determine the final number oftargeted households. The project will be implemented over a five- year period and will be centrally coordinated by the Ministry of Agriculture.
4. The project will generate environmental benefits at a global, local and household level. It entails household-level investments that will generate private economic and social benefits. It will also generate substantial externalities that will accrue to residents ofproject villages and surrounding areas, and to the global environment through reductions in greenhouse gas emissions. Thus the project will generate environmental services from households’ private income-generating activities. In support ofthis, the project will provide technical and management assistance at provincial and lower levels. At local level, this will entail upgrading and improving extension and training services. At provincial (prefecture in the case ofEnshi Prefecture, Hubei) level it will focus on project management, and monitoring and evaluation.
5. Total project financing is estimated at about US$439.75 million ofwhich US$120 million would be financed through two World Bank loans. The remainder will be financed from counterpart funds including national, provincial, prefecture and county funds derived from the government of China bond issues and households’ own resources. A total ofUS$18.60 million for financing interest during construction (US$18.30 million) and front-end fee (US$0.30 million) is required.
6. Annual workplans based on the overall project plan will be prepared by the project provinces and submitted to the Bank for review and comments (PA, Schedule, Section 4 2).
24 Project Components
Component 1. Integrated Eco-farming Systems (US$382.07 million)
7. The component will assist farm households integrate biogas into their production systems to improve the environmental impact, quality and efficiency of farm production, and improve their living conditions. It will comprise approximately 90 percent ofthe total project investment in two subcomponents: (a) Integrated Household Systems and (b) Community Development.
8. Subcomponent 1.1: Integrated Household Systems (UD$355.78 million), comprising investments in: (a) household biogas infrastructure and (b) farm production. (a) One + Three. “One biogas system + three improvements.” This includes biogas digesters and related system components; and improvements to biogas-related household facilities, such as animal sheds, toilets, kitchens (= “three improvements”). Biogas systems will include digesters, gas collectors, pipes, gas purifiers, and stoves. The digesters will range in size from 8-10m3. Anhui, Chongqing and Hubei - 8m3 digesters; Guangxi - 8 and 10m3digesters; and Hunan - 10m3 digesters. All project households will invest in biogas and in the three improvements if their existing kitchens, animal sheds and toilets do not meet the project’s technical standards. If households already have kitchens, animal sheds, and/or toilets that meet the technical standards and can be linked to the biogas digester, they will not be required to make further investments. (b) Farm Production Improvements. The project will support farm production improvements related to use ofbiogas residues, improved production methods (e.g. new varieties, orchard rehabilitation), and farm infrastructure that would contribute to improved environmental impact, quality and efficiency ofproduction. Activities will include on-farm investments for grain crops and cash crops (vegetables, new and rehabilitated citrus/longan/lychee/pomelo, tea, medicinal herbs, grapes/banana, and mulberry). Farm infrastructure investments will be made in Guangxi and Hunan, and will include low yield field drainage (Guangxi), vegetable field drainage (Guangxi), new orchard land improvement (Hunan and Guangxi), and fish pond improvement (Hunan). The farm production improvement related investments will comprise about of 12 percent ofthe total project investment.
9. Farm production activities are summarized into seven production models (Table l)7. Table 1: Household Production Models Model 1. Pig-biogas-fruit: (a) rehabilitation+new; (b) new perennial; (c) “annual;” (a) fruit 2.5 mu 2. Pig-biogas-grain 3. Pig-biogas-vegetable
6. Pig-biogas-mulberry 7. Pig-biogas-fish
7 These farm production models will be adjusted from time to time as deemed necessary due to changed market conditions.
25 10. The project integrates the biogas investments with farm production, providing packages comprising ofvarious combinations ofbiodigesters, toilet, kitchen, animal shed improvements, and farm production improvements according to each household’s specific need. This “packaging” approach will be achieved through a bottom up planning process that would ensure that the farmers’ priorities and technical quality requirements are reflected in the investment activities.
11. The project will target whole villages and aim to achieve coverage ofabout 60 percent of households having operational biogas in the administrative village upon project completion (including households that already have operational biogas systems before the project starts). Poor-, ethnic minority-and women-headed households will have equal opportunity to participate in the project. Household selection criteria for project participation are as follows: (a) Possess at least three pig equivalents oflivestock at all times and at least 2 mu of crop land; (b) Commit to adjust household and farm production practices to accommodate biogas, and adhere to project technical standards for construction and implementation; (c) Commit to use biogas as the major fuel following project implementation; (d) Provide counterpart funds, materials and labor comprising at least 20 percent ofthe total investment; (e) Provide adequate labor to undertake project activities; (f) Agree to participate in project training and field visits; (g) Agreement to repay the loan portion ofthe project on time; and (h) Signing ofan Implementation Agreement that inter alia includes the above provisions
12. Biogas CDM Program (estimated to about US $8.4 million). Linked to the Integrated Household Systems sub-component, a household-based biogas CDMprogram is under advanced preparation. The program would explore and test technical and innovative methodology approaches on the household-based biogas digester development initiatives which will benefit the global and local environment and enhance household livelihoods. The program will pilot the establishment of30,000 biogas digesters to reduce methane emission by changing traditional manure management methods and recovering methane for the households’ thermal energy needs, as well as by replacing fossil fuel (coal) to reduce carbon dioxide. The annual emission reduction amount estimated to about 60,000 ton C02. The project areas are located in Enshi Prefecture, Hubei Province. This pilot would provide additional incentives to poor households to mobilize the required funding to invest in biogas digester installation and operation.
13. The biogas digesters will be installed and operated by individual households and participation in the project would be determined through a participatory process carried out at the village level. The majority ofrevenues from sales of carbon credits will be channeled back to project households. A small portion of carbon income will be used to support the village level technical services to ensure sustainable operation and maintenance ofbiogas digesters.
14. Subcomponent 1.2: Community Development (US$26.29 million). To achieve maximum benefit from the integration ofbiogas with farm production and community development, the project will support limited investments in water supply and village roads.
26 This will include investments in water supply facilities for household-based fixtures such as connections to the main village system, and taps. The construction ofwater supply facilities in specific households will be contingent on availability ofexisting village water supply systems that the beneficiary households can access. Village road investments will include roads or paths that connect: (a) households to village roads, (b) households to farm fields, and (c) natural villages to natural villages. Household-based courtyard improvements, where requested by households, will also be funded under this activity. The water supply and village road investments will be closely coordinated with projects supported by other programs.
15. A participatory planning process will be implemented for the community development activities to ensure that household and community priorities are reflected in activity selection. The process will involve households, community leaders, women’s representatives, minorities, PMOS, and technical experts to ensure that technical quality requirements are met.
Component 2. Local Technical Extension and Biogas Service System (US$15.23 million)
16. This component will constitute about 4 percent ofthe total project investment. Experience from the National Rural Biogas Program has indicated that a significant proportion ofbiogas systems are not functioning to their design capacity, mainly due to inadequate biogas service support and insufficient farmer training. Biogas service support systems need to be strengthened and training in biogas operation and maintenance (especially at household level) improved. The component will strengthen and expand the existing rural energy and related agricultural extension services through: (a) upgrading of extension and training facilities; (b) provision of equipment and materials for service systems; (c) training ofcounty, township and farmer technicians, and farmers; (d) support to biogas and related farmer associations; and (e) funding applied research to address issues in biogas development.
17. Subcomponent 2.1: Service System Improvement (US$9.02 million), aims to improve the effectiveness ofthe biogas service system by financing refurbishment ofservice system facilities, providing equipment; supporting biogas and farmer associations, and applied research.
18. Investments will be made in technical extension and training facilities at county service centers in Anhui and Hunan, and village service sites in Anhui. This will include refurbishment ofexisting facilities, but will not include new construction or civil works. Equipment will be provided for the provincial biogas training centre in Anhui, and will include computers, a digital data projector, and a mini van service vehicle. The project will fund equipment to support the county-level biogas service systems in all provinces, according to the specific needs of each county. Items may include equipment for training (e.g. data projectors, multimedia), office equipment (e.g. computers, digital camera, photocopier, telephone, fax), service vans, biogas maintenance equipment and spare parts.
19. The system ofbiogas service delivery below county level varies among provinces, with varying levels ofinvolvement oftownship and village service centers. Equipment support for township service systems ranges from provision of motorbikes and biogas spare parts in Anhui and Chongqing where the township level will have a smaller role, to office equipment (e.g. telephone, digital camera, computers, multi media kit), motorcycles and biogas spare parts in Guangxi and Hunan, where the township service system will play a stronger role.
27 20. All provinces will establish village-based biogas service support sites to assist with biogas operation and maintenance, gas leakage control, safety and training. The project will assist with provision of telephones and biogas spare parts for all village service sites. Four- wheeled tractors to distribute biogas slurry will also be supported in villages in Anhui, Hubei, and Guangxi. The project will also develop training materials and provide equipment for village service sites in Hubei, and refurbishment of village service sites in Anhui. Slightly different models of biogas service between provinces and relative roles of township compared to village service sites will enable the effectiveness and cost-benefit of different provincial service delivery systems to be compared for the future benefit of the National Rural Biogas Program.
21. The project will also assist farmer associations related to project activities at county, township and village levels to become self reliant and sustainable. Project funds will support strengthening of associations through development of training materials, training, communication and awareness raising, systems development, and registration. Project funds will not support operational costs of the associations.
22. Anhui, Guangxi, and Hunan will undertake applied research programs on improved biogas technology and management.
23. Subcomponent 2.2: Training (US$6.21 million). An area requiring strengthening under the National Rural Biogas Program is training in biogas operation and maintenance (especially at household level), and integration of biogas with household production systems. A comprehensive training program will be implemented for technicians (county, township, farmer technicians) and farmers in biogas systems and farm management. The project would aim to establish one farmer technician skilled in biogas operation and maintenance in each project village. The training program will include: (a) Preparation of training curriculum and training material; (b) Training of trainers (in technical issues and training delivery/methodology); (c) County, township, farmer technician training in: (i) Training of trainers’ methods to improve their training effectiveness (ii) Construction, design, operation and maintenance (iii) Management of participation/choice/farmer feedback processes (iv) Monitoring and evaluation survey data collection (v) Biogas trouble shooting and problem solving for farmer technicians. (d) Farmer training in: (i) Operation and maintenance of the biogas systems, including: (1) system operation; (2) system maintenance; (3) improved livestock feeding and management; (4) water requirements for biogas digesters; (5) winter insulation of biogas units; (6) use ofthe gas; (7) expected gas volumes at different times of year; (8) cleaning ofbiogas tanks; (9) purchase of spare parts; and (1 0) optimal use of biogas residues for fertilizer. Initial training will be provided at the time of construction, followed up by annual refresher courses on operation and maintenance, and biogas residue use. (ii) New crops/varieties introduced under the project, improved crop management practices (e.g., citrus grafting), best use of biogas slurry, application rates for
28 different crops, placement, complementary amounts ofchemical fertilizer, and use ofresidues as a pesticide substitute. (iii) Operation and maintenance of incremental farm infrastructure funded by the project, such as water supply systems, village roads, drainage systems, terraced orchard land, and fish ponds. (iv) Marketing ofnew produce, where new crops are a component in the adopted biogas-household model.
24. Farmer technician training will focus on training farmers in trouble shooting in villages where there are currently insufficient technical resources, and in villages where biogas is a new activity. Initial farmer training will be followed up with refresher training once households have had the project biogas for a period oftime. Each household will receive training for at least one day per project implementation year.
25. Good biogas practice demonstration households will be established in project villages in Anhui, Chongqing, and Hunan. These households will receive additional training and a small subsidy to assist other farmers in integration ofbiogas with the household farming system.
Component 3. Project Management, Monitoring and Evaluation (US$23.85 million)
26. This project requires strong support by all levels ofgovernment, highly capable project management offices at national, provincial and county levels, and an appropriate M&E system. Institution building will be emphasized to ensure that the project will meet its objectives, and so that the best practices from this project can be built into the National Rural Biogas Program. Therefore it is essential to establish an efficient project management structure, strengthen institutional capacity at each level, and establish an effective project M&E system. The component, comprising 6 percent oftotal project base cost, will finance incremental project management operating costs, office equipment, training, and M&E. It includes three subcomponents (Project Management, PMO Training and Study Tours, and M&E).
27. Subcomponent 3.1: Project Management (US$17.64 million). The project management structure will comprise national, provincial, and county levels, with townships having some role in local project activities (see Annex 6). The structure will be based on the existing National Rural Biogas Program implemented under the MOA Rural Energy Division, and will include strong integration with related MOA departments and government ministries.
28. Improving the conditions ofthe infrastructure and management capacity ofthe project management offices at each level is important to enable the project to function effectively. Financing will include incremental operating costs associated with project management at each level, office and training equipment, vehicles and consultant services.
29. Subcomponent 3.2: Institutional Capacity Building (US$3.65 million). The project will finance activities to improve the project staff management skills at all levels, especially at county level. This includes design oftraining programs on procedure requirements for World Bank projects, project management requirements, work experience exchanges, project monitoring and inspection, computer training, and national and international study tours to learn best practice in biogas development. Through capacity building, project staff will also become
29 an asset for the implementation ofthe National Biogas Program. Technical assistance by national, provincial and international consultants will also be supported under the subcomponent,
30. Subcomponent 3.3: Monitoring and Evaluation (US2.56 million). A structured system for monitoring and evaluation ofbiogas impacts will be established to assess project environmental, social and economic impacts at various levels. The impact monitoring results will be fed back into the overall economic and financial analysis ofthe project and help in the assessment ofbiogas as an environmentally beneficial technology. The M&E system will comprise: (a) implementation progress monitoring and information system, (b) an impact monitoring system; and (c) social and environmental monitoring.
3 1. Implementation Progress Monitoring will comprise monitoring and progress reporting ofphysical outputs and financial expenditure for each project activity. Physical output will be indicated by the quantity ofthe activity completed for the monitoring period compared with appraisal target. Financial expenditure on each activity will be monitored and recorded for the monitoring period. The monitoring periods will be bi-annual and project cumulative to date. Physical progress and financial completion will be reported at county level and then aggregated upwards for summary at provincial and national level. Implementation progress reporting will be used for checking and monitoring project support to each activity, evaluating investment efficiency, assessing actual physical and financial completion against the planned completion for the reporting period, and ensuring financial accountability. Monitoring ofthe environmental impact ofthe project shall be included in the progress monitoring. A MIS will be established and will enable progress reports in the required format to be generated.
32. Impact Monitoring. A comprehensive monitoring and evaluation framework has been designed and will be carried out under terms ofreferences acceptable to the Bank and with expertise acceptable to the Bank. Impact monitoring criteria include indicators for environment, household health and living conditions, net labor savings from the use of biogas, farm income, and improved human resource capacity. Three impact monitoring surveys will be conducted - start ofproject, mid-term, and at project completion. Same households will be monitored in all surveys and same indicators will be used in all counties and provinces. The surveys will comprise randomly selected project and non-project households in project villages.
30 Annex 4 - Appendix 1: List of Project Counties/Districts
Province/ Citymrefecture County/District/ City Level No. Municipality Level Counties/ Districts Hefei Feidong Tongling Tongling Liuan Huoshan, Huoqiu, Shouxian Chuzhou Quanj iao, Tianchang City 18 Anhui Anqing Yixiu District, Taihu, Huaining Chizhou Guichi District, Qingyang Xuancheng Ningguo City, Guangde, Jingxian, Jixi Huangshan Yixian, Huangshan City Chongqing Wanzhou, Fuling, Changshou, Jiangi in, 12 Hechuan, Yunyang, Kaixian, Zhongxian, Bishan, Wulong, Liangping, Dianjiang Guilin Gongcheng, Pingle, Xing’an Hezhou Fuchuan Guangxi Wuzhou Cangwu 8 Yulin Bobai, Luchuan Fangchenggang Fangcheng District Hubei Enshi Prefecture Lichuan City, Xianfeng, Enshi City, Laifeng, 8 Badong, Jianshi, Hefeng, Xuan’en Changsha Wangcheng, Ningxiang Yueyang Xiangyin Xiangtan Xiangtan Hengyang Hengnan, Changning City Shaoyang Longhui Hunan Wugang City 18 Changde Lixian, Linli Yongzhou Lengshuitan District, Lingling District Chenzhou Yizhang, Linwu Zhangj iajie Cili, Yongding District Xiangxi Huayuan Zhuzhou Youxian Total 64
31 Annex 5: Project Costs CHINA: ECO-FARMING PROJECT
Project Cost Summary (US$ '000) cost including % of Total contingencies A. Integrated Eco-farming System 1. Integrated Household System a. Biogas Infrastructure Biogas System 157,103 50,658 Household Facilities 138,877 44,781 Subtotal Biogas Infrastructure 295,980 67.0% 95,438 32% b. Farm Production Farm Infrastructure 12,355 Food Crops 1,509 Cash Crops 7,419 Fruit and Tree Crops 28,586 Working Capital 9,933 Subtotal Farm Production 59,802 16.6% Subtotal Integrated Household System 355,782 95,438 24% 2. Community Development a. Village Roads 17,484 12,239 70% b. Water Supply 8,806 Subtotal Community Development 26,290 6.-% 12,239 47% Subtotal Integrated Eco-farming System 382,072 87.0% 107,677 28% B. Local Technical Extension and Biogas Service System 1. Service System Improvement 9,022 2,432 27% 2. Training 6,212 5,539 89.2 Subtotal Local Technical Extension and Biogas Service System 15,234 3.5% 7,971 52% C. Project Management, M & E 1. Project Management 17,641 1,044 6% 2. Institutional Capacity Building 3,652 1,656 45% 3. Monitoring and Evaluation 2,553 1,353 53% Subtotal Project Management, M & E 23,846 5.4% 4,052 17% Total PROJECT COSTS 421,151 1 19,700 28% Interest during Construction 18,301 Front-end Fee 300 300 100% Total Costs to be Financed 439,752 120,000 27% rote: Totals may not tally due to rounding
'Identifiable taxes and duties are US$4.10 million, and the total project cost, net of taxes, is US$417.05 million. Therefore, the share of project cost net of taxes is 99%.
Price contingencies for foreign origin goods are applied based on projected MUV-5 price escalation factors of 5.7 percent for 2009, and 2.5 percent for each of the following years. For local inflation, price increases of 4.5 percent is used for 2009, 4.4 percent for 2010, 4.2 percent for 2011, and 3 percent for each of the following years. Detailed annual project costs and the breakdown of local and foreign project costs are available in the project files (COSTAB).
32 Annex 6: ImplementationArrangements CHINA: Eco-Farming Project
1. The project management structure is consistent with other Bank financed rural projects in China. It includes Project Leading Group (PLG), Project Management Office (PMO), Project Implementation Office (PIO), Project Implementation Group (PIG) and Project Technical Expert Group (PTEG). Effective co-operation and co-ordination with, and within, line departments, especially at provincial and county levels is required.
2. Project Leading Groups. PLGs will be established at the central, provincial (prefecture in Hubei) and county levels and will be retained throughout project implementation. The central PLG will be headed by MOA and comprise ofrepresentatives from MOF, NDRC, State Environmental Protection Agency, MOA’SFECC and the participating provinces. Each Provincial PLG is headed by a vice governor in charge of agriculture and rural energy and includes representatives from provincial line agencies (Finance, Development and Reform Commission, Audit, Agriculture, Rural Energy, Environmental Protection, Public Health, Forestry, Animal Husbandry, Poverty Reduction, and Women’s Federation). The provincial PLGs will provide guidance on implementation ofpolicies and plans formulated by the central PLG; organize counterpart funds at provincial levels; and enlist the support ofother relevant agencies. PLGs at county level will have similar structures and responsibilities.
3. Central Project Management Office. A Central PMO has been established in the Foreign Economic and Cooperation Center ofMOA. The Central PMO will have the overall coordination responsibility for the project including coordination with the National Rural Biogas Program. Specific tasks will include: regular progress reporting and project completion reports, assist in certain procurement, overseas training, study tours and technical assistance, and conduct regular field checks on project progress. The Department ofResearch, Education and Rural Environment will provide overall technical support through its local technical services system.
4. Provincial Project Management Offices. Five provincial PMOs are established. They have the main project management responsibility and are in charge ofday-to-day management including: preparation ofmanuals, implementation plans and work programs; procurement, financial management, training; overall project M&E; provision oftechnical and management guidance, and conducting regular supervision visits to project areas.
5. County Project Management Offices. The PMOs at the county level will be established within the Agricultural Bureaus or Rural Energy Offices whichever has the responsibility ofimplementing the national biogas program. These PMOs will be responsible for all aspects ofproject implementation in their respective counties. Recognizing the critical role of the Rural Energy Offices as a minimum, the head ofthe Rural Energy Office will be a deputy director ofrespective PMO at the provincial and county levels where the PMO is located in rural energy office.
33 6. Project Implementation Offices and Project Implementation Groups. PIOs will be established at the township level and PIGs at the village level. The PIOs and PIGs will be responsible for project implementation at local levels, assisting in M&E, and disseminating project information. Specific responsibilities ofthe PIOs and PIGs may differ among provinces.
7. Project Technical Expert Groups. If deemed useful, PTEGs will be established at the provincial levels. The main functions ofthe PTEGs are to provide technical services, technical extension and training, review key technical issues, and participate in project monitoring, evaluation and supervision.
8. CDM Pilot Program: According to CDM Project Management Regulations issued by the National Development and Reform Commission (NDRC) of China, only one single legal entity can apply for a CDMproject. Under the project, the individual households, who will undertake the CDMprogram activities, will authorize a selected Project Entity to complete the application, registration and CER verification ofthe proposed Carbon Finance Operation on their behalf. The management system established under the IBRD lending project as described above will be responsible for overall management ofthe CDMprogram. Under the leadership of project implementation agencies, the Project Entity will closely work with PMOSto provide technical services to households and monitor the CDMprogram implementation.
34 Annex 7: Financial Management and Disbursement Arrangements CHINA: Eco-Farming Project
General
1. Financial Management Assessment. During project preparation, the World Bank completed a Financial Management Assessment ofthe adequacy ofthe project’s financial management system. The assessment, based on guidelines issued by the Financial Management Sector Board, concluded that the project meets minimum Bank financial management requirements as stipulated in BP/OP 10.02. The project has financial management arrangements that are acceptable to the Bank and the Borrower, and as part ofthe overall arrangements for project implementation has provided reasonable assurances that the proceeds ofthe loans will be used for its intended purposes. No outstanding audits or audit issues exist with any ofthe implementing agencies involved in the project. Taking into account the proposed risk mitigation measures, the Financial Management risk rating’ for this project is moderate.
2. Funding. Funding sources for the project include the Bank loans and counterpart funds. On-lending agreements will be signed between Ministry of Finance (MOF) and the provincial finance bureaus. Provincial finance bureaus will further on lend to related municipal finance bureaus (in Anhui, Hunan and Hubei province), and then on-lend to county finance bureaus, who will on-lend parts of the loans to the final beneficiaries. Counterpart funds comprise contributions from different government levels and beneficiaries’ contributions.
3. The project financing plan for household level activities includes a government lump sum grant at the time of construction, amounting to RMB 800-1,000 per household and an interest rate subsidy with a present value at the time ofconstruction of about RMB 200 per household.
4. Retroactive Financing. Project activities, costing about US$ 10.8 million with an estimated Loan financing ofabout US$ 3.2 million’ (2.6 percent ofthe total Loan amounts), have been identified for retroactive financing. These activities would include training household packages. Relevant procurement methods applicable to these activities would be followed along with the guidance in the Project Implementation Manual. Retroactive financing would apply to project activities started after October 16,2008 and before the signing ofthe legal agreements.
Audit Arrangements 5. Project financial statements will be audited in accordance with standards acceptable to the Bank. The project will be audited in accordance with International Auditing Standards and the Government Auditing Standards ofthe People’s Republic of China. Anhui, Chongqing, Guangxi, Hunan and Hubei Provincial Audit Offices have been identified as auditors for the project and will issue the annual audit reports.
6. Annual audit reports ofproject financial statements will be due to the Bank within 6 months after the end of each calendar year. Each PPMO will be responsible to submit its province’s audited consolidated project financial statements by June 30 of each year.
8 Financial management risk is the risk that World Bank loan proceeds will not be used for the purposes intended and is a combination of country, sector and project specific risk factors. 9 Hubei US$2.5 million, Guangxi US$700,000, Hunan US$500,000.
35 The DA managed Municipal County County Suppliers and WorldBank - by PFBs - FBs FBs + PMO beneficiaries Guanmi and Chonaaing
The DA managed County FBs County Suppliers and WorldBank + byPFBs + + PMO + beneficiaries
8. The Bank loans will be disbi sed against the following eligible expenditures: Amount of the Loan YOof Expenditures to be Financed CatePory I Allocated (in US$) {including taxes) Anhui (a) Sub-financing for Household package 21,257,000 100% of Eligible Expenditures (b) Works 2,064,600 70% (c) Training and study tours 1.615.900 100% Chongqing (a) Sub-financing for Household package 16,974,500 100% of Eligible Expenditures (b) Works 4,030,900 70% (c) Goods 947,000 100% (d) Training and study tours 990,100 100% Guangxi (a) Sub-financing for Household package 16,858,600 100% of Eligible Expenditures (b) Works 6,143,100 70% (c) Goods 1,587,300 100% (d) Consultants’ services and training and study tours 3,341,000 100% Hubei (a) Sub-financing for Household package 19,666,400 100% of Eligible Expenditures 283,600 I 100% 240.000 I 96,000,000 I
Category
Hunan (a) Sub-financing for Household package (b) Goods 941,300 100% (c) Training and study tours 2,3 17,100 100% Front-end Fee (0.25%) 60,000 TOTAL 24.0on.000
36 Expenditure Category Contracts Equivalent or Less than US$ Equivalent Household packages (incl. initial payment) All Works All Goods 300,000 Consultant Services (fm) 100,000 Consultant Services (individual) 25,000
Expenditure Category Contracts More than US$ Equivalent Goods 300,000 Consultant Services (fm) 100,000 Consultant Services (individual) 25,000
Selection of Household: Households will be selected in accordance with principles agreed with the Bank. Updated list ofproject villages and households shall be included in the annual work plans. Implementation Agreement: Based on PPMO approved annual work plans, CPMO will sign implementation agreements with individual households which shall include: (i) scope ofworks, (ii)total cost, Bank , T-bond, and household contribution, (iii) implementation schedule, (iv) technical standards, (v) supervision and acceptance procedures and (vi) repayment. Implementation: Households will purchase materials locally and employ certified biogas technicians to carry out the works under the technical guidance ofCPMOs in accordance with the technical standards set out in the Implementation Agreement. Requested by households, CPMO may assist in purchasing materials in bulk. Inspection and Payment: After “lt-3 improvement” works are completed the CPMO organizes inspection and after it has satisfied itself ofthe quality ofthe household package activities it issues an inspection certificate. Reimbursement will be made based on the agreed amount of Bank financing per package against completed and accepted works. Checkinp Monitoring and Reporting: Special checking by external consultants will be arranged by CPMO to verify the implementation ofworks and use offunds on a six- month basis. The checking reports shall be available for review by Bank supervision missions. In addition, each project village shall disclose to the public completion information including household name, and amount and timing of use offunds. Bank Financing: Bank financing will cover eligible expenditures based on average household package unit cost derived from technical design and prevailing prices at the time ofappraisal. The unit costs may be amended with prior concurrence ofthe Bank.
37 Guang x i Province Anhui Chongqing Hubei Hunan Model1 I Model2 Unit Cost (RMB) Biogas system (8m3) 1,680 1,680 1,680 1,500 Biogas system ( lorn3) 1,939 1,939 Animal shed improvement 582 582 5 82 582 5 82 463 Kitchen immovement 512 512 512 512 527 5 12 Toilet improvement 391 391 391 391 391 391 Total (RMB) 3,165 3,165 3,165 3,424 3,000 3,305 Total KJSD) I 529 I 529 I 529 I 573 I 502 I 553 I Financing (USD) IBRD Loans USD 229 226 209 209 98 230 T-Bond I 134 I 167 I 167 I 167 I 62 1 167 I
12. The initial payment may be an advance (not exceeding 30 percent ofthe above Bank financed unit costs) paid to the beneficiary households, in accordance with the Implementation Agreement. To ensure efficient management and timely delivery ofinitial payment, an internal control system has been developed (documented in the project financial management manuals), including: (a) purpose; (b) scope; (c) procedures; (d) delivery; and (e) responsibility.
13. In addition, the following requirements have to be followed: (a) for application of initial payment, a table with basic information of identified households is required including name, ID number, biogas model, total investment, and physical location (village, township, county); (b) application may be processed when the construction date for biogas infrastructure is decided - up to three months in advance; (c) SOE shall be used for initial payment; (d) this is applicable to all biogas households during the project implementation period; (e) initial payments shall be delivered to the beneficiary households or contractors prior to the start ofphysical construction. For example, in Anhui province project would pay $70 (30% x $229 Bank Financing) as the initial payment. Once the household has completed all required activities and the output has been confirmed by the CPMO, the remaining $160 (70% ofthe Bank Financing) would be disbursed to the household. The initial payment practice will be suspended or terminated in a province if any ofthe above agreements is not followed.
14. While the unit costs which will be used as a basis for Bank disbursement have been calculated based on “1 +3” activities, the household packages will also include certain agricultural activities. Bank loans will be on-lent to households in four provinces (except Hubei) and will be delivered to the households in the form ofcash. The household will be responsible for the implementation ofthe activities and will bear partial repayment responsibility. Hubei will deliver the support to the households in the form ofmaterials and household will not bear any repayment responsibility.
15. The PFBs will be responsible for the management, monitoring, and reconciliation ofthe corresponding DAs activities ofthe project. The flow of withdrawal application is as follows:
38 Municipal Provincial County FBs ---+ County PMO PMOSand FBs- PMO - PFBs World Bank
County PMOS County FBs Municipal PMC Municipal + PFB + FB
Provincial PMC+ PFBs + World Bank County PMO County FBs --b
Financial Management and Reporting Requirements
16. Risk Assessment and Mitigation. The following risks were identified during the financial management assessment:
Risk Risk Risk Mitigating Measures Incorporated into Project Design Rating Inherent Risk Country level Modest Legal and institutional framework is acceptable and current PFM systems are functioning reasonably. Entity Level Modest As this project will be implemented by agencies at different levels, monitoring of compliance with PFM and Bank procedures will be important. Local level finance bureaus involvement will mitigate some of the risks. Bank will work with project agencies to further strengthen their FM capacity. Project Level High The project will involve geographically dispersed implementing agencies, with little previous experience with Bank projects, dealing with large number of small transactions. However, project activities are straightforward and PPMOs have implemented similar national T-Bond projects for several years. To mitigate risks, PPMOs with experienced staff will be responsible for oversight of the CPMO’s activities. Furthermore, finance bureaus at municipal and county levels will review management of project fimds to ensure appropriate usage. Control Risk Budgeting Modest The FMS will, through supervision mission or FM training, work with the provincial PMO and implementing agencies at all levels to improve budget preparation, execution and budget to actual variation monitoring and evaluation. Accounting Low Accounting policies and procedures are in place. Circular #I3 issued by MOF has been adopted for all Bank-financed projects. Guidelines for accounting of beneficiary contributions is documented in the FM manuals. Training will be provided to the accounting staff to improve their knowledge and qualifications. Internal Modest Internal control procedures have been documented in the FM manuals and all project Control implementing agencies are required to follow them. Funds Flow Modest Funds flow arrangement will involve multi-layeredapproval processes and a large number of spending units. Any instance of delayed disbursement will affect project implementation. Related procedures have been documented in the FM manual. The FMS will check the implementation during supervision mission. Financial Low Financial reporting responsibilities are established: form, content and periodicity of Reporting reports are well defined by MOF and understood by all the implementing agencies. Auditing Low China National Audit Office and the provincial audit offices have extensive experience with Bank project audits. The audits will be conducted in accordance with acceptable auditing standards.
39 17. Strengths. All PFBs have accumulated extensive experience in Bank project financial management and disbursement procedures and requirements. In addition, all the provincial PMOs have implemented similar national T-Bond projects for several years.
18. Weaknesses and Mitigation. Most ofthe project activities will be carried out by communities at the township or village levels. Also, beneficiary contribution will compose part ofthe counterpart funds. These factors will bring difficulty in accounting and overall financial management for the CPMOs, who are responsible for their respective county project financial management and disbursement. Those CPMOs tend to have weak capacity which could affect project implementation. In order to mitigate this, detailed guidance on the Bank’s financial management and disbursement, and guidance on accounting for beneficiary’s contribution has been included in the Financial Management Manuals. Furthermore, financial management training workshops for project financial staff have been carried prior to negotiations
19. Financial Management Manuals reviewed and commented by the Bank have been prepared by each project province. The manuals provide detailed guidelines on financial management, internal controls, accounting procedures, fund and asset management and withdrawal application procedures, etc.
20. Implementing Entities. PMOs responsible for project management, coordination, planning, implementation, monitoring and reporting, and financial management have been established at all levels. The educational background and work experience ofstaff assigned for financial and accounting positions at all levels have been reviewed and found acceptable. Additional financial management and disbursement training will be provided by the Bank.
2 1. Budgeting. In accordance with project implementation manuals and progress, provincial and CPMOs will prepare annual budgets corresponding to the project activities they are responsible for. These budgets will be reviewed and approved by provincial PMOs. 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. Given the current situation in China on public expenditures management, it takes times for the PMOs at different level to absorb and implement this new approach. The Bank will work with PMOs to improve their overall FM monitoring ofproject implementation.
22. Accounting. Project administration, accounting and reporting will be set up in accordance with the Circular #13: “Accounting Regulations for World Bank Financed Projects” issued in January 2000 by MOF providing instructions of accounting treatment ofproject activities, including: (a) chart ofaccount; (b) detailed accounting instructions for each project account; (c) standard set ofproject financial statements; and (d) instructions on the preparation of project financial statements. Also, an agreed format for project financial reporting package includes: (a) Balance Sheet; (b) Summary of Sources and Uses ofFunds by Project Component; (c) Statement of Implementation ofLoan Agreement; (d) Designated Account (DA) Statement; and (e) Notes to Financial Statements.
23. CPMOs will manage, monitor and maintain respective project records. CPMOs will also prepare the financial reports which PPMOs will consolidate and submit to the Bank for review on a regular basis. Original supporting documents for project activities will be retained by
40 implementing agencies at different levels depending on who implement the activities. A complete set ofdocumentation shall be maintained by CPMOs.
24. The PPMOs are currently manually maintaining accounting books. The Bank’s Task Team has recommended that the project adopt computerized software for accounting and reporting to improve efficiency and standardization among all PMOs. The task team will monitor the project’s accounting work closely, especially in the initial stage to ensure that complete and accurate financial information will be provided in a timely manner.
25. Internal Control and Internal Auditing. All project provinces have implemented similar national T-Bond project for several years and the project will utilize most ofthe existing requirements used by T-Bond project into new project’s management. 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.
26. There will be no formal internal audit unit in place during project life. However, with government reform on budget execution, project entities are not allowed to keep their own bank account and all disbursement claims must be approved by the finance bureaus. This practice helps mitigate the risk that funds will be misused. In addition, all the supporting documents will be reviewed by the different level finance bureaus before applications are submitted to the Bank.
27. Financial Reporting. The format and content ofthe 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.
28. CPMOs will prepare financial statements on their implemented components, which will then be used by the related Provincial PMOs for preparing consolidated provincial project financial statements and submitted to the Bank for review and comment on a regular basis. The MOA will prepare its own financial reporting and submit to the Bank directly.
29. Conditionalities. There are no financial conditions for Negotiations, Board, or Effectiveness. There are no additional financial covenants other than the standard financial covenants.
30. Supervision Plan. The Task Team’s Financial Management Specialist (FMS) will monitor the FM risk during project implementation and will work with the project to ensure a sound financial management system which will ensure that funds will be used for the intended purposes and the document submitted by the project is acceptable to the Bank. In particular, the Bank will closely monitor the efficiency and effectiveness ofthe approval and disbursement procedures. The project supervision strategy is based on its FM risk rating, which will be evaluated on regular basis by the FMS in consultation with the Task Team Leader.
41 Annex 8: Line Of Credit Review CHINA: Eco-Farming Project
Introduction
1. A Line of Credit Compliance Review was carried out for the project concluding that the project shall not be classified as conventional line of credit operation or financial intermediary loan and that subsidized interest rate loans are justified by the environmental objectives ofthe project.
Objective and Rationale
2. The primary purpose ofthe investments under the Eco-farming Project is to generate public goods. Investments in biogas digesters and integrated household systems will produce significant environmental benefits, including reduced methane gas release into the atmosphere, reduced soil pollution due to lower use ofchemical (inorganic) fertilizers, improved indoor air pollution and reduced pressure on forests as biogas will replace firewood for cooking and heating. While the investments in biogas digesters will ultimately result in private benefits to individual farmers through savings in energy expenditures and fertilizer, these private benefits significantly lag the investment costs and are insufficient to cover the full cost ofthe investments. In other words, weak internalization ofpositive externalities and cash flow problems make the private investments in the biogas package financially unattractive.
3. As a result, in order to realize the public environmental benefits, the government has to subsidize the investments in order to make them attractive. There are two forms of subsidies. The first is a lump sum grant at the time of construction, amounting to FWB 800-1000 (US$117- 147). The second is an interest rate subsidy. The provision ofthe upfront subsidy (called National T-Bond Program in China) increases the financial viability of investments to the biogas package, but the households still face a cash flow problem in repaying loan. The cash savings from reduced energy purchases (primarily coal and wood) is not sufficient to cover the cash needs ofthe biogas investment. To overcome this cash flow problem and enable on time debt service, the households’ funding packages would be provided at an interest rate of 6 percent, compared to the current market interest rate of 11 percent. The present value ofthe interest rate subsidy at the time ofconstruction would equal about RMB 200 (US$29)per household. lo
4. There are two financial intermediary institutions working in China’s rural areas - Agricultural Bank ofChina (ABC) and Rural Credit Cooperatives (RCC). ABC is not offering small household loans. The project considered on-lending through RCCs, the only viable financial intermediaries in the rural areas. However, based on a survey, no RCCs in the project area were interested in on-lending the funds. RCCs currently do not finance this type ofactivity, and indicated that they would not be interested in doing so any time in the foreseeable future. This is understandable, given the long time horizon required for these investments, the weak cash flows, and the perceptions that this was government money that did not need to be repaid. Since no RCCs are interested in on-lending these funds, the project would need to rely on the
10 Assuming that households begin repaying the loan principle only from 6‘h year with the total length of repayment of 12 years. The interest rate charged on net loan balance is paid during the whole service period.
42 government Finance Bureaus (FB) to monitor loans and recover funds. This is a second best option, but the only option available.
5. In order to ensure that the monitoring and collection ofthe loans to the households is performed adequately, the project will put in place mechanisms to ensure repayment. Repayment will be collected by the township work station; county project management offices (PMO); or FBs, and passed on to the municipal FB and further on to the provincial FBs. To ensure cost recovery, responsibilities within the local government for administering this task would be clearly defined. The local PMO or FB would make contracts with the individual households before the implementation ofactivities. These contracts would specify the households’ responsibility to repay parts ofthe funds according to a specific repayment schedule. The administration ofthese contracts and the recovery ofcosts would be facilitated through a computerized management information system (MIS). Funds for this activity would be ring fenced from other activities to ensure that all funds are accounted for. Training activities would strengthen the capacity for cost recovery and administration offunds.
Observation and Conclusion
6. It is noted that the key benefits ofthe project relate to the environment and specifically to the local households and the credit component ofthe project does not aim to support sustainable institutions or programs.
7. The project does contain an interest rate subsidy (lower than market, but at a set amount per household) to the ultimate user. In essence, it is similar to a one time buy down ofthe interest rate. The justification is based upon two key features. First in order to improve conditions in the rural areas and more specifically at the household level, participants are needed, and in order to entice participation some incentive is necessary, secondly, for the greater good of the local community and the country as a whole, these investments are necessary. The subsidy could be considered as essential to the project, and given the government grants at the central and local level, coupled with the households own investment contributions is reasonable and does not harm credit culture and should not create competitive pressure on the financial sector intermediaries in the communities.
8. It is concluded that OP8-30 is not applicable to this project despite the on-lending component. The project is not available to financial sector intermediaries, and lacks the traditional elements causing OP8- 30 to apply, even though there are elements that are closely aligned to the spirit ofOP8-30. The project justifies the use ofnon-financial sector intermediaries, but still could be used as a demonstration for the financial sector for potential similar activities.
43 Annex 9: Procurement Arrangements CHINA: Eco-Farming Project
General
1. Procurement for the Project would be carried out in accordance with the World Bank’s “Guidelines: Procurement under IBRD Loans and IDA Credits” (Procurement Guidelines) dated May 2004 and revised October 2006 and “Guidelines: Selection and Employment of Consultants by World Bank Borrowers” (Consultant Guidelines) dated May 2004 and revised October 2006, and the provisions stipulated in the Legal Agreement. The description ofvarious items under different expenditure categories is presented below. For each contract to be financed by the Loans, the different procurement methods or consultant selection methods, the need for prequalification, estimated costs, prior review requirements, and time frame have been agreed between the Borrower and the Bank project team in the Procurement Plan.
2. Procurement Plan. The Borrower has developed a procurement plan for project implementation providing the basis for procurement methods which has been agreed upon with the Bank’s Task Team. The first procurement plan covers initial 18 months period and will be updated annually or as required to reflect the actual project implementation needs.
Assessment of the Agency’s Capacity to Implement Procurement
3. Procurement activities will be carried out by the PMOs at various levels and local communities. PMOs are equipped with adequate and experienced staff. A Procurement Capacity Assessment ofthe project’s implementing agencies was carried out by the Bank in June 2006. The overall risk for procurement is average.
4. As specified in the PIMs, provincial PMOs will be responsible for (a) preparinghpdating overall procurement plans; (b) carrying out procurement ofvehicle, motorcycles, office and training equipment; (c) consultants selection (except supervision engineers for works); (d) providing technical support to CPMOs; (e) monitoring and supervising County CPMO procurement activities; (f) preparing consolidated project procurement progress reports; (g) maintaining procurement files for all contracts managed by provincial PMOs. CPMOs would take the following procurement functions: (a) preparinghpdating procurement plans for project activities within own jurisdictions; (b) carrying out shopping procurement for works; (c) selecting supervision engineers for works; (d) monitoring and supervising procurement activities by communities and beneficiary households; (e) preparing county procurement progress reports; and (f) maintaining procurement files for all contracts managed by CPMOs.
Procurement Methods
5. Procurement of Works: A total of US$313.46 million ofworks would be required. The works procured under this project would include construction ofbiogas digesters, improvements of households’ kitchens, animal sheds and toilets (referred to “one biogas digester and three improvements)”, and construction ofrural roads in some participating project villages. (a) National Competitive Bidding (NCB). Any contract for works estimated to cost US$lOO,OOO equivalent or more would be procured under NCB procedures acceptable to the Bank.
44 (b) Shopping. Contracts for works estimated to cost less than US$lOO,OOO equivalent per contract would be awarded through shopping procedures as specified in paragraph 3.5 ofthe Procurement Guidelines. These works would be suitable for lump sum and fixed-price contracts awarded based on quotations from at least three local contractors. (c) Communities and Beneficiary Households Participation in Procuremenf. Biogas digesters and improvements ofkitchens, animal sheds and toilets would be constructed through community/beneficiary participation in accordance with the following procedures: Selection of Households. Households will be selected through participatory approaches in accordance with selection criteria agreed with the Bank. A list of project villages and households are provided in the PIMand updated in the annual work plans. Sinning ofImplementation Agreement with Households. Based on an approved annual work plans, the CPMOs would sign household implementation agreements with individual households which will include: (1) scope ofworks, (2) total cost and agreed IBRD funded household package amount, T-Bond financing and household contribution, (3) implementation schedule, (4) agreed technical and construction standards, (5) supervision and final acceptance procedures, and (6) payment. Implementation. Each household would purchase the materials such as sand and cement, from the local market and employ certified biogas technician. The households and technician carry out the works by themselves under the technical guidance from the CPMO in accordance with the technical standards set out in the Implementation Agreement. If some materials are unavailable, CPMO may help purchase those materials in large packages and provide such materials to households. Inspection and Payment. After “one biogas and three improvements” is completed, the CPMOs will organize an inspection team to inspect the completed works and issue an inspection certificate. Payment would be made based on the agreed household package amount against completed and accepted physical works. Special Checking. Monitoring. and Reporting. A special checking would be arranged by CPMO to verify the implementation ofthe works and use ofthe fund on a six- month basis by external consultants hired by CPMOs. The six-month checking report would be available for review by Bank supervision missions.
Disclosure: each project village should disclose at least on a quarterly basis the completion information including name ofhouseholds, use ofthe project funds and completion date to the local public.
6. Procurement of Goods: A total of US$8.72 million worth ofgoods would be procured under the project. Procurement will use the Bank’s Standard Bidding Documents (SBD) for all ICB and Chinese Model Bidding Documents (MBD) for NCB as agreed with the Bank. (a) International Compefitive Bidding (ICB). Any contract for goods estimated to cost US$500,000 equivalent or more would be procured under ICB procedures specified in the Procurement Guidelines. (b) National Competitive Bidding. NCB procedures acceptable to the Bank would be used for procurement ofgoods costing less than US$500,000 equivalent per contract. (c) Shopping. Other goods would be procured using shopping procedures with contracts under US$lOO,OOO equivalent per contract.
45 7. Procedures for NCB Procurement: National Competitive Bidding shall follow the procedures set forth in the Law on Tendering and Bidding ofthe People’s Republic of China (Order No. 21 ofthe President ofthe People’s Republic of China on August 30, 1999), with the following clarifications required for compliance with the Bank’s Procurement Guidelines: All invitations to prequalify or to bid shall be advertised in a newspaper of national circulation in the Borrower’s country, except goods contracts that are estimated to cost less than $300,000 equivalent each, which may be advertised in a provincial daily newspaper. Such advertisement shall be made in sufficient time for prospective bidders to obtain prequalification or bidding documents and prepare and submit their responses. In any event, a minimum ofthirty (30) days shall be given to bidders between the date of advertisement in such newspaper and the deadline for submission of bids, and the advertisement and bidding documents shall specify the deadline for such submission. Qualification requirements of bidders and the method of evaluating the qualification of each bidder shall be specified in detail in the bidding documents. All bidders that meet the qualification criteria set out in the pre-qualification document shall be allowed to bid and there shall be no limit on the number ofpre-qualified bidders. All bidders shall be required to provide security in an amount sufficient to protect Hubei, Guangxi, Hunan, Anhui and Chongqing in case of breach of contract by the contractor, and the bidding documents shall specify the required form and amount of such security. Bidders shall be allowed to submit bids by mail or by hand. The time for opening of all bids shall be the same as the deadline for receipt of such bids. All bids shall be opened in public; all bidders shall be afforded an opportunity to be present (either in person or through their representatives) at the time of bid opening, but bidders shall not be required to be present at the bid opening. All bid evaluation criteria shall be disclosed in the bidding documents and quantified in monetary terms or expressed in the form ofpadfail requirements. No bid may be rejected solely on the basis that the bid price falls outside any standard contract estimate, or margin or bracket of average bids established by Hubei, Guangxi, Hunan, Anhui and Chongqing. Each contract shall be awarded to the lowest evaluated responsive bidder, that is, the bidder who meets the appropriate standards of capability and resources and whose bid has been determined (A) to be substantially responsive to the bidding documents and (B) to offer the lowest evaluated cost. The winning bidder shall not be required, as a condition of award, to undertake responsibilities for work not stipulated in the bidding documents or otherwise to modify the bid as originally submitted. Each contract financed with the proceeds of the Loans shall provide that the suppliers and contractors shall permit the Bank, at its request, to inspect their accounts and records relating to the performance ofthe contract and to have said accounts and records audited by auditors appointed by the Bank. Government owned enterprises in the Borrower’s country may be permitted to bid or submit a proposal for goods if they can establish that they (A) are legally and financially autonomous, (B) operate under commercial law and (C) are not a dependent agency ofthe agency conducting the procurement. Re-bidding should not be allowed solely because the number ofbids is less than three (3).
46 8. Selection of Consultants: A total of about US$3.15 million of consultant services will be required under the project. The consulting services would generally include applied research, M&E activities, supervision engineers for works, and assistance to technical extension centers. Services would be provided by consulting firms and by individual consultants. (a) Consulting contracts expected to cost more than US$200,000 equivalent per contract will use Quality and Cost Based Selection (QCBS) or Quality Based Selection (QBS) in conformity with paragraphs. 2.1 through 3.4 ofthe Consultant Guidelines. (b) Consulting services under this project are estimated under US$200,000 equivalent per contract, Selection Based on Consultants Qualifications (CQS) would be used. (c) Chinese universities, design and research institutes may be included in shortlists. In such cases, QBS or CQS would be used. (d) Short lists ofconsultants for services estimated to cost less than US$300,000 equivalent per contract may be composed entirely ofnational consultants in accordance with the provisions ofparagraph 2.7 ofthe Consultant Guidelines. (e) Under the circumstances described in paragraph 3.10 ofthe Consultant Guidelines, consultants may be selected and awarded on a single-source basis, subject to the Bank’s prior approval. (f) Individual consultants would be selected and contracts awarded in accordance with the provisions ofparagraphs 5.2-5.3 ofthe Consultants Guidelines. Under the circumstances described in paragraph 5.4 ofthe Consultants Guidelines, individual consultants may be selected and awarded on a sole-source basis, subject to the Bank’s prior approval.
9. Training, workshops and Study Tours: A total of US$8.57 million for training, workshops and study tours would be required. Detailed programs will be developed during implementation and included in annual work plans for the Bank’s review. Actual expenditures incurred in accordance with the approved programs will be used as basis for reimbursement.
10. A total ofUS$300,000 of front-end fee is payable in accordance with Section 2.07(b) ofthe General Conditions.
11. Non-Bank Financing: A total ofabout US$105.55 million of other costs, financed by counterpart funds will occur mainly for rural water supply facilities, rural roads, and farm production improvement required under Integrated Eco-Farming Systems Component, upgrading and rehabilitation ofrural energy and agricultural extension service centers and establishment of farmer biogas associations required under Local Technical Extension and Biogas Service System Component, and MIS development, minor technical assistance and project operating costs under the Project Management, Monitoring and Evaluation Component, and interest during construction.
World Bank Prior Review 12. All contracts equivalent to US$300,000 or more for goods and all contracts for consultant services equivalent to US$lOO,OOO or more for firms and equivalent to US$25,000 or more for individuals and all contracts awarded under single-source and sole-source selection would be subject to prior review by the Bank. All other contracts would be subject to ex-post review by Bank supervision missions. Post review sampling ratio would be one out oftwenty contracts.
Frequency of Procurement Supervision 13. In addition to the prior review, at least one supervision mission per year to project provinces to carry out post review ofprocurement actions should take place.
47 Annex 10: Economic and Financial Analysis CHINA: Eco-Farming Project
Financial Analysis
1. Establishment ofbiogas systems and household improvements will provide multiple benefits at the household, village, national and global levels. Financial benefits to the households can be classified according to their impact on use oftraditional fuels, labor time and chemical fertilizers. The project will also produce significant positive externalities which can be classified according to their impacts on gender, health, environment and poverty. Benefits arising from the establishment ofvillage roads, village water supply, improved monitoring and evaluation, extension services and capacity building through Components 2 and 3 are not quantified. The benefits from agricultural activities are only included in the economic analysis.
2. The financial analysis is presented at the household level. Potentially the households can reap all financial benefits (discussed below), but in reality many households might not offset chemical fertilizers by slurry or might spend the saved labor time for leisure and other activities that do not generate an immediate income. For those households, the financial attractiveness of the biogas investments is lower. The household model, therefore, includes different scenarios of benefits and discusses the rationale for subsidization ofbiogas investments in China. The computations are based on data obtained during appraisal (September 2006). The financial attractiveness ofthe “biogas system package” and other project components is viewed from the perspective of the individual end-user and based on domestic prices subject to distortions from taxes and subsidies. The assessment is based on determining Net Present Value (NPV).
A. Benefits from Reduced Use of Traditional Fuels
3. The use ofbiogas directly results in reducing the household consumption oftraditional types of fuels such as firewood, agricultural residue, coal and natural gas. In some cases, households benefit from energy generated by biogas systems. Households rarely use only one type of the fuel, but rather in combination. Under the project, households are expected to replace, on average, about 50-70 percent of firewood, coal and natural gas, and a lesser amount of electricity. The project will enable each household to save about 1.33 tons of fuel in coal equivalent that is worth RMB 355 per year per household. .
Note: * Convcrsion factor of firewood into coal is 0.8 and natural gas into coal is 2.4. These conversion factors are from the Ministry of Agriculture of China (2006). ** It is assumed that 70 percent of firewood is self-collected and, thus, not paid for.
48 4. Benefits from Reduced Use of Firewood. Firewood is the major type of fuel for cooking and heating in many parts of rural China. In addition to the provision of direct financial savings for households, a lower use of firewood improves indoor air quality and thus health. It increases the disposable labor time (mainly of women) because they do not need to collect so much firewood and with biogas stoves they can spend less time for cooking. Reduced use of firewood also contributes significantly to reducing deforestation and green house gas emissions.
5. The savings per household will vary, but on average each household will annually save from about 1.O ton in Guangxi, Chongqing and Hubei to 1.2-1.3 tons in Anhui and Hunan. The project's total saving is estimated to be about 0.61 million tons of fuel wood per year. Households do not generally pay for the wood, because it is often self-cut. The share of self- collected wood varies among households, counties and provinces. It is assumed that, on average, the project households pay for 30 percent ofthe used fire wood at RMB 0.1 5/kg.
6. Benefits From Reduced use of Coal. The reduced use of coal will bring similar benefits as reduced use of firewood, but at a larger magnitude per unit of fuel. While fuel wood can be collected without paying, coal is purchased. Moreover, coal is considered unsanitary by farmers due to the large amount of ash and smoke generated when burning. High carbon monoxide levels cause respiratory problems and add to greenhouse gas emissions. Studies show that average household indoor carbon monoxide levels are several times higher than the national Indoor Air Quality (IAQ) standard in summer and even higher in winter. In addition, coal in China has harmful levels of toxins, such as fluoride, arsenic, selenium and mercury causing different forms of poisoning and disease' '.
7. In Hubei and Hunan provinces, over 60 percent of households use coal for cooking and heating. On average, savings per household is expected to reach 441 kg of coal per year, and the projected monetary savings are expected to be RMB 85 million per year (the price is RMB 0.35/kg).
8. Benefits From Reduced Use of Natural Gas and Electricity. Better-off rural households often use natural gas. Common use of natural gas was reported mainly in Anhui and Guangxi. Although expensive, it has high heating efficiency at 55 percent compared to 22 percent for firewood and 25 percent for coal. On average, the savings per household will be 55 m3 (75 percent substitution rate). At the project level, the saving is worth of RMB 40 million (the price is RMB 4/m3)12.
9. Finally, the installation of biogas systems will allow some households to reduce electricity bills by using biogas for lighting purposes. This use has not been fully exploited by all households participating in the T-Bond National Program, but biogas use for lighting is expected to increase in the project. In general, savings from lower use of electricity would be 20 kWh per household (10- 15 percent of electricity substitution) that gives 3.3 million kWh total in the project. The monetary saving is worth RMB 1.7 million (the price is RMB 0.YkWh).
l1World Bank (2005). Household Biogas Utilization in Western Regions of China, Energy and Mining Sector Development Unit, East Asia and Pacific Region, August. '* This estimate takes into account only households in Anhui and Guangxi provinces.
49 B. Savings from Changed Labor Time Utilization and Gender Benefits
10. The use of biogas will save time spent on collecting fuel, cooking and cleaning animal sheds. These are mainly women's duties, so the biogas system will be able to meet both practical and gender needs. With biogas, women's duties related to collecting fuel and cooking would decrease, allowing time for further productive activities or more leisure, contributing to an overall improvement in living standards. The time-saving effect ofbiogas systems for women is expected at about 1 hour per day and 2 1 working days per year. Increased time for cleaning biogas digesters and application of bio-slurry are deducted from labor time savings.
Time imnact of a bioaas svstem for tvnical rural household. workina davshear
Collection of fir
1 1. The estimates ofsaved time are in line with the similar estimates from Western China, where farmers with biogas systems, on average, save about an hour per day due to less fuel c~llection'~.When the future without biogas is considered, the time savings are likely to be lower because the continued dependence ofmany households on fuel wood causes the depletion of forest resources in many areas and, thus, more work and monetary expenditures will be required for people to collect fuel wood or purchase alternative energy sources.
12. Saved labor time will allow the women to generate an additional income, mainly from agricultural production. It does not mean, however, that all or even the portion ofsaved time will be necessarily spent on income-generating activities. Women may prefer to spend more time for child care and household activities. While the saved labor time is a substantial economic benefit, it is not so conclusive for financial analysis of biogas investments.
C. Benefits from Offsetting Chemical Fertilizers
13. Scarce land in China motivates farmers to maximize land productivity. As a result, the use of fertilizers is very high and continues to increase, though varying amongst provinces. The OECD reports that the average use ofchemical fertilizers (active ingredients) per hectare of sown area increased to 289 kg in 2003,65 percent more than in 1990, including 141 kg of nitrogen. China's use offertilizers per hectare is almost three-fold higher than the global average and higher than in the majority ofOECD countries. Based on the recent rural energy surveys (for World Bank-Shaanxi, Inner Mongolia and Sichuan), households spent on average RMB 661 per year on chemical fertilizer and RMB 187 per year on pesticides. Replacement of some of these with biogas residue could result in significant savings.
13 World Bank (2005). Household Biogas Utilization in Western Regions of China, Energy and Mining Sector Development Unit, East Asia and Pacific Region, August.
50 14. The average saving from reduced use offertilizers is difficult to predict because the project supports ten different agricultural models ranging from annual crops (rice, vegetables, tea and medical herbs) to fish, mulberry, and orchards, requiring quite different volumes ofchemical fertilizers. It is clear, however, that the rate offertilizer off-settings may be only partial. According to MOA, for example, a digester of 8 m3can annually roduce 12.6 tons of bioresidue, including 4.2 tons ofsolid and 8.4 of liquid bio-slurry‘. By taking into account the N:P:K contents of slurry and market prices of fertilizers (December 2005), MOA estimates that net incremental benefit from bio-slurry can reach RMB 114 per household. Such savings will not be achieved by all households. In addition to different rates of substitution, some households can face the dilemma ofsubstituting manure by slurry rather than chemical fertilizer by slurry. For those households the financial benefit will be nil.
D. Net Present Value (NPV) and Sensitivity Analysis
15. A financiakash flow analysis was undertaken to assess the financial viability ofthe household investments in biogas systems. The unit investment cost ofa typical biogas package, (3+1), equals RMB 3,165. The annual maintenance fee is estimated at RMB 100 and every five years RMB 500 is to be allocated to upgrade the “biogas package” investments. The households would borrow about RMB 2,400 from the Bank with the interest rate of6 percent; and repayment of principle beginning from the sixth year. The lifespan ofdigesters is 20 years.
16. The financial benefits include the savings from (a) replacement oftraditional fuel; (b) replacement ofchemical fertilizers; and (c) labor time. It is assumed that the typical project household would offset from 55 percent to 70 percent of coal used, 75 percent ofnatural gas, 30 percent ofwood fuels15 and about 12 percent of electricity. It is also assumed that at least 30 percent of saved time will be allocated to income-generating activities, given the labor cost at RMB 20 per day, and that the households will be able to gain at least a half ofpossible savings (RMB 50) by offsetting chemical fertilizers with slurry. If all these benefits are included in the model, the NPV equals a financially attractive RMB 1,240, given the discount rate of 12 percent.
17. As outlined above, it is unlikely that the most households would reap all the benefits. Some households would spend all the saved time on leisure and substitute manure by slurry rather than chemical fertilizers. For those households, the investments in biogas are financially unattractive. The NPV turns to -RMB 295 if only fuel savings are taken into account.
18. Biogas investments are also able to produce significant positive externalities that are not immediately internalized by the households. Therefore, from society’s point ofview it is beneficial to encourage biogas investments. In the project this is done with the use of subsidies, i.e. national T-Bond subsidy16 and interest rate subsidy17. An inclusion ofthe T-Bond subsidy at RMB 800 turns the NPV positive to RMB 420, while an addition ofthe interest rate subsidy raises the NPV to RMB 1,060.
l4The household is assumed to consist of four members and have three pigs. IsThis is wood which is not self-collected but bought on the market. l6T-Bond subsidy is the lump-sum payment varying from Rh4B 800 - 1,000 across provinces. I’ Interest rate subsidy results from the difference of current interest rates at the market (1 1 percent) and for the Bank loan (6 percent).
51 19. With the subsidies included, the NPV has low sensitivity to changes in energy substitution and unit investment costs. The switching value for energy substitution is 40 percent, i.e. the benefits from energy savings must decline by 40 percent to turn the NPV negative. The construction costs need to rise almost twofold to reduce the NPV to zero. As a result, subsidies provide a strong incentive for households to invest in biogas.
Economic Analysis
20. In addition to the direct benefits to the participating households, the biogas systems together with household improvements will produce multiple public benefits through impacts on health, environment and poverty. These economic benefits are described below but only likely environmental benefits are quantified at this stage. The economic analysis also includes the benefits from agricultural activities supported by the project.
A. Health Benefits
2 1. Health benefits are derived from reduced indoor air pollution and from improved sanitation and hygienic conditions. Indoor air pollution from burning biomass fuels is considered to be one ofthe five most serious environmental problems and to be fourth in global ranking ofrisk factors contributing to disease in developing countries". Indoor air pollution and smoke exposure from the use ofbiomass fuel for cooking and heating in rural China is among the worst in the world. Smoke from the combustion ofbiomass fuels contains a large number of potentially hazardous pollutants. Exposure to these pollutants, especially suspended particulate matter, is a risk factor for a wide range ofdiseases, including acute respiratory infections (ART), chronic obstructive pulmonary disorder (COPD), cancers, cataract, and low birth weight". Based on studies from developing countries it appears that young children in households that use solid biomass fuels are 2-3 times more likely to suffer ARI than children in households that use other fuels. Similarly, women who have cooked over biomass fires for fifteen years are 2-4 times more likely to develop COPD than are other women2'. According to a series ofstudies, indoor air pollution has resulted in a 35 percent increase ofunder-5 year mortality in rural areas and 15 percent increase in urban areas ofChina2'. The real effects on adults are more pronounced in the long term because in China the higher levels ofrespiratory diseases are reflected later in life.
22. Due to integrated toilet facilities, digestion ofwaste and increased access to clean drinking water, the project will also improve sanitary and hygiene conditions which help in keeping the areas inside the house and surrounding household clean and reduces the chances for the spread ofinfectious diseases. The study of rural biogas sanitary effects in China (undertaken by the Health Education Office in 2005) demonstrates the significant health benefits of the
'*World Bank (1992). World Development Report 1992, New York: Oxford University Press and WHO (2006). Indoor Air Pollution and Child Health in Pakistan, Report of a seminar held at the Aga University, Karachi, Pakistan on September 29, 2006. l9 Larson, B. and S. Rosen (2000). Household Benefits of Indoor Air Pollution Control in Developing Countries, Prepared for the USAID/WHO Global Technical Consultation on The Health Impacts of Indoor Air Pollution and Household Energy in Developing Countries, May 3-4,2000, Washington, DC. 2o Smith, K. (1999). Indoor Air Pollution, Pollution Management in Focus Discussion Note 4, Washington, DC: the World Bank. *'Lvovsky, K. (2001). Health and Environment. Environment Strategy Paper No. 1, Washington, DC: World Bank. Smith, K. (1999). Indoor Air Pollution, Pollution Management in Focus Discussion Note 4, Washington, DC: the World Bank and Smith, K. and S. Mehta (2003). "The Burden of Disease from Indoor Air Pollution in Developing Countries: Comparison of Estimates." International Journal Hygiene Environmental Health 206: 279-289.
52 biogas users (T-Bond program) compared to its non-users. For the biogas users, the exposure to ascariasis was one third that it was before, ancylostomiasis two fifths and stomach infectious diseases one tenth. Moreover, biogas digesters substantially destroy the mosquito and fly breeding environment resulting in large health benefits for the biogas-using households. The incidence ofthese illnesses will vary among households depending on type of fuel used, efficiency ofstoves used for cooking, and heating and quality ofwater delivered. However, actual data on the impact ofimproved indoor air and hygiene conditions are not readily available, but will be monitored during the project implementation and incorporated into the ICR.
B. Environmental Benefits
23. The introduction of biogas systems will significantly contribute to improvement of the local, national and global environment.
24. Local Environmental Benefits. From a local perspective, biogas systems will significantly help improve the indoor air quality ofhomes employing biogas stoves in place of wood and coal stoves. Installation ofbiogas systems will also result in better management and disposal ofanimal and human waste. This fact alone will help improve the living conditions in the immediate vicinity of 53 8,000 rural households participating in the project.
25. Soil Improvement Benefits. In addition to the possibility ofoffsetting fertilizers for some households, the use of bio-slurry will lead to improved soil quality and potentially, higher and more sustainable crop yields in the future. Bio-slurry improves physical and biological quality of soil, including (a) improvement in soil structure; (b) improvement in water holding capacity; (c) cation22exchange capacity; and (d) provision of nutrients to plants and soil micro- flora including nitrogen fixing and phosphorous releasing organism~~~.
26. Nitrification research carried out to date indicates that properly handled slurry is superior to ordinary farmyard manure. With nitrogen losses during conventional manure processing of 18 percent or higher, anaerobic processing ofmanure would seem attractive, because in principle, nitrogen losses during this processing can be zero. It may also be expected that manure processed in anaerobic conditions contains a large amount ofnitrogen that is readily assimilated by plants. In addition less nitrogen is consumed by microbial activity in breaking down organic manure and so is available for release into soil solution under anaerobic conditions.
27. The improved soil quality and productivity has the potential to increase agricultural yields. According to studies conducted in Sichuan Province, the use ofbio-slurry increased yields by 6- 10 percent, regardless ofthe kinds ofsoil, while in long-term experiments it was shown that after a few years ofapplying digester slurry, yields of several crops increased by 11-20 percent24.
28. There are no test results available for the project provinces. The project will support extension on proper preparation and application of solid and liquid bio-slurry, and improved farm techniques. Impact analysis will be used to estimate the effects ofslurry on yields. For the
22 Cation exchange capacity is the capacity for soil for exchange ofpositively charged ions between the soil and the soil solution. 23 Gurung, J. (1997). Review ofLiterature on Effects of Slurry Use on Crop Production, Nepal Biogas Support Program, June. 24 Marchaim, U. (1992). Biogas Processes for Sustainable Development, UN Food and Agricultural Organization Report.
53 economic analysis, the benefits from using slurry are assumed at a conservative RMB 50 per household, resulting from substituting the chemical fertilizers.
29. National Environmental Benefits. From a national perspective, the project will support forest conservation goals. The reduction in the use of local biomass, firewood and straw stalks decreases the pressure on existing forests and shrubs and therefore reduces forest degradation and deforestation. In turn this contributes to reducing potential landslides, soil erosion and loss ofbiodiversity, and improves water resource conservation and quality. The local soil and water quality will also improve through the proper use ofbio-slurry and a reduction in the use of chemical fertilizers and pesticides.
30. It is estimated that an 8 m3(10 m3)digester produces 358 m3 (438 m3)of biogas annually. Ifall biogas systems are used to their full capacity, the total annual production ofbiogas will reach about 21 1 million m3by the end ofthe project. It is recorded in the National T-Bond Program that an operational biogas digester on average displaces 1,204 kg of dry wood (water content of 5 percent) or 2,288 kg of fresh firewood (water content of50 percent). Using the assumption ofthe Ministry ofAgriculture of China that each mu offorestry produces 700 kg of fresh the project will support the conservation of 1.85 million mu (or 0.21 million ha) of forest.
3 1. Global Environmental Benefits. Use ofbiogas reduces greenhouse gas (GHG) emissions by reducing the consumption of fuel wood and coal and by appropriately treating animal and human waste. The project will replace some chemical fertilizers by bio-slurry and thus, reduce methane (CH4) and N20 emissions that would have been produced during the production ofchemical fertilizers, but this emission reduction is not estimated. Replacement of manure will also reduce methane and N20 produced by aerobic decomposition ofmanure.
32. The biogas used on a sustainable basis ensures that the carbon dioxide (C02), associated with biogas combustion, will be reabsorbed in the process ofthe growth of agricultural products and forests. When the biogas is burned, it gives off COS, which is a less damaging greenhouse gas than CH4. Using the Index of Global Warming Potentials (GWP), which allows one to express all greenhouse gases on a comparable basis, CH4 is assumed to be 21 times more powerful in trapping heat than CO:6, All the CH4 and C02 emissions that are associated with the combustion offuel wood and coal can be accounted as being displaced when replaced by a biogas system. Moreover, the GHG emission will be reduced due to the improved treatment of animal and human waste. Bio-gas mainly depends on manure for raw materials and animal waste is the main source ofmethane. In the prolonged storage oforganic manure and faeces decomposition process, the methane may release under aerobic conditions. Under natural conditions, every household would emit directly CH4 and indirectly N20 into the atmosphere. However, if the manure is collected and fermented anaerobically, the methane can be collected and burned as clean energy, thus reducing emission. The emission sources that are under the control ofproject participants and those attributable to biogas digesters are shown below.
25 Ministry of Agriculture (2006). Evaluation of Benefits from Household Biogas Digesters in China, Ministry of Agriculture of China, Beijing. Internal Report. 26 World Bank (1998). Greenhouse Gas Assessment Handbook: A Practical Guidance Document for the Assessment of Project Level Greenhouse Gas Emissions, ESSD, Environment Department Paper No. 064.
54 Notes: The C02emissions from renewable resources - biogas (project) and agricultural residues (baseline) are excluded from the emission sources, as they do not lead to a net emission. Natural gas is excluded due to insignificant amounts of consumption. Emissions from construction of biogas digesters are not included.
33. Table below shows the estimated net emission reductions per participating household. On average, a biogas digester would annually prevent 2.83 tons ofCO;! emission accounting for methane leakage from the digester and incomplete combustion. Assuming a price per ton of CO:! emission of RMB 79 (US$1 1)27,biogas units at the mature stage ofthe project would displace about 1.55 million tons of greenhouse gases valued at RMB 122.7 million per year.
Decrease in CO, emission released bv human and animal waste ('") I tCO,/HH/vear I 0.61
Notes: (I) IPCC (1996) and World Bank (2005). ('I) Smith et al. (2000). ("I)Ministry of Agriculture of China (2006). ("') PIN of the World Bank Carbon Finance Project (2006). The estimation includes 2 pigs per household on average. (") IPCC (1996) estimates the biogas leakage from 5 to 15 percent. More conservative value of 12 percent is used for emission reduction calculations to account for possible longer-term leakage from slurry tank or compost pit, possible leakage from the pipe joints, valves or stoves, and emission from incomplete combustion. ("I)World Bank (1998).
27 We use a carbon price used in the PIN of the World Bank Carbon Finance Project (2006). Today's carbon price is higher at an estimated US$l4/ton. 28 Note that the net reduction in carbon emission here is higher than estimated for the Bank Carbon Finance Project. This is because the latter does not include the emission's reduction resulting from a lower use of wood because the renewable energy sources such as fuel wood are not eligible for reimbursement from carbon funds.
55 C. Poverty Reduction
34. Biogas generation can also have an important role in poverty reduction. Although most rural areas in China have electricity, many ofthe most remote areas still do not have access. Biogas can thus provide lighting and fuel for cooking and heating. This will also decrease time spent collecting fuel for these households and increase income through increasing labor available for other productive activities and decreasing energy costs if fuel sources are purchased. Despite these advantages, it is still difficult for the poorest households that would be targeted for such benefits to afford initial investment in biogas technology. For this reason, the T-Bond subsidy and the Bank loan will be provided to cover high up-front costs ofinvestment.
D. Increased Agricultural Outputs
35. The project will also support farm production improvements related to use ofbiogas residues, improved production methods (such as new varieties, orchard rehabilitation), and farm infrastructure that would contribute to improved environmental impact, quality and efficiency of production. Production activities will include on-farm investments for grain crops and cash crops (vegetables, new and rehabilitated citrus/longan/lychee/pomelo,tea, Chinese medicinal herbs, grapesbanana, and mulberry). Additional livestock purchases will not be supported by the project. Farm production investments will be undertaken in all provinces, except Enshi Prefecture (Hubei). The farm production activities have been summarized into seven production models, with several sub-models under the pig-biogas-fruit model. The economic benefits from agricultural activities are based on farm models prepared by provinces and data collected during the field missions. The estimated increase in agricultural output attributable to the project is complicated by the large number of agricultural models and different approaches in different provinces. In some, the households plan to rehabilitate and improve the existing crops, while in others the farmers will use the project to diversify from cereals to higher value activities such as fish ponds, orchards, vegetables or mulberry. The project will support farmers by assistance on proper preparation and application ofboth solid and liquid bio-slurry as well as improved farm techniques to enhance agricultural productivity.
E. Net Present Value and Economic Rate of Return (ERR)
36. An economic analysis ofthe entire project was undertaken to assess the benefits to society ofthe use ofbiogas systems along with household improvements. The major assumptions at household level are the following: The rate ofcoal substitution: 55-70 percent (depending on which province) The rate ofnatural gas substitution: 75 percent The rate ofelectricity substitution: 7-1 8 percent (depending on which province) The rate offire wood substitution: 50-67 percent (depending on which province) Cost offire wood: RMB 0.15 per kg All saved labor time is considered an economic benefit, whether it is allocated to income or non-income generating activities Opportunity cost oflabor is assumed to be RMB 20/working day Savings from offsetting chemical fertilizers: RMB 50 Increase in agricultural outputs: varies significantly depending on the model used
56 Actual farm-gate prices are used for most traded inputs and outputs. The current stage of trade liberalization in China does not suggest significant price distortion. The exchange rate distortion is not applied because construction materials and inputs are mainly produced domestically while agricultural outputs are mainly sold inside China High-value goods such as vehicles, computers or furniture, which are subject to value- added tax at 18 percent, are adjusted to the value without tax Average annual reduction in COz emission per biogas digester: 2.83 tons Price ofCOz emission: RMB 79 per ton Discount rate: 12 percent Lifespan ofbiogas digester: 20 years All investment costs, including those for water supply and roads, are included Annual maintenance fee for biogas digester: RMB 100 Upgrading investments for “1+3 biogas package”: RMB 500 every 5 years
37. The economic benefits associated with the use ofthe “biogas system package” are derived fiom the savings in expenditure on energy and fertilizers, saved labor time, as well as increased agricultural yields and reduced greenhouse emission. The base analysis, which includes only the saving offuel, slurry and labor time, gives an NPV ofRMB 1,06 billion and ERR of21.5 percent. The project’s NPV with the accounted environmental benefits is RMB 1,42 billion and the ERR is 29.6 percent. Currentlyz9, when the agricultural models are added, the total project’s NPV changes to RMB 1,43 billion and the ERR to 27. Opercent. The figure below shows that the largest economic benefits stem from reduced energy costs (36 percent) saved labor time (34 percent) and lower greenhouse gas emissions (18 percent). Note that these calculations are based on mid 2006 prices. Due to the recent price increases for coal and labor price increases, if calculated around the time of Board presentation, the ERR would more than double to over 60 percent.
29 These agricultural models were structured during appraisal in 2007 and will be restructured during implementation to take into consideration changing market conditions, including costs of inputs.
57 Structure of Economic Benefits in the Eco-Farming Project
Environmental benefits 18% Savings from energy cost reduction 36%
4%
F. Sensitivity analysis
38. A full elimination ofany single benefit, except the energy savings, will not turn the economic NPV to negative if other things remain the same. A large reduction in energy cost savings (73 percent) would switch the NPV to negative, but this is quite unlikely to happen.
39. Other influential variables are labor savings and green gas emissions. Even a full elimination ofthese benefits will not reduce the ERR below the discount rate. The realization of some benefits will depend on quality ofconstruction ofbiogas digesters, corresponding three improvements and extension service support for households on how to prepare and use the slurry. The project design will allow for control in quality of construction, minimization of gas leakages and maximization ofhousehold benefits from the biogas package investments. As a whole, the estimates are robust and not dependent upon any single variable.
58 Annex 11: Safeguard Policy Issues CHINA: Eco-Farming Project
A. Social Safeguard Policy Issues
OP4.10 Indigenous Peoples Related Safeguard Issues:
1. Project Social Assessment (SA). A SA was carried out by the Borrower to investigate and assess various situations of ethnic minority groups and other project stakeholders. The SA involved extensive consultations with potential project beneficiaries. Focus groups, household interviews and case studies were conducted in each ofthe SA sites covering 15 sample villages in 9 counties. The SA found that all surveyed village communities look forward to the project activities viewing them as opportunities to generate higher incomes and better living conditions. The SA sets forward priorities in project design for ethnic minority groups and the poor, and recommends a participatory approach to project implementation.
2. Ethnic Minority Populations. OP4.10 ofIndigenous Peoples is triggered under the project because ofthe presence ofethnic minority populations in the project areas ofthree ofthe five provinces, Guangxi, Hunan and Hubei. The project social assessment (SA) identifies 10 ethnic minority groups in the project areas with a total population ofabout 400,000 people accounting for about 17 percent ofthe anticipated project beneficiaries. The ethnic minority groups comprise Tujia, Miao, Zhuang, Yao, Bai, and Hui.
3. In Guangxi (Zhuang Ethnic Minority Autonomous Region), Zhuang, Miao, and Yao ethnic minorities have been identified in 445 villages in eight project counties as potential project beneficiaries. They account for about 1/5 the total project beneficiaries (compared with a proportion of 1/6 ofethnic minorities among the total population in the project areas). In Enshi Tujia and Miao Autonomous Prefecture (Hubei), 1,300 ethnic minority villages in eight counties are included in the project, accounting for about 40 percent ofthe total estimated number of beneficiaries in the prefecture. Hunan has 18 project counties in which three are populated with more than 50 percent ethnic minorities. Living in their own communities or intermixed with others, most ofthese ethnic minorities reside in relatively remote areas, and their participation in the project was a focal concern in the project design.
4. Targeting Ethnic Minority Communities. In ethnic minority areas in Guangxi, Hunan and Hubei, project activities are specifically targeted to the ethnic minority communities, and have been adapted to local needs. In the ethnically inter-mixed villages, ethnic minority households and women-headed households are given priority to participate in the project. The proportion of Zhuang, Miao, Yao, Tujia and other ethnic minority beneficiary under the project in Guangxi, Hunan, and Hubei is higher than their proportion in total local population.
5. Consultation with the communities revealed that the households, including the ethnic minority households welcome the biogas schemes. Besides the energy saving stoves, toilets and pig sheds associated with the biogas schemes, the communities living in the more remote areas also expressed a need for improved water supply and access roads. In response to these requests, project activities have been adjusted to include village infrastructure rehabilitation.
59 6. Moreover, various training programs on biogas operation, livestock and cropping skills are also appropriately designed for ethnic minority communicates in terms oftiming, venue, language and manner as acceptable by them. According to the SA analysis ofseasonal calendars of local farming and labor division, all project activities are designed to match the farming and idle schedules ofthe ethnic minority communities all year round. As a result, the ethnic minority groups’ participation is greatly encouraged and specifically incorporated into project design, and the benefits to them from this project are equitably expected as to other beneficiary.
7. Monitoring and Evaluation of Ethnic Minorities Participation. The project has designed a set ofprocess indicators for M&E relating to ethnic minority participation that are included in the PIMs. These indicators are listed in Annex 3.
OP4.12 Involuntary Resettlement Related Safeguard Issue
8. The project does not include activities that would lead to resettlement or significant land acquisition. Rural access roads and courtyards will be mainly reconstructed on their existing bases within villages. However, because most ofthe project activities will be carried out around villages, some small-scale infrastructure at village level may be undertaken. Some ofthem may require the taking ofland (e.g., road widening, or construction of sheds or other facilities), but would be located within the village itself. Use ofland allotted to individual households on a lease basis by the collective might have some adverse impact on households. Therefore, a Policy Framework for Resettlement and Land Acquisition was prepared for the purpose of establishing principles and procedures to be applied in the event that involuntary loss ofland or other fixed assets would arise as a result ofproject implementation. The Policy Framework is drafted based on World Bank OP4.12 and relevant Chinese laws and regulations, and forms the basis for resettlement planning. No activities requiring involuntary taking ofland will be carried out under the project without prior approval by the Bank ofappropriate planning remedies.
B. Environmental Safeguard Policy Issues
9. Background. The project was classified as Category B project. The Borrower entrusted China Agricultural University to carry out the project EIA in accordance with national and Bank policies and procedures. The EIA TOR, draft versions, and the final version ofthe EIA were reviewed and discussed in detail during project preparation. The EIA report satisfies the relevant requirements ofthe Borrower and the Bank and includes: a project description; baseline environmental conditions; anticipated environmental benefits; potential environmental impacts and mitigation measures at the construction and operation stages; environment monitoring requirements; and public consultation and information disclosure.
10. Baseline Environmental Conditions. The project areas are located in the river catchments of the Yangtze River in Anhui, Hubei, Hunan and Chongqing and the Pearl River and South China Sea in Guangxi. The temperatures and precipitation vary within and among provinces creating significantly varied agro-ecological systems among the project counties. Physiographic settings also vary among different areas, with flat river floodplain and deltaic settings in Southern Guangxi to hilly and mountainous physiographic setting in parts of Chongqing, Hubei, and Hunan.
60 1 1. The main economic activities in the project areas are agriculture and animal husbandry - dominated by small holders. The livestock management systems vary between the provinces providing an opportunity to establish different manure management technologies and biogas- agricultural production models to disseminate project findings within and among the provinces.
12. Potential EnvironmentalImpacts. If successfully implemented, and assuming that the recommended mitigation and control measures, presented in the EIA report are adopted, the potential short- and long-term environmental impacts ofthe project are expected to be highly positive. The limited negative environmental risks can be prevented if good soil, agronomic, and environmental management practices are adopted by the project households and effective training is provided to biogas technicians and households in the use and maintenance ofthe biogas systems and application of slurry to the fields.
13. However, if the proposed mitigation measures are not implemented, or appropriate attention is not paid to the establishment ofoptimum retention times for biogas slurry, control and repair of gas leakages, and the rate and timing of bio-slurry application to the agricultural fields, the project can potentially have negative impacts on public health, natural and social environment. Inaction can jeopardize sustainability of activities, and project effectiveness in improving public health and hygiene standards, and reducing green house gas emissions.
14. Potential negative environmental impacts ofthe project during the construction period will be short-term, temporary, and oflow magnitude, with the exception ofpotential loss of minimal tracts of land, agricultural or "wasteland," for the construction ofaccess roads. There may also be some impact on vegetation due to temporary land occupation at project sites, minor water pollution if water bodies are close to a biogas pit and the surrounding area is sloping, and short term noise and dust by construction machinery. These negative impacts will be minimized per mitigation measures set forward in the EIA report.
15. During the operational phase, potential environmental issues consist mainly of risk hazards that can happen if construction, design or operational management is poor, or if training ofbiogas households is inadequate. Such risks include: (a) potential soil pollution through improper application ofwaste sludge and bio-slurry from respective manure management facilities on croplands, especially if the soil characteristics and nutrient balance is not taken into account; (b) potential negative impacts on surface and ground-water resources if over application or untimely application of bio-slurry on farmland, say, just before a major rainfall occurrences, is practiced; (c) potential air pollution (toxic gases and odor) and greenhouse gas effects (CH4, C02, SOX) as a result ofimproper working ofdigester systems (leakage) and fermentation of livestock manure; (d) potential explosion and loss oflife due to poor construction or management ofbiogas tanks due to leakage, or overproduction ofbiogas; (e) potential risk hazard oftoxic gas leakage (CH4, COYH2S, etc) from burner or pipe fittings, that can potentially cause loss of life; and (f) potential risk of loss of life during clean up ofthe biogas tank due to poor ventilation and high levels ofnoxious gases in the biogas pit, if adequate attention and training is not given on safety issues, an event that has occurred in some ofthe project counties in previously constructed systems.
16. Mitigation Measures. Mitigation measures to prevent/minimize the above risks are specified in the EIA report focusing on control ofconstruction practices, and appropriate
61 construction site management. The main mitigation measures include environmental monitoring to ensure full implementation ofthe mitigation measures, appropriate institutional arrangements, identification oftraining needs in the area of environmental risk minimization, and provisions of adequate budget in the counties for environmental monitoring and mitigation activities.
17. The potential transmission ofpathogens, antibiotics and their resistant strains from livestock to humans under the project may also pose a risk. To minimize this risk: All participating farms will: (a) minimize the use ofantibiotics; (b) keep the animal waste outside for 7-10 days before putting it into the digester so that antibiotics if any can break down; and (c) in' case animal waste with antibiotics without complete degradation is put into digesters, stop gas generation and clean and change all materials in the digester.
18. Environmental Management and Monitoring. Consistent with the projects' Safeguard Review Meeting on July 19,2006, the project has not prepared a conventional Environment Management and Monitoring Plan. Instead, the EIA specifies an environmental mitigation and training plan (Chapter 7 ofthe EIA), environmental supervision requirements (Chapter 8 ofthe EIA), and refers to the Good Environmental Management Guidelines to be followed by the households in the implementation ofthe project. The Good Environmental Management Guidelines consist ofa comprehensive set of specific documents and manuals prepared by the MOA for villages and households developing and using biogas. In addition, training in operating and maintaining the biogas systems is an integral part ofthe project.
19. The main areas to receive attention are: (a) Ensuring that farmers are properly trained and follow the Good Environmental Management Guidelines so that over application ofbio-slurry is not practiced; (b) Monitoring ofhealth impacts associated with handling ofbio slurry if farmers do not allow for adequate retention time before use. The level ofhuman and animal parasites in the bio-slurry (after treatment) must be determined to ensure levels ofpathogens and zoonotics have reached acceptable levels. The impacts associated with their presence in the effluent should be assessed and addressed before handling of bio-slurry and application to the agricultural field (optimum retention time).
C. Disclosure
20. Public Consultations and Information Disclosure. Public consultations with project- affected people were conducted in all five provinces by the Provincial PMOS, and the environmental and social assessment teams. The following consultation approaches were taken: (a) consultation meetings with local residents, communities and local government representatives; and (b) questionnaire analysis ofpublic opinion supplemented by interviews. During the EIA process, local people were consulted and their opinions have been reflected in the project design and environmental mitigation measures. A comprehensive questionnaire was prepared by the environmental team and was distributed to project beneficiaries and government agencies and the results were compiled and reported as an annex in the EIA report.
21. The EIA report has been posted in the Bank's InfoShop in Washington DC and made available to the public in Chinese at all levels in the participating provinces.
62 Annex 12: Project Preparation and Supervision CHINA: Eco-Farming Project Planned Actual PCN review 05/17/2006 Initial PID to PIC 06/16/2006 06/0 7/2 0 06 Initial ISDS to PIC 10/18/2006 09/14/2006 Appraisal 06/11/2007 03/21/2008 Negotiations 10/2 1/2008 1O/ 14/200 8 BoardRVP approval 12/0 1/2008 Planned date ofeffectiveness 04/01/2009 Planned date ofmid-term review 05/15/20 1 1 Planned closing date 06/30/2014
Key institutions responsible for preparation of the project: Foreign Economic Cooperation Center ofthe Ministry ofAgriculture Anhui Provincial Agriculture Commission Chongqing Agriculture Commission Guangxi Provincial Agriculture Foreign Capital Project Management Center Hunan Provincial Agriculture Bureau Hubei Enshi Prefecture Rural Energy Bureau. Bank staff and consultants who worked on the project included: Name Title Unit Sari Soderstrom Task Team Leader/ Lead Operation Officer EASCS Syed Ahmed Lead Counsel LEGES Yi Dong Senior Financial Management Specialist EAPCO Carlos Escudero Senior Counsel LEGES Achim Fock Senior Agricultural Economist EASCS Zong-Cheng Lin Senior Social Development Specialist EASSO Wanlong Lin Consultant (Agricultural Economist) Jin Liu Agricultural Specialist EASCS Gayaneh Minasyan Environmental Economist EASRE Patria Morente Program Assistant EASRE Jinan Shi Senior Procurement Specialist EAPCO Bruce Trangmar Consultant (Agricultural Specialist) FAO/CP Xiuzhen Zhang Program Assistant EASCO Weiguo Zhou Senior Operations Officer EASRE Sergiy Zorya Agricultural Economist AFTAR Anis Wan Operations Analyst EASOP Peer Reviewers: Richard Bolt, Lead Economist, ADB; Cornelis de Haan, Senior Livestock Advisor, ARD; Bilal Rahill, Manager, CES 12, and Tunc Uyanik, Sector Manager, EASFP. Bank funds expended to date on project preparation: 1. Bank resources: US$419,250 2. FA0 resources: US$ 90,750 3. Total: US$510,750 Estimated Supervision costs: 1. Estimated annual supervision cost: US$lOO,OOO
63 Annex 13: Documents in the Project File CHINA: Eco-Farming Project
By the Borrower: 1. Project Feasibility Study Report by FECC 2. Social Assessment 3. Environmental Impact Assessment 4. Good Environmental Practice Manual 5. Ethnic Minorities Development Plan 6. Policy Framework for Land Acquisition and Resettlement 7. Project Implementation Manual by FECC 8. Project Implementation Manual by Anhui Province 9. Project Implementation Manual by Chongqing Municipality 10. Project Implementation Manual by Guangxi Autonomous Region 11. Project Implementation Manual by Hubei Province (Enshi Prefecture) 12. Project Implementation Manual by Hunan Province 13. Procurement Plans for Anhui, Chongqing, Guangxi, Hubei (Enshi), and Hunan 14. Terms of Reference and Methodology Note for Monitoring and Evaluation 15. China Eco-Farming Project Evaluation Design Framework
By the Bank 1. Project Concept Note 2. PCN Review Meeting Minutes 3. Mission Aide Memoires 4. Financial Management System Assessment 5. Procurement Capacity Assessment 6. Detailed Cost Tables 7. Cost&Benefit Analysis Excel Files 8. Cost&Benefit Analysis, revised in September 2008 9. Line of Credit Review Memo 10. Memo to the Country Director about National Program Support Component 11. Memo declaring Appraisal completed
64 Annex 14: Statement of Loans and Credits CHINA: Eco-Farming 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 P101988 2009 CN-Jiangxi Shihutang Navigation & 100.00 0.00 0.00 0.00 0.00 100.00 0.00 0.00 Hydropower PO96925 2008 CN- Bengbu Integrated Environment 100.00 0.00 0.00 0.00 0.00 99.75 0.00 0.00 Improvement PO93963 2008 CN-Guiyang Transport 100.00 0.00 0.00 0.00 0.00 99.75 10.00 0.00 PO93882 2008 CN-Shandong Flue Gas Desulfurization 50.00 0.00 0.00 0.00 0.00 50.00 3.50 0.00 PO9263 1 2008 CN-Xi'an Sustainable Urban Transport 150.00 0.00 0.00 0.00 0.00 150.00 0.00 0.00 PO91949 2008 CN-Gansu Cultural & Natural Heritage 38.40 0.00 0.00 0.00 0.00 38.40 0.96 0.00 PO87224 2008 CN-Han River Urban Environment 84.00 0.00 0.00 0.00 0.00 84.00 0.00 0.00 PO85376 2008 CN-Migrant Skills Dev. and Employment 50.00 0.00 0.00 0.00 0.00 50.00 0.00 0.00 PO84874 2008 CN- Energy Efficiency Financing 200.00 0.00 0.00 0.00 0.00 200.00 0.00 0.00 PO84437 2008 CN-Rural Health 50.00 0.00 0.00 0.00 0.00 50.00 0.00 0.00 PO99224 2008 CN-Liaoning Med. Cities (LMC) I11 191.00 0.00 0.00 0.00 0.00 191.00 7.50 0.00 PO991 12 2008 CN-Anhui Highway Rehab & 200.00 0.00 0.00 0.00 0.00 200.00 0.00 0.00 Improvement PO99062 2008 CN-ShiZheng Railway 300.00 0.00 0.00 0.00 0.00 300.00 0.00 0.00 PO77752 2007 CN-SHANDONG ENVMT 2 147.00 0.00 0.00 0.00 0.00 102.53 -29.47 0.00 PO81776 2007 CN-GUANGDONGPRDZ 96.00 0.00 0.00 0.00 0.00 96.00 11.00 0.00 PO83322 2007 CN-SICHUAN URBAN DEV 180.00 0.00 0.00 0.00 0.00 163.40 61.40 0.00 PO96285 2007 CN-MSE Finance 100.00 0.00 0.00 0.00 0.00 100.00 100.00 0.00 PO95315 2007 CN-W. Region Rural Water & Sanitation 25.00 0.00 0.00 0.00 0.00 24.94 1.oo 0.00 PO86515 2007 CNJrd National Railway 200.00 0.00 0.00 0.00 0.00 137.37 -17.70 0.00 PO88964 2007 CN-Guangxi Integrated Forestry Dev 100.00 0.00 0.00 0.00 0.00 60.10 -32.40 0.00 PO9 1020 2007 CN-Fujian Highway Sector Investment 320.00 0.00 0.00 0.00 0.00 76.46 -159.79 0.00 PO92618 2007 CN-LIAONMG MED CITIES MFRAS 2 173.00 0.00 0.00 0.00 0.00 172.57 9.00 0.00 PO75613 2007 CN-Shaanxi Ankang Road Development 300.00 0.00 0.00 0.00 300.00 250.51 3.64 0.00 PO86629 2006 CN-Heilongjiang Dairy 100.00 0.00 0.00 0.00 0.00 86.14 33.64 16.64 PO99992 2006 CN-Liaoning Medium Cities Infrastructure 218.00 0.00 0.00 0.00 0.00 160.75 -9.75 0.00 PO705 19 2006 CN-Fuzhou Nantai Island Peri-Urban Dev 100.00 0.00 0.00 0.00 0.00 98.25 33.25 0.00 PO85333 2006 CN-5th Inland Waterways 100.00 0.00 0.00 0.00 0.00 41.57 21.57 0.00 PO85124 2006 CN-Economic Reform Implementation 20.00 0.00 0.00 0.00 0.00 17.11 8.1 1 0.00 PO84742 2006 CN-IAIL 111 200.00 0.00 0.00 0.00 0.00 42.93 -28.38 0.00 PO93906 2006 CN-3rd Jiangxi Hwy 200.00 0.00 0.00 0.00 0.00 58.07 -59.43 0.00 PO81348 2006 CN-HENAN TOWNS WATER 150.00 0.00 0.00 0.00 0.00 139.63 34.63 0.00 PO96158 2006 CN-Renewable Energy I1 (CRESP 11) 86.33 0.00 0.00 0.00 0.00 70.37 41.02 0.00 PO81255 2006 CN-ChangjiangPearl River Watershed 100.00 0.00 0.00 0.00 0.00 89.96 24.96 0.00 Rehabilitation PO75732 2006 CN-SHANGHAI URBAN APL2 180.00 0.00 0.00 0.00 0.00 144.90 47.40 0.00 PO71094 2005 CN - Poor Rural Communities 100.00 0.00 0.00 0.00 0.00 56.25 43.15 0.00 Development P0 67 8 2 8 2005 CN-Renewable Energy Scale-up Program 87.00 0.00 0.00 0.00 10.00 0.93 10.17 0.00 PO69862 2005 CN - Agricultural Technology Transfer 100.00 0.00 0.00 0.00 0.00 62.99 37.49 0.00 PO68752 2005 CN-Inner Mongolia Highway & Trade 100.00 0.00 0.00 0.00 0.00 15.88 -17.87 0.00 Corridor
65 Difference between expected and actual Original Amount in US$ Millions disbursements PO57933 2005 CN-TAI BASIN URBAN ENVMT 61.00 0.00 0.00 0.00 0.00 17.94 12.09 0.00 PO81161 2005 CN-CHONGQING SMALL CITIES 180.00 0.00 0.00 0.00 0.00 111.93 38.78 0.00 PO81346 2005 CN-LIUZHOU ENVIRONMENT MGMT 100.00 0.00 0.00 0.00 0.00 40.86 -1.14 0.00 PO75730 2005 CN-HUNAN URBAN DEV 172.00 0.00 0.00 0.00 0.00 148.59 72.09 0.00 PO86505 2005 CN-NINGBO WATER & ENVMT 130.00 0.00 0.00 0.00 0.00 62.34 -6.41 0.00 PO77137 2004 CN-4th Inland Waterways 91.00 0.00 0.00 0.00 0.46 28.23 22.94 22.44 PO65463 2004 CN-Jiangxi Integrated Agric. Modern. 100.00 0.00 0.00 0.00 0.00 37.46 25.71 0.00 PO65035 2004 CN-Gansu & Xinjiang Pastoral 66.27 0.00 0.00 0.00 0.00 5.83 1.23 0.00 Development PO66955 2004 CN-ZHEJIANG URBAN ENVMT 133.00 0.00 0.00 0.00 0.00 75.67 50.74 0.00 PO81749 2004 CN-Hubei Shiman Highway 200.00 0.00 0.00 0.00 1.oo 0.76 -3.24 0.00 PO73002 2004 CN-Basic Education in Western Areas 100.00 0.00 0.00 0.00 0.00 23.80 23.80 0.00 PO69852 2004 CN-Wuhan Urban Transport 200.00 0.00 0.00 0.00 1.oo 36.32 37.32 6.10 PO75728 2004 CN-GUANGDONGPRDUR ENVMT 128.00 0.00 0.00 0.00 0.64 68.38 49.82 0.00 PO58847 2003 CN3rd Xinjiang Hwy Project 150.00 0.00 0.00 0.00 0.00 4.58 4.58 0.00 PO40599 2003 CN-TIANJIN URB DEV I1 150.00 0.00 0.00 0.00 0.00 113.58 91.30 7.3 1 PO68058 2003 CN-Yixing Pumped Storage Project 145.00 0.00 0.00 0.00 0.00 34.52 31.52 0.00 PO70191 2003 CN-SHANGHAI URB ENVMT APLl 200.00 0.00 0.00 0.00 0.00 50.84 37.49 0.00 PO76714 2003 CN-2nd Anhui Hwy 250.00 0.00 0.00 0.00 0.00 11.16 11.16 0.00 PO68049 2002 CN-Hubei Hydropower Dev in Poor Areas 105.00 0.00 0.00 0.00 0.00 7.50 7.80 0.00 PO64729 2002 CN-Sustainable Forestry Development 93.90 0.00 0.00 0.00 0.00 6.08 3.58 0.00 PO71147 2002 CN-Tuberculosis Control Project 104.00 0.00 0.00 0.00 0.00 36.51 31.49 0.00 PO51859 2001 CN-LIAO RIVER BASIN 100.00 0.00 0.00 0.00 0.00 8.48 8.48 0.00 PO56596 2001 CN-Shijiazhuang Urban Transport 100.00 0.00 0.00 0.00 0.00 22.46 22.46 0.00 PO64730 2000 CN-Yangtze Dike Strengthening 210.00 0.00 0.00 0.00 0.00 37.46 37.46 37.46 PO49436 2000 CN-CHONGQING URBAN ENVMT 200.00 0.00 0.00 0.00 29.50 20.64 50.14 3.33 PO42109 2000 CN-BEIJMG ENVIRONMENT I1 349.00 0.00 0.00 25.00 28.02 58.21 86.23 -21.58 PO51856 1999 CN-Accounting Reform & Development 27.40 5.60 0.00 0.00 0.00 5.23 5.02 5.07 PO42299 1999 CN-Tec Coop Credit IV 10.00 35.00 0.00 0.00 5.84 8.02 11.24 0.26 PO03507 1996 Ertan I1Hydroelectric Project 400.00 0.00 0.00 0.00 0.15 33.33 5.78 0.00 Total 9,351.30 40.60 0.00 25.00 376.61 4,999.22 958.06 77.03
66 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 I1 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 2005 HiSofl 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
67 Committed Disbursed 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.oo 0.00 0.00 5.00 1.oo 0.00 0.00 2005 Minsheng 15.75 0.00 0.00 0.00 7.00 0.00 0.00 0.00 2006 Minsheng & E3 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.oo 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.oo 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
68 ~~ 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
69 Annex 15: Country at a Glance
CHINA: Eco-Farming- Project East Lower- POVERTY and SOCIAL Asla 6 mlddle- Ievelopment diamond' China Paclflc Income 2007 Population, mid-year (miillons) 1,320.0 19% 3,437 Life expectancy GNI percapita (Atlas method, US$) 2,360 2.80 1887 GNi (Atlas method, US$ billions) 3,PO.g 4,74 6,485
Average annual growth, 2001-07 Population (s$l 0.6 0.8 11 GNi Gross Laborforce (966 0.9 12 15 per primary Mort recent estlmate (latest year avallable, 2001-07) capita enrollment Poverty (% 0 f population below natio nal po verty line) Urban population (%of totalpopulatlon) 42 43 42 Life expectancy at birth (pars) 72 71 69 I Infant mortality(per lOOOiive births) 20 24 41 Child malnutrition (%ofchildren under5) 7 0 25 Access to improvedwatersource Access to an improved water source (%ofpopulation) 88 67 88 Literacy (%of population age #+J 91 89 Gross primary enrollment (%of school-age population) 111 10 in -China M aie m 1P m ~ LOVW-middle-income group Female ni 09 09
KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1987 I997 2008 2007 Economic ratios' GDP (US$ billions) 268.2 952.7 2,657.9 3,280.1 Gross capital formation/GDP 37.3 37.9 44.4 Trade Exports of goods and servicesiGDP 6.4 216 39.9 Gross domestic savings/GDP 37.3 42.4 52.3 Gross national savings/GDP 37.3 416 53.6 Current account balancelGDP 0.0 3.9 9.4 115 Domestic , , Capital Interest payments/GDP 0.4 0.6 0.1 /by savings formation Total debt/GDP 0.2 15.4 P.1 , ,I Total deb1 serviceiexports 8.5 8.5 2.4 Present value of debt/GDP 119 1 Present value of debt/exqorts 27.7 Indebtedness 1987-97 1997-07 2006 2007 2007-11 (average annualgmvdh) GDP 0.3 9.5 n6 ns 0.4 -China GDP percapita 8.9 8.7 no 9.7 n2 ~ Lo wr-mlddle-inco m e gm up Exports of goods and services 0.8 22.7 23.3 22.8 15.8
STRUCTURE of the ECONOMY
1987 I997 2006 2007 Growth of capital and GDP (%) (%of GDP) Agriculture 26.8 8.1 n7 20 T Industry 43.9 47.5 48.1 Manufacturing 34.7 33.2 Services 29.3 34.4 40.2
Household final consumption expenditure 487 434 33.5 02 03 04 05 06 07 General gov't final consumption expenditure 140 142 w.2 -GCF -GDP Imports of goods and services 64 73 32.1
1987-97 1997-07 2006 2007 Growth of exports and Imports (%) (average annual gm Mh)
Agriculture 4.4 3.7 5.0 4.0 4o T Industry 0.9 0.5 P.5 0.4 30 Manufacturing a.1 0.3 Services 9.4 0.2 P.4 P.2 I::!/-==%+ I Household final consumption expenditure 9.8 3.8 -2.5 0, General gov't final consumption expenditure 0.6 9.5 m.9 02 03 04 05 @$ 07 Gross capital formation 0.2 115 0.2 14.3 -Exports -Inports imports of goods and services n.0 8.1 14.3 8.2 I
Note 2007 data are preliminaryestimates This tablewas producedfrom theDevelopment Economics LDB database 'Thediamonds show four key indicators in the country(in bold) compared with its income-group average If data are missing thediamondwii be incomplete
70 China
PRICES and GOVERNMENT FINANCE 1987 1997 2006 2007 ("/.) Domestic Drices (%change) Consumer prices 73 28 Implicit GDP deflator 51 15 33 52 Government finance (%of GDP,includes current grants) Current revenue 00 110 183 84 Current budget balance -67 -01 30 30 x xx GDPdeflator -6-CPI Overall surplus/deficit -22 1 -17 -07 -09
TRADE 1987 1997 2006 2007 (US$ millions) Totaleports (fob) 39437 182792 969073 Food 4781 11075 25722 M ineral fuels lubncants and related matenal! 4 544 6 987 I7 776 Manufactures 26206 158839 96147 Total imports (cif) 43,2% 142370 791614 Food 2443 4304 9997 Fuel and energy 539 13306 89002 Capital goods 14607 52774 357,137
Eport pnce index (20OO=X)O) 68 18 n7 Import pnce index/ZOOO=X)O) 84 133 t24 Terms of trade (2000=r)O) 81 1% 87
1997 Current account balance to GDP (X) (US$ millions) Evorts of goods andservices 43 868 207,239 1081681 15 Imports of goods andservices 43,950 6446 852,769 Resource balance -82 42823 208912 10 Net income -2% -11004 11755 Net current transfers 224 5,U3 29,200 5 Current account balance -73 36962 249867 3778P Financing items (net) 1733 -1,135 -2842 -20000
Changes in net reserves -1660 -35 857 -247,025 -357 8t2 01 02 03 04 05 06 07 Memo:
IDA 1,330 7,830 9,997 13.151 D 6 326 Total debt service 3,852 18,445 27,877 27612 IBRD 208 858 1,443 1561 IDA 12 81 316 349 Composition of net resource flows G Official grants 213 266 363 v3 377 Official creditors 626 4,315 901 F 94 18 Pnvate creditors 5,462 8,134 7,500 Foreign direct investment (net inflows) 2,314 44,237 78,095 Portfolio equity(net inflows) 0 5,657 42.861 Wodd Bank program Commitments E- Bilateral Disbursements Principal repayments Net flows 605 1898 25 24 Interest payments t24 562 6% 727 Net transfers 482 1,335 -590 -703
Note:This tablewas producedfrom the Development Economics LDB database. 9/24/08
71 RUSSIAN CHINA FEDERATION ECO-FARMING PROJECT KAZAKHSTAN HEILONGJIANG
Sea ANHUI PROVINCE COUNTY OR DISTRICT CAPITALS MONGOLIA JILIN of PREFECTURE CAPITALS KYRGYZ REP. LIAONING D.P.R. OF Japan PROJECT COUNTIES/DISTRICTS PROVINCE CAPITAL XINJIANG KOREA BEIJING EXPRESSWAYS NEI MONGOLBEIJING RIVERS TIANJIN JAPAN HEBEI REP. OF EXPRESSWAYS UNDER CONSTRUCTION COUNTY OR DISTRICT BOUNDARIES KOREA SHANDONG Yellow QINGHAI NATIONAL HIGHWAYS PREFECTURE BOUNDARIES SHANXI Sea NINGXIA JIANGSU RAILROADS PROVINCE BOUNDARIES GANSU SHAANXI HENAN ANHUI SHANGHAI East XIZANG G HUBEI SICHUAN ZHEJIANG China
Sea CHONGQIN HUNAN ° ° ° IANGXI 115 116 117 J FUJIAN GUIZHOU ° 35° Weishan 35 National Capital TAIWAN YUNNAN Lake GUANGXI GUANGDONG Province Boundaries Philippine HONG KONG MACAO Sea International Boundaries VIETNAM SHANDONG Bay of LAO P.D.R. HAINAN Bengal PHILIPPINES
118° 119°
Dangshan
DANGSHANDANGSHAN
0255075 XIAXIAO Xiao KILOMETERS
HUABEIHUABEI ° 34° SHISHI 34 HuaibeiHuaibei
BozhouBozhou Suixi SUZHOUSUZHOU JIANGSU SHISHI BOZHOUBOZHOU SHISHI SUIXISUIXI LINGBILINGBI SuzhouSuzhou WOYANGWOYANG SISI HENAN Lingbi Woyang Si
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C h Dongzhi ° ° a YIYI 30 30 n g SHESHE J QIMENQIMEN ia HUANGSHANHUANGSHAN n Yi g Longgun SHISHI Lake Qimen She
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0 25 50 75 100 LANLANSHANSHAN To To Guangzhou JIAN YIZHYIZHAANGNG JIANJIANGYONGGYONG Guangzhou KILOMETERS Jianghua
This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank JIANGHUJIANGHUA Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries. IBRD 35331
APRIL 2007 GUANGDONG
110° 112° 114°